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ARCHIVED DISCUSSION FROM 10/19/2000
All times are U.S. Mountain Time

(Yesterday's Discussion.)

bravos2all (10/19/00; 23:45:12MT - usagold.com msg#: 39455)
Is this a Good Strategy ??
Hello fellow knights........I seldom post & have lurked for almost 4 years on the gold forums.

I have an idea that may be able to put pressure on "The Powers That Be" if we all work together collectively........ Let me know if you all think this may be a good strategy or if it will even work.

My understanding is that most people do not take possesion of their stock certificates and that "TPTB" use our shares at times to short our gold stocks.

What if we collectively put out the word on every forum possible and everyone requested their stock certificates be sent to them.........all on the same day. I do not know how many shares are out there.........but I have thousands of gold shares.

Would this tactic put pressure on anyone who are using "our" gold shares for shorting purposes ??

Thank you all for any thoughts on this topic........


SHIFTY (10/19/00; 23:43:57MT - usagold.com msg#: 39454)
auspec
I think we need to draft Sir Black Blade. I have not seen him post in a few days. He sometimes shows up this time of night. He may be at the testicle festival he spoke about a wile back. I need to get to sleep , I'm supposed to go hunting wild boar in 4 hours. Not much sleep for me tonight. Gold will probably move tomorrow because I wont be here watching it. Oh well , Good night

ORO (10/19/00; 22:31:58MT - usagold.com msg#: 39453)
Cavan Man - yes
It is a process in which the underlying fundumentals behind current trends are knocked out one by one. As each one is knocked down, another attempt is made to compensate. Oil and other goods were rising as Asian investment in new production capacity grew by leaps and bounds through the early-mid 90s, and caused consumption of crude goods to rise beyond the world's capacity to bear without price increases. As these came, both the Fed and the BIS took action to cut them off. The one raised interest rates, the other pulled the plug on their bank's capital adequacy. As these markets came crashing, the US and Europe could continue on their binge and steady course, respectively. The US could continue falling into debt and the EMU could have more ammo to use when the time came.

Though the Asian crash saved Rubin, Clinton and Grenspan's back end, it shortened the lifespan of the dollar as it induced accelaration of dollar debt paybacks. Just short of a dollar debt market collapse in 8-10/98 - some say it was already ongoing - the US dropped rates before Brazil, Korea and company defaulted (which would have destroyed dollar debt demand forever - foreign dollar debt being the source of much of the fundumentals of the 80-90s bull market in bonds, stocks and good times). The dollar debt, was not only restructured, it was being paid down. Korea is now a net creditor, Israel joined the ranks just as investors flew in fear in 1997 - dumping their Korean and Israeli bonds at a 20% discount into the hands of locals, Mexico just announced the same, Malaysia is there, Saudi and friends will be there by the end of this year or early next, and many others are on the way - even Brazil is advancing. The dollar markets are still tight as low foreign dollar borrowing creates fewer dollars in the international arena and sucks liquidity out of the US markets. As the new creditors put their house in order, any excess not needed as reserves against dollar debts coming due is being spent on rebuilding inventory and on consumption - hence the oil price rises, the metals price rises and the stabilization of agricultural prices (some actually had a time in the sun) and $1/lb pork chops are a thing of the past. The dollar is in undersupply against other currencies, but it is in over supply relative to crude goods and now against some basic intermediate goods such as some key chemicals, textiles (recently), some semiconductors etc...

The Fed is trying the same old trick from the past by trying to raise dollar demand in the international and local markets through interest rate rises. However, the US debtors are standing up to the pressure and defaults are running quite high and Moodys and SP are projecting that things will get worse. Banks have about 1/4 of their assets in this paper and will have their solvency threatened. Solvency, though, is secondary. Primary is liquidity, which the Fed is maintaining with the help of Treasury bond buybacks and repeated RPs. The decline in borrowing due to high rates is putting more demand on Fed injections, which actually increases with higher rates. While consumers are doing fine with these interest rates (though not quite as well as without them), businesses, which have a 9-10% average Return on Assets are not capable of borrowing at prime rates (these are 3% above the Fed funds rate +1%/-0.5%, now at 9.5%). Therefore, the fed will have to pick up whatever slack is left by the consumer.

I will note an interesting item here; the Fed raises rates whenever the ratio of new business borrowing to new consumer borrowing grows. Consumers are much less sensitive to the interest rate. It is only now that prices of existing houses in hot areas have stopped rising or dropped slightly, despite a full 1.5% increase in mortgage rates earlier this year. The reason is that while business borrowing is proportional to profit, labor income and borrowing is proportional to business revenue.

The aftermath of the elections should see the new pres greeted by a hurried Fed response to the credit crissis at least in monetary injection and perhaps in interest rate drops to "save" country X, or the Euro. The Fed is bluffing and the bank mergers are just bringing the size and importance of the first bailout up. After the Chase merger we will have waaay too big to fail, not only too big. The Fed simulations of bank system survival in 1995-8 were with banks about 1/2 the size of current institutions relative to the total. The largest bank can now take nearly 10% of bank assets if they fail - which is all that there is between a live banking system and a dead one.

So yes, the supports are falling one by one. Each reaction that keeps the system afloat prolongs and intensifies the future pain.






ET (10/19/00; 22:10:49MT - usagold.com msg#: 39452)
nickel62

Hey nickel62 - I enjoy all the stuff you post here. My apologies concerning the bond article. I now realize I left off the link for that article and the one concerning the housing market in Phoenix. Both are from the Arizona Republic, today's issue.

Thanks for explaining the situation. I'm afraid you're right concerning the liquidity issue in these funds as well as some of the other debt and equity funds. It's interesting that FOA's message concerning liquidity in the paper gold market seems to fall on deaf ears here even in the face of articles like this. This is an increasingly common occurence in many markets. It will be interesting to see how this case as well as others to come are resolved.

auspec (10/19/00; 21:59:04MT - usagold.com msg#: 39451)
CLHE-HoF Progress?
Back from straightening out Hollywood and ready to resume our siege of the Castle. Membership news- Cavan Man has acquiesced and will not fight his conscription. He says he is going to quit mining shares "cold turkey", this is the kind of man we are made of. Buena Fe is now with us also, can't figure out whether to put her {right?} in charge of "grawg" or Faith. This will sort itself out one way or another. Grawg will be the official drink of CLHE-HoFAG regardless of her indicision. Welcome BF! Cb2-you are AWOL.

ALERT! We have made an informal contact with Townie and his lackey, MK. An all night negotiating session looms, and it does not look promising. Will report to all Founders results of same tomorrow morning. Sleep on your left sides tonight and be ready to wrap this up tomorrow {enough is enough, there are soap operas that havn't run this long}.
There are a few more Founder's positions available, but Mike has reneged on the "free gold", some sort of misunderstanding. Goldfan- your membership is not negotiable. Leadership spots in CLHE-HoFAG are waiting for the right, cerebrally balanced, Bravehearts. Who else will follow in the footsteps of the CLHE-HoFAG Giants??? {you shoulda got a patent}.

nickel62 (10/19/00; 21:52:14MT - usagold.com msg#: 39450)
I hasten to add that the value in the prior situation is not for the remaining fund holders.
Although they may see a significant bounce back. But most of the value is extracted by the traders for the bigger trading firm that buys the merchandise from the Heartland Funds when they need to raise cash. They low ball them of course since taht tis what traders do as the nature of their work. The mutual fund is not a good investment even at the low price since the good stuff that could be sold has been and what is left is often just real junk. Do not bottom fish. You could buy merchandise from them but you don't want to buy their mutual fund shares.

Netking (10/19/00; 21:45:31MT - usagold.com msg#: 39449)
@Revelation
Revelation; you write; "...I feel very confident the end is close at hand. Do not give up, man will not prevail..."
To which man/men do you refer? and which specific end?
I am reminded of the 'Lone Ranger' talking to his trusty sidekick Tonto saying; "Tonto, Tonto we're surrounded by Indians!" to which Tonto replied back to the Lone Ranger; "What do you mean WE white man?!".





ET (10/19/00; 21:43:51MT - usagold.com msg#: 39448)
Stranger
http://www.mises.org/fullstory.asp?control=530&FS=Taking+the+Price+Temperature%3F

Here is a short piece illustrating the problems with price indices. From the article;

"We must grant that the attempt to measure "price levels" is not
completely mad, as long as it is taken as an extremely rough
approximation of monetarily induced changes. To return to the
thermometer analogy, if, in our peripatetic attempts to check its
accuracy, we read 80 degrees, walked five feet, and then read 40
degrees, we would be justified in suspecting that something is up
with the thermometer. Similarly, Austrians do not dispute that when
the CPI shows 20% inflation, prices are probably undergoing a
general rise. What is absurd is to publish CPI figures that show that
inflation has "ticked up" from 2.4% to 2.6%. As Mises said:

The pretentious solemnity which statisticians and statistical
bureaus display in computing indexes of purchasing power
and cost of living is out of place. These index numbers are
at best rather crude and inaccurate illustrations of changes
which have occurred. In periods of slow alterations in the
relation between the supply of and the demand for money
they do not convey any information at all. In periods of
inflation and consequently of sharp price changes they
provide a rough image of events which every individual
experiences in his daily life. A judicious housewife knows
much more about price changes as far as they affect her
own household than the statistical averages can tell. She
has little use for computations disregarding changes both in
quality and in the amount of goods which she is able or
permitted to buy at the prices entering into the
computation. If she "measures" the changes for her
personal appreciation by taking the prices of only two or
three commodities as a yardstick, she is no less "scientific"
and no more arbitrary than the sophisticated
mathematicians in choosing their methods for the
manipulation of the data of the market. (Human Action,
XII.4)"

nickel62 (10/19/00; 21:43:46MT - usagold.com msg#: 39447)
ET Regarding Heartland Funds
You have hit a subject I know something about for a change. The problem is important to understand and is not at all unusual or rare as the article suggests. In fact it will become all too common as the comming bear market continues to unravel. The problem begins with the nature of the investment products you are talking about in these two funds. They are both high yeild funds which is simply a euphenism for Junk bonds which means very high risk bonds that pay a high yeild in order to attract investors to the greater risk. THe municipal market and in fact the corporate bond markets are much less liquid than the stock markets are generally thought of being and what I mean by that not intuitively obvious statement is that municipals trade as individual issues since each separate bond has it's own set of risks, fundamentals, exposures and maturities etc. In other words it is a single issue that might have only fifty million outstanding. Junk munis are by definition very risky specific situations. What hit these two funds though is not the credit of their specific issues but rather the fact that because of the disasters going on in the junk bond market the market has gone "no bid" and therefore there is no way of either pricing the portfolio at the end of the day to tell what the NAV or net asset value is and also of course there is no way of selling some of the bonds. The bonds are still good in the sense that most of them will probably continue to pay although with "JUNK" this is often problematic. The problem is a technical one where the only way to price the bonds is of a comparable sale. If there are no sales for several weeks or months of that specific issue of that specific municipality then the price stays the same and in a crisis this causes the portfolio to have certain bonds that are "priced" each day at 4:00 pm when the market for stocks closes and mutual funds are priced by the fund accountants stay the same as if they were in a time warp. The danger is normally minimal because the period passes and usually their is enough cash to meet redemptions but in a mid size or smaller fund family as the information about the problem gets out the redemptions can overwhelm the cash on hand and the bonds for which there are bids are sold quickly and soon you come to only the bonds for which their is no bid or those for which the bid is far below the stop in the air price that you have been quoting for weeks since there has been no trades in the market reported of that specific bond. Now sudddenly as you do sell those bonds that you get low bids for the NAV plunges more and this scares the remaining holders even more and redemptions really take off. The directors of the fund begin seeing personal law suits and they begin to force the management to reflect the real market no matter what since they can be sued for showing an artifically high price and don't want to depend on a judge or jury understanding that the small specific nature of municipal bonds makes it quite normal for some of them to trade only one a month or so. The directors now force a change in pricing to protect themselves and the fund from claims of misrepresentation and the new fair market prices in a time of no bid in the junk bond market means lower prices still. Now there are real bargins being created here since much of this stuff is still as good and valuable as it was two months ago but the panic and the perculiar pricing of mutual funds and muni bonds in particular have combined to slaughter the poor investors and the manager and his company. It will become very very common as the illiquidity of the stock market in high tech and small cap stocks run there course. The same problem exists. Liquidity is of course not always like you are seeing in a bull market. At the bottom of bear markets even the biggest companies can go "no bid".

TheStranger (10/19/00; 21:27:36MT - usagold.com msg#: 39446)
County Cavan Man, Part II
In fact, that was a darn good point. When are you coming to Salt Lake City?

TheStranger (10/19/00; 21:23:58MT - usagold.com msg#: 39445)
County Cavan Man
Good point, County Cavan Man. But, sooner or later, inflation will kill a bull market, and I think the last one already been done kilt.

Cavan Man (10/19/00; 21:04:20MT - usagold.com msg#: 39444)
Stranger
No need for inflation hedges when market participants believe they can beat it (inflation) in US equities. Little accumulating of mining shares in this environment is both unusual and, not a good sign (not to mention discouraging).

TheStranger (10/19/00; 20:59:30MT - usagold.com msg#: 39443)
Van Rip and appolo's golden chariot's Question
Van Rip - I read you loud and clear on that 3.5% Social Security inflation adjustment being the largest in ten years. Unfortunately, even being right is often not enough when it comes to investments. In the last 48 hours, the Labor Department announced the biggest 12-month CPI increase in a decade, (and even that is grossly understated, a subject I hope to get to later) -AND- Microsoft announced a 12% drop in operating earnings. So, true to form, gold prices sank while Microsoft stock rose something like 18%. I work very hard at understanding economics. I don't always succeed. But this is getting exasperating.

appolo's golden chariot - Your question was not addressed to me, but perhaps I can help. Gold and inflation-indexed government bonds are two very different investments. Gold is an aggressive, highly unpredictable, capital gain ploy which can greatly increase your buying power when your timing is good and greatly decrease it when your timing is bad. Inflation-indexed bonds, on the other hand, are among the least aggressive investments and are designed only to slightly improve your buying power over a long period of time. Each of these investments is liable to be attractive to somewone who expects inflation, but they are at opposite ends of the risk/reward scale.

Cavan Man (10/19/00; 20:47:50MT - usagold.com msg#: 39442)
ORO
Do you think we are edging closer to a point where TSHTF?

ORO (10/19/00; 20:42:42MT - usagold.com msg#: 39441)
Shermag - the right lesson
The mark of the 1998 crash and the reliquification that followed was the near official re-statement of support to the stock market (openly stated by Fed trial baloons after the '87 crash intervention). The much rumored story of the PPT seemed to gain currency. Thus the market pros could understand clearly that there is a big "put option" being sold for "free" to the market, and that purchases of anything on the main indices would be as close to a no-brainer as the street allows. Particularly important was the realization that a dollar of futures intervention has a disproportional effect on stock of closely held companies, those with a low float. Thus the market participants could simply choose the large cap names with the lowest floats and see that on any recovery in the markets following a crash, these would outperform, since with futures led intervention, these stocks would get a disproportional push upwards. Consequently, the companies had responded with ESOP programs that made their earnings appear that much more attractive.

Today, CNBC reported that the big investment banks (and this means the big commercial bank trading desks that cater to them) were aggressively buying the NASDAQ futures. It did not strike anyone there as unusual that they were standing openly at the pits buying for their own accounts. The normal route to intervention is borrow, write OTC puts to favored hedge fund clients at below market prices, have clients buy futures, have the arbitrage funds borrow the money that the investment banks borrowed in order to arbitrage the futures into the underlying stocks.

The fact of their open action indicates that there was no time to let the process work, and it had to be an immediate and aggressive spike on these two days before options expire.

The general rule is that spikes occur where there is leverage or where a brontosaurus is entering the pool. The outstanding leverage is always bullish on net. Therefore the saying that prices fall more quickly than they rise. This rule does not hold well near futures expiration, nor does it hold at the end of a month, where mutual funds try to mark up their portfolios. Thus expiration weeks count for disproportionately large numbers and intensities of up swings following a substantial down week (it should be noted that during strong moves in the market the disproportionate number of calls induces the bankers to short the market, thus expiration weeks are not over represented on the best week list). By the way, Thursday-Friday-Monday periods contain the greatest intraday up swing (Friday Monday) to downswing (Thursday Friday) ratios at 1.4 and they are strongest on expiration weeks at 1.8, vs 1.3 on average days (for the Nasdaq) over the past 3 years.

The final point here is that each of these interventions is assisted by the injection of funds by the Fed or Treasury by purchase of T bonds/Notes/Bills that put in liquidity that is needed to free up cash when investors don't want to lend any or borrow any new cash into existence. These provide the inflation of the money supply at the exact point at which there is minimum investment happening, since it is done when no large borrower is willing to borrow for business investment because his expected profits on this investment (and hence his stock price) is too low.

Thus these funds go down the financial lines to reach the consumer level, where these funds eventually cause new demand that has not been backed up by new production or productivity enhancement. Same goes for all other interventions of this type, whether in suppressing of the gold market, support of the bond spread market, or saving the money market or banking system - all of which are up in the air right now. Only currency interventions are not necessarilly inflationary of the money supply.

So far as I can tell, the price pressures are secondary to the Fed, and it will not have much upwards room on interest rates since the system is on the verge of insolvency as it is. The recent noises from the Fed about "tightening" is more bark than bite. If it does raise short rates, it will have to buy back bonds and RPs by the truck load if it reaches the interest rate level that actually stops long term price inflation from accellerating.

The favorable move in the trade deficit is mostly a result of dollar appreciation, but also reflects the emerging shift from investment in the US to the purchase of US goods as the target of dollars coming back home.

The lesson Shermag's friend should have learned was only partially different from his actual lesson. Don't hold dollars, hold anything else; stocks, goods, gold...

Though the stock market has the protection of the Fed behind it, the profitability of companies has been falling as the margin between the prices they can get and those they are charged declines drastically with the relative rise of the PPI re the CPI, particularly the Crude goods PPI relative to the CPI. After 20 years without major investment in the natural resources industries and in the basic materials industry, there will have to be a period of reinvestment such as we had in the 70s, where everyone scurries about every piece of land looking for oil, gas, copper, any metals. While they are searching and building the new mines and wells, the people doing the work are going to consume while the old resources are depleted. During this period it is necessary to have people move from whatever they were doing and into the resource sector, where they must earn substantially more (otherwise they won't come) than they can where they are now. Because of this, average "real" wage must fall while resource industry and capital equipment industries see climbing wages. Any attempt to retain viability in the previously booming markets of the consumer goods industries, their suppliers and financiers can only bring further price rises as this boom must go bust because it had thrived on underpriced basic goods that can no longer be had because they were under-priced for so long that even existing capacity was declining.

Raising interest rates may prevent short term price pressures as new investment dries up and either puts people on the street, or at least prevents more demand for labor from expanding. High short term interest rates raise the cost of working capital, which causes inventory reductions and removes existing cushions against shortages, though it keeps prices lower on the short end, it eliminates the "shock absorbers" of the future and increases prices on the long end. This high rate environment also leaves the investment in resources lagging and prolongs the period of depletion. That can not assist in solving the problem, only make it worse and make it last longer without reducing price pressures long term. Lowering rates, however, may spark a price spike in the goods in shortage, as inventories are built up at the lower interest rates. That price spike would finally provide the appropriate market signal that would make the shift into resource investment happen. The easier this investment is made, so will this period end more quickly.




ET (10/19/00; 20:37:26MT - usagold.com msg#: 39440)
Liquidity

Heartland mutual funds plummet;
disaster points to run on assets

Oct. 19, 2000

The news coming out of the Heartland mutual
funds group this month seems too incredible
to believe.

One Heartland fund is now showing a
year-to-date loss of 46 percent. Another is down 71 percent.

Such awful results would be bad enough if the portfolios in
question held risky Internet stocks. But these are bond funds,
which just aren't supposed to behave this way.

Heartland hasn't gone into detail on what went wrong. The
Milwaukee firm issued a short statement saying the funds'
directors adopted "fair value pricing procedures" Oct. 13 that
resulted in lower prices. Heartland didn't state what the prior
policy was, nor how the valuation gap widened. A spokesman
didn't amplify on the situation.

Also left unsaid was how a repricing two weeks earlier, which
resulted in a small initial price drop, may have made things worse.

"It's possible that many investors tried to sell their shares after the
first repricing," said Chris Kelsch, an analyst at Morningstar in
Chicago. That may have forced the managers to unload bonds in
an illiquid market to meet withdrawals, he said.

In other words, the portfolios may have suffered a run on assets.
Heartland's terse explanation did cite "credit quality concerns"
and a "lack of liquidity" as factors.

The hardest-hit fund, Heartland High-Yield Municipal Bond,
invests in tax-free bonds with low ratings from watchdogs like
Moody's and Standard & Poor's. Low-quality munis often slump
when the economy slows when weak borrowers have trouble
making payments. Such bonds can be illiquid or hard to sell, so
it's difficult to value them.

Low-rated munis "certainly have been bid cheaper due to fears of
a slowing economy," said Todd Curtis, who runs the Tax Free
Trust of Arizona, a high-quality muni fund. But there hasn't been
panic selling, he said.

Even when bankruptcies occur, bond investors often recover
most of their money. That's why it's so unlikely a mutual fund
would slump 71 percent, virtually overnight.

"It's almost unheard of for an individual bond to drop that much,
let alone a bond fund," said Peter Crane of imoneynet.com, a
research firm in Westborough, Mass.

More curious was the collapse of the second fund, Heartland
Short Duration High Yield Municipal. What makes this odd is the
fund's focus on bonds coming due within three years. Such
bonds are less risky than those with distant maturities.

Another question concerns lead manager Thomas Conlin, a
22-year muni veteran who resigned last month. Heartland didn't
say why he left.

The funds' prospectus limited Conlin to buying only a modest
amount of low-rated, illiquid bonds. Kelsch thinks he might have
stretched the policy by loading up on IOUs issued by hospitals
and other medical outfits that have been hit by Medicare reform.

At any rate, the episode may spur other investors to rethink their
strategies.

"Some of the short-term bond funds have attempted to market
themselves as money-fund substitutes," Crane said. This incident
shows they can be a lot more risky.

Yet the massive losses also paint this as a special case.

"I really don't think we're going to see a ripple effect," Kelsch
said.

ET (10/19/00; 20:29:43MT - usagold.com msg#: 39439)
Traveler

Valley housing market cools

By Catherine Reagor
The Arizona Republic
Oct. 19, 2000

The Valley's housing market has gone from hot to just warm.

Sales of existing Valley homes fell 10 percent during the third
quarter and are expected to keep falling through the rest of the
year.

The median resale home price decreased in September to
$129,900 from a record $131,000 in August.

Also, it is taking longer for metro Phoenix homes to sell. For
September, the average time on the market for an existing Valley
house was almost 49 days. A year ago, it was fewer than 40
days.

"The market continues to be reacting to the higher mortgage rates
of prior months," said Jay Butler, director of Arizona State
University's Real Estate Center.

Rates have fallen recently, but most analysts aren't optimistic the
drop will be enough to boost the market back to last year's
record pace. In 1999, 65,000 existing homes changed hands.

For the three months that ended Sept. 30, there were 14,075
resales in metro Phoenix, according to the Real Estate Center.
During the same period in 1999, there were 15,550 existing home
sales.

New home building has also been on the decline in the Valley, but
likely got an artificial boost in September from builders rushing to
get permits in case voters approve Proposition 202, an initiative
to limit growth.

Cavan Man (10/19/00; 20:19:24MT - usagold.com msg#: 39438)
Asia
I do think there is something really bad brewing over there and the rate of exchange for the Aussie and NZ currencies are making matters much worse FWIW.

dragonfly (10/19/00; 20:19:03MT - usagold.com msg#: 39437)
RossL


Humor takes many forms. No offense meant. By the way,

spelling and grammar do have one thing in common.

Cavan Man (10/19/00; 20:18:17MT - usagold.com msg#: 39436)
Seoul
Someone made a comment about the Taiwan and S. Korean bourses being down significantly YTD.

From today's FT:

"The Seoul stock market appears oversold--it has fallen 50 per cent this year--but it is unclear whether it has hit bottom"

Does the concept of the FED playing in the futures market sound unreal to some? Here's how governments can and do intervene in suppposedly "free" capital markets; from the same article:

"The bourse briefly touched a 20-month low of 485 points yesterday before the government STEPPED IN WITH A PACKAGE OF MARKET BOOSTING MEASURES, INCLUDING THE CREATION OF A WON 1.5BN EQUITY FUND THAT HELPED THE SHARE INDEX CLOSE NEARLY FLAT AT 514.17".

I had a cigar and a pint last night in Crickets and made the statement to a friend that I believed the FED was playing in futures (perhaps not a totally bad idea). My friend was incredulous. I am sending him this article.

RossL (10/19/00; 20:13:30MT - usagold.com msg#: 39435)
tg

exactly... soaring inflation on IMPORTED goods, deflation on those houses in the areas that have seen rampaging inflation in the last decade. Specifically, deflation in neighborhoods whose owners are in the services sector rather than manufacturing. In many places, this means entire cities will see the deflation.
A few gold coins may go a long way.


tg (10/19/00; 19:57:39MT - usagold.com msg#: 39434)
Traveller, RossL
nice post again MR traveller.

Hi RossL,
I think those trillions of dollars held overseas you mentioned, won't come back to buy U.S assets if such a scenario as the traveller has described plays out, rather dollars will be dumped to buy any other asset which is more valuable than a falling US dollar. I hope it is mostly gold.

Look at what happened in many asian countries. Soaring inflation, currency devaluation, stockmarket and real estate deflation.

Japan has been pumping the printing press to the max. Yet property prices continue to fall, as has the stockmarket.

Leigh (10/19/00; 19:45:08MT - usagold.com msg#: 39433)
Cavan Man, auspec
Cavan Man, you definitely want to be part of this group of non-pointy-heads. Who else wants to be in the Hall of Fun?

Cavan Man (10/19/00; 19:44:18MT - usagold.com msg#: 39432)
Traveler
Your last post reminds me of Houston, TX in the 1980's--a time and place I remember all too well. Welcome!!

Cavan Man (10/19/00; 19:42:31MT - usagold.com msg#: 39431)
Lee Kuan Yew
(former PM of Singapore)
Watched an interview with this gentleman the other night on Charlie Rose. Such wisdom and insight; this interview was another reminder to me that it is a big world out there and Americans should try really hard not to be geocentric.



Leigh (10/19/00; 19:41:06MT - usagold.com msg#: 39430)
Azteca de Oro
http://www.lemetropolecafe.com
Azteca de Oro (no relation to our ORO, I believe) is back at LeMetropoleCafe. It's his opinion that the financial superstorm HAS arrived.

Cavan Man (10/19/00; 19:39:55MT - usagold.com msg#: 39429)
Sir Auspec
Have been travelling in Waco last 24 hours and have missed many good posts. I see I am being conscripted into something. Well, I have always shared the wisdom of not wanting to join any group that would have me as a member. However, in the case of USAGOLD and this merry band of goldmeisters, I am making an exception.

Thanks to all for putting up with my occasional weak moments regarding mining shares. I'm biting the bullet; NO MAS!!

Kind regards to all here it is good to be back....CM

RossL (10/19/00; 19:38:02MT - usagold.com msg#: 39428)
Dragonfly
wasssuppp?

It is considered slightly innapropriate on internet forums to criticize the grammar of another poster. Please try to focus on the message instead of the English.

Don't be a looser... hahah


dragonfly (10/19/00; 19:26:08MT - usagold.com msg#: 39427)
what's up with that?????
"...hang there hats..." USAGOLD #36903

"...I thought there only hope..." Peter Asher #37168

"...save there ass..." Nickel62 #38816

"...understand there thinking..." Beowulf #38966

"...as there holding..." RockGrabber #39407

-----------------------------------------------------

Is THERE a secret handshake passed around this fine oak table??? C'mon fellas, fess up. Otherwise meticulous
posts with this glaring anomaly?? Figured if I BOUGHT it
to your attention .... (smile)

dragonfly (10/19/00; 18:33:57MT - usagold.com msg#: 39426)
Traveller
Very well said. Thanks



Trail Guide (10/19/00; 17:48:31MT - usagold.com msg#: 39425)
(No Subject)

I was going to post again, but am glad to have waited. Many more good items were presented that also deserved comment. I'm reading, thinking, exploring what must be said. I'll reply later.

Nice posts all
Trail Guide




RossL (10/19/00; 17:36:17MT - usagold.com msg#: 39424)
The Traveler - That's a nice story.

Now, what happens to the several trillion dollars that is held overseas?


The Traveler (10/19/00; 17:01:43MT - usagold.com msg#: 39423)
Deflation Scenario I - The Collapse of Real Estate
Greetings to all and I lift my stein to those who welcomed me back to this august forum.

Here is how the boom and bust in the real estate values works. I will try to personalize the example for better understanding by those whose minds are not financially wired.

A new subdivision with 100 lots is developed in a good suburban location. Homebuilders advertise heavily and draw many eager young families to their "Street of Dreams". You are among the first to buy a standard home for $100,000. The friendly mortgage lender squeaks you through the underwriting process for an 80% loan at an attractive rate. The lender then sells your mortgage into a Fannie Mae pool.

The economy is going swell as is the stock market. Furthermore, lenders are anxious to lend more (put more cash – fuel - into the economy) so that the stock of their bank will rise and their options will be "in –the-money". This translates locally into more people wanting homes. Thus as demand is up, the home price rises to $120,000. As an early buyer, you are thrilled at the appreciation (inflation) in the value of your home. You have a paper return of $20,000 on your $20,000 down payment in just 9 months!!! You mark to market your personal balance sheet and start talking about a pool in the back yard with the spouse. Flyers from three banks came just this week that say they love home improvement loans and have easy payment terms tailored to your specific needs. You bite and the pool is built.

More time passes and one Saturday morning out by the pool you read that INTC split again and popped $3 thus adding $8 billion to its market cap for simply passing out more paper. You smile since your 401(k) holds some INTC. The adjacent article reports consumer confidence at an all time high due to FEELINGS of job security, raising equity values and strong home prices.

The subdivision is a great success. So much so that carpenters and brick layers are in short supply. Help wanted ads run in distant newspapers offering top wages for tradesmen. Naturally, the homebuilder passes this price on. New homes now command $150,000 and there is a waiting list. A zoning change on the adjacent acreage is proposed so that section two can be built. Additional amenities are sketched on the promotional plat.

But sales are slowing because fewer families can qualify for the same standard home at this higher (inflated) price. Lender to the rescue! He offers mortgages at 90% financing ($15,000 down - $5,000 less than you paid). Not to be outdone, another lender offers 90% financing with a low ARM teaser rate. Sales pick up especially since a new plant is coming to town that will create more jobs and thus higher demand for housing. The zoning permit is changed and construction crews that just arrived from Ohio begin pouring concrete for streets in section two.

Only ONE month later, the standard home is fetching 10% MORE or $165,000. You have a $65,000 paper gain on your $20,000 down in less than two years. You consider getting a real estate broker license and writing an online newsletter about shrewd real estate investing. A batch of flyers from banks offering a line of credit secured by your home arrives. You bite and sign up for a $32,000 line (80% of $165,000 less the $80,000 first less the $20,000 second for the pool).

A month later you face a choice: replace your three year old auto by drawing on the line or take advantage of the perpetual 75% annual gains the Evergreen High Tech mutual fund has been achieving as a result of the "rising tide of liquidity that lifts all boats" by borrowing on the line.

Lender to the rescue! While driving to your new job – you jumped to a startup for its incredible story and a ton of cheap-cheap-cheap options – you hear that the local auto dealer has a model closeout in progress. You buy that SUV under its ZERO program. That is - after $5,000 off the MSRP, you pay zero down, zero interest and have zero payments for one year. Thereafter, the loan is payable in 60 monthly installments. You ask skeptically "How can this be done?" and the dealer answers that the credit arm of the car maker bundles this type of paper together so that it can be sold in an asset securitized pool to thinly capitalized funding corps on Wall Street. You recall reading in a prospectus that these funding corps get the funds needed to purchase this auto paper by selling commercial paper to YOUR MONEY MARKET FUND as well as others. You are hungry for yield, aren't you?
You are tempted to take two SUVs off the hands of that friendly dealer under those terms, but refrain because you don't want to get over extended. Besides, you hear that the lender lobby is pouring cash into congress in order to get the bankruptcy laws tightened. No more being discharged with a "fresh start". Indentured servitude is making a come back. But hey, you're making all you payments on time even though it sometimes requires you to transfer balances between your 10 credit cards. But heck, if you weren't so credit worthy, why would those lenders keep sending you new cards and constant offers to transfer balances at low teaser rates? You wonder if those funding corps are also buying securitized credit card receivables with funds borrowed from your money market fund.

During the long, slow drive around the subdivision in your new fully loaded SUV, you recall that back in the 70's and early 80's (before the credit boom started), your Dad often bitched how tough it was to get a car loan. Banks would only lend 75% of the base price (zero on the extras) and require full payment in 24 maybe 30 months. Only those with pristine credit histories need apply for credit. What the hell, those were the days before the technology revolution, Alan "Mr. Pump" Greenspan and the NASDAQ.

The next morning, you draw on the line of credit and buy that hot tech fund that surely will be the pot of gold at the end of your rainbow.

The next weekend brings home sales at $200,000! Surely, America has corned the world in its ability to make everyone perpetually prosperous. Your $20,000 down has turned a paper profit of $100,000 in 30 months! At church, your banker wants to know if he can increase your line by $28,000 to $60,000. He sees that you are bumping up against the limit. Besides, he needs to make his sales quota for the month and earn more commissions. He hopes to receive more options at year-end from his aggressive market penetration. He seems sad when you prudently decline.

Then to the protest of all, Mr. Pump begins to raise rates on fed funds – what ever that is. This causes all other rates to also rise. You are happy though for you have a fixed rate on your mortgages and a zero rate on your car loan. Those credit cards could be a problem though.

Section one is now sold out. The last handful of homes went for $190,000 - a closeout sale the developer said. These buyers are full of glee since they got a discount and 95% financing from lender that just opened a new branch in the market that already has 10 lenders in it. Competition is great for the consumer!! One buyer claims to have gotten 120% financing and an adjustable rate mortgage that resets every 6 months.

Over the next several months, interest rates continue to rise, the equity markets seemed trapped in a trading range that signifies "a pattern of distribution" according to Maria and energy prices are heating up. Sales of homes in section two are slow and the home price isn't rising anymore. The newspaper says local building permits are down, the new plant will not be built and that some tradesmen have been seen headed for Ohio.

A year later, as the recession rolls out, some of your neighbors have – suddenly – become unemployed. Your confidence is shaken. Their homes are FOR SALE since it seems the ARM teaser rates have jumped to the point that they struggle to make payments. In an effort to cut his losses, one neighbor sells for $175,000. That is the price it took to get the only "showing" he had in a month to buy. Besides, that buyer's lender has tightened its credit policies and now only makes 80% LTV loans.

Next three more sell, one at $160,000, another at $150,000 and WOW one at $140,000. Seems that few buyers are interested and the ones that are want "a deal". Besides the lenders are getting nervous as credit losses are increasing across all product lines. They hold firm that 20% down is only prudent. That is what the FED examiners told them last month just before they required a 300% increase in the lender's provision for loan losses. Why argue with your banker. He seems dejected now that his stock options are under water following the earnings shock his bank announced to Wall Street.

Then one day you open a letter from your bank that says it is reviewing your line of credit. Please send updated financial statements and your last tax statement showing your home's assessed value. Fortunately for you, you think, the tax value is still $200,000. At the current price of $140,000 and falling, your line limit would be cut from $32,000 to $12,000 (80% of value less the $80,000 first and the $20,000 second for the pool). You could not have paid down the line by $20,000 if the lender demanded it since your tech fund has a 50% loss.

Next you hear that several of your neighbors were foreclosed following their Chapter 7 filings. At the court house steps, their homes went for $125,000 (a fresh set of comps for every appraiser to use). You feel sick and wonder if Bill Clinton feels your pain. The lender who foreclosed it now wants to move the unit so it offers the home at $125,000 with 10% down – 90% financing.

You decide to sell and settle up your debts. You offer your home at $120,000. If you sell, you will settle your home equity line by selling your mutual fund and dipping into your 401(k) for the difference. You are after all an honorable indentured servant.

As your house is the lowest priced house on the market, a buyer shows real interest until he applies for a mortgage requiring a 20% down payment. He too has had stock market losses and doesn't have an EXTRA $12,000 to put down. He takes the foreclosure instead even though it is $5,000 higher in price! Funny how the availability of financing effects behavior.

One day, you read in the paper that your money market fund "busted the buck" and is now in receivership. Seems that those funding corps defaulted on its commercial paper following a 25% default rate on the unsecured credit card receivables and the auto receivables that had no equity.

Another month passes and more foreclosures occur. So many that the lender (or the RTC) is liquidating the units at 50% of replacement cost or $80,000. Deep pocket investors step in, snap up the units and put them on the rental market. The whole complexion of the neighborhood changes.

Though upside down on your mortgage, you take some consolation in the fact that you were an early buyer and didn't buy at the top like your best buddy did, you still have your job despite half the company's workforce being reduced and your spouse though stressed hasn't divorced you. Sadly, your options are worthless since the IPO never occurred.

Then at the mailbox you read that your lender wants another personal financial statement so that it can support the line of credit secured by your home. After you submit it along with a new tax value statement, you promptly get a demand letter requiring full payment ($32,000) immediately or your house will be posted foreclosure.

In resignation to the events that beset you, you file Chapter 7 and call your Mom to see if you can stay in your old room. You can't because she is renting it out for bean money. You hang-up and vow that you will never again borrower a dime from anyone regardless of the liberal terms that may be offered. Debt has ruined everything that you hold sacred. You then have a nervous breakdown and apply for tax-free disability payments under your disability insurance policy.

The economic lesson is …………….

Deflation is everywhere and always a monetary phenomenon – a lack of sufficient currency and CREDIT in the economy to support prices. When the growth in credit slows or turns negative due to higher interest rates and higher default rates, then the above illustration plays out.

Some wise ones here state inflation is the curse waiting for us over the horizon. I doubt it because we are already highly inflated. I point you to the NASDAQ's PE, home prices and auto prices for but three easy references. For hyper-inflation to occur, even more credit would have to flow from Mr. Pump. But to whom? The consumer is over leveraged already. The consumer has binged on easy credit to the point that debt service now takes more than 90% of disposable income for 80% of consumers according to the St. Louis FED. See why the economy has soared. If the above illustration does play out, most consumers – still anguished by their recent credit traumas - will avoid the credit trap and thus Mr. Pump will be "pushing against a string".

Remember, the consumer represents 65% or so of the GDP. As credit goes so goes the economy.

One caveat: Imported goods and services (particularly oil) will cost twice to three times as many greenbacks following the international adjustment (devaluation) of the greenback. I suppose that that counts as hyper-inflation from a domestic viewpoint.

Another lesson in What's To Come will be offered for your consumption tomorrow.

Black gold, Yellow Gold …… THE only wealth worth physically possessing (unless you are like Peter Asher and simply enjoy your unencumbered real estate for its natural beauty).



nickel62 (10/19/00; 16:29:39MT - usagold.com msg#: 39422)
If your wife or friends think you have gone off the deep end with the gold market being manipulated get them to read this book!
John Brimelow
john.brimelow@donaldco.com
October 18, 2000


"When Genius Failed
The Rise and Fall of Long-Term Capital Management"

Roger Lowenstein
Random House

When the financial madness of the late 20th century America fades into history, the saga of Long-Term Capital Management could well emerge as the quintessential story. Roger Lowenstein's ‘When Genius Failed’ is likely to be a classical primary authority.

Lowenstein is a deeply professional writer, who reduces the arcane complexities of derivative dealings to lucid prose, and focuses on the crucial components in a confusing complex story. He brings the icy precision of the battlefield surgeon to the deafening chaos of Wall Street conflict. His chilling assessments of such phenomena as the appalling Larry Hillibrand, perhaps the key force at LTCM, a strangely-diminished Allan Greenspan, and the sinister force of Goldman Sachs, are likely to prove definitive..

As a member of the Frank Veneroso/LeMetropole Cafe circle, and consequently feeling in possession of some first-hand knowledge of the LTCM smash, I found this book stimulating and informative. So also would others with professional involvement. This is not a book to be ignored.

LTCM was set up to profit from irrational disparities in valuation between similar financial assets, primarily bonds. The assumption that these occurred randomly in a normal distribution pattern had become an article of religious faith at U.S. Business Schools in the previous 20 years. Two of the progenitors of the view, Robert Merton of Harvard, and Myron Scholes of Stanford (and of the Black/Scholes option valuation model) were L-T partners. (Fischer Black had had the judgment to die an untimely death previously.) Careful reading of their work reveals that they assumed continuous markets and stable volatility ranges (neither always present in reality) and they acknowledged but ignored the fact that probability distributions in financial markets often show ‘fat tails’ -- in other words that extreme events occur far more frequently than a normal curve would predict. But they nonetheless built a ‘school’ of like-minded thinkers and disciples. This group had become very influential on Wall Street by the late 90s.

Wall Street in a sense, became a victim of the principle vice of the U.S. academic profession: the eagerness to set up introspective communities, dedicated to a dogma, which insulate themselves from fact-based criticism by exclusion and intimidation rather than argument. This behavior pattern, more redolent of Eastern European despotisms than of the English-speaking empirical tradition, turned out to be inimical to financial as well as intellectual health.

The life cycle of L-T was quite simple. Profitability in the transactions the fund sought out was quite thin, if reasonably predictable. Therefore, from the start, the partners sought to maximize size and leverage. Central to this strategy was relentless, brutal pressure on credit sources, seeking the cheapest rates and least encumbering terms.

Founded in March 1994, with equity of $1.25 billion, the fund was able to pay out $2.7 billion at the end of 1997 to selected shareholders. This sharply increased the active partners’ share of the pool at the expense of the investors, some of whom were in effect sent a check and told they were no longer involved. As L-T did not reduce its enormous positions, this move also hugely increased L-T's leverage.

By then, however, numerous other operators had entered the same field and opportunities were growing scarce.

It was widely thought L-T was working on advanced and refined versions of Merton & Scholes’ theories: this was not the case. Shortage of opportunity was dealt with simply by astonishing geographical diversification - Lowenstein cites 24 countries - and by an expansion into equity risk arbitrage. Up to 30 positions were carried, some in huge size. LTCM’ s expertise had little to contribute in this area. In retrospect, this was a major strategic error by management.

Consequently, it is not surprising that the Russian default of August ‘98 triggered the demise of the firm. As Lowenstein says, ‘In seventy years, Russia's communists had not succeeded in dealing markets such a telling blow as did its deadbeat capitalists.’

However, there is much more of importance in the LTCM saga than the rise and fall of hubristic, if well-funded, intellectuals. In my view, the most important document that appeared in the aftermath of the rescue was published in the Financial Times weekend edition Oct 10/11 1998. (Lowenstein does not mention it.) This was a leaked credit memorandum from Union Bank of Switzerland, one of the main losers in the smash, concerning the reasons the bank chose to do business with an entity leveraged far beyond the bank's normally tolerated limits. LTCM was a good credit, UBS hoped, because "eight strategic investors" including "generally government-owned banks in major markets" owned 30.9% its capital, giving LTCM ‘a window to see the structural changes occurring in those markets to which the strategic investors belong’.

This appears to be a bald statement that LTCM had access to inside information (which in the bond market, as Lowenstein points out, is not illegal) on particular national credit markets - because of its’ involvement with government institutions.

Who were these ‘generally government-owned banks’? Why would they want to give a foreign institution such privileges? In the case of the Italians, the only known Central Bank participant prior to this book, there was a reason, as Lowenstein reveals. Italian Government bonds were unpopular. ‘The bond market was rating the Italian government as a poorer risk than private banks’. Investing $100Mm and lending $150Mm more, the Italians obtained the sympathy of a market player willing to operate on a staggering scale – quite enough to move the Italian market. L-T made 38% of the $1.6 billion it earned 1994-95, its best years, from the Italian relative value/convergence trade. The Italian authorities got a bond market that appeared to be applauding their efforts to reach Germanic standards of financial probity. Who knows what other tasks L-T was performing for its ‘generally government-owned’ investors?

So who were the other ‘strategic partners’? World media displayed a peculiar lack of interest in this question. (I can vouch for this - I myself tried to get two major wire services to follow up.) Indeed, as Lowenstein remarks, the general press was also ‘stunningly silent’ during the period when L-T's death throes were starting to disturb markets.

But the author does have some answers: the Bank of Taiwan, the Government of Singapore Investment Corporation, The Hong Kong Land Authority and the Kuwait Pension Fund were names not publicized at the time. Some large private sector entities were: Sumitomo and Dresdner Banks, Paine Webber, the Liechtenstein Global Trust and of course UBS.

Still, several names are still needed to fulfill the UBS credit memorandum. Given L-T's Latin American interests, one must suspect one or two of that region's notoriously free wheeling Central Banks were involved. Similarly, I have always thought the Dutch Central Bank, perhaps the Austrian, and one of the French para-statal banks, likely candidates.

The perspective clarifies an obvious puzzle: Why was the L-T affair such a crisis? Lowenstein reports that the ubiquitous Peter Fisher of the New York Fed, when called in to evaluate the L-T situation in mid-September 1998, guessed 17 counterparties might lose $3-$5 billion combined. While annoying and bonus- (even department-) threatening, this amount, or several times this amount, simply was not big enough to create systemic risk. The S&L, 3rd World debt and Russian crises were all far larger.

True, the exposure was all in, or related, to public markets, which might indeed have had a dramatic few days. But these were generally not outright risks where losses might never be recovered. L-T was quite right to plead that their convergence or relative value trades would most likely work out, given time and enough carrying strength. This is in fact what happened, enabling the rescuers to recover their $3.65 billion injected in less than two years.

However, if members of the Central Bank fraternity stood to be embarrassed, and even surreptitious market manipulation revealed, the eagerness of the Federal Reserve to orchestrate a bailout (or coverup) becomes comprehensible. It must also be said that, although the likely losses might have been limited, some of the bonuses and jobs threatened by L-T exposure and by involvement in similar trades were located at politically well-connected private institutions, notably Goldman Sachs. (Happily, the Treasury official working with Fisher on the rescue, Gary Gensler, was an ex-Goldman partner.)

The picture of Goldman Sachs painted by Lowenstein is perhaps the most significant aspect of the book. After reading it, and remembering the stories emerging from the Ashanti disaster of a year later, it is difficult to understand why any public company would want involvement with this firm. As Lowenstein portrays it, Goldman under Robert Rubin and Stephen Friedman in the 1980s dropped the old firm's previous inhibitions against, for instance, proprietary trading that might damage client's interests. The sheepdog in effect turned into a wolf. The dimwitted sheep in Corporate America have only just begun to realize this. In the LTCM case, hordes of Goldman people flooded into L-T's offices in the guise of evaluating the portfolio for the purpose of raising capital: "Goldman's sleuths... had the run of the office. According to witnesses, [ one] appeared to be downloading Long-Term's positions...Meanwhile, Goldman's traders in New York sold some of the very same positions. Brazenly playing both sides of the street, Goldman represented investment banking at its mercenary ugliest"

Lowenstein dutifully records Goldman's denials, and their counter-arguments they did own some of these trades anyway and were merely being prudent. He also notes that others appeared to be doing the same thing. But he seems to accept that L-T's trades were singled out, makes clear that the partners- and some outsiders in the final rescue discussions - believed Goldman guilty and piles on such detail as to make it clear they were.

Goldman's behavior might be considered irresponsible, since it, along with others, was also having a bad time. It lost $1.5 billion in August and September 1998, and was obliged to put off its own IPO. A market meltdown must surely threaten all investment banks. But there were cards up its sleeve. Goldman's Jon Corzine, having eventually indicated an inability to raise funds for L-T, held up the meeting of banks subsequently summoned by the New York Fed to announce a vulture bid by Warren Buffet, AIG and Goldman, at less than half L-T's hugely eroded net worth. Since L-T's assets, once again, were convergence or relative value trades, virtually certain to recover handsomely once panic receded, this transaction could have been extremely lucrative. It died essentially because of Buffet's determination to humiliate the partners caused the proposal to be poorly-structured. (No doubt coincidentally, L-T had aggressively shorted Berkshire-Hathaway stock.) Goldman's specially privileged legal representative spent the rest of the rescue meetings repeatedly jeopardizing the proceedings seeking (fairly successfully) improved terms for his client and more pain for the partnership.

One has to wonder at Goldman's behavior, especially after the Buffet bid failed. After all, it was still a partnership. The partners’ own money, not that of anonymous shareholders, would be lost if the financial system had really crumbled. Morgan and Chase, in contrast, were quite cooperative. Was it just reckless selfishness -or was Goldman confident a bail out would indeed occur?

This brings us to the interesting question of gold, a market in which Goldman became peculiarly influential in the 90s. Eighteen months before L-T's demise, Frank Veneroso was told by a prominent hedge fund manager (unmentioned in this book) that L-T was short four hundred tonnes of gold. This seemed plausible, because we were aware of a more rapid expansion of Central Bank bullion lending than could be accounted for by known borrowers, and it was obvious that a heavy seller had been active in the market.

Moreover, it was becoming clear that large hedge funds and bank proprietary desks, having profited enormously from the ‘Yen carry’ trade (borrowing cheap Yen to fund higher yielding positions in other markets) were hunting around for similar situations. Since gold interest costs (‘lease rates’) were even lower than Yen, and bearishness was rampant, such a strategy had logic. I was told by a sophisticated derivatives man that he doubted L-T would take the ‘basis risk’ (e.g. borrow or short gold with no hedge). But Lowenstein reveals that the fund took substantial basis risk right from inception: much of the Italian sovereign risk was unhedged (merely very closely watched).

We were never able to confirm this story. But given the manic secretiveness Lowenstein reports was characteristic at L-T, this was hardly surprising. Anecedotal evidence continued to accumulate.

There is no mention of gold in any form in this book. In response to repeated assertions by Bill Murphy on Le Metropole Cafe, L-T's counsel took the extraordinary step in June 1999 of sending an affidavit from L-T partner Eric Rosenfeld (who seems to have been charged with being fund spokesman - he also answered written questions for Lowenstein) asserting L-T had never had any dealings in gold "in any..form whatsoever." Why it was necessary to respond in such a way to an obscure dissident website then only 9 months old, when no litigation was in process, is an interesting question.

Since those early days, Le Metropole Cafe has greatly extended its network of ‘Deep Throats" supplying information from all over the world. One of these has reported a conversation between Myron Scholes and a boyhood friend in Hamilton, Ontario to the effect that L-T was indeed massively short gold, that the position was relieved by the authorities who swore the partners to secrecy for which they were indemnified. This conforms interestingly with otherwise curious behavior by L-T partners towards Lowenstein. Davis Mullins and Eric Rosenfeld initially gave him formal interviews "but such formal co-operation quickly ceased. Subsequent attempts to resume the interviews and to gain formal access to..others of the partners, proved fruitless." Since the passage of time has vindicated the partners’ view that their portfolio was capable of full recovery, and some of them are re-entering the business, this is precisely the reverse of the behavior one would have predicted. It must be said that Lowenstein's omitting dealing with the widespread rumors of an L-T gold position is itself somewhat surprising.

Gold declined almost continuously over the life of L-T. An unhedged borrowing of cheaply-priced gold credit would have been a bonanza. The reason for gold's decline was a substantial shift in the propensity of Central Banks to sell and lend –"mobilize"- their bullion. This development was accurately heralded by certain observers thoughout. It was precisely the sort of ‘structural change’ that L-T ‘generally government-owned’ ‘strategic investors’ would have been able to identify.

The L-T partners were well aware that their competitive advantage lay at least as much in developing cheap funding sources as in asset management. They were constantly, aggressively, searching for lower rates and more liberal terms, and their tight fistedness with their brokers was notorious throughout Wall Street. That a fund running over sixty thousand positions in at least twenty four countries, which had required considerable ingenuity and inventiveness to identify, should have overlooked gold borrowing, is simply incredible.

The Long-Term debacle reflects poorly on their creditor counterparties, and raises serious questions as to the sagacity with which these major financial entities are managed. Lowenstein is justifiably stern: "Through their carelessness, their reckless financing, their vain attempts to ingratiate themselves with a self important client, the Wall Street banks had created this fiasco together...They, too, were awed by…the partners’ reputation, degrees, and celebrity."

Interestingly, When Genius Failed confirms what Le Metropole Cafe alleged at the time: the Bankers Trust sale to Deutsche Bank was a distressed merger. What kind of grooming was necessary to achieve the appearance of a premium over Bankers Trust's preceding market price remains a question.

Union Bank of Switzerland, of course, was in the process of ruining itself with various types of derivative exposure: their writeoff of $700Mm on Long Term was the largest announced loss. In large part this was due to an absurdly-priced warrant on L-T's equity that the Bank sold the partners, hoping to improve their business relationship. (An ex-UBS man told me the delicious story that having closed the transaction, L-T promptly shorted Union Bank's stock.) Credit Suisse First Boston sold a similar warrant. Another transaction which seems odd involved Merrill Lynch. In April 1998, with L-T still appearing to be walking on water, Merrill's senior executives personally purchased most of the firm's stake in L-T. This turned out to have the happy effect of getting Merrill out close to the top: But what would it have looked like if L-T had continued to prosper?

Lowenstein judges the derivatives revolution harshly. He asks penetrating questions about the role of the authorities. Given that L-T's "stunning losses betrayed the flaw at the very heart - the very brain- of modern finance" and that the concept it used "prevails at virtually every investment bank and trading desk" it is very strange to find Greenspan and Rubin (when Secretary of the Treasury) blocking all efforts to improve transparency and improve regulation even to the extent of forcing out the former CFTC head, Brooksley Born. A ridiculous situation has been allowed to arise where the balance sheets of major financial institutions have no reliable relationship to the actual economic situation of the firm, because of derivatives. Who benefits from this?

There are few appealing personalities in this drama. James Cayne, chief executive of Bear Stearns, L-T's clearing broker, appears impressive. It was his inflexible determination to hold the fund to its promise to keep a $500Mm pool of liquidity with his firm which triggered the final crisis. According to Lowenstein, he precipitated a near-riot when he told the assembled rescuing banks that Bear Stearns would not be contributing to help its formerly lucrative client. ‘When did we become partners?’ he asked. ‘They have a different view of the world’ said a participant, ‘they're completely self-interested’. Cayne personally was an investor with LTCM who had been allowed to stay in after the capital reduction.

In fact the figure who emerges with most moral stature could be the lead perpetrator, John Meriwether, Long-Term's founding partner. Somehow managing to command the loyalty of a group of spectacularly arrogant, selfish and volatile men, and shepherding them from Solomon to the new vehicle he designed, Meriwether repeatedly displays in the book an eerie emotional self-control and discipline which in another era might perhaps have made him a great fighting general. A practicing Roman Catholic leading a mainly Jewish group (everyone compromised – he professed to be a liberal Democrat and they played a lot of golf), an intensely private man who with his wife has apparently endured the agony of infertility, Meriwether now appears to be engineering a third Wall Street career. The reader is left with the feeling that he probably deserves one.

The implications of the LTCM crisis are ominous for everybody. That the derivative vogue has undermined and weakened the world's major financial institutions - and to an unpredictable extent, courtesy inadequate reporting procedures mysteriously tolerated by the authorities - has been obvious to any sensible observer for some time. Having an example so skillfully explicated is nonetheless disquieting.

What is really alarming, however, is the insight into the modern Wall Street mindset. The Fed despaired of getting a private sector banker to lead the rescue. "Wall Street had many bankers but no J.P. Morgan.". The reason for this is that proportionately more activity is now in the hands of entities with "a different view of the world" – like Bear Stearns. While Morgan in the 1907 Panic was able to dragoon virtually all significant financial actors, it is notable that no participation by the other great hedge funds is reported in L-T's case - even though they stood to be seriously effected by any disruption.

On an operational level, L-T was notorious for the atomistic view it took of business. It "analyzed every deal in terms of the profit and loss on discrete trades rather than in terms of the overall relationship". Minor technicalities were ruthlessly exploited - Merrill, which raised the initial capital, was stuck with a $7 million loss arising from a drafting error in a transaction document. The fact that Paine Webber's Chairman invested $10Mn personally, and the company $100 Mn did not prevent the firm being cut out of L-T's trading because it wanted collateral. Complaints by counterparties about the poor profitability of the relationship were ignored.

There is obviously a question as to the prudence of this, since L-T was such a huge borrower L-T's staff below the partner level - many highly educated and skilled professionals - were treated with similar brutality. No social activity took place between partners and the rest, unusual for an American firm. Partners "treated the staff with cool formality. They were polite but interested only in one another and their work". Although the associates were encouraged to invest their substantial pay back into the firm, they were kept totally in the dark when things turned bad, despite their being as exposed personally.

‘Explain to us why we should be..here’ demanded an employee after the rescue. ‘That's a valid question. We'll get back to you’ was the answer. There is no J.P.Morgan to rally Wall Street not because there are not men of similar financial stature - Morgan was not especially wealthy - but because the current beneficiaries of the American capitalist system lack a sense of community. One day we may all regret this very much.





















Peter Asher (10/19/00; 16:24:13MT - usagold.com msg#: 39421)
(No Subject)
ORO - Thanks for the resonse.

So much of the contemporary markets are the actions of traders jocking for profit position and in doing so obscuring the actual trends.

ORO (10/19/00; 14:09:49MT - usagold.com msg#: 39420)
Peter Asher - Iraqi statement response
The rumors were coincident with the declaration of intervention and had resulted in a surprise dumping of treasuries the day before intervention.

I think it was a case of "buy the rumor" when treasuries were dumped and "obfuscate the fact" when the Fed/treasury declared that the repatriation of the proceeds of treasury sales was "intervention". And finally, the "study" by Iraqui economists confirmed the political intention to have the dollar dumped in Iraqui oil trade, which was followed by a "sell the news" response as the players involved converted back to dollars.



Mr Gresham (10/19/00; 13:54:54MT - usagold.com msg#: 39419)
ThaiGold, Nickel62 #39384, SteveH #39388, ORO
Amazing posts! Thank you.

ORO -- your PPT-watching analysis is fascinating, even read a day later when I can't watch the action real-time. I'm grateful that you share with us, knowing there are other sites that would love to pick your brain as a trading source.


Buena Fe (10/19/00; 12:57:12MT - usagold.com msg#: 39418)
oil?
Does anyone know anything about a meeting of Arab leaders in Cairo tomorrow? Might oil pricing be on the agenda, right behind the Palistinian issues?

VanRip (10/19/00; 12:14:48MT - usagold.com msg#: 39417)
Stranger/Inflation Data
Headline from our local newspaper this morning:

Social Security Benefits to Rise 3.5%.

"Beginning in January, the cost-of-living adjustment will increase the average payment $29. to $845. a month.
.....the largest increase under the nation's retirement system in nearly a decade, federal officials announced Wednesday."

Peter Asher (10/19/2000; 12:04:24MT - usagold.com msg#: 39416)
nickel62 (10/19/2000; 6:26:46MT - usagold.com msg#: 39396)

You said:
>>>I think that if they are looking for a hard asset play to buy to save their own assets, they would force it
down not up as they buy it. Especially since these guys are thugs not investors. They want their risk
minimized. Maybe their is a reason they named the place "goldman sacks"?<<<

That's what they have been doing, per my ongoing "best guess." I think that for the "Endgame" all the stops will be pulled out and we will see a definitive sustained rise in the price of gold and silver. That is IF they throw in the towel on trying to keep the wealth transfer machine afloat and hyperinflate to permit the debt bubble to be serviced.

Mr Gresham (10/19/2000; 11:48:12MT - usagold.com msg#: 39415)
Shermag
http://quote.yahoo.com/q?s=^VIX&d=3m
The lesson could also be learned as: Buy volatility (VIX) when it is low, sell when it is high. This was my mistake in 1998, when I let $20,000 in SPX leap puts vanish, deciding to "let my gains run", and not knowing when a good bargain was being offered for them (at near 50% VIX).

The problem with options in a final collapse, of course, is that they do not price in the default of the market itself, and the dissolution of all contracts with counterparties into dates with lawyers in court for years down the road. Thus you can never fully collect your winning bets -- that you paid full economic and Black&Scholes price for -- if you wait till your full move happens.

With gold now, we are buying volatility cheap. The gold "VIX" is being suppressed in the derivatives markets. But ESPECIALLY with gold, the physical is the only way to collect, as the derivative markets seem to be a put-up job carrying multiple agendas for bigger games than gold itself.



Sharefin (10/19/2000; 11:38:06MT - usagold.com msg#: 39414)
Gold Production by Company
http://www.sharelynx.net/temp/ProductionRanks.htm
Here's a table showing gold production by the top companies.
The top 15 companies are producing 74% of total ounces
The top 30 companies are producing 92% of total ounces

90% plus of all hedging globally would be concentrated within 30 companies.

What needs to be filled in is the two columns on the right hand side.

Got risk?


Christopher (10/19/2000; 11:35:48MT - usagold.com msg#: 39413)
My first official act as an officer of CLHE-HOFAG
NOw that I have reached such an austere and(might I add, humbly) so deserved position among my peers, My first official act is to give myself a raise and take the rest of the day off. By the way which way to the executive wash room....(another)By the way Towne Cryer, there is that little matter of our HOF.....
CHLE-HOFAG's...Get us one.

Shermag (10/19/2000; 11:05:28MT - usagold.com msg#: 39412)
A Story of Lessons Learned


Back in September of 98, I met an old friend, recently retired, whom I had not seen in a while. Our discussions soon came around to action in the stock market, at which time he revealed that some 80% of his retirement capital was tied up in stocks. This was a time shortly after the Russian bond default and the ensuing LTCM debacle. Pessimism was raging, and the market had experienced a significant decline from its summertime high. He was somewhat concerned about the losses he had taken of late, but remained confident in the long term.

I counseled him that the similarities to 1929 were significant, and that the risks of remaining in this market were too great to be trusting a loss of his nest egg. I mentioned the ridiculously high P/E ratios of the day, and talked of bubbles and manias past. I spoke of the Japanese experience, noting that their market remained below half of its former peak of eight years . What got to him was my mention that the Dow did not return to its 1929 peak until 1955, some 26 years later.

He subsequently rearranged his portfolio to move largely out of stocks and into bonds, T bills, and other such investments. This transpired at the bottom of that market decline. What followed amazed me and upset my friend. The aggressive easing of the Fed, with the convenient cooperation of such lending institutions such as Fannie Mae, did its magic and the market soared into the year end. Part way through that rise my friend returned to stocks, dismayed for having taken my advice. He had learned an expensive lesson. The lesson that the stock market rises in the long term, and that any drop is to be ridden through. The lesson that some collective irrationality takes hold of the market in the early fall, resulting in a temporary dip, and a great buying opportunity, providing a base from which to rise again to new heights.

This same lesson had been seen before by investors the previous year. It was also seen in 1987. It was to be reinforced to a lesser extent in 1999. This is a lesson learned well by many again and again.

This lesson is probably at play in today's market. It is bolstering the courage of those who buy stocks in this environment. It is being repeated ad noseum by the investment professionals whose well-being depends so much on a continued rise in the market.

This will likely someday prove to be an erroneous lesson, a false wisdom. It will cost many very much of what they cannot afford to loose. When? I don't know. Perhaps this is the time, perhaps not. The current investment climate certainly seems more dire in many respects than recent years. But I had also learned a lesson at that time. Mine was that the timing of the collapse of a market is very difficult to know. That the power of vested interests to forestall what seems to be inevitable is significant. And finally, I learned not to play investment counselor. Now when asked, I will give my opinions on the current environment. I will freely relate what I am doing with my savings, but I avoid going out of my way to forcefully advise others on what to do with their savings.

Shermag


Buena Fe (10/19/2000; 10:57:01MT - usagold.com msg#: 39411)
auspec (10/19/2000; 10:30:28MT - usagold.com msg#: 39408) CLHE-HoF Update
Hee Heeeee I love it guys.........from my observations of markets,.....they seem to turn just as I (and others(all of us here?)) percieve that the fabric of reality has been stretched (boken?) to the point were all I can do is laugh at almost anything relating to what is holding back the change that I have been expecting for some period of time.

Like the market action these last few days.......it is so luny ........my head feels light.......and I can giggle every time gold dips and the dollar rises......its like I know that I know that I know that I know that I know.....that I really do know that the change is upon us!
Cheers, and pass the grawg!!!

John Doe (10/19/2000; 10:32:46MT - usagold.com msg#: 39410)
I post this for a great one-liner, courtesy of James Grant::
www.forbes.com/forbes/2000/1030/6612402a.html

"My longtime favorite, gold, is in a bear market older than Britney Spears."

REVELATION (10/19/2000; 10:30:38MT - usagold.com msg#: 39409)
GOLD PROPHECY FOR MY FELLOW BROTHERS AND SISTERS
Victory is close at hand. Gold is going to break free
of modern mans shackels in the next few days ahead.
If you have not done so, make sure you have put on
the armor of God.

Rev. Chapter 3 verse 18

( I counsel thee to buy of me gold tried in the fire, that thou
mayest be rich; and white raiment, that thou mayest be clothed, and that the shame of thy nakedness do not appear; and anoint thine eyes with eyesalve, that thou
mayest see.)


God is speaking to me and I feel very confident the end
is close at hand. Do not give up, man will not prevail.
Remember, Wall Street and the politicians are the evil
empire trying to lure every last soul into the stock market
where it will be lost for years to come. Innocent people
will lose their life savings and lay naked in the street
in belief of our financial system is too big to fail.




auspec (10/19/2000; 10:30:28MT - usagold.com msg#: 39408)
CLHE-HoF Update
A hearty welcome to new recruits:
Christopher-You have pushed us {WAY} over the top, you are now a ranking officer of CLHE-HoFA{dvocacy}G{roup}! Do not wake that guy up again!
justamereBear- Founder you are. This is the internet- we make the rules here. Call MK with your "free gold" order.
Aristotle- Thanks for the short-cut tips, but this is so much fun now am trying to delay our inevitable victory a few days. Now here are Aristotle and Trail Guide, a couple of switch hitters using both cerebral hemispheres. That is a path we can all follow......BiCerebral. They will certainly get some type of special protections around here.
Who else wants to cultivate some new neurons? Use it or lose it, join us or risk going down with the Castle. Do you other guys read anything besides your own posts? What time does Townie get to work these days? If we could enlist Farfel and turn that anger to OUR advantage....WOW! SteveH- You must be limping from your right brain dominance, you need us. Fair warning to all; If you even mention CLHE-HoF, directly or indirectly, or do anything besides ignore us completely, you will be considered a full fledged member with all privileges due you. This is like a cerebral tumor, once a few synaptic connections are made you will never be the same {as your Founders clearly demonstrate}.
Who Else????

Rockgrabber (10/19/2000; 10:13:05MT - usagold.com msg#: 39407)
Gold Mines should hold Gold as holdings.
Journeyman thanks for your info on this. I am just thinking, that it would be in better interest for mining companies to be debtless, and hold physical gold as there holding. The first one that would do this has my vote. There is not one mining company that holds physical????

Aristotle thanks for your minds work. thanks to you all for your minds work. It takes little dollars to buy alot of leveraged dollars through this paper futures market. If large entities buy dollar contracts (with the leverage being there) does it create a artificial high value on the dollar. I think it does, by just thinking it myself. The exact opposite of what is going in gold is going on in dollars?? instead of selling leveraged paper gold and creating a low price, it seems that they also buy dollar contracts just to strenghthen it.


Felix the Cat (10/19/2000; 9:22:32MT - usagold.com msg#: 39406)
Journeyman, addition for your msg#: 39311
The HK Gov. hasn't intervene since the last Economic-storm of Asian. HK Gov. has set up the "Trafu- Fund"(I'm sorry that I forgot the correct spelling but it's a kinda Fund) for manage ALL of the shocks that she has bought at that moment and it(Trafu-Fund) has been go to public about 1 more years. Now, it is NOT controlled by HK Gov.ANYMORE. Anyone could buy its shares anyway!
About the Fund of Taiwan for "defend" its stock markets. Well, they have invested about NT400 billions in markets butthey just lost about NT100 billions from it too.

F. C


justamereBear (10/19/2000; 8:59:59MT - usagold.com msg#: 39405)
(No Subject)
CLECHOF

I leave you alone for 1 minute, and see what you go and do!!

Yesterday I went off in an attempt to win a few coins for my poor purse, and come back to what I view as the best days postings ever. Almost every post had insight and wisdom. Well done to all.

I would be a supporter of CLECHOF, but doubt I would qualify as a founder.
All to often, upon reading someones post here, I smack my forehead and wonder, "Do you have any brains at all?" The smack does not help that one poor braincell rattling around in there. Could it be that it is a right brain cell? I might qualify then.

I took the online MB test and wound up as ENTP, however I wonder how Sir JAVAMANs wife would react to the scores. My high score was 52% and my low score was 51%. The scores have always been lowish, but my P has been falling. Not sure I am in favor of that.

I enjoy the humorous element, particularly when it is of the nature of Darwins plot taking to long to develop, or FOOLSTOP comments.



goldenpeace (10/19/2000; 8:36:49MT - usagold.com msg#: 39404)
Central Fund?
As a long time lurker, i bow to the wisdom of the many veteran posters on this forum...it appears to be one of the only discussion areas i've found where the participants haven't completely lost their bearings.
A question....Does Central Fund of Canada, set up by the Spicer family in Canada, holding bullion, both gold and silver,unemcumbered and segregated,
qualify as physical or paper holding? I realize it's not as liquid or portable as physical, but would it suffice in an IRA situation.
Opinions, please, especially from ORO'sir.
Thanks in advance.
Bowing humbly to you all.
Goldenpeace

Leigh (10/19/2000; 8:11:02MT - usagold.com msg#: 39403)
auspec
You guys are a riot! I cast my vote for a Social Hall or Hall of Fun or whatever it is you're agitating for. Things do get overly serious around here sometimes. My husband is complaining that I'm turning into a gloom-and-doomer.

I ordered a couple of pesos and Argentinos yesterday, so I KNOW my vote carries lots of weight!

Aristotle (10/19/2000; 8:06:20MT - usagold.com msg#: 39402)
auspec -- don't be shy to try (the sitemaster) e-mail, too hard to ignore
You won't hear it from Townie directly (at least not on the forum), but just as in the fine old tradition of mining, take it from me, he tackles mountains (largely behind the scenes) like a rented donkey. I'll see what I can do to make sure he gets out for a good lunch to pick up the energy and attitude necessary to go that extra mile for us all -- the poor chap.

a.g. chariot's question -- "What do you think are the relative advantages/disadvantages of invesmtment in physical gold versus investment in inflation-adjusted bonds issued by sovereign states?"

Most obvious would be the question: Can you trust the sovereign state to provide a reliable calculation and adjustment that adequately reflects the FULL extent of the inflation? The Gold market is not there yet, but when a fully free market takes hold as is inevitable given the political will evident in the context of current world developments (China and euro), with Gold you will gain not only capital appreciation as the current shackles break away, but from that point on you will have the market, not the government, properly marking the value of your asset to reflect the existing conditions of inflation.

Sorry--am called away for now.

Gold. Get you some. ---Aristotle

appolo's golden chariot (10/19/2000; 7:14:52MT - usagold.com msg#: 39401)
Question re inflation adjusted bonds
Aristotle, Oro and Trail Guide:

Thank you for your very enlightening posts over the past few months. I have learned much from you all.

However, there is one question about the relative value of financial contracts and physical gold investment in financial/currency crisis which I do not think has been addressed. What do you think are the relative advantages/disadvantages of invesmtment in physical gold versus investment in inflation-adjusted bonds issued by sovereign states such as the US and Canada?



Christopher (10/19/2000; 7:10:46MT - usagold.com msg#: 39400)
CLHE-HOF
Deer Peter the grate and Sur Spec of AU;

Those of us at the back of the class have been wakened from golden slumber by your loud conniptions and protestations. What the bleep is going on here? Can't a simple dullard catcha wink of nod without someone catching an infarction two rows over cause he can't get the prof's attention?
PLEEEEEEEEEEEEESE Sir Townie, give them what they want, whatever it is cause if they don't shut up I'm gonna go out of my mind.

NOw, where was I...goldisgoodgoldisgoodgoldisgood...zzzzzZZZZZZZZZZ-SNORT-COUGH-zzzzzzzzz.

Aristotle (10/19/2000; 7:00:05MT - usagold.com msg#: 39399)
nickel62 -- inflation it shall certainly be -- as the more politically palatable and doable outcome
http://www.usagold.com/hall/halldiscussion3.html
The Traveler's own past words will lend ample reasons that support that position (expecting inflation) from part of our prior monetary discussion found at this URL. Just scroll down a post or two for his input at that time, which was a very good post on creditor/debtor dynamics. I would encourage everyone new to the forum to review this entire thread from the beginning as time allows. There is some classic Trail Guide commentary throughout, and good thoughts by many on a monetary issue that looms large on the horizon.

Gold. Get you some. ---Aristotle

RossL (10/19/2000; 6:48:14MT - usagold.com msg#: 39398)
Joe Battaglia

The one year and 6 month lease rates edged higher yesterday, according to the charts at Kitco. The shorter term lease rates fell. This does not reflect a greatly increased in demand for leased physical gold, and that does not seem to support Joe's theory that lots of gold was leased and sold yesterday. To me, it appears to be a futures-driven event as ORO has suggested.

That's my .0023 grams' worth. (2 cents)


auspec (10/19/2000; 6:41:22MT - usagold.com msg#: 39397)
CLHE-HoF/USAGOLD Siege-Day3
The siege continues, still no word from the{Ivory}Tower. They are certainly worthy, or possibly asleep. The intellectual CLHCs {Cerebral Left Hemisphere Compromised} are firmly entrenched to this point.
BREAKING NEWS!!!We have been mentioned by Zenidea. She is now numbered among us for not ignoring us. WE ALSO RECEIVED AN ENDORSEMENT FROM TRAIL GUIDE!!!! Victory is now certain, am planning on going after Hollywood later today.
Our faithful are rallying behind Peter Asher, our Rosa Parks, and we now estimate being in total charge of this formerly esteemed forum within days. Unless the elitists yield to our pleas we will have to storm the castle and take ALL the plunder {Uruguayan Pesos} from these Robber Barons. Their Unfairness Doctrine, giving quotas and preferential treatment to the intellectuals and humor-impaired, is a crumbling Manifesto. The brainy have their HoF, we are only asking for "what is rightfully ours", our CLHF-HoF for the clever/Conscripted. This site isn't like the U.S. elections, as our kind host actually listens to our votes here {I think}.
To date we have used the weapons of blackmail and pestering on the anti-CLHHE-HoFs, w/o any visible success. They need to know we have many more aces up our arses {sorry Peter}, begging comes to mind, and we will not hesitate to use them. Hint: I know the guy who INVENTED the internet. Recognition of CLHE-HoF will bring quality of life to the USAGOLD Forum. We're all going to be independently wealthy {like MK} soon- might as well start learning how to enjoy life more NOW! Who else will join our ranks, see your name in lights,& learn to laugh your troubles and enemies away?
TownCrier- What say ye to your fellow countrypersons- Peter the Great, Auspec, $hifty,Journeyman, Goldfan, Cb2, Gandalf the White, Aristotle, Leigh, nummus aureus, Cavan Man, Zenidea, and Trail Guide?????
As promised- The records of previous battles;.



auspec (10/18/2000; 17:27:06MT - usagold.com msg#: 39342)
WE'RE BAAAAACKK!/ Peter Asher
Peter,
I can't seem to get a rise out of these guys, maybe they're asleep at the stern. Thought for sure my financial pressure would get the job done, guess some people just don't need that kind of money. Maybe CPM is another BB, have all this physical supply readily on hand, and just simply don't care about another $2.34M order {maybe they didn't see that M correctly}. Anyway in the interest of obtaining our HOF for "colorful" posts we should try another tact. Let's just keep pestering them until they accede! No one can hold up to that type of pressure. We need some more USAGOLD posters to join our small ranks {2}. Looking for former class clowns, the irreverent, goofballs, offbeats, lefties, Californians, past glue sniffers, poets, philanderers,plagarists, ANYBODY that can work a keyboard! Will settle for just one more humor advocate. It doesn't hurt that much to use several sections of the cerebrum. Help me, Peter. Here is yesterday's post as promised, guess what you will get to see tomorrow with additional commentary??? Give up yet???auspec (10/17/00; 21:27:22MT - usagold.com msg#: 39265)
Peter Asher/ Satire
Evening Sir,
The silence ends as am no longer able to contain myself, here is a second to your desire for a separate HOF category for the off-beat! Lord knows this site could lighten up a bit. This poster has a lot of influence with Michael as am currently in process of ordering $2.34M worth of British Sovereigns from him. Either we get our category or I will pull this order! This is clearly a capitalist enterprise that responds to it's customers {and their bucks}. You know, with the commissions this outfit charges, 30-35%, that order is worth a lot of ski trips, and bottles of Chivas, even to Buffet, Gates, and Kosares. If we don't get our needs met by the next new moon we'll organize a strike and all buy our future fortunes on Comex {they have all that gold don't they?}. It is totally unfair and undemocratic to limit the HOF to the intelligent. Let the people speak and gain the victory from our oppressors...What say you fellow {half} wits??????????

P.S. This post will appear daily until the revolution is over.Thank you Sir Peter for your persistence!


nickel62 (10/19/2000; 6:26:46MT - usagold.com msg#: 39396)
Peter Asher
My take is that all the "Insiders" knew they were going to re-inflate the bubble and so ignored gold. I've said this several times before; If the markets are going to be allowed to crash, there will be a precursor in the form of an unexplained Gold rally. ‘They' are not going to "give up the ghost" on the stock market without first securing a hard asset position!

I think that if they are looking for a hard asset play to buy to save their own assets, they would force it down not up as they buy it. Especially since these guys are thugs not investors. They want their risk minimized. Maybe their is a reason they named the place "goldman sacks"?

Aristotle (10/19/2000; 6:22:50MT - usagold.com msg#: 39395)
Trail Guide -- thanks for sharing that
Paper currency has often been called funny money, but it can't compare to the amount of fun people can have with a firm grasp (understanding/physical) on Gold.

On Darwin, I tried reading his "Origin of Species" once, but the plot took too long to evolve.

---Aristotle

nickel62 (10/19/2000; 6:19:37MT - usagold.com msg#: 39394)
Communication
I have been thinking a lot lately about the various types of personalities there are in our society and how different ones or types are capable of handling data in different ways. I think it is interesting that a site like this attracts people who want to know the answers and that other mediums attract many of those that don't want to know much about anything. What the other side has become very adroit at is knowing which type they are talking to and addressing their arguements in a language those types of people want and can understand. It is a powerful knowledge after all.

nickel62 (10/19/2000; 6:16:17MT - usagold.com msg#: 39393)
SteveH
The only answer is communication by means other than the national media. While it is unlikly that we will change the world with only the internet links, when you add talk radio and cable, c-span and others of independence, it becomes plausible. Perhaps the very rapid growth of all these mediums over the last ten years is the best testament that what you imply is true.

nickel62 (10/19/2000; 6:12:07MT - usagold.com msg#: 39392)
Aristotle I think you are right but Traveler made some comments the other day that differ from your opinion of the ultimate outcome.
Any comments? Traveler predicted that the ultimate outcome would result in such a destruction of wealth that real estate would be depressed as the collateral was called in and sold into the market to cover the unpaid debts. This and a general decline in all comsumer borrowing and spending would severly depress many sectors. Granted the newly competitive US manufacturers would benefit if the collapse was accompanied by a decline in the dollar and this might be a counter force of some significant magnatude, but in general while I agree with your statement:

"But don't fret over domestic deflation. The banking system will surely be saved at any cost--and that cost is hyperinflation, to be specific.

Gold. Get you some. ---Aristotle"


I wonder if the prognosis of The Traveler might not have some validity as well. What are your thoughts?



wolavka (10/19/2000; 6:08:44MT - usagold.com msg#: 39391)
Fool
Membership seat cbot 347,500 cboe 390,000.

SteveH (10/19/2000; 6:07:35MT - usagold.com msg#: 39390)
Nickel62
All of this can only happen where the Press is owned by the same people who own the brokerages and the banks, and the elected officials have no term limits and stay in power because of soft money from the former. There lacks a credible check and balance to prevent such a mess as we see developing.

The Press doesn't tell on the brokerages, the brokerages don't tell on the banks, the elected officials don't tell (or do), and the appointed oversears look the other way. A mighty mess we have here.

nickel62 (10/19/2000; 5:56:42MT - usagold.com msg#: 39389)
SteveH and Sharefin
What a great post! The game is becoming visible and therefore dead! These forces can only operate in the dark and they know it. Mr Battataglia had better watch his back.

SteveH (10/19/2000; 5:51:19MT - usagold.com msg#: 39388)
Repost
www.kitco.com
repost:

Date: Thu Oct 19 2000 01:21
sharefin (From the far side) ID#284255:
Copyright © 2000 sharefin/Kitco Inc. All rights reserved
Joe Bataglia just announced on his national radio show:
( uponroof ) Oct 18, 15:04

"If you look at the action of gold and you look at the action of the Dow, at the key turning
point where the Dow was down 400 and some odd points, and gold was up 3-4 dollars, 5
dollars what ever it was. AT THAT POINT THERE WAS AN INSTANTANEOUS AND
SIMULTANEOUS CHANGE IN DIRECTION IN BOTH OF THOSE MARKETS.

I'll tell you what I believed happened. I think that the big investment bankers, and there's
probably a hand full of them who's names I won't mention. I'll bet they borrowed gold from
central banks, sold the gold, used the cash to come back in and buy the key companies. What
were the key companies? JP Morgan, IBM, Intel, Citicorp, Chase. Those were the key dow
components that caused this enormous rally.

I'll bet if we had access to the trading information you'd find out that it was some of those
very same companies that came in, got a huge amount of cash from somewhere. Where could
you get a huge amount of cash virtually free? The only place I know where you can get nearly
free money is to borrow gold from a central bank and turn it into dollars at 1% interest a
year....."

Joe also said he heard through the grapevine information to lead to the above theory. END

Jack


Trail Guide (10/19/2000; 5:48:31MT - usagold.com msg#: 39387)
(No Subject)

Hello all!

I have a few replies / comments:
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HA! HA! This is good! You know, there are only a hand full of people that know I post here and one of them just sent me this comment. I had to share some of it with everyone. It went like this

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auspec (10/18/2000; 17:27:06MT - usagold.com msg#: 39342)
WE'RE BAAAAACKK!/ Peter Asher
What say you fellow {half} wits??????????
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His how his note to me was: What the hell? That auspec has some nerve. I spent years trying to move from 1/4 wit up to the 1/3 wit level! Now I have to orientate my goals to reach his 1/2 mark to enter that select group. Well they can stick it, I won't live long enough to get there!
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ALL: this is how some of these brainy people think when they are drinking a little. HA! HA! HA!(laughing hard) (smiling) Here is another one:

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Aristotle (10/18/2000; 7:24:11MT - usagold.com msg#: 39302)
Chimps, Champs, and Chumps

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Don't you think he was a little over on the Chimps? Good lord man, Darwin said they were here as part of the natural order of things!
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Aristotle, I'm slapping the leg and laughing again. Your post was a good one in more ways than one (smile).

OK. I'm going to comment later on some of the other good posts yesterday.

(smiling) Trail Guide



Aristotle (10/19/2000; 5:44:45MT - usagold.com msg#: 39386)
Do you heed your own advice? Thoughts on Trade deficits--big and small
Back in the "good ol' days" of the Gold Standard, there really wasn't such a thing as a trade imbalance. Exports always matched imports in real terms because the currency used to make up any shortfall in exports was itself a tangible and exhaustible good (Gold). What we would today call a trade deficit was back then more properly described as an unfavorable trade position -- unfavorable because instead of consuming in sustainable accord with current production, we would actually be dipping into our monetary savings through the export of our most flexible asset, Gold. Of course, as a major Gold producer, the use of Gold to balance our trade position would not be unlike the use of corn or machine parts to do the same.

Only in modern times does the sense of balance take on new significance. For most countries, the external value of their currencies is affected by the direction of currency flow dictated by the balance of trade settlements. As for the U.S., we are in a unique but temporary position in which we haven't yet had to pay the full price for our past trade deficits. Until that day arrives (with severe currency devaluation), we might be inclined to stand the old terms on their heads and describe our current trade deficit as a FAVORABLE trade position because we are receiving real goods and services from other countries with partial payment (required in excess of our own exports) made in typically depreciating paper of our own easy creation.

Many Gold advocates would like nothing better than to see these countries immediately exchange these dollar assets for more permanent and politically neutral Gold assets. Indeed, that would be the best management paradigm to see adopted at some point going forward, guaranteeing a level monetary playing field.

If this seems appropriate for the best international interest of trade-surplus countries, wouldn't it also seem to follow that it would be prudent for individuals, too? When you engage yourself in gainful employment, it is as though you are a one-man nation running a trade surplus, and you are being compensated with the currency created by a nation other than yourself. If you would advise other nations to "go for the Gold" as a no-brainer, isn't it hypocritical if you don't also "go for the Gold" with your own personal balance-of-trade surpluses?

Gold. Get you some. ---Aristotle

SteveH (10/19/2000; 5:30:19MT - usagold.com msg#: 39385)
ORO
Someone is pushing the triad futures hard this morning. NASDAQ up over 90 now. CNBC noted saying this morning that the 300 point comeback was remarkable from its yesterday's low.


**Triad futures is my term for S&P, DOW, and NASDAQ.

nickel62 (10/19/2000; 5:27:25MT - usagold.com msg#: 39384)
Chase and Morgan merger gives insight into a lot of modern wall street!

Lex: Chase/JP Morgan
Published: October 18 2000 20:54GMT | Last Updated: October 18 2000 20:59GMT



As Marc Shapiro, Chase Manhattan's vice chairman, explained on Wednesday, the nice thing about an all-paper deal is that the price fluctuates with your market value. JP Morgan shareholders might see it differently. Since the news broke that Chase was acquiri