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Welcome to the USAGOLD Gold Discussion Archives. The archives of this gold discussion forum are a treasure trove of information to educate investors about protecting their wealth through portfolio diversification with private gold ownership. The discussion forum also covers the wider issues of the past, present, and future role of gold in international monetary policy and the dynamics of the modern gold markets...

The opinions posted by all guests are expressly their own and do not necessarily represent the views of the management or staff of USAGOLD - Centennial Precious Metals. The hosting of the public discussion shall therefore not be construed as an endorsement by USAGOLD - Centennial Precious Metals of any of the opinions posted here.

ARCHIVED DISCUSSION FROM 12/16/1999
All times are U.S. Mountain Time

View Yesterday's Discussion.

Number Six (12/16/99; 23:41:26MDT - Msg ID:21185)
@ Air Kiwi
Correct me if I'm wrong but ANZ have never had a crash... one of the safest in the world...

I have heard rumours (which I believe to be accurate) of BA pilots contemplating striking if necessary rather than fly over rollover. They will not be put to the test because nearly all airlines have wimped out (ok, they call it lack of demand) about flying over the CDC - and they will be watching like hawks to see how the "test pilots" and crew do... to be more accurate Lloyds are refusing to insure the behemoths over the CDC...

In addition I find this extremely strange because several months ago John Koskinen made headlines when he announced that he would be flying on New years' Evil... guess what, now it appears that he won't be because of passenger demand and seat availability... :o) Yup.

Why risk it?

SHIFTY (12/16/99; 23:36:12MDT - Msg ID:21184)
RJ
I think RJ was rude, not only to Bill Murphy but all who were glad to have the opportunity to ask questions.
At least we know RJ stands for "Real Jerk"!!!

Chris Powell (12/16/99; 23:14:30MDT - Msg ID:21183)
Gold bugs' dream is Barrick's nightmare
http://www.egroups.com/group/gata/320.html?
Reg Howe explains better than anyone
else the risks of Barrick Gold's
hedging strategy.

Netking (12/16/99; 23:05:55MDT - Msg ID:21182)
Number Six - Y2K
Number Six - Msg ID:21169
Looks like all eyes will be on Air New Zealand as first to fly in the new Millennium. I predict no problems in this area.

Number Six (12/16/99; 22:51:38MDT - Msg ID:21181)
List
I'll go with Ghandi too...

BTW did Clinton make it up their with Hitler?

Farfel (12/16/99; 22:50:43MDT - Msg ID:21180)
Interesting Posts from Murphy on the Other Gold Forum...
You know, I may not agree entirely with his methodology but I still commend Murphy for having true balls of steel. It takes a real gutsy dude to step into the hellfire coming from a most anti-gold Wall Street establishment.

It's a shame that RJ had to step in and toss abuse at him. Of course, RJ is a divine being who has a perfect record of gold prognostication (in his own mind). I still remember his insistence that gold would NEVER EVER fall below 280. LOL.

Anyway, it was an interesting night while it lasted.


Thanks

F*



Peter Asher (12/16/99; 22:23:34MDT - Msg ID:21179)
A little of subject

But relevant to our constant amazement at the depravity in our current society. It is an insult to the memory of the others and to all of mankind to put Hitler in that list. Probably done by a staffer who is one of those Gen-x brats talked about in last night's posts. Another statistic of the "Values Neutral" game that is being interjected into the schooling of our young.

>>> TIME magazine on Thursday announced that its choice for 'Person of the
Century' has now narrowed to just five: Franklin D. Roosevelt, Martin Luther
King Jr., Albert Einstein, Adolf Hitler and Mohandas Gandhi. <<<<

I vote for ghandi.

Chris Powell (12/16/99; 22:04:45MDT - Msg ID:21178)
Lots of news at GATA tonight
http://www.egroups.com/group/gata
Lots of news at GATA tonight.

Anthony Hilton of the London Evening Standard
shows that questions about gold are only
deepening in Britain:

http://www.egroups.com/group/gata/319.html?


Agnico-Eagle Mines is careful to hedge by
buying puts, not by selling forward:

http://www.egroups.com/group/gata/318.html?


GATA admits that it "gets emotional about
stock":

http://www.egroups.com/group/gata/317.html?


The government says gold bear Martin
Armstrong was actually hoarding gold:

http://www.egroups.com/group/gata/316.html?

ORO (12/16/99; 20:47:52MDT - Msg ID:21177)
Number 6 - Safra
Was obviously held responsible.

By the way, Republic is some 8% of the gold bullion business. Considering the timing of so many deaths (in addition to a war, a declaration of independence, a military coup...) in that part of global officialdom dealing with the gold markets in the wake of the gold price spike, I think we can point out who lost in this first round of the game of (golden) chicken.


ORO (12/16/99; 20:37:32MDT - Msg ID:21176)
TownCrier - Commodities
http://www.imf.org/external/pubs/ft/weo/1999/02/data/ppp_a.csv
As you say so much more efficiently then I; Any commodity with a futures market in New York or in London, or that is internationally traded in volume will be priced in dollars through arbitrage with the dollar markets.

Debt is not as straight forward as it seems. Each country, particularly those who are dollar creditors, can contribute to interest rates. Short term rates are controlled by the local central banks and can be used to support the dollar and the exporting businesses by lowering the interest rate to well below dollar interest rates. Of course, it may cause price inflation in the country if demographics are right for a high demand surge, particularly if there is a strong retail credit market. If the demographics are right for savings, it will cause a pooring of the local banks and force them to lend abroad to obtain high rates of return, otherwise, they would not be able to offer sufficient interest rates to their account holders to prevent them from moving to mattress savings. The latter action is characteristic of Japan and Europe and is responsible for holding long term US interest rates as low as they have been. Add to that the Fed's ready hand in supplying liquidity to make all deals possible, and you don't have anything to stop New Parabubble from forming in the benign interest rate environment of the US.

If short term interest rates are set high in order to prevent price inflation and to import liquidity when the banking system is straining, the currency appreciates and the country becomes indebted. Our own experience shows that to be the case here.

Erodollar interest rates are nearly always higher than US rates for the same maturities. The key there is that only the US can monetize dollar debt. All other borrowers can only borrow more in order to pay off loans. The spread between US and foreign dollar borrowing will tend to be from 0.3% (e.g. Australia) for the best sovereign debtors to a 2-2.5% spread for good debtors with ample $ reserves, and 5% for higher risk debtor countries with weak reserves or other problems.

For commodities, the result is that the products of each country are discounted in the LOCAL futures markets according to the dollar interest rate there. The higher the local rate on the dollar, the more attractive is shorting of the locally produced commodity in that country.

In this way, climbing out of debt is near impossible, as one developing market borrows to build new production, the resulting export product is shorted by the buyers who signed supply contracts, at times even before new production comes on line, and by manufacturers eager to start returning dollar debt while the inevitable startup delays prevent their selling actual product.

The Interest rate spread on the domestic and foreign dollar debt is a major subsidy for US interest rates. In countries with high poppulation density, most food and products have a direct or indirect imported component. Korea imports 74% of its food and resources, and funds it through exports, which are up to 80% of GDP (For those who don't know, GDP is calculated as Final Sales less Imports add Exports). They pay 2% to 4% spreads over US rates on $ debt, which they need to obtain the commodities they need. The US commercial buyer funds purchases with the base rate and the spread, that must be covered through export is supplied by lowering product prices sufficiently to increase dollar volume by the spread rate relative to any US competitor (add shipping costs, insurance- also a dollar expense- and you have the picture for how much lower costs are outside the US).
Most products do not increase sales in linear proportion to price, thus a 5% lower price may increase sales by only 2%. This is particularly the case for agricultural products. When one asks why would anyone dump product below the cost of production, this is the only thing one needs know.

The dollar trap has no escape. The country that allows itself to become a dollar debtor will pay the dollar spread on the prices realized for its production. The dollar creditor nation will need to raise its local prices for imports by a sufficient margin over the price of the same product in the US to avoid excess importation and the resulting debt trap. Thus the choices stand for the poppulation between consuming (and even producing) and going into debt - and paying the spread, or suffering the increased prices that prevent imports from dollar indebted nations seeking to make up the interest rate spread by increasing dollar volume.
The results may be seen in the Purchasing Power Parity (PPP) statistics. The dollar debtors sell their wares at prices 40 to 60% below those in the US, while the dollar creditors tax their imports to the point that they are 15% to 25% above US prices. Obviously, being a dollar creditor has a lower price, but requires a period of sacrifice to reach a critical mass and forces the country to build its industries according to US consumer purchasing patterns, thus locking in some dependence on the US. The Japanese have done so to a completely absurd extent.

The URL above is a CSV tab delimited spreadsheet of the data on PPP effects on the global economy. The main point here is that the dollar introduces a 30% distortion in the world pricing mechanism, and puts dollar global GDP at a 30% discount to its value. Thus the US is not 28% of global GDP, but 20%, and by volume production of goods and services, the US is only 12% of the world economy.

Even in high tech, where the US has enjoyed a great lead in timing technology development, being first to market, the tech companies must be subsidized through the ESOP money pump - despite the 3% or so advantage in capital costs. Is it not obvious where ranking 27th (just behind Malaysia) in science and math in high school brought us?



TownCrier (12/16/99; 20:06:31MDT - Msg ID:21175)
The GOLDEN VIEW from The Tower
"I think they're going to err on the side of oversupply and keep adding." Those were the words of Kim Rupert, and economist at Standard & Poor's MMS in regard to expections of the Fed and their reserve adding activity. Increasingly, economists are failing in there efforts to predict the nature of the reserve-adding operations. Reuters quoted Carol Stone, senior economist at Nomura Securities International, saying. "They could do an overnight, they could do a term, they could pre-announce some other operation too ... anything is possible. But I do think that they will do something." That was in anticipation of this morning's action on this first day of the new two-week reserve maintenance period. Drumroll please....The Fed added $7.010 billion through a 14-day repurchase agreement.
+
While on the topic of paper, Treasury bonds suffered losses for the fourth straight session. The market conditions were described as thin, and the losses today took the long bond's price down to levels not seen in over two years. The 30-year bond closed with a yield of 6.384%.

GOLD

Russia came out today flaunting its national wealth...in a sense. Viktor Tarakanovsky, Chairman of the Russian Union of Gold Prospectors, said that this year Russia's primary gold production would be up to 112 tonnes from the 105.2 levels seen in 1998, while gold as the pleasant byproduct of other mining would reach 12 tonnes, up from last year's 10 tonnes.

Spot gold closed at $281.30 in NY, down $1.10 after repeating yesterday's run-up at the end of the London session, and in doing so regaining most of the overnight selldown in overseas markets. On the derivatives markets, COMEX gold futures lost 80¢ to close at $283.80 in a quiet session. Only 82 December contracts remained in open interest after yesterday's trading. One of these contract was tapped for delivery, bringing the total for December delivery to 8,141 contracts (814,100 ounces) by the end of the month. The COMEX gold depository saw 35,887 ounces withdrawn from the Registered stocks kept at Republic National, leaving 1,195,994 Registered ounces and 62,219 Eligible ounces under COMEX guardianship.

Egypt today backed down from their golden plan to ring in the New Year with a gala millennium celebration that included setting a gold-encased capstone on the Great Pyramid (the one built for King Cheops about 4,500 years ago .) The Government gave no reason for cancelling the plan to lower a 30-foot high golden cap by helicopter at midnight, thus repairing for one day the pyramid which currently has a missing crown. What a shame. That would have made for a great photo opportunity...one for the ages. They must have balked at the security risk...

OIL

January Brent crude futures reached a 9-year high of $25.95 in trading on the IPE, sending NYMEX prices higher, too. The markets shrugged off the news that Iraq was once again shipping oil under the new phase of the UN's oil-for-food deal. NYMEX January crude climbed 47¢ to $26.83 per barrel after briefly sinking to $26.15, though there was no apparent news to prompt the rally...the best kind!

Please see earlier posts for the day's biggest news stories...the widening US trade deficit and the amazing Martin Armstrong story.

And that's the view from here...after the close.

Number Six (12/16/99; 19:52:08MDT - Msg ID:21174)
@TC
My God TC, we have the unrequited Tina Mustache cast aside in favour of hidden stashes of gold slavishly worshipped in the hallway (hey, what's wrong with that? :o) ), a bust, a helmet and the Yakuza!!!

The mind boggles! Where does Safra fit I wonder?

TownCrier (12/16/99; 18:44:07MDT - Msg ID:21173)
Read this now! Martin Armstrong is allegedly a "closet goldbug"
http://biz.yahoo.com/apf/991216/indicted_m_1.html
Prosecutors claim he is hording gold, and after freezing his assets they have asked the court to hold him in contempt for refusing to turn over 102 bars of gold, a $750,000 bust of Julius Caesar, and hundreds of rare coins. A sworn statement by Tina Mustra, Armstrong's executive assistant (and live-in girlfriend) was "I observed Mr. Armstrong sit for hours in the hallway outside his bedroom studying the coins."

For those still coming up to speed, Armstrong and his companies (Princeton Economics and Cresvale International Ltd. in Tokyo) owes nearly $1 billion to Japanese corporate investors. He failed to invest the money safely as it was understood that he would, taking instead risky positions in currencies and derivatives.

And according to court records, even as his investment losses were mounting in excess of $100 million, Armstrong continued to add to his personal hoard, spending $411,461 on rare coins.

One of the attorneys in the case said, "It is rather startling that when the barn is burning down, Armstrong is out buying coins and antiquities using corporate money." Armstrong frequently talked as an unashamed bear on the future of gold. We wonder how many others out there on the gold-bashing front are aggressively buying gold behind the scenes also.

They're getting theirs. Are you getting yours?

SteveH (12/16/99; 18:37:24MDT - Msg ID:21172)
Oro
You amaze. Well done.



TownCrier (12/16/99; 17:58:57MDT - Msg ID:21171)
Sir Cavan Man's GOOD question...
"Besides oil and gold, what other commodities are priced globally in dollars?"

I'm sure Sir ORO holds the key to a more proper and informed response, but we'll offer this to get you started thinking down a helpful track.

"What other commodities?" Well, most important (or should we say EQUALLY important to gold and oil) is the pricing of one commodity we call "credit." Yes, by that we mean the LOANS offered to various nations as generally administered by the IMF or the World Bank. By denominating these loans in U.S. dollars, they have effectively placed EVERYTHING that these countries have to offer on a dollar-pricing system. All of the counties' excess productivity that is suitable for exporting is ultimately chasing around for their share of the supply of U.S. dollars...dollars needed to repay their loans.

Consider this to be a necessary amendment to our earlier post on the trade deficit (12/16/99; 11:50:26MDT) regarding the redeemability of the dollars that the U.S. sends abroad to make up for its own trade imbalances. If you are a rich country that is running a trade surplus with the US, and therefore have no meaningful avenue on U.S. shores with which to redeem these EXTRA dollars for goods, you could always go shopping among any of a host of emerging markets that are busting their humps for these same dollars in order to repay past dollar-denominated debts. It is precisely this situation that keeps the dollar at this point in time seemingly "as good as gold."

Not only this phenomenon explained above, but also arbitrage in the very liquid currency and commodity markets can effectively result in dollar pricing of any commonly traded standard commodity on any financial market. Grain is pretty much grain wherever you are, and if one nation's commodity exchange offers contracts denominated in a currency that would allow for arbitrage opportunities against American contracts, you can be sure that somebody will be standing ready to capitalize on it. Any pricing of rice in yen would quickly finds a meaningful expression in dollars, too. So while the original may not be a direct contract for dollars, it may be joined at the hip with other financial devices that do ultimately tie the commodity to the key currency.

The latest initiative to offer relief to heavily indebted poor countries, and the efforts of the newly-formed Group of 20 should be seen as positive steps toward ending the stranglehold that the dollar holds over much of the indebted world. (Not mentioned in this post is the important factor already covered very well in the archives (in posts I specifically remember reading) by Sirs Aragorn III and ORO regarding the suppression of these producing nations' commodities prices through the wide use of futures contracts. The resulting price reduction ensured that even the best producers couldn't ever quite export their way out of debt.) The simple international exit-strategy is one in which the dollar loses value as international trade switches to euro-settlement...and gold will be your personal liferaft (make that your personal rocketship out of harms way) on the resulting stormy seas of the unprecedented abandonment of a fiat currency used extensively as a reserve asset.

RossL (12/16/99; 17:57:14MDT - Msg ID:21170)
ORO - ESOPs and NASDAQ

Thanks for the great post. Stock technology companies writing naked puts... an accident waiting to happen. The end will come swiftly once the move down hits critical mass.

James Stack made the claim recently that QQQ on the AMEX is not subject to the "short sale-uptick" rule, meaning that it can be shorted continuously provided there are any buyers at all.
Look out below! The leverage in these stocks will accelerate the down move.


Number Six (12/16/99; 17:03:50MDT - Msg ID:21169)
Latest "Reality Check"
Gary North's REALITY CHECK
Issue No. 44
December 16, 1999



TWO WEEKS TO GO

Planes will not fall from the sky. That's because
they will be on the ground. Nobody wants to fly. Airline
after airline has cancelled its December 31/January 1
flights. Not enough demand. The best and the brightest
say that y2k will be a non-event, but they are not booking
flights. There is a lingering doubt about y2k. Nobody
wants to talk about it.

According to a recent report, 25% of mutual fund money
assets are now in cash. A friend of mine found this
statistic cited on the December 14 Market Update &
Commentary of the PIT BULL investment service (Henry
Ford's). Ford thinks that Y2K will be a non-event. If
brokers' phone lines are still open on January 3, he says,
expect a wild boom, as this cash comes back into the stock
market.

Is this really possible? A boom beginning on January
3? Well, if Y2K fears are really the main motivation
behind a few percentage points of the supposed 25% of
mutual fund assets that are in cash, it's possible.
Investors could decide that the worst is over; therefore,
everything bad is over; therefore, "Buy!" But is Ford's
assessment accurate?

Tony Sagami, one of the nation's leading experts in
mutual funds, says that the cash component of stock mutual
funds is at an all-time low. Stock fund managers are
betting the farm on the bull. He thinks it's a risky bet
at this stage of the boom. So do I.

So, where is the 25% being held? By whom? The latest
data that I can find are for October. Money market funds
had $1.3 trillion in assets. Total mutual fund assets were
$6.2 trillion. The cash component was 21.7%. A year
earlier, the respective figures were $1.2 trillion and $5.5
trillion, or 21.8% -- essentially the same. See:

http://www.ici.org/facts_figures/trends_1099.html

This indicates that the public has decided to hold
about 22% of its mutual fund assets in cash. This
percentage may be a little higher, given the fact that some
assets in the other types of funds are near-cash assets.

The question is: Will good news -- no meltdown -- by
January 3 produce a mad dash to convert cash to stocks?
Have investors been so fearful of Y2K since late 1998 that
they will unload T-bills and buy stocks on January 3?

In March, the nation's mild Y2K fever broke. Since
then, there has been little public concern about Y2K. Yet
the change in opinion by, perhaps, 2% of the population on
the margin has not led to a measurable shift into stock
mutual funds.

What I find difficult to believe is that there are
tens of billions of dollars invested in short-term money-
market funds that will be shifted into stocks in the first
week of January because of reduced Y2K fears. To believe
this is to believe that significant assets were moved out
of stock mutual funds into money-market funds as a hedge
against Y2K. I see no evidence of such shift, late 1998 to
late 1999.

Are U.S. investors really worried about a major break
in the U.S. economy as a result of Y2K? Where is the
evidence? What I see is apathy on a massive scale.

If you are using the Ursa fund in the Rydex family of
funds to short the market, you know you're positioned for
trouble in January -- worse than expected. If we get only
minor disruptions in the first week, we could get a market
surge, but I do not see how this by itself would produce a
sustained rally.

For maximum safety in digital fund investing, you
should be in a money market fund on December 31. Shorting
this market is for those who think that Y2K will be worse
than expected -- my view. But in the first two weeks of
2000, if there is no major disruption, then marginal money
could go into stocks.

Let's see how the final week in December goes. I
think Y2K fears will push the stock market down. If these
fears are intense, the rebound in January, if any, will not
be spectacular. But if the stock market is moving up on
December 29, you may want to move from Ursa to a money
market fund for a few weeks.


HOW BAD, HOW SOON?

Fact: the fundamental problems of Y2K must be solved.
They have not been solved so far. There has been no
testing. Fix-on-failure has become the watchword.

If the embedded chips collapse the system over the
weekend, then electronic money will be at risk. You may be
on the right side of the stock market transaction (short),
but the institutions on the other side may not be able to
meet the margin calls. You lose.

If things get by over the weekend, you could be on the
wrong side, at least for a while. But I think the boom, if
any, will not last long. The noise produced by Y2K will
overwhelm systems.

My view is simple: my money should be in things, not
digits. I am not in stocks for all of the conventional
reasons, such as incredibly low earnings. This market is
old, and it's into the irrational stage. People buy
because they think they will make double-digit returns
indefinitely. When everyone is an optimist, I remain on
the sidelines. When a book predicting a Dow 30,000 finds
buyers, I am a seller.

Y2K in such matters as oil imports, railroads (coal
shipments), and international flights will still threaten
the supply of goods even if phones are basically compliant
and electricity stays up on January 1. The banks may not
be into cross defaults in the first week of January.

Remember, it takes time to spread bad data. It takes
time for bad data to be recognized as such by users, and
then isolated to see where it's coming from. Good news on
January 3 will mean only that the information-degradation
effects have not had time to corrupt all systems.

We have to make decisions now. We face blind public
optimism on all sides. We are swimming against the tide.
The best and the brightest think we are wrong. But they
are also proponents of investing in stocks at the end of a
long boom, when the dividend return in stock mutual funds
is under 2%.

The Federal Reserve System is pouring in money -- the
highest rate on record. It is doing this to get the banks
over the Y2K hump. Everyone accepts this. Investors
believe that electronic money can solve problems created by
broken code. They look at the increase in money and
conclude: "This is only for a few months." But the
dislocating effects of monetary inflation are real,
whatever the reasons justifying it.

When it stops -- and Greenspan will stop it if Y2K
does not immediately cause problems -- then the slowdown
will create negative ripple effects. The boom-bust cycle
cannot be avoided forever. (Ludwig von Mises, HUMAN
ACTION, chap. 20).


THE CONSTANT STREAM OF UNVERIFIED GOOD NEWS

As far as any self-published document goes, almost
every organization on earth is Y2K-ready. This is true of
every government, too.

Most organizations are saying nothing -- a wise
policy, I suppose. But those that say anything are
optimistic.

As far as I can see, every government that has been
singled out by the U.S. State Department as being behind
has protested. All national governments are ready. It
does not matter when they got started. They are all ready.

How? How did they do it? Where did they get the
personnel?

What we are facing as decision-makers is a barrage of
official reports that inform us that there is no Y2K
problem in their domain. The problem is with The Other Guy
Over There.

Within any industry, there is some trade association
that speaks for most members. From these, we learn that
only small organizations are facing Y2K problems. The big
boys are on track.

As for testing, we hear almost nothing. A few tests
suffice to provide a clean bill of health. There is
nothing on parallel testing of systems over several months.

As for data exchanges, we hear almost nothing.
Extensive tests are nowhere visible. In the financial
services industry, which is supposedly the most advanced in
its preparations, there were a few minimal tests among a
handful of the largest organizations a year ago. These are
all that underlie the "no problem" announcement.

As for embedded chips, we hear only a few voices
calling for extensive testing. We are told that this used
to be a problem, but the problem was exaggerated. The 50
billion chips are mostly all right, except for one percent
(500 million) or two-tenths of one percent (100 million).
Those failures will be minor. They will be fixed on
failure. They can be re-set manually. As for the effects
of 100 million failures, this is not worth discussing. As
for how long it will take for certified technicians to fix
100 million failures, we are not told. No one asks. How
many technicians are available to fix them? We are not
told. I have seen no estimate.

And so it goes. The world is about to hit a digital
wall, yet we are told that everything is at least 98%
compliant. U.S. banks are 99.7% ready, the FDIC tells us.
Japanese banks are 100% compliant, up from none last
February, the Japanese government says. Impossible? Of
course. But no one in authority says this in public.

It takes an act of will, extended over weeks and
months in the face of government propaganda, to withstand
this stream of propaganda. It is difficult for anyone to
resist this barrage of propaganda. Almost no one does.
What keeps me from becoming caught up in the optimism is
this: I go on line every morning to post documents. Most
of these documents do not verify the public's lack of
concern. They may speak of 72 hours of problems, but I can
still buy batteries at Wal-Mart. The public is not
preparing for 72 hours of trouble.

Most people have made up their minds on Y2K. Most
people believe it's nothing. Most of the others have never
heard about it. So, we really are in the minority.

As I have said before, it's not the odds; it's the
stakes. If you bet wrong, you literally could die. Even
if you bet right, it's risky. If electrical power fails,
either because of bad code or no fuel, then society falls.
I have never said that the power must fail. Rick Cowles,
whose judgment I trust, thinks the grid will survive. But
he says it will be erratic. Blackouts and brownouts will
be common.

My view is simple: I want verified evidence that
systems are compliant and tested. But I can't get this.
Neither can you. So, I must go on faith based on imperfect
evidence. This leads me back to the extreme caution
position. Why? Because the division of labor is digital,
and the digits, as of today, are error-filled. The code is
still broken.

How can people think that broken code will work as
well as compliant code? How can they call this an
information economy, and at the same time deny that
incorrect information, worldwide, will create major
disruptions? How can they cry out, "We can run it
manually," when nothing has been run manually for a
generation, and those technicians who ran things manually
are long retired?

These are simple issues. They should raise a red
flag. They do not raise even a yellow flag.


RED CROSS SHELTERS

I spoke with a Red Cross official two weeks ago. He
told me that if we get a no-water, no-electricity crisis
for ten consecutive days, the Red Cross will simply
collapse. The ratio of volunteers to staffers is over 40-
to-one. The volunteers will go home to protect their
families.

The typical Red Cross shelter is a high school
gymnasium. It can hold fewer than 1,000 people. It must
have electricity, flush toilets, and running water. How
many high school gyms are there in your city? How many
have signed an agreement with the Red Cross to house
refugees? You don't know. I asked. It is probably fewer
than half a dozen in a city of a million people.

People will have to stay in their homes. There will
be no place to house them. The great threat is water. If
they cannot flush their toilets, their lifestyle changes in
a matter of hours. If the fire department cannot hook
hoses up to functioning fire hydrants, fires will spread
uncontrollably. A modern city without functioning fire
hydrants is a tinder box.

Take away water for a week, and urban middle-class
man's world ends. The public grasps none of this. People
cannot conceive of a social threat to their supply of
comfort, let alone their safety.

On December 10, we were warned in a press release
jointly issued by the Natural Resources Defense Council and
the Center for Y2K and Society that over half of U.S.
cities have water systems that are not compliant. Worse,
85% of sewer systems have yet to be remediated. Within
hours, a press release from the American Water Works
Association assured us that all of our large cities are
compliant.

You must decide who is telling the truth. It's very
hard to protect yourself with 15 days to go. You can buy
bleach. You can buy a 55-gallon drum to run a roof drain
spout into. But will you? It looks goofy. Your neighbors
may ask why.

If it was mandatory for every water utility to get
compliant, then why is any urban resident confident that
his city's utility has completed remediation and testing?
Has he verified this? Millions have not. They trust the
system. They are not interested in evidence. They are
interested in avoiding change. The press release from the
AWWA comforts them. Besides, most of them have never heard
of the AWWA, nor do they think there is a problem.

If there were a fire that spread uncontrollably in a
major city, where would the homeless be sent? It's winter.
They cannot sit around on park benches. What would the
authorities do with them? College dorms would be
commandeered. Then hotels/motels. But what if there is no
water, which is the reason why the fires spread?

We do not think of these problems because they cannot
be solved within our comfort zones. People assume them
away. But how valid is the evidence by which they are
assumed away?


"AM I DOING THE RIGHT THING?"

You have no doubt asked yourself this question more
than once. Your answer is probably something like this:
"Well, I'm not willing to bet my life on propaganda. I
have to do something to protect myself." So, you have
reallocated your portfolio. You have moved from digital
assets to non-digital.

Non-digital assets can be sold back (gold, silver), or
spent (currency), or consumed directly (food storage), or
used (tools). The market for non-digital assets is less
highly developed. Transaction costs for selling are
higher. But these assets will not lose as much of their
value in an economic breakdown as digital assets will. The
risk of owning them is lower.

Maybe you bought a water purifier. So, use it. You
bought a sophisticated first aid kit. Learn how to use it.
You bought gold coins. You are now less dependent on a
financial system based on promises of outfits that you know
cannot be trusted.

You have moved from reliance on an extreme division of
labor to a moderate one -- 1965-era, perhaps. You have
lowered your electronic return, but you have increased your
diversification and your safety.

You have done this rationally, examining evidence,
possibly daily. Your critics have looked at almost no
evidence, and they have continued to believe in an economy
that produces supposedly low-risk stock market returns of
20% per annum.

The first phase of the worst-case scenario will be
visible on January 1: a collapse of the grid. Markets will
not reopen. By January 3, there will be no water in our
cities. The embedded chips and bad code will have done
their work. Anyone who says this cannot happen is kidding
himself. The evidence is not there. We do not know what
the systems that rely on chips will do. We do know what
some of the chips will do: fail.

If we get through the weekend, then the debate moves
to the domino effect: noncompliant small businesses,
noncompliant suppliers, noncompliant banks, noncompliant
everything else. Other systems will just get noisy: the
busy signal phenomenon.


Then the spread of bad data will produce its effects.
The scary one is a cascading cross default of the financial
industry: banks, mutual funds, commodity futures, and
derivatives. Remember, the world is integrated. Defaults
can take place outside of Canada and the U.S.

The best and the brightest do not believe any of this
will happen. But they are not scheduling flights on
December 31, either. They are hedging their bets.

I am hedging mine. It's just that mine are more
comprehensively hedged. I regard the financial world as a
large noncompliant airport. I do not intend to be on a
plane scheduled for one.

You are probably hedged somewhere in between. Each
person has a comfort zone, and is married to someone with a
different one. Compromises must be made.

Ask yourself: Given the evidence you have read, is the
case for Y2K optimism stronger than the case for pessimism?
You have read postings on my site and other sites. You
have read newsletters. You have read press releases and
reports based on them. One fact stands out: the code was
broken all over the world in 1997. It has not all be
fixed. Almost none of it has been systematically tested
beyond rolling a date forward.

We are flying almost blind, but not so blindly as the
general public.

The modern division of labor rests on digits. The
deadline is fixed. The code isn't.

We have two weeks.


ORO (12/16/99; 17:00:56MDT - Msg ID:21168)
SteveH -
Utilities/diversified stocks
Price/Sales PE Ratio Relative PE Proj PE Price/Book
1.0 ..... 73.5 ......23.6 ..... 12.1 ..... 1.5
Price/Cash Flow Growth Ratio Debt/Equity Current Ratio
5.9 ........ .... 0.5 ..........122.6 ........ 0.9


Internet stocks

Price/Sales PE Ratio Relative PE Proj PE Price/Book
39.7 ..... 547.2 ..... 43.4 ..... 289.2 ..... 24.6
Price/Cash Flow Growth Ratio Debt/Equity Current Ratio
140.3 .......... 0.4 ......... 71.5 ..... 4.5

Computer stocks

Price/Sales PE Ratio Relative PE Proj PE Price/Book
4.8 .......... 473.4 ..... 31.7 ... 61.1 ...... 7.4
Price/Cash Flow Growth Ratio Debt/Equity Current Ratio 41.3 .............. 0.8 ...... 860.8 ...... 2.3

Proj PE - Next Year expected earnings.


JA (12/16/99; 16:54:51MDT - Msg ID:21167)
Aristotle
As your name suggests your words always have a certain amount of wisdom to them. I would rate your HOF document generated by a challenge from Aragone as one of the best to find it's way to this round table. My post to FOA may be one of those situations where I think I already kind of know the answer, but just feel the need to ask the question to get that answer verified in my mind.

I went on a 50-mile hike with my son's scout troop last summer. We had a map and knew the direction, destination, knew how many times we would need to cross the river each day and the approximate change in elevation each day. All of this information was helpful because we could time when to fill our canteens and take brakes which made the trip easier. We knew that on days when we were traveling uphill, we couldn't plan to hike as far as on days when the terran was either level or down hill. However no one in the group had hiked this particular trail before and we managed to take a wrong turn one-day which cost a fair amount of time and energy. In reading FOA's posts there is the impression given that he has already scouted out this trail he speaks of, or possibly knows someone else who has scouted this trail. He also seems to be saying the increase in elevation in the final part of the journey is much greater than even the historical maps would suggest. And he say's all this with a fair amount of certitude. All I am asking is if he is that certain, how does he know? And if it's because he's further along the trail than I am, and he has a mind to supply this information, would he please mark the trail a little better because it doesn't seem to fit the map. And while we may be in agreement on final destination both elevation and how many opportunities there will be along the trail to fill the canteens are two very critical items to insure one is still alive and able to walk upon reaching the final destination.

You say Gold get you some. I say how much? If the price is going to $600, then I probably need to keep accumulating, if on the other hand it's going to $30,000 then I likely have sufficient for my needs. Also if Gold is going to $600 in the next month that is a very different matter to me than gold going to reach $600 over the next five years. When talking of price action we all should be asking when will the movement take place and by how much?


ORO (12/16/99; 16:45:51MDT - Msg ID:21166)
SteveH - ESOPs and the NASDAQ Index
Since the break with reality in pricing these Nasdaq stocks in 1997, there has been a new reality setting in. It is driven by stock options compensation. As I have pointed out before, extending from Bill Parish's work, the profitability of high technology companies is now only a function of their ability to maintain revenue growth. The profitability of sales is non-existent. The profits of the typical high tech company are made in three ways from ESOPs: (1) IRS tax credits - on the order of magnitude of net income, sometimes higher, sometimes lower. (2) Wage compensation and wage tax savings, on the order of 75% of wage compensation - some higher, and on the order of 75% or Revenue. (3) Selling of stock put options to investors as a substitute for stock repurchase with cash supports the stock price while often supplying heavy cash flow.

Quite frankly, the technology industry - internuts included, are stock market bucket shops. The only necessary reference to their business in the real economy (as opposed to the financial one) is to having sufficient revenue to be able to hire employees and pay them some cash compensation as they wait for the stock options to vest and for the stock price to rise. The software and technology/communications hardware industries faced the prospect of having earnings go negative if they had not obtained the accounting benefit and favorable IRS treatment of ESOPs, because of the fall in available high tech talent that they needed just to stay in business - not to speak of turning a profit. By the time the enabling administrative rulings and legislation were passed, Silicon Valley had consumed most of the world's top high tech talent - no, it is not local, but spread from Tel-Aviv to Taiwan through India, Singapore, and Ireland, as well as Britain, Sweden, and Denmark. The shortage is getting so much worse that non core R&D has long moved off-shore, and some core products and research is done in politically hazardous locales.

The revenue is obtained by the sale of services and products at a 30% to 50% discount to cost. Contrary to much of the New Paradigm thinking about R&D being an investment that should be amortized, whereas that may have been the case in "old line" industries, it is not so in high tech. The typical high tech product contains "innovation" from the previous cycle of development - typically two years in length followed by repair work for one to two years after sales begin (look back to my post on cost of quality in high tech - software in particular). Thus cost of sales continues well past the sale itself, as software patches and hardware add-ons are produced so that the revenue generating sale of an item - that did not do its specified job - is not reversed or future sales damaged. These are the 100% lemon cars produced by US auto manufacturers in the early 70s (final assembly at the dealer's and in your driveway). This would indicate that expensing current R&D is appropriate for software and not a significant distortion for hardware. For internet media companies, the R&D and Marketing expenditures, are likewaise, if the effort does not expire within two years of product creation, it would likely expire within less than one.

What is grossly evident in Amazon.com is not new. Generating revenue at a loss is the name of the game in order to gain market share, retain scarce talent, and thereby, survive. The cash flow and reported earnings come from the stock market and the tax payer, as well as the employees themselves.
If return on these operations was so high, the corporations would have borrowed in order to do their version of investment - R&D and advertising. The issue is that beyond normal business risk, the revenue generated by this investment is unprofitable, often smaller than the "investment". That would never attract a lender. However, prior experience has taught stock investors to follow the revenue trail - the Yellow Brick Road - at the end of which is the Wiz and his city of Oz, a.k.a. capital gains. In the way of encouragement of self fulfilling prophecies, the market expectations are used to directly subsidize revenue and are introduced into the bottom line when monetized by the employees and the IRS.

The typical math is 10%-40% of Market cap is outstanding in ESOPs (particualrly for upper management) with 20% being typical, and the company sells at very high trailing P/E and forward P/E as well (as infinitely forward as needed to have an investor expect a profit). Typical strike price on the ESOP options is 20% of the stock price. Eligible for excercise the next year are 25% of outstanding options.
For these typical numbers the company cash flow will see:
25% of options X 20% outstanding options X 55% of Market Cap = Earnings due to ESOP excercises = 2.75% of Market Cap

If the company sells at a P/E better than 1/0.0275 = 36, it will see a great benefit from the issue of stock options, simply because its price has risen to 5 times the strike price on the ESOP options.


If the sale of puts is included, the company has a typical at the money option premium of some 20% of price and sells enough to cover most of the excercized options - bringing the total benefit of excercize to 75% of the sum taken in by the employees excercizing the stock options. This raises the benefit to the bottom line from 2.75% of market cap to 3.75% - and brings the benefitial P/E critical value down to 27.

The total benefit to future earnings from the options is 4 times the above 2.75% of Market Cap, at 11% of market cap.

The savings to the company in wages is accrued well before excercize and stands at:
20% of market cap (20% of shares is options outstanding)
X 80% (out of the money portion)
X (100% + 28%) -> the 28% is the non-wage compensation expense saved
This totals 20% of market cap.
Even a company selling at a P/E of 5 would benefit from this.
Even if the wage benefit is only half because of the employee's expectations being lower than the market's price growth expectations, there is still a 10% of market cap benefit, annually, to the bottom line.

If there is such a machine as a perpetual profit machine, then this is it - 10% + 3.75% = 13.75% of market cap growth from stock appreciation is added to the bottom line every year, 1/3 in cash, 2/3 in wage savings.
The pivot point for the P/E is then 1/0.1375 = 7.3
Even multiplying this by the dilution, 1.20, leaves a P/E of 9 as the critical point.

For the typical Nasdaq 100 company selling at 180 times trailing earnings, and 130 times expected future earnings, this creates the fulfillment of the expectations of investors pushing up the stock price.

So LINUX is free, and companies sell the doccumentation at 30 to 70 dollars a piece with a 20 dollar rebate - does the profitability of the business matter at all if they can sell the stock at 500 times Revenue? All they need is lots of options, lots of new revenue and a firendly hypester.

The cost of producing the revenue is irrelevant if the company sells much above 10 times revenue, since the ESOP plan will provide the missing profits.

In technology, the stock market is an active participant in the company's earnings. Each dollar of price rise in the shares allows for 10 to 20 cents in wage savings and 2.5 to 4 cents in next year's earnings. The company is actually a stock technology company, not a technology stock.

Steve - By buying a share of a "tech stock" you help fulfill your expectation of higher earnings in the company.

Current P/E ratios are virtually guaranteeing a steep rise in stock price, simply because of prior price rises. This is the fundumental portion of "momentum investing".

Guess what, it also works in reverse - just imagine what happens if there is an interest rate spike because the Green one is worried about the green ones losing their value. If the rise in interest rates goes from 5.5% to 10%, there would be a tendency to discount the future earnings at a lower value. If this falls below the critical P/E value that sustains this machine, the tech stocks will tumble, as will their earnings. Reversing this tumble would be very difficult.



Number Six (12/16/99; 16:45:46MDT - Msg ID:21165)
@ lamprey and netking
I think you've both cracked it by jove!

Lamprey - FOA has said time was being given for players to square the books.. i.e. the ECB's did not want a rapid rise in the POG just yet... that will come with y2k ...

Netking - I believe y2k will burst bubble.com via oil shock which will drive the stake through it's heart - followed by gold and silver to the moon...

And no, I haven't been drinking :o)

Netking (12/16/99; 16:22:36MDT - Msg ID:21164)
US stock market decline V's rally in POG.
THOUGHT OF THE DAY(copied from Gold Mining Outlook):
The U.S. trade deficit rose to a record $25.94 billion in October 1999, as gaps with China and Japan surged to new
all-time highs. With so many more dollars leaving the U.S. than entering, the U.S. dollar would have collapsed already, were it not for heavy foreign
investment in the booming U.S. stock market. Once the stock market stops climbing, the dollars that head overseas will be sold instead of returning.
Thus, there will inevitably be a steep slide in the greenback, which will lead to a significant rally in the price of gold. That is one important reason that
there is such a close connection between a U.S. stock market decline and an eventual gold rally.


lamprey_65 (12/16/99; 16:03:44MDT - Msg ID:21163)
Washington Agreement Timing
Hmmm, was wondering about this today (why?...I have no idea!) -- What induced the European CB's to put together and announce the agreement when they did? As I watch our Federal Reserve pump out billions in liquidity for fear of a Y2K melt-down, a thought occurred to me...the carry trade has been pushing the POG lower since as early as 1996. Why agree to stop the nonsense just 3 months before the millenium? IMO, Y2K MUST have had at least something to do with the decision. The world was given 3 months to get the books squared -- the CB's just didn't want to take the chance of a Y2K implosion, spike in gold, and no return of physical.

Just a theory.

Lamprey

Cavan Man (12/16/99; 15:33:04MDT - Msg ID:21162)
Mr. Gresham
Good post sir.

SteveH (12/16/99; 15:30:14MDT - Msg ID:21161)
Mr. G.
Good stuff.

Well, looks like the l.t. bond yield had a bad day, the dollar had a bad day, the Dow had a bad day, oil (consumers) had a bad day. On the bright side, Nasdaq had a stellar day, all other currencies a great day.

What does this mean? Is it Y2K driven? Not sure, too scared to find out. But find out we will.

Mr Gresham (12/16/99; 15:03:15MDT - Msg ID:21160)
Journeyman: #21151
http://web4.washtimes.com/commentary/comment3-19991213.htm
(& repeating Tanglewild's cite of Wanniski's Mundell column)

Journeyman –

Well put about AG. He certainly is smart enough to know the game at a depth that others do not. His recent dissertations on market panics and derivatives were way over the heads of most listeners IMO.

Considering what serves the national self-interest the most, it is to play out the dollar game to its limit, and let as much default as possible fall externally. Since the fundamentals are (and have been) so bad, the Fed or its designates may be intervening in the derivatives to keep the signals positive while other positions are readied (including powerful individuals who know which way the .gov wind is likely to blow).

Consider, if you were AG: After (or even before) the LTCM fiasco, would you NOT have demanded your clever young multi-faceted research staff make a worldwide INVENTORY of every form of derivative that could possibly affect the Fed-managed world economy? Inventory, and calculate the likely interplay effects of every one of those large derivative positions. Even if you had to personally get on the phone to the Pres. of CitiMorganChase and demand to know all of their private arrangements, or you would not come to their aid in time of crisis. And you would assess the likely effects of each of those now-known derivatives going every possible way, and you would use your computer-modeling skills to get an overall "weather map" of the likely storms ahead.

And, once you had all those variables and data coded and entered, why, wouldn't it be just another "input" to lean on your own best "bang for the buck" levers? I mean, the Fed IS one of the variables under your control. Did you read Peter Fisher's speech – that's called "on top of it."

AG's strategy (I keep thinking of Chuck Norris: "One Riot One Ranger", but it's not exactly the same idea) is to see that he doesn't have more than one crisis hit him at a time. So he super-liquefies the money supply to get past Jan. 3, 2000 rollover date. Then he'll take the next crisis point as it comes, even if it was caused or aggravated by his response to the last one. He's doing the best he can at the Fed "game" with the tools at hand.

He saw how hard Paul Volcker had to push to sustain the dollar in the 80s. He probably sees the debt mountain as much higher and the economy more brittle than Volcker had to work with. He probably would not succeed as Volcker did in pushing such a deep recession. When it's time to bail on the dollar, he'll know the best Fed-way to do it.

And, contrary to many other financial players, he is ready to become a gold-sympathetic "European-style" central banker. He knows that following Plan $D's demise, he has an 8000-ton Plan G waiting for him to use, and he probably has some great scenarios worked out for that, too. Wouldn't you love to have an evening alone with his word processing folder?




Cavan Man (12/16/99; 15:01:56MDT - Msg ID:21159)
TC
Question Sir TC: Besides oil and gold, what other commodities are priced globally in dollars? Sorry for the dumb question. Thanks.

TownCrier (12/16/99; 14:50:52MDT - Msg ID:21158)
Finance ministers and central bank governors of the Group of 20 discuss currency systems to "reduce vulnerabilities to crises"
http://quote.bloomberg.com/fgcgi.cgi?ptitle=U.S.%20Economy&s1=blk&tp=ad_topright_econ&T=markets_fgcgi_content99.ht&s2=blk&bt=blk&s=2f5630db79ba4ee3645f132bf116fd17
An official statement issued by the G-20 stated: "Ministers and governors welcomed the improvement in global economic conditions. They recognized that unsustainable exchange rate regimes are a critical source of vulnerability and that a consistent exchange rate and monetary policy is essential."

Though US Secretary of the Treasury Larry Summers lobbied hard this week for efforts to scale back the IMF, it came as too little too late to make significant headway into the G-20's inaugural meeting agenda which, in the words of Bloomberg, "aims to prevent crises like the one that began
in South east Asia in mid-1997, culminating with Russia's debt default and currency devaluation in August 1998, by including all regions of the world in policy discussions."

In answer to SecTreas Summer's missives regarding the IMF scaleback, leaders from Europe effectively said 'You made that bed, now you're gonna lie in it for awhile...even now that it's all wet.'

After the meeting Summers told reporters that there was "an increased sense that countries have to make choices on exchange-rate systems," and Bank of France governor Jean-Claude Trichet said that the general agreement favored "pragmatism" over "dogma." Trichet continued, saying the agreement recognized that while "fixed exchange rates don't solve everything," the Group "shouldn't then believe that floating rates can cure all ills."

Look to gold as your monetary "North Star" (or "Southern Cross" if you're downunder.) Review this partial list of the G-20 participants to get a feel for their likely postion on gold...
1) France
2) Saudi Arabia
3) India
4) Germany
5) China
6) South Korea
7) Indonesia
8) South Africa
9) Turkey
10) Italy
11) A Rep from the European Union (currently ECB President Wim Duisenberg)

Do you think they are more inclined to prop up the dollar into the future, or more inclined to level the economic playing field through a return to an unmanipulated free money market? (read that as a free gold market.)


Tanglewild (12/16/99; 14:32:00MDT - Msg ID:21157)
Mundell-Gold
http://web4.washtimes.com/commentary/comment3-19991213.htm
An article on Mundell giving some history, forecasts and gold/currencies info. A small portion:

While it is a bit
puzzling that his Y2K recommendation is
being dismissed so casually, it may pick
up support as the countdown continues.
Without a helping hand, the fledgling euro
may not be able to survive the Y2K
unknowns. And while it may take human
hands only days or weeks to fix the
mechanical problems at airports, seaports
and power grids, it may take a lot longer
to repair the problems facing digital
money in a floating regime.

SteveH (12/16/99; 13:26:57MDT - Msg ID:21156)
Two doing the Tango
Usually, when I watch three indicators, only one is rising, while the other two fall. Of late, Oil and the Long-term bond have risen in tandem. Gold holds steady to slightly down. All the while the NASDAQ rides on in oblivion to those two telling prophets that all isn't right with the dollar, the bond, and the price of oil. Go figure.

Journeyman (12/16/99; 13:05:04MDT - Msg ID:21155)
Spontaneous order: From the amoeba to economics
I apologise for the length of this forward, but with all the
talk and subliminal assumptions that "someone should be in
control," I think an articulate and seminal rebuttal is in
order. That's a bit beyond me, but not Prof. Ames.

If you have the slightest doubt that the "chaos" of freedom
beats the pants off "central planning" or "social
engineering," etc. of any stripe, see if you can rebut this:


SCIENCE, ECONOMICS AND THE SPONTANEOUS ORDER

By Bruce N. Ames

Scientific Notes No. 6

ISSN 0267 7067
ISBN 1 870614 45 3

An occasional publication of the Libertarian Alliance,
25 Chapter Chambers, Esterbrooke Street,
London SW1P 4NN, England.

Email: LA@capital.demon.co.uk
http://www.digiweb.com/igeldard/LA/

Professor Bruce Ames is Cahirman of the Department of
Biochemistry, University of California, Berekeley, and was
formerly on the board of directors of the National Cancer
Institute. He is a member of the National Academy of
Sciences.

This paper was originally given as a Graduation Address, at
the University if California, San Francisco, on June 7th
1985, and was subsequently published by the National Council
for Environmental Balance, Louisville, Kentucky.

The views expressed in this publication are those of its
author, and not necessarily those of the Libertarian
Alliance, its Committee, Advisory Council or subscribers.

LA Director: Chris R. Tame
Editorial Director: Brian Micklethwait
Netmaster: Ian Geldard

FOR LIFE, LIBERTY AND PROPERTY
____________________________________________________________
_________
INTRODUCTION

The power of modern science is the result of its being a
spontaneously ordered system, not a centrally planned one.
Individual scientists are fairly free to follow their own
enthusiasms and interests. A million scientists, from a
multitude of countries publish scientific papers, go to
meetings, exchange their ideas, and communicate new
techniques. New fields develop and old ones die, and all the
while there is an ever-increasing understanding of the
universe.

How can this community of scholarship flourish when science
has its fair share of people who are self-serving,
incompetent, dishonest, power-hungry, unscrupulous, and
lacking in common sense? Scientists are well represented in
both the human vices and virtues. The scientific endeavor,
as it has evolved over the last few hundred years, has
developed its own screens and incentives to deal with human
imperfect- ion and to facilitate discovery. One essential
screen is that our peers in our immediate speciality referee
our scientific papers before they are published in journals.
This weeds out papers that lack controls, logic, novelty, or
have other defects. A series of conventions has evolved,
including the practice of justifying each statement by a
citation of the scientific literature, and that of
describing new experiments with sufficient detail for other
professional scientists to repeat them. I think this
essential aspect of science - that it is a spontaneous order
with screens to weed out destructive habits - has led to its
marvellous complexity and strength. Doing good science is
not equivalent to putting a man on the moon. It's impossible
to predict beforehand which individuals have the capacity to
make the next great breakthroughs. Therefore, it is better
to have a decentralized, spontaneous system with freedom for
individuals.

I. TWO APPROACHES TO SCIENCE

I would like to give you an example from my own experience
of the contrast between spontaneous science and centrally
planned science. After getting my Ph.D. at Cal Tech, I went
to the National Institutes of Health (NIH) in Bethesda,
Maryland and spent a good pad of my scientific career there.
I was in the National Institute of Arthritis and Metabolic
Diseases, which was a wonderful place to be. I think the
Arthritis Institute was outstanding because its
administrators felt that their role was to hire the best
young people in the country and give them the freedom to do
what they wanted to do. On the other hand, the National
Cancer Institute (NCI), another part of NIH, was a much more
structured and planned operation at that time. Many of us
felt the directors had an excessive preoccupation with
planning, which necessarily meant that they had some strong
ideas about what cancer research should be like. I still
remember reading in some report by an NCI official that
bacteria had nothing to teach us about cancer. This attitude
on the pad of the NCI was expressed at the very time when
the foundations of modern molecular biology were being
established with bacteria and bacterial viruses, much of it
at the NIH. My reaction to the NCI's approach was that if an
understanding of cancer was to come out of the NIH, it would
come out of the Arthritis and Metabolic Diseases Institute.

A few years later, I had some secret satisfaction when our
work on bacteria had a major impact on cancer research. My
own work focused on how genes are turned on and off in
bacteria to change regulatory mechanisms. At about this
time, I became concerned with all of the new synthetic
chemicals that were being added to food; I thought it would
be useful to develop a test system for detecting mutagens in
order to ensure that no unsuspected mutagens could suddenly
appear in the American diet. Thus, as a hobby, and as a side
project to my regular research, I began to develop a
bacterial test system for detecting mutagens. In the course
of doing this, I began to do basic research in mutagenesis,
as well as work to develop a comprehensive screening system
for detecting mutagens. I also became intrigued with the old
idea (which had fallen somewhat into disrepute) that
carcinogens were causing cancer because they were mutagens.
Our work went quite well, and when I left NIH to go to the
Universi ty of California at Berkeley in 1967, I applied for
a grant from the National Cancer Institute so that I could
continue this work.
I, of course, discussed why I though mutagenesis was
relevant to cancer. The grant was turned down as being
irrelevant to cancer research, but fortunately it was funded
by the Atomic Energy Commission, which happened to be
supporting work in mutagenesis at that time because of its
interest in radiation. Now our test system is in use in
three thousand labs around the world as a primary screen for
identifying potential carcinogens. Later, I also served a
term on the Board of Directors of the NIC. Today NCI is a
very different organization.

I have seen science in operation in many countries. One
strength of American science is the high level of
independence give to young people, who have the freedom to
join the system, cooperate and compete with their fellow
scientists, and be judged by their peers. On the other hand,
in societies that have strong central planning of science,
the positions of power are fewer and more important, and the
incentives to act politically to advance one's career are
very strong. As a consequence, people are corrupted by
politicking and distracted from producing good science.
Another enormous advantage in Western science, particularly
in comparison to the socialist countries, is the flourishing
of small companies that can rapidly provide the chemicals
and the tools needed, for the constantly changing areas of
interest

Despite the success of spontaneous orders, there seems to be
a fair amount of hostility to them these days. There is,
instead, a fascination with central planning to achieve
whatever utopia is fashionable.

II. PHILOSOPHY AND THE SPONTANEOUS ORDER

In the United States, our Founding Fathers thought that
checks and balances on the power of the state combined with
the maximum amount of human freedom compatible with the
minimization of coercion, acted as appropriate screens for
an evolving spontaneous order. They succeeded pretty well.
When we look at the many human lifestyles and mini-utopias
that have appeared in the United States, it is a thing of
wonder: the Amish and the Southern Baptists, the Mormons and
the Quakers - rural life and urban life in a variety of
flavors. In modern California we seem to be getting hundreds
of such flowers blooming: Zen Buddhists, Moonies, Hare
Krishnas, and other marvellously strange cults and
religions; Marin County, Orange County, and even jogging as
a way of life. As Frank Lloyd Wright said, "Someone tipped
the U.S. up on end and everything loose fell into
California."

Reading several books on spontaneous orders has excited me
this past year. One book, Anarchy, State and Utopia, was the
winner of the National Book Award several years ago. It was
written by Robed Nozick, professor of philosophy at Harvard.

Nozick examines both the idea of utopia and the relation of
the state to utopia. He discusses the remarkable diversity
of human beings and their various desires, and he points out
that the utopias desired are mostly incompatible with each
other. In addition, there is a big gap between the
anticipated and the actual evolution of any complex system.

Nozick's own idea of utopia is that of a framework for
competing ideas of utopia within which various schemes
compete with and influence each other. A necessary
qualification for each of these schemes is the elimination
of coercion by either the particular utopias or the state.

The following quotes from Nozick give an idea of his style
and philosophy:

"No state more extensive than the minimal state can be
justified. But doesn't the idea, or ideal, of the minimal
state lack luster? Can it thrill the head or inspire people
to struggle and sacrifice? Would anyone man barricades under
its banner? It seems pale and feeble in comparison with, to
pick the polar extreme, the hopes and dreams of utopian
theorists. Whatever its virtues, it appears clear that the
minimal state is no utopia."[1]

He then goes on to examine the idea of an evolving framework
of utopias, based on the premise of no coercion. He finishes
his book thus:

"Recall now the question with which this chapter began.
Is not the minimal state, the framework for utopia, an
inspiring vision? The minimal state treats us as inviolate
individuals, who may not be used in certain ways by others
as means or tools or instruments or resources; it treats us
as persons having individual rights with the dignity this
constitutes. Treating us with respect by respecting our
rights, it allows us, individually or with whom we choose,
to choose our life and to realize our ends and our
conception of ourselves, insofar as we can, aided by the
voluntary cooperation of other individuals possessing the
same dignity. How dare any state or group of individuals do
more. Or less."[2]
III. THE SPONTANEOUS ORDER OF NATURE

Nozick's insights on evolutionary processes are well worth
repeating:

"We should not be too haughty about the results of filter
processes, being one ourselves ... evolution is a process
for creating living beings appropriately chosen by a modest
deity, who does not know precisely what the being he wishes
to create is like."[3]

Evolution has given us a world of marvellous complexity. The
current fashion seems to be to worship this world as
something more benign than it really is. Environmentalists
are agitated because I have pointed out that nature is not
benign. They are terribly worried about man-made pesticides,
but it is turning out that almost all of the pesticides we
are ingesting are nature's pesticides. About 5% of every
plant is toxic chemicals, and these chemicals comprise an
amazing zoo of nasty things. Their function, of course, is
the defense against insects, fungi, and other predators,
including man. Evolution constantly produces new and nastier
plant pesticides; it also produces hardier predators able to
cope with particular toxic compounds. Chemical warfare
flourishes in plants. There are thousands of these compounds
in the human diet (solanine and chaconine in potatoes,
tomatine in tomatoes, canavanine in alfalfa sprouts, etc.).
The amounts we ingest are enormous compared to man-made
pesticid es residues (I would estimate at least ten thousand
times more), and very little toxicological research has been
done in this area. Now that scientists are studying the
toxicology of nature's pesticides, they are finding an
unpleasant variety of mutagens, carcinogens, and teratogens.
We are beginning to realize that the risk from man-made
pesticides (or pollutants, for that matter) that humans
ingest in their diets is utterly trivial, relative to the
background of hazardous compounds provided by nature. The
main alternative to using man-made pesticides is to grow
crops that have been bred to contain higher levels of
nature's pesticides. I have little doubt that both health
and economics will be on the side of human ingenuity,
inventing better and better pesticides that are less
dangerous to humans than their natural counterparts.

We must also remember that humans would not be here, were it
not that a good pad of the flora and fauna of the world
(including the dinosaurs) was wiped out by a shower of
comets. Evolution is a never-ending process of some species
being wiped out and others taking their place. This
realization makes all the more puzzling the present
intellectual fashion, which is to think that the world would
be a marvellous place if only man weren't there to mess it
all up.
IV. MARKETS AS SPONTANEOUS ORDERS

Man has created a civilization of wondrous variety and
complexity. In the words of the eighteenth century Scottish
moral philosopher, Adam Ferguson, civilization is "the
result of human action, but not the "4 execution of any
human design. The most renowned contemporary expositor of
this spontaneous order is Friedrich Hayek, an Austrian
economist and social theorist who won the Nobel Prize a few
years ago. Hayek is a thinker of enormous depth and scope. I
have been exhilarated by reading his books these last few
years.

Hayek discusses the market as a system of spontaneous order,
which has evolved from a framework of individual freedom,
non-coercion, voluntary exchange between people, and private
property. He points out that the spontaneous order of the
market has many advantages: "Knowledge that is used in it is
that of all of its members. Ends that it serves are the
separate ends of those individuals, in all their variety and
contrariness.'[6] In Hayek's view, the market order is
superior to a centrally planned economy because it is a
framework for human action that does not require agreement
on what aims are to be pursued. It thus allows men with
different purposes and values to live together peacefully
and to their mutual benefit. As pointed out by Adam Smith,
"It is not from the benevolence of the butcher, the brewer,
or the baker, that we expect our dinner, but from their
regard to their own interests."[6]

Hayek characterizes the price system in a complex worldwide
market as a very efficient mechanism for condensing a
tremendous amount of information in order to indicate the
true costs of production and consumption. The price system
is a spontaneous order that allows people to make rational
economic decisions because it constantly changes in response
to the changing world.

"We must look at the price system as ... a mechanism for
communicating information if we want to understand its real
function... Through it, not only a division of labor but
also a co-ordinate utilization of resources based on an
equally divided knowledge has become possible."[7]

In Hayek's view, prices inform producers how much skill and
labor it is worth putting in a product This is the inverse
of Marx's labor theory of value, which held that the labor
invested in a product determined its value.

I thought of this when my friend Art Rosenfeld, a physics
professor at Berkeley who is one of the leaders in the world
in the area of energy conservation, was invited to China and
the Soviet Union to advise them on how to save energy. He
found that both countries were enormously more wasteful of
energy than the Western countries or Japan. Both communist
countries were keeping energy prices very low: therefore,
people had little incentive to conserve energy.
A Polish scientist recently told me a relevant Eastern
European joke. After the whole world turns communist, the
commissars should leave one capitalist country intact, in
order to know what prices to charge for things.

Hayek also discusses competition as a knowledge-generating
system. We know, for example, that restaurants are always
opening and failing. The proprietors of an unsuccessful
restaurant presumably gain some knowledge about the public's
likes and dislikes, and perhaps the work habits that it
takes to run a restaurant. They can either go into another
business if they can't adjust, or they can emulate the more
successful restaurants.

Hayek's view on this is that:

"... competition ... not only shows how things can be
done more effectively, but also confronts those who depend
for their incomes on the market with the alternative of
imitating the more successful or losing some or all of their
income. Competition produces in this way a kind of
impersonal compulsion which makes it necessary for numerous
individuals to adjust their way of life in a manner that no
deliberate instructions or commands could bring about."[8]

In a fiercely competitive system such as the modern world
economy, monopolies are hard to preserve except through
government ownership or regulation. The Fortune 500 list
changes every year. Apple Computer was started in a garage
by two college dropouts, and it created a new market under
the shadow of the mighty IBM. Even inefficient government
monopolies can sometimes be attacked, as can be seen by the
spectacular rise of Federal Express and U.P.S. in
competition with the United States Postal Service. New ideas
are always coming into the system when there is freedom and
competition, both in the market economy and the scientific
endeavor, thus maximizing wealth and knowledge.

As Hayek views it, central to the very nature of a
spontaneous order is the concept of a free society as
something which arises out of the actions of men and women,
but which is not consciously planned. Any attempt to
construct a society, says Hayek, by social engineering or in
accordance with some preconceived idea inevitably leads to a
tyranny which cannot find room for the multitude of needs
and wishes that motivates its members.

"If man is not to do more harm than good in his efforts
to improve the social order, he will have to learn that in
this, as in all other fields where essential complexity of
an organized kind prevails, he cannot acquire the full
knowledge which would make mastery of the events possible.
Re will therefore have to use what knowledge he can achieve,
not to shape the results as the craftsman shapes his
handiwork, but rather to cultivate a growth by providing the
appropriate environment in the manner in which the gardener
does this for his plants."[9]

Those of us who teach and do research in the flourishing
garden of science see the cultivation of this garden as a
joyful and fulfilling human endeavor. As Thomas Jefferson
said:

"[Science] is the work to which the young men... should
lay their hands. We have spent the prime of our lives in
procuring them the precious blessing of liberty. Let them
spend theirs in showing that it is the great parent of
science and virtue; and that a nation will be great in both
always in proportion as it is free."
____________________________________________________________
_________

NOTES

1. Robert Nozick, 'Ancrchy State and Utopia', New York,
Basic Books, 1974, p 297.

2. Ibid, pp. 333-334.

3. Ibid, p. 314

4. Adam Ferguson, 'An Essay on the History of Civil
Society', Edinburgh, Edinburgh University Press, 1767, p 122

5. Friedrich A Hayek, 'New Studies in Philosophy, Politics,
Eoonomics and the History of Ideas', Chicago, University of
Chicago Press, 1978, p. 183.

6. Adam Smith, 'An Inquiry into the Nature and Causes of the
Wealth of Nations', ed. R. H. Campbell and A. S. Skinner,
Oxford, Clarendon Press, 1976, pp. 26-27.

7. Friedrich A. Hayek, 'Individualism and Economic Order',
Chicago, University of Chicago Press, 1956, p.86.

8. Hayek, 'New Studies,, op cit, p 189.

9. Ibid., p. 34.

Regards, J.


goldfan (12/16/99; 12:36:32MDT - Msg ID:21154)
Euro
http://www.usagold.com
Thanks to the many of you who responded to my queries re leasing. I hope to a thoughtful response to you later.

EURO... Somerhwhere I saw a statement that baskets of currencies don't work. They are vulnerable to being picked apart by arbitrageurs. I have no clue how this would happen. But I imagine it might be something like if we a currency in cpi units made up of the ingredients of the CPI. We might find in time that we could get a better deal directly say, trading rent for carrots, than by using the fraction of the cpi pertaining to carrots at that cpi fixed rate?

If it's true the Euro cannot hold, for this or other reason like the intransigence of the French or others re market discipline vs social unrest, then what? The Yen is not backed by a strong economy, nor is the $US currently. Are we not left only with gold? How will this scenario unfold?

Goldfan

Journeyman (12/16/99; 12:32:29MDT - Msg ID:21153)
Re: FOA's motives
Why do you post here? I post, believe it or not, "for the kids," for our "posterity" as the framers put it. There are many motives, and believe it or not, despite today's Clintonesque ambiance, many of us actually have at worst benign motives for most of the things we do. THAT's human nature.

None the less, it never hurts to ask.

Regards,
Journeyman


TownCrier (12/16/99; 11:50:26MDT - Msg ID:21152)
Trade Deficit Hits Another Record
http://biz.yahoo.com/apf/991216/economy_4.html
The U.S. Commerce Department hung its head and groaned today with the release of the October trade figures. The trade deficit for the U.S. has expanded to set yet another record gap...$25.9 billion more imports than exports. Folks, that means that instead of exchanging a goods and services of like values with our trade partners, the rest of the world has once again taken pallets and pallets of dollars to make up for the shortfall of goods comming out of the U.S. That story, repeated over years and years is what has put us in this precarious position today...there is such a huge overhang of U.S. dollars being held in foreign accounts. If they were ever to attempt any manner of redemption for U.S. goods, gold, or other currencies, they would rapidly depriciate in value as this inflated supply comes out of hiding. It rather wrecks the international incentive to continue to accumulate more dollars which can't be spent in any meaningful way, doesn't it? More to the problem is that these other countries are already getting all they need in trade from the U.S. but are still coming up with a net trade surplus, and therefore receiving cash. Should we propose that they all take a production holiday for a few years so that they may finally spend down some of their accumulated dollars? Americans would surely suffer, because it isn't our dollars that we want back from these various countries. We want (and need) for our continued lifestyle the real goods that these countries have been providing to us for the low cost of irredeemable mass-produceable currency. Arguably, their lifestyle requires the receipt and use of real goods, too. Preparations for the collapse of this unsustainable situation is what should propel Americans into gold who are even faintly conscious or take time to become aware of the potential energy being stored over these many past years for the eventual mother of all currency collapses.

Through October, the trade deficit is on an annual pace of $262 billion, crushing the old record deficit set last year of $164.3 billion. Specifics within the October figures include a petroleum deficit reaching an all-time high, and also deficits with China and Japan hitting record levels.

William Daley, Secretary of Commerce, Secretary said deficits at such high levels present political problems. So what is the reaction of Congress? Many are cconsidering the option to raise U.S. barriers as a way to shrink the deficit by stemming the tide of imports. Listen up, Congress. That's exactly the kind of artificial and sort-sighted *solution* that confirms The Tower's suspicions that you are in office because you are too ill-qualified to manage affairs in private practice where there are direct and personal repercussions for poor management decisions. Frankly, the good citizens of America (identified as those that frequent gold discussion forums) are growing weary of being the safety net for your bad policy. A prompt return to sound money will facilitate the marketplace solution to most of the world's long-term international trade and general economics problems.

Journeyman (12/16/99; 11:46:43MDT - Msg ID:21151)
Greenspan: SOLVED?
The "opposition" isn't dumb, as many here have pointed out.
Some of them know more, a few a lot more, about what's going
on and why. They're not all "evil" either. Put yourself in
their position. You and your heirs are set for the next ten
generations at least. BUT, the world's biggest economic
experiment with paper money is very shakey, and likely to
come to an ugly end, possibly quite soon, as a result of
your ancestors' scheme to get huge seigniorage (profit) from
manufacturing paper money. A few of your far-sighted
progenitors even saw this very eventuality, perhaps even
prepared for it.

What do you do? Do you want you and your heirs to be the
richest barons and baronesses ---- in a new dark ages? In a
world where most of the technology that makes the modern
world easy is lost, even to the barons and baronesses? I
dont' think so.

What do you do? You're not the only faction in the financial
cliques. You don't have absolute control, nor do the whole
of said cliques. If you favor a return to gold, no matter
how practical, you're probably in the minority. So you find
the most articulate and influential gold bug you can find,
use what power and influence you DO have, and put him in
charge of the most powerful organization on the face of the
earth. You support him behind the scenes, and you watch.

You realize gold may well be the life preserver of
civilization, and you hope this guy, Alan Greenspan, if and
when the waste material hits the proverbial rotary cooling
device, can help make the transition easier for everyone.
Afterall, in the dark ages, the castles were drafty and
cold, and despite their position, the priviliged occupants
only bathed on average a few times a year.

I sincerely wish AG the best of luck. I understand he used
to play poker. You bluff, you fold, you maintain your
credibility. You don't make your big moves in such a game
until the siuation is just right. I think he's one of "us"
in deep cover. I think he's waiting for that "just right"
situation.

"I'm one of the rare people who share a nostalgic view
about the old gold standard as you know, but I must
tell you I am in a very small minority amongst my
colleagues on that issue." -Alan Greenspan to US House,
July 22, 1998, 11:45am

Regards,
Journeyman


JCS (12/16/99; 11:38:15MDT - Msg ID:21150)
GOLD GONE FROM FT. KNOX ?!?
Murphy sent this email a little while ago.
*********
Le Metropole members,

James Turk has served commentary at The
Kiki Table entitled, "We Have A Right To Know."

"Mr. Durrell provided a lot of anecdotal evidence
to support his claim. These included eyewitness
accounts of hundreds of Army trucks leaving Ft.
Knox in the middle of the night over a period
of many weeks, supposedly loaded with the Gold
bounty. Other interesting but circumstantial
evidence was the sudden and unexpected dismissal
of Gordon Tether, business editor for London's
Financial Times, who published Mr. Durrell's
claims. To my knowledge, no mainstream US
newspaper dared to publish Mr. Durrell's
allegations."

James Turk has been a leader in the effort to
instigate a proper, independent audit of American's
gold in Fort Knox. James is a wonderful thinker and
this is another great piece by him.


All the best,

Bill Murphy
Le Patron
www.LeMetropoleCafe.com




rsjacksr (12/16/99; 11:37:29MDT - Msg ID:21149)
correction of spelling
http://nypostonline.com/business/19736.htm
Let's try "beginning for beinging"

rsjacksr (12/16/99; 11:34:55MDT - Msg ID:21148)
LATEST BIG OIL LEAK: 34,000 JOBS
http://nypostonline.com/business/19736.htm
"A holiday bloodbath struck the oil
industry yesterday, with giants ExxonMobil
and Royal Dutch Shell firing twice as many
people as originally expected."
Is it possible that this is the beinging of the reduction in the supply of oil from their reserves? Therefore, they don't need as many workers? ... anyone ...



Gandalf the White (12/16/99; 11:21:13MDT - Msg ID:21147)
Phaedrus -- look at the PPT effort !
The PPT keeps pushing the S&P Futures as hard as they can and the long bond nears 6.4% again ! -- seems that they may not have enough funds to play in two places at the same time. and the QQQ marches on to the drums of the "less than 40's group of day-traders" !! --- FIREWORKS will be acomin soon.
<;-)

phaedrus (12/16/99; 10:57:54MDT - Msg ID:21146)
Bonds
Bonds diving faster than Larry Holmes in his last Tyson fight. Down almost another full point at 12:57 eastern.

Hey Nasdaq, pay attention.

TownCrier (12/16/99; 10:44:34MDT - Msg ID:21145)
Hear ye! Hear Ye!
http://www.usagold.com/wgc.html
Grab the flaming link above to guide you down the darkened corridors to the latest update to This Week In Gold, weekly gold market commentary provided to USAGOLD through the courtesy of the World Gold Council, assembled from the minds and observations of their worldwide staff witnessing the significant events shaping the gold market during the week December 6-10. A sample of what you will find...

"Reports that Russian central bank reserves had fallen by 80 tonnes during November then sparked a burst of selling, and gold dropped back towards $280 that afternoon. These reports were apparently based upon Russian central bank statistics, but the Russians themselves declined to comment. Over the past two or three years, reported gold reserves in Russia have swung quite widely, reflecting both the opening and closing out of swap positions as well as the acquisition of local gold production. It is possible that the change in holdings could once again reflect swap transactions, but the position remains unclear in the absence of an official statement."

Not long ago Russia had clearly indicated that it was an active gold buyer this year, although market conditions in the first half of the year had limited their progress toward full acquisition of the desired quantity. Judging from the WGC insights, and coupled with the lack of comments on this latest issue, we are inclined to think that this drawdown in gold may be a product of a temporary swap position. It would certainly serve the Russian interest to let the world draw its own conclusion that Russia had become a seller if in fact Russia was hoping for better prices as they continue with their previously announced gold purchace program. Only time will tell on this one...

Knallgold (12/16/99; 9:57:48MDT - Msg ID:21144)
(No Subject)
FOA:" Indeed, buying one ounce of physical gold today is like buying a highly leveraged investment for retirement. That is, leveraged to the extent that the dollar has been printed. "

As if the Dollar is going to be backed again!?

Via TC: "Earlier in the day Mr. Issing said it was "only a question of time" until the euro rises against other major currencies."

OTHER MAJOR CURRENCIES! " a question of time"= the bomb is ticking !

USAGOLD (12/16/99; 8:50:20MDT - Msg ID:21143)
Today's Gold Market Report: Ashanti Woes Continue, Bullion Banks May Pull Out of Gold Lending Game
MARKET REPORT(12/16/99): Gold gave up most of the gains it made
yesterday in today's early going in a downtrend that began overseas. FWN
reports London brokers attributing today's fall to profit-taking. If it
is, those profits are being taken in a very narrow range. One London
trader put it this way in a surprisingly positive story on gold's
outlook published by Reuters: "I do think that the market will slowly
work its way higher. It is a grind at this time of the year. People got
a little bit carried away with (central bank gold) sale programmes,
expecting the market to collapse as a result. There actually seems to be
a quite a good underlying vein of demand at the moment."

Bridge News reports the following on the on-going war of words among
Ghana political and business leaders over the handling of Ashanti's
finances:

"Ghanaian President Jerry Rawlings launched a verbal attack on the
chairman of the Ashanti Goldfields board, Kwame Peprah. Rawlings blamed
Peprah, who is also the country's finance minister, and the sacked mines
minister Fred Ohene-Kena--also an Ashanti board member until his
dismissal--for being partly responsible for the financial crisis that
hit the company recently."

That financial crisis can be summed up in the graphs in the December
issue of News & Views which shows Ashanti's stock price collapsing as
the gold price moved higher -- an odd state of affairs to say the least
for a gold mining company. Not so odd though when you come to understand
that Ashanti's management had placed a massive bet on gold going lower
after the Bank of England announced its gold sales plans -- a bet that
remains in place and threatens the viability of that company. A wrench
was thrown in the Ashanti plan when the European central banks announced
a moratorium on further gold sales and leases in late September. The
stock price collapsed as the gold price skyrocketed. Perhaps this is why
Mr. Peprah finds himself under the glare of lights and having to endure
tough questioning from the political sector.

Yesterday the Financial Times of London ran an article by Gillian
O'Connor, who has followed the mine hedging story closely. Referring to
the situation outlined in the previous paragraph, O'Connor says that
"International investors were understandably flabbergasted at the
seeming paradox." She goes on to say that miners are now having second
thoughts about hedging and so are the bullion bankers. She concludes
that "Most bullion banks are said to be reviewing their credit and
margin requirements, and some banks for which bullion trading is a minor
activity could even discreetly leave the field to their rivals. For both
reasons hedging habits are set to change."

This could make for an interesting beginning to the 21st Century for the
yellow metal.

On that positive note, we'll fetch this over to the server for another
day. If you have an interest in the graphs mentioned and more on the
Ashanti story, please find out how you can receive a free copy of News &
Views directly below.........

ss of nep (12/16/99; 8:42:18MDT - Msg ID:21142)
Scientific American ...
http://dieoff.com/page140.htm
According to a March, 1998, Scientific American article by Colin J. Campbell and Jean H. Laherrère Global oil production is expected to "peak" around 2005. See THE END OF CHEAP OIL at: http://dieoff.com/page140.htm
.
.
.
The same issue had an interview with the CEO of Suncor.






rsjacksr (12/16/99; 8:27:33MDT - Msg ID:21141)
Reference from Chris on Kitco ( Date: Wed Dec 15 1999 07:29
http://www.hubbertpeak.com/summary.htm
Go to the following WEB site and you'll understand why Another/FOA told you to watch Oil.
Thanx Chris

THC (12/16/99; 8:24:29MDT - Msg ID:21140)
To Oro re **End game for $**
As always, many many thanks for the well thought out and detailed answer!!!!!

>>Gotta go, sorry I had to rush the answer.

It was much more than I could hope for, thanks again!

**End game for $**

I would like to consider another possible trigger. RUSSIA!
For quite some time, it has been clear that Russia has neither the capability nor the intention to pay back any of its foreign debt. The IMF keeps the facade going by "loaning" money to Russia that is immediately recycled back into politicians' pockets and "interest payments" on the loans.

Who does the IMF money benefit, Russia, or the bankers who want to pretend they will get their money back from Russia?

Methinks the latter.....

Watching recent events between Russia and the US, it would seem that Russia has less and less patience to "play games with the US." If they get anymore pissed, perhaps they will just tell the IMF to keep their loans......and default on their foreign debt.

How much of an affect would this have on the global financial pyramid if the Western banks had to write off all of their loans to Russia?

Thank you!!!!!!!!

"Wishing I had kept my Pd position" THC


Cavan Man (12/16/99; 8:08:57MDT - Msg ID:21139)
SteveH 21136
Mssr. Jospin:

ou est BIS? (in your paradigm)? French is very rusty.

Angel (12/16/99; 7:27:22MDT - Msg ID:21138)
Farfel
Wonderful post last night regarding over 40 type persons. That commercial drives me crazy too. Gotta run, late for my job at Wal-Mart. Lots of people to greet and shopping carts to line up at Christmastime.

Cavan Man (12/16/99; 6:36:14MDT - Msg ID:21137)
SteveH
What he is saying here is and has been said behind closed doors with much more emphasis; I'm certain of that. His message seems to be for "the masses". It would seem this venue would be an awfully narrow bandwidth for such an important message but perhaps that was the only option? Perhaps philantrophy is a big part of it. There is something else though (for his side); must be. Wait a minute; I'm getting much too cynical?

Anyway, I am quite comfortable with his prognostications.

SteveH (12/16/99; 6:23:22MDT - Msg ID:21136)
repost
http://biz.yahoo.com/rf/991216/ea.html
hursday December 16, 4:12 am Eastern Time
France's Jospin pleads for checks on globalisation
By Alan Wheatley

TOKYO, Dec 16 (Reuters) - French Prime Minister Lionel Jospin called on Thursday for stronger international institutions and new regulatory mechanisms to rein in the economic forces unleashed by globalisation.

In a speech at the start of a three-day visit to Tokyo, Jospin proposed the creation of a powerful council of finance ministers under the umbrella of the IMF to steer the world economy, a crackdown on offshore tax havens and the regulation of speculative investment funds.

"The question today is not whether or not we want globalisation. It is a fact of life. But we have a choice. We can let supposed laws of economic nature guide the development of our societies, thus abdicating our political responsibilities.

``Or, on the contrary, we can try to control the forces that are at work in the globalisation of the economy,'' Jospin said.

The speech, at a symposium organised by the Nihon Keizai Shimbun newspaper, amounted to a forceful restatement of France's traditional demand for political counterweights at the national and global level to check market forces.

Jospin said he believed France's vision of the world was close to that of Japan. The two countries, he noted, had staked out similar positions at this month's abortive negotiations in Seattle aimed at launching a new round of global trade talks.

INTOLERABLE INEQUALITIES

The French prime minister emphasised that he was not opposed to globalisation. But Jospin, who hit out at the ``excessive power of multinationals,'' said the new global economy risked creating intolerable inequalities and crushing national identities.

``We want financial markets to be run more safely and more fairly. We want globalisation to be at the service of mankind.''

France has long championed a political directorate to steer the International Monetary Fund (IMF) as a way of reducing what it sees as Washington's excessive influence over world finance.

Jospin, who made a number of barbed allusions to Washington's policies, said the recent creation at the IMF of a permanent international monetary and financial committee would help to boost the Fund's democratic legitimacy.

But he added: ``That is just a first step. We must go even further towards the creation of a 'council of finance ministers', a body to take decisions and provide strategic guidance on international monetary and financial questions.''

Complaining about ``black holes'' in the world financial system, Jospin said France and Japan agreed that lax regulation in offshore tax havens encouraged money laundering and caused damaging lurches in flows of footloose global capital.

``We must therefore make these countries play by the rules of the game or face heavy penalties,'' Jospin said.

The fact that so-called hedge funds and other speculative investment vehicles are barely regulated was ``completely unjustifiable,'' Jospin said.

The crisis triggered in October 1998 by U.S. hedge fund LTCM, which made a number of huge financial bets that went spectacularly wrong, had shown the danger that these funds posed.

International financial officials are examining what, if anything, should be done to avert a repeat of the near collapse of LTCM, which had to be rescued by a group of U.S. banks roped into action by the U.S. central bank.

``Monitoring these funds indirectly, in other words through their relationships with banks, is necessary. But it is not enough. They must be regulated directly,'' Jospin said.






SteveH (12/16/99; 6:20:22MDT - Msg ID:21135)
Fixed errors; try this one
Aristotle,

Your answer for FOA as to why he posts quoted below, is the open answer just as the answer is openness. I does not answer the hidden motivation, which could be the following:

Philanthropy
Charity
Camaraderie
Decency
Psychological currency warfare
Intentional paradigm shifting for political gain or objective.
All the above
None of the above

As a famous person once said, the Pen is mightier than the sword. Telling us that gold isn't dead but alive and well and living everywhere except the US and but especially alive in London is tantamount to telling us that what you see and hear aren't exactly what is really going on. Why tell us that? Because he wants us to know it? Why does he want us to know it? Because we need to know it? Why do we need to know it? Because it is the truth? Maybe its only partial truth, what if it isn't the whole truth? Truth is like the elephant with many sides and we are only capable of seeing but a few of those sides at one time. Ahh, so gold is really the preeminent currency of the world and the Western mind has discounted it so far out of their minds that they needed a wake up call? Why wake us up? Why not let the sleeping giant rest? Because all of those good people out their need to know gold isn't dead? Why do we need to know that? Because it is the truth, partial or not. Gold isn't dead, it is the ultimate form of money. Ask Gresham. He knows you only spend your less valuable money first. Why should I care about gold? Because banks care about it and they spent it and don't have any more and they may soon have to replace it. So why tell me that? It is the truth. Why do you keep telling me the truth? Because I want you to know the truth. Why do you want me to know the truth? Because you deserve to know it. Because if you know it then you can make the right decisions for you and I. Ahh, that is the answer as to why FOA involves himself. His interest and ours:

So we (FOA, Europe, and US (both meanings) can make the right decisions regarding gold.

Bond yield down more after writing this.




SteveH (12/16/99; 6:09:47MDT - Msg ID:21134)
FOA and bonds
Long-term bond yields still travelling higher today. Gold down $2.30 (so what else is new).

Aristotle,

Your answer for FOA as to why he posts quoted below, is the open answer just as the answer is openess. I does not answer the hidden motivation, which could be the following:

Philanthropy
Charity
Comraderie
Decency
Psychological currency warfare
Intentional paradigm shifting for political gain or objective.
All the above
None of the above

As a famous person once said, the Pen is mightier than the sword. Telling us that gold isn't dead but alive and well and living everywhere except the US and but especially alive in London is tantamount to telling us that what you see and hear aren't exactly what is really going on. Why tell us that? Because he wants us to know it? Why does he want us to know it? Because you need to know it? Why do we need to know it? Because it is the truth? Maybe its only partial truth, what if it isn't the whole truth? Truth is like the elephant with many sides and we are only capable of see but a few of those sides at one time. Ahh, so gold is really the preeminent currency of the world and the Western mind has discounted it so far out of their minds that they needed a wake up call? Why wake us up? Why not let the sleeping giant rest? Because all of those good people out their need to know gold isn't dead? Why do we need to know that? Because it is the truth, partial or not. Gold isn't dead, it is the ultimate form of money. Ask Gresham. He knows you only spend you less valuable money first. Why should I care about gold? Because banks care about it and they spent it and don't have any more and they may soon have to replace it. So why tell me that? It is the truth. Why do you keep telling me the truth? Because I want you to know the truth. Why do you want me to know the truth? Because you deserve to know it. Because if you know it then you can make the right decisions for you and I. Ahh, that is the answer as to why FOA involves himself. His interest and ours:

So we (FOA, Europe, and US (both meanings) can make the right decisions regarding gold.

Bond yield down more after writing this.

Bonedaddy (12/16/99; 6:01:17MDT - Msg ID:21133)
Farfel, please, help me find my teeth...
Absolutely wonderful post yesterday!
Pretty much everybody who experienced the last "real" stock market mania and melt down is either dead or deep into "geezerhood". Think, for a moment, of the word "Experience". The word evokes different mind images depending on how much of it we have. A young man may wish to "experience" the dangerous sport of base jumping . As a result he may not survive the "experience". If he becomes badly injured, but survives, he may gain a different perspective on those who do have more "experience". (I have often wondered if this is why old rodeo cowboys are such good philosophers.)
Not all of our youth have disdain for life experience.
But, it is a spoiled generation on balance. Very little has been witheld from them. So they have a natural disdain for what they cannot, at this time, possess. Their experience will come. They will be broken, but not distroyed. And their childern will be a wiser lot because of it. And eighty years or so down the road, it happens all over again.


Aristotle (12/16/99; 2:20:51MDT - Msg ID:21132)
My impression for what it's worth (Hmmmmm...what will 2 cents buy these days?)
Cavan Man (Msg ID:21111) asked of FOA--" 'The whole reason behind this effort........'. But, why? What is your motivation?"

My impression is that FOA gave the answer to that question in the remainder of the paragraph that Cavan Man referenced. Let's look at FOA's words again:

FOA (Msg ID:21108)--"The whole reason behind this effort, is to implant what is evolving in our gold markets in peoples minds, before the fact. This market is "not as before" and has evolved several times during the past few years as the chess players are moved on the board. Truly, an international power and money game that gold is but one aspect of. It may very well be the most profitable investment for our time, but it still remains only one act of a large play. For this segment, the eventual outcome will remain the same, the rejection of the modern dollar based gold marketplace and it's effects on all the industry that uses it."

And to see the last bit of the puzzle, we need only to look at the first part of Townie's latest Golden View, particularly where he indicates Europe's greater interest in providing transparency in the financial markets than has been fostered in the U.S.:

TownCrier (Msg ID:21121)"...the U.S. and Europe not seeing eye to eye on all issues, [Germany's Hans] Eichel said for instance, that European countries had an inclination to put more emphasis than the United States on getting the private sector to play a greater role...also said Europe put a greater premium than the United States on transparency through publication of data to better reveal the picture..."

This movement toward transparency is amply demonstrated by the UK's pre-announcement of their intentions to sell half of their Gold reserves (though arguably they haven't been exactly forthright in the reason why they're selling (probably a bullion bank bailout of some sort), but they could assert that the reason is either privileged information or else immaterial to the markets). Gordon Brown (Chancellor of the Exchequer) was touting the UK's policy as recently as yesterday as providing "greater transparency" to the Gold market.

Not only that, but the Washington Agreement of the 15 European central banks amounted to a similarly transparent pre-announcement of the potential sale of up to 400 tonnes per year over the next five. Under the interests of transparency the Dutch CB pre-announced that they were the source of the remaining 300 tonnes (in addition to the UK and Swiss Gold sales that were announced prior to but included within the Washington Agreement.) When you get right down to it, if it weren't for the pursuit of an eventual open and transparent Gold market, there would have been no reason whatsoever for the Dutch CB to provide this information regarding their plans for future sales.

Some people might argue that these sales are announced with the sole purpose to manipulate the price of Gold downward. I beg to differ. That was probably the case a year ago and beyond, but no longer. The Washington Agreement was clearly a stroke to signal that the fortune of Gold had finally turned, and it was not to be kicked around like ol' Dick Nixon. The IMF's latest action to revalue some of their Gold (the rest will surely follow) to market prices was played out in full view, and any unbiased observer should have recognized that for the watershed event that it truly was. But as it played out at the time (Sept. 26) the decision still needed US Congressional approval, and the news of approval of the plan by the IMF at its annual board meeting was promptly eclipsed by the announcement of the Washington Agreement which got all the attention.

And finally, JA (Msg ID:21128) asked of FOA:

"Lastly you seem to suggest that timing does not matter as long as one holds physical...yet on several occasions you have suggested the price of physical may drop below even last summers lows of $250. Should that event take place it seems to me a person would be better off holding his cash and filling his canteens at $200 rather than at the current price of $280.
In summary I guess I am asking how you can be so certain that gold will vastly increase in value possibly even to $30,000 yet not be able to discuss with any degree of certainty whether it will hit $200 or $360 first?"

Hi JA, nice to see you. I can't recall if I've already made your acquaintance. Methinks the answer to your question is an easy one. Just as with life, we know with relative certainty what the end of the line holds in store for us (death), but we don't know with any certainty how many taxes we may have to pay along the way. The destination in any journey is always the easier vision to perceive than the forecast of details to be encountered in route to that destination. In a sense, all roads lead to Rome, yet who can say what road any of us are on? The road originating in China may be different that one in the U.S. or Europe, or Latin America, and any given road may experience some unexpected detours though the destination remains the same.

My best advice to anyone pondering the future of Gold is to always remember that it is a globally recognized and utilized asset, and that not every person's experience and perspective (6 billion of them!) is the same as your own or that of your neighbor. Your perception of Gold could be rocked overnight by a development in China that you never saw coming.

My second best advice is this:
Gold. Get you some. ---Aristotle

nickel62 (12/16/99; 0:49:01MDT - Msg ID:21131)
Farfel,Your post from yesterday was great!
The gorilla refused the job.He was too smart to waste his time day trading or talking to over forties.You got to remember that the only reason these generation x'ers are so stupid is the world that we have spun for them doesn't make any sense. You and I both know it. But these people have been brought up in the Clinton era and don't have any way to come to that conclusion. The true costs of Keynesism's free lunch society.

YGM (12/16/99; 0:30:24MDT - Msg ID:21130)
This is a Must Share Editorial......IMO......
http://www.gold-eagle.com
Ho, Ho, Ho!
<Picture>
Professor von Braun
The Rocket School of Economics

The new millennium, (whatever that actually is) fast approaches as we proceed, at great pace it seems, through the month of December. The Internet boom continues and stock markets around the world continue to reach record levels. One could assume that indeed all is well and that Santa will be very generous this year, delivering lofty valuations in stock portfolios to all and sundry. With at least one notable exception, holders of gold stocks, although even they may get a brief respite from a down trending index over the next few weeks.

The question is of course who is playing Santa Claus this year? Once that is ascertained the next question has to be, and why? Working on the premise that there is no such thing as a free lunch, one also could ask- who is going to pay for this overly generous, widely spread dissemination of new age wealth?

Who is paying Santa Claus this year? Is it Alan Greenspan, or Bill Clinton (trying to help out his current VP), Robert Rubin delivering his Xmas present to Wall Street, the American public caught up in the Internet based get rich quick "ponzi" scheme, rewarding themselves. We would lean towards Alan Greenspan as the lead contender for this year's Santa Claus.

Liquidity seems to be the name of the game as the rollover date for Y2K fast approaches. So much liquidity in fact that it is likely that a lot of Xmas stockings will have a soggy feel to them. My cup runneth over, so does my Xmas stocking? Oh well.

Preventing a bankers nightmare, a run on banks, may be more Greenspan's concern than what we realize. His beloved banking system, having written more loans than what was once considered prudent, and already at imprudent levels of cash and quickly convertible securities, would be at risk here if the perception that Y2K was indeed a problem took hold. Especially if people decided to get some cash for a week, or two, or three. Think of the potential panic if the banking system actually ran out of cash. What a blast that would be! A good old fashioned run on banks, people lining up outside, all trying to get enough cash for the next few weeks and the bank does not have any. This would not look could on CNBC at all. What would Maria say? I can hear the shriek from here. Would not look good on worldwide television either. Certain Asian and South American countries would think it a hell of a joke watching America come to a sudden halt.

No, the risk, perceived or otherwise, may have been too much for Mr. Greenspan to handle and turn on the spigot may have been the only option. The other possibility is that he is taking orders from on high. Perhaps Slick Willie saw a chance to make a few strategic investments in preparation for his retirement, and faking fear of an internal meltdown, ordered Rubin (yes I know he is retired, but he still knows how to use the phone), to get Greenspan to "make with the ready's" as they say.

Maybe it was Hillary who saw the opportunity. She was good on pork bellies I seem to recall. But Greenspan, Big Al, Al.com, Easy Al, whatever name one use's, sure looks like the lead contender for Santa Claus, 1999. Whether it's voluntary or not, by default, or even some sort of de-facto situation, he seems to be the logical candidate.

And if he is, the next question is what happens after the Xmas party, the New Years party, the "New Millennium" bash, and the potential realization- as we "enter" the new whatever it is, that Y2K was not an issue, that we have a surplus of soggy Xmas stockings, that nobody did any internet shopping, and that the new era we have heard so much about, may have failed to actually arrive. (Perhaps it got left at the North Pole).

Meanwhile, back in the gold market the great gold rally of 1999 seems to have died an unnatural death, possibly connected to official Y2K fears and it looks like the writers of paper contracts are, with some help from on high, having their way once again. A lack of activity could see the price rise over the next few weeks as market participants celebrate the festive season, the thought of healthy bonuses and the satisfaction that comes from rescuing themselves in the "Nick" of time. Merry Xmas.

December 17, 1999

Professor von Braun can be contacted via electronic mail at
profvonb @ aol.com

YGM (12/16/99; 0:12:46MDT - Msg ID:21129)
Y2K Newswire.......
Early Edition ....Thanks Craig....
this will be on the public site on Friday:
 
""
Remember the Jim Lord Navy documents that revealed 44 major U.S. cities were classified as "likely to fail" in various categories? Well, the official answer to that was that the U.S. Navy didn't have the information on these utilities, so they marked a "3" by default. (The "3" meant "likely to fail.")
 

The documents we have today show that Washington's explanation is a bunch of bunk. As you can see by downloading the documents yourself, most utilities had replied to the Navy well before the June, 1999 report. The Navy did, indeed, have the information from these utilities.  ( the xls files show most utilities reporting and the dates. )
 

Of course, this is not meant to blame the Navy at all. We think the Navy wants to tell the truth. It's Washington that's trying to spin everything here, and they'll be spinning this document, too.
 

Here's something else: one page in the new documents lists 77 public utilities (water, gas, electricity, sewer). NINE of these 77 still have not replied to the Navy about their state of Y2K compliance. These nine are ALL water and sewage organizations. This means at least nine major U.S. water and sewage treatment facilities are still keeping their mouth shut, not even bothering to reply to the U.S. Navy to claim they are ready for Y2K. It's safe to assume that these nine are in terrible Y2K shape.
 

Here's another thing: Only FIVE of the utilities had completed 3rd party audits. That's right: 94% of the surveyed utilities have not completed 3rd-party audits. Or, put another way, 94% of these utilities are giving you either self-reported information or no information.
 

So let's break this down: 94% of the utilities have not completed 3rd party audits. 12% (9 of 77) have offered no reply whatsoever. Only 6% have completed actual audits.
 

The figures are slightly better on the second page from the U.S. Navy, but overall, this demonstrates that these utility companies are nowhere near "compliant," even today.
 

Here's something else to consider: the Navy did not survey every city in the United States. They surveyed only ones where Navy installations might be threatened by failures. Had the survey been conducted on every major U.S. city, we would see much higher total numbers: instead of nine utilities refusing to reply, for example, we might see twenty or thirty.
 

Nationwide, we're guessing that there are at least twenty utilities that simply won't be ready for Y2K in time. That potentially translates into major problems in more than a handful of U.S. cities. What happens if five major U.S. cities lose water all on the same day? That's the kind of scenario that now seems rather likely, and not at all far-fetched.
 

But even in a best-case scenario, we're predicting there will be at least one major U.S. city without water (or sewer) in January. The odds of every single non-audited, self-reporting utility working perfectly on January 1 are extraordinarily low. Those people who say nothing will happen on Y2K are playing some long, long odds.
 
""

JA (12/16/99; 0:08:58MDT - Msg ID:21128)
Questions for FOA
In your post of:

FOA (12/15/99; 19:54:05MDT - Msg ID:21108)
You state:
"If one knows where the fire exits are ahead of time, some will get out without getting burned. But, some still think gold derivatives (gold stocks included) amount to the same exits. When this market matures, they will find those doors locked. Even more so today than in years past, investors are finding this to be true. And the real fire hasn't even started yet!"

The above paragraph is a good example of your posts. I find them to be interesting but also somewhat puzzling. Your use of terms like "will" gives one the impression that you have certain prior knowledge of future events. Individuals that truly do have such information are referred to as Prophets. Prophets receive their information from God and are open with their followers as to where their information comes from.

While the concepts you present are interesting, I believe it is the certainty of your expression that is the great attraction for the following you seem to have here. However what I find perplexing is that you give no clue as to the source of your certainty of such future events. ( I guess we do know that the source of some of your ideas is from a friend who calls himself Another, who also has left us with some interesting reading material, but that's not a lot to go on.)

When drinking water, I like mine close to the head of the spring where it comes out of the mountain rather than down in the valley where cattle have trodden and pollutants have entered in. In your case the water looks and smells like it might be drinkable, but I am not sure because I can't see where it comes out of the mountain. In addition every so often I think I am observing particles in that water that one would not normally find in pure mountain spring water.

You seem to be pretty adamant that neither gold stocks nor gold futures will quench ones thirst in this new era we are about to enter and only physical gold will be a true thirst quencher.

I believe you are suggesting that one will not benefit from holding shares in those companies that hold the water rights to those mountain springs because the government will come in and regulate and tax them to the extent that benefits from ownership will be minimized. Yet the government will not tax or regulate those who have filled their canteens from the same springs and the water in those canteens will greatly increase in price. Why do you make this suggestion?

I believe you also are saying that those who hold contracts options to purchase paper water rights (here in the west we call them irrigation shares) will lose because more options for such shares were promised than exist. You also suggest that once people discover there is not enough water to fulfill those option contracts they will become almost worthless while the price of water itself will greatly increase. That discussion has been going on for two years and it has not happened yet? It seems to me that the price of water must go up significantly before people would lose confidence in their option contracts. As long as the price of water stays the same or goes down, what would make owners lose confidence in those paper contracts? If in fact the price of water must go up significantly first before the price of water and the paper contracts for water go in different directions would owners not be better off initially holding the paper because of the leverage?

Lastly you seem to suggest that timing does not matter as long as one holds physical water in his canteens. And yet on several occasions you have suggested the price of physical may drop below even last summers lows of $250. Should that event take place it seems to me a person would be better off holding his cash and filling his canteens at $200 rather than at the current price of $280.

In summary I guess I am asking how you can be so certain that gold will vastly increase in value possibly even to $30,000 yet not be able to discuss with any degree of certainty whether it will hit $200 or $360 first?



elevator guy (12/16/99; 0:06:22MDT - Msg ID:21127)
@Canuck
Sorry I could not get back to you in a timely manner. I guess by now many have told you about the commodities markets.

In 1996, I read a book about commodities, and doubled my money in corn, by ignoring most of what I read. Strange but true.

In August, I went long in gold paper, (shh, dont tell anyone on this site), and turned $5000 into $30,000. Missed the peak, but could have made $100,000 with better timing. (Dont let greed influence your decisions!)

There is a couple of good little pamphlets on options, put out by the Chicago Mercantile Exchange, that takes you through a lot of options info in a little time. There are whole librarys written on futures markets, and you can find those books in the business section of your paper. The net has a lot of sites, use a search engine. You can follow crude oil futures and options on nymex.com, and quote.com/livechartscom/, among others.

Commodities take out those who do not study, so most dreamers like me lose money. I have been blessed, and have profited. If you want to hear a little more, you can ask MK for my e-mail address.



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