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ARCHIVED DISCUSSION FROM 2/26/2004 All times are U.S. Mountain Time (Yesterday's Discussion.) Chris Powell (2/26/04; 23:17:09MT - usagold.com msg#: 117791) Latest GATA dispatch http://groups.yahoo.com/group/gata/message/1918 A golden tomorrow, and you can hasten it.To subscribe to GATA's dispatches, send an e-mail to:gata-subscribe@yahoogroups.com Sundeck (2/26/04; 21:11:52MT - usagold.com msg#: 117790) Heading for a fall, by fiat? http://www.economist.com/finance/displayStory.cfm?story_id=2459841 Snip:"...But given the dollar's role as a currency of last resort, some wonder if its decline heralds not just an economic adjustment by the United States, but a crisis of sorts in the value of paper money itself...."Sundeck: Lots of people talking about "dollar crises" these days...over at Bloomberg the news is thumbs-down for the dollar as well...Dollar Will Drop Through Year-End Versus Euro, Yen, Survey Says http://quote.bloomberg.com/apps/news?pid=10000177&sid=aF7x99tJCAgw&refer=market_insightSnip:``To change the dollar's trend, we're going to need to get a U.S. official saying the dollar's fall has been too far, too fast,'' said Rennie. ``We're going to be hard-pressed to find anyone saying anything like that.'' Sundeck:Plus the fact that everyone now knows that the descent is largely controlled (moderated) by sustained purchases of US dollars by Asian interests...and the European monetary authorities of various complexions are trying to talk the Euro down...How long before rips and tears start to appear in the dollar's parachute?:-)Sundeck Druid (2/26/04; 21:09:00MT - usagold.com msg#: 117789) The Great Inflation Train Wreck http://www.321gold.com/editorials/winter/winter022504.html Russ Winter and Jim Willie CBFeb 25, 2004[After reading and discussing the thoughts and analysis of Russ Winter for well more than one year on Silicon Investor, I concluded that the community which is interested in world economic conditions should be permitted to share in his work. I am certain readers will share my view, after they read his assessment of the current evidence of widespread and rampant price inflation. -Jim Willie CB]As this is written in late February, 2004, almost all market and economic observers are asking "What has been the effect of the Great Reflation orchestrated by the Federal Reserve and other central banks?" Most seem to be fixated on the notion that poor US labor markets will allow hyper-easy monetary policies to continue on, "patiently" to quote Alan Greenspan. The authors believe the markets are badly offside with this benign sentiment, and see something altogether else in store. We see material evidence of surprisingly high inflation, bottlenecks, and a worldwide subsistence or sustainability crisis.First, a brief and to-the-point review will follow of the impacts of the Great Reflation within the United States. Extremely low interest rates have encouraged American households to expand household mortgage and consumer credit by $1,424 billion between Nov 2001 (officially the end of the recession) and year end 2003. During this same period, wages and salaries rose $193 billion. Household debt expansion grew relative to wages by 7.4 to 1. We leave the discussion to others, on whether such a debt expansion or credit bubble in the face of weak wage numbers is sustainable. Suffice it to say, the numbers speak for themselves in terms of the success of the low interest rate and tax cut stimulus on the US economy, at least in terms of job creation. The verdict is poor, and that's being kind. However, the global effect of the massive stimulus is quite another story, and that's our interest here and now. The subject of unintended consequences caused by the Fed's Reflation Initiative is discussed by Jim Willie in a recent work: "Broken Cycle: Permanent Intervention."The US fiscal and credit policy has arguably been a major factor in the economic transformation of Asia over the last several years. It been reported that in China nearly two million people a month move from the countryside to the city, in effect creating twelve Asian cities the size of Philadelphia every year. Although movement from rural areas to the cities are part and parcel to emerging economies, this recent Asian experience is in a class of its own. So the question begs, why has this happened? We believe it has largely to do with the US credit bubble that has kicked this process into overdrive. Additionally, years of bail outs, rescues, and market interventions have contributed to a pervasive sense of global moral hazard. In China and elsewhere in Asia this manifests itself with the notion that maybe, just maybe, Americans have invented a perpetual wealth machine. Perhaps they think Americans really don't suffer bad years after all, and have actually abolished the economic cycle, which would be a big improvement over life in rural China, or Vietnam. Indeed, perhaps they sense such a free ride, that they pack up and go to work in that stainless steel toenail clipper factory in town. Once there, they will go with the "free ride" until such time as significant and unsustainable strains are put on the global resource supply chain of metals, energy, water and food. We submit that "until such time" has arrived. That time is now!************************************************************Druid: An excellent read and some great links to mine inflation data. Paper Avalanche (2/26/04; 20:30:50MT - usagold.com msg#: 117788) All paper will (is?) burn(ing?)..... http://www.rense.com/general49/glob.htm Snip:"Inflation, dormant for a decade, is in danger of returning as a global phenomenon next year, according to an influential investment survey published yesterday. The authors of the annual Equity Gilt Study at Barclays Capital warn that central bankers may be repeating the policy mistakes of the Seventies, lulled into a false security by a combination of historically unusual disinflation and flawed statistics. American inflation could hit 4 per cent by the end of 2005, they predict. The study, which examines the performance of different asset classes since 1900, suggests that increasing globalisation could be a trigger for inflation, rather than the deflationary influence more commonly assumed. Tim Bond, co-author, challenged the view that inflation has necessarily been tamed by the additional supply capacity created in new markets in Asia. Inflation has just been globalised, he said."End snipTick tockPA Cytek (2/26/04; 20:25:53MT - usagold.com msg#: 117787) Japan's hard earned dollars at work www.lioninc.com The news today pressured the bond market as did a rise in the value of the dollar. At the close of U.S. trading in the currency market, the dollar was at its highest level versus the yen since December 1. Although the move may, in part, have been caused by intervention by Japan's central bank, the rise diminishes the need for additional dollar buying by the Bank of Japan. In the past, many of the dollars purchased by the BOJ were then used to purchase Treasuries. Analysts also note that as the end of the Japanese fiscal year approaches (end of March) investors there may reduce their dollar-denominated securities in favor of yen holdings. This would take some of the support out of the U.S. bond market. ( Yen to the Dollar ) Hmm.... i wonder if Gold will go up (end of March). Tranquility Base (2/26/04; 20:19:43MT - usagold.com msg#: 117786) King of the Hill Thank you Sir Gandalf for the moral support. Understanding the volitility I have not yet composed my acceptance speech. T.B. Ned (2/26/04; 19:30:59MT - usagold.com msg#: 117785) What does this mean? I am the furthest from a chartist than anyone could imagine BUT do I see platinum making a new multi-multi year high today? Boilermaker (2/26/04; 19:29:01MT - usagold.com msg#: 117784) There is no inflation http://www.eia.doe.gov/cneaf/coal/page/coalnews/coalmar.html Check this link. Coal is up 20% in the past few months. We use lots of coal in the form of electricity. Seems like everything that comes out of the ground, coal, oil gas, uranium, copper, aluminum, iron, silver, gold, corn wheat, soybeans, etc,etc, is being bid up as the dollar declines. Boilermaker (2/26/04; 19:19:47MT - usagold.com msg#: 117783) There is no inflation http://biz.yahoo.com/bw/040109/85965_1.html snipSASKATOON, Saskatchewan--(BUSINESS WIRE)--Jan. 9, 2004--Cameco Corporation said today that while it has consistently expected uranium spot prices to increase significantly over the next several years, some of the recent and unexpected market developments have resulted in prices rising more quickly than anticipated........... Average uranium spot priceYear (US$/lb U3O8)2000 8.212001 8.772002 9.862003 11.54Current 14.50commentWe must remember that energy is not a "core" commodity. Ned (2/26/04; 19:10:02MT - usagold.com msg#: 117782) Holy Mackeral Silver burning!!! Spot closing near $6.70. Hope this spreads. Gandalf the White (2/26/04; 19:01:54MT - usagold.com msg#: 117781) The "KING of the HILL" today was ---- **** $395.0 **** Tranquility Base (2/25/04; 21:51:30MT - usagold.com msg#: 117724) Sir Tranquility Base !But the VOLATILITY is not very tranquil.TOMORROW may be different --- NOT !HOLD on Sir T B !<;-) Cavan Man (2/26/04; 18:48:21MT - usagold.com msg#: 117780) mikal With the exception of our gracious host, NEVER speak of money, politics food or religion with Greeks. If you can keep that rule you will get along splendidly for they are wondrful people.(IMHO...CM) mikal (2/26/04; 18:34:00MT - usagold.com msg#: 117779) ECB http://story.news.yahoo.com/news?tmpl=story&cid=1106&ncid=1106&e=2&u=/ft/20040226/bs_ft/1077690728010 ECB official gives blunt rebuff to rate cut call By Tony Major and Andreas Krosta in Athens and Jo Johnson in Paris Excerpts: "In an interview with the Financial Times, the governor of the Greek central bank noted that several forecasts of eurozone growth had already been revised upwards. "I would not be surprised to see other institutions raise their forecasts." Mr Garganas said he believed the euro's strength was not a big problem. "It had attracted too much concern," he said. "We must look at the historical average of the exchange rate - and stay cool." His comments are a blunt rebuff to growing calls from eurozone governments - led by France and Germany - for an interest rate cut to offset the impact of the strong euro amid fears it will hamper the region's fragile recovery." "But the ECB, which steadfastly resists attempts to encroach on its independence, is likely to defy the growing clamour for a rate cut unless inflation falls sharply or a renewed surge in the euro threatens to undermine confidence. Most economists expect interest rates to be kept at 2 per cent, a postwar low, for some time." It appears that the ECB is succeeding in their efforts to confuse the Forex markets, but not slow volatility in their currency. With men like Trichet and Schroeder talking down the euro for political reasons and some bankers saying hands off, no rate cuts. Makes PM alternatives look even better by comparison. R Powell (2/26/04; 16:51:17MT - usagold.com msg#: 117778) Two more mantras Can we add Randy's "buy with both hands" and Boilermaker's "There is no inflation" Now then, in a low, guttural monotone, uttered incessantly while wandering slowly and thinking of inner peace... Up, into the close... Buy with both hands... There is no inflation.... Waverider (2/26/04; 16:28:47MT - usagold.com msg#: 117777) Silver Bullet http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID667551&cmd=show[s22607873]&disp=P Wowsers! I've been away from my computer all day - what a stellar closing on Silver-the sqeeze is on! I see the Gold:Silver ratio fell below 60 today to 58.92! Boilermaker (2/26/04; 16:18:00MT - usagold.com msg#: 117776) "there is no inflation" Correction to subject line. Boilermaker (2/26/04; 16:10:38MT - usagold.com msg#: 117775) "their is no inflation" http://quotes.ino.com/chart/?s=NYBOT_CRY0&v=d12 PPI for January still MIA. February PPI due out in two weeks. Nowhere to hide. Repent! The end is near! goldquest (2/26/04; 15:45:22MT - usagold.com msg#: 117774) Another Fed Governor http://www.federalreserve.gov/boarddocs/speeches/2004/20040226/default.htm out of touch with reality! Socrates964 (2/26/04; 14:58:05MT - usagold.com msg#: 117773) 7nomads Didn't see your post, but you beat me to it! Required reading! Socrates964 (2/26/04; 14:48:39MT - usagold.com msg#: 117772) Silver corner/RP Ah! Found it!http://www.gold-eagle.com/editorials_02/wallybently030102.html TownCrier (2/26/04; 14:45:44MT - usagold.com msg#: 117771) Making lemonade http://businessplus.hemscott.net/hstoday/AFXNewStory.dll/text?SerialNumber=2656&Indate=26/02/2004&EPIC= HEADLINE: Gold ends off lows as price fall sparks buyingSAN FRANCISCO (AFX) -- April gold closed just 60 cents lower, at $395.50 an ounce on the New York Mercantile Exchange, after a drop to a three-month low of $391. Gold bulls were likely "waiting for this decline as a buying opportunity," said John Person, head financial analyst at Infinity Brokerage Services.------(from url)----When life deals you lemons, make lemonade. And when life deals you better (cheaper) prices on something that is sweet for your portfolio, buy with both hands. Some are happily doing exactly that. Call USAGOLD~Centennial today and count yourself among them.R. Federal_Reserves (2/26/04; 14:23:08MT - usagold.com msg#: 117770) Gold thoughts. .com/def/servlet/SC.web?c=$GOLD,uu[m,a]daclyyay[df][pb50!b200][vc60][iUp14,3,3!La12,26,9]&pref=G Gold opened the year at new highs (430+) and has been sliding with a downward bias in correction mode for the entire year. The downtrend resistance line that must be broken for a new UP LEG rally to engage is marked by the JAN/FEB highs. We are currently trading under the moving average (50day) further highlighting the weakness. Support at the 200day is in the low 380's. Over the last 3 years, purchases at the 200DMA have held up nicely and provided the long run support. Speaking the fundamentals, recently gold has been battered by the strength in the dollar relative to yen and euro yet longer term fundamentals for gold remain unchanged. The politico's in euro want to lower their rates, and i believe JAPAN is providing less support to our bonds. These words and actions are forcing the dollar higher.Nonetheless, ongoing huge US trade and budget deficits are putting pressure on the dollar and there doesn't seem to be any real actions in place to stem this tide. Greenspan remains unconcerned with the trade deficits even as it approaches 5% of GDP typically a place where your currency can collapse. Greenspan did warn about the government budget this past week yet the red ink roars during the election year and politicans have difficulty cutting expenses.. Greenspan has also expressed concerned about the ability of the US financial markets to absorb a shock caused by problems with the GSE's. Should we decline to the 200DMA I would be most inclined to add to my positions barring any change in the fundamentals. 7nomads (2/26/04; 14:10:43MT - usagold.com msg#: 117769) link to "silver corner" http://www.gold-eagle.com/editorials_02/wallybently030102.html One of my favorites. I thought others might like to read it if they haven't already R Powell (2/26/04; 13:56:50MT - usagold.com msg#: 117768) Socrates 964 Very interesting theory. In regards to the Comex where the "eligible" storage silver is not available to be delivered and only the "registered" silver is available, a squeeze might not even require that $10 billion. Much less, put on the long side would move silver, disrupt the equilibrium, yes?? With the lack of transparency in silver storage (off Comex), I wonder if silver is trying to warn us of a possible physical shortage? No USDA numbers to consult. Even the increased possibility of a temporary physical shortage (from the previous slowdown of copper mining?) may alter investor (speculative) sentiment, no? I recently finished Duncan's "The Dollar Crisis", Bonner's "Financial Reckoning Day" and Taleb's "Fooled By Randomness". All great, especially Taleb. I've had time lately as this winter's cold has shut down my concrete finishing business. But, Spring is approaching, so I'll probably just have time for one more....(g).."Soros On Soros". However, this was written before the present administration. It would be nice to find that years of study did reach the correct conclusion of future silver prices BUT, I'll be happy to see higher prices no matter what the cause! Thanks for the "supposin"... rich Paper Avalanche (2/26/04; 12:42:00MT - usagold.com msg#: 117767) Quietly the inflation approaches......... CRB at 273.Tick tock.Tick tock.PA Goldilox (2/26/04; 12:39:45MT - usagold.com msg#: 117766) Another Index? Reuters snippet:Toronto bourse eyes launch of global gold index "February 20, 2004 15:41:55 (ET)VANCOUVER, British Columbia , Feb 20 (Reuters) - The Toronto Stock Exchange said on Friday it is keen to launch an index that could become the world's gold stock benchmark in an attempt to lure large, foreign mining companies to the bourse.Currently the most frequently-quoted index for the gold industry is the gold and silver index ((.XAU)) of the Philadelphia stock exchange, a regional bourse whose barometer of 12 precious metal mining companies is home to listings of at least seven of the world's biggest gold producers.The TSX and the TSX Venture Exchange, its sister unit and Canada's venture capital marketplace, are home to 60 percent of the world's mining companies."Goldilox:Not surprisingly, the Toronto Exchange wants to refocus all the golden eyes in its direction! Goldilox (2/26/04; 12:32:33MT - usagold.com msg#: 117765) Someone @ SocYa think that someone has the phone number of someone else in Omaha? I'd love to be a fly on that wall! "OK, sell me contracts on your silver, and you use the cash to go after the gas pipelines and gas-fired electrical generation plants!"No rumors, pure supposition. Socrates964 (2/26/04; 12:25:21MT - usagold.com msg#: 117764) Silver I remember an article from a year or two ago on Gold-Eagle on the lines of how much it would cost to corner the silver market (around $10bn, if I recall correctly).I stayed clear of silver until recently because, by comparison with gold, that had pretty regular tradable cycles (both short- and long-term), silver was a blurry, choppy, trendless mess.Since that has changed and silver is getting much more press, I conclude that someone has put together the $10bn. I won't speculate as to who, but if you had a few billion spare and could squeeze silver, and by extension gold, and by extension, the dollar and by extension, US rates, and by extension throw Bush out of office, you can probably think of someone who might be tempted to try? Goldilox (2/26/04; 12:21:08MT - usagold.com msg#: 117763) Howndogs @ Gandalf:Did you buy the boyz new silver studded collars or sumptin?Spot and Spike had a field day in Ag. R Powell (2/26/04; 12:20:26MT - usagold.com msg#: 117762) Clink...I'll try... "Up into the close." Up, into the close. UP we go...into the close! UP and at'em boys!! Once more into the breach!! And don't stop till we reach...the close!!! But, not for long, Globex access markets, you know. BIG SMILE rich R Powell (2/26/04; 12:14:05MT - usagold.com msg#: 117761) Oh my! S.I.L.V.E.R........ Plunged down to its low of 630 early but bounced almost immediately back to slightly down for most of the day. Then just before the close...Wow!!!! Toto, I don't think believe this is the silver market of old. This is a confused market looking for some consensus of opinion and not finding it. Is this because the technical analysis trading that has so long controled silver is now being disrupted by some supply/demand driven trades? If so, the majority that determine this market will be greatly confused. Or, perhaps, if not confirmed supply/demand considerations, then, at least, enough non-technically computer generated orders are entering the market to throw sand in the gear box of the previously smoothly flowing technical ups and downs?? I don't know. I'm just wondering as always and long as usual (only much more so over the last year) (;> Thoughts? Rich Clink! (2/26/04; 12:03:49MT - usagold.com msg#: 117760) Ringing response to impulse http://quotes.ino.com/chart/?s=NYBOT_DXY0&v=s OK, so I'm an engineer, so seeing damped ringing just jumps out at me, but doesn't that look peculiar in a currency chart ? What happened to cause it - was that the timing of those repos TC mentioned ? @G'lox. Au may be trading to the inverse of the USD, but Ag seems to have a mind of its own today. Hey, Rich P, can you say 'Up into the close' ?!C! Goldilox (2/26/04; 11:41:25MT - usagold.com msg#: 117759) Swing A 7% swing is what I meant! LOL Goldilox (2/26/04; 11:35:42MT - usagold.com msg#: 117758) Ag http://focus.comdirect.co.uk/en/detail/_pages/charts/main.html?sSymbol=SLV.FX1 Up $.44 from overnight low. Not shabby! A 7% day. steady (2/26/04; 11:24:32MT - usagold.com msg#: 117757) huh? buy the .50 make it half an invert! -1/16 steady (2/26/04; 10:49:08MT - usagold.com msg#: 117756) ag pushing au silver pushing gold how bout 3.30 /1.10 to 33/11 both prime but its 3.3/.11 hmmm more clues how to solve teh dang puzzle! TownCrier (2/26/04; 10:02:27MT - usagold.com msg#: 117755) Wouldn't it be nice if all things in life were as easy as monetizing debt... http://biz.yahoo.com/rf/040226/markets_fed_1.html With the market rate in fed funds tracking the FOMC target of one percent, you wouldn't expect much need for the Fed's trading desk to intervene with open market operations. However, notwithstanding the on-target market rate, the Fed saw fit to add $17 billion in freshly monetized reserves to the nation's banking system -- $9 billion though four-day repos and $8 billion via 14-day repurchase agreements.R. TownCrier (2/26/04; 09:46:11MT - usagold.com msg#: 117754) Three speeches Yes, these excerpts are long; but when ever in life has great successes come without commensurate efforts?Pedal harder, arrive sooner. The golden payoff will be yours.R. TownCrier (2/26/04; 09:27:49MT - usagold.com msg#: 117753) Greenspan's third speech in 3 days, warning a Congressional Budget Committee of the red brontosaurus in the room. http://www.federalreserve.gov/boarddocs/testimony/2004/20040225/default.htm February 25 -- On Fiscal IssuesGreenspan begins, "I want to emphasize that I speak for myself and not necessarily for the Federal Reserve."[Continuing...]As you know, the U.S. economy appears to have made the transition from a period of subpar growth to one of more vigorous expansion. ... This favorable short-term outlook for the U.S. economy, however, is playing out against a backdrop of growing concern about the prospects for the federal budget. As you are well aware, after having run surpluses for a brief period around the turn of the decade, the federal budget has reverted to deficit. The unified deficit swelled to $375 billion in fiscal 2003 and appears to be continuing to widen in the current fiscal year. According to the latest projections from the Administration and the Congressional Budget Office (CBO), if current policies remain in place, the budget will stay in deficit for some time....policymakers will have to address the adverse budgetary implications of an aging population and rising health care costs.****In recent years, budget debates have turned to choices offered by those advocating tax cuts and those advocating increased spending. To date, actions that would lower forthcoming deficits have received only narrow support, and many analysts are becoming increasingly concerned that, without a restoration of the budget enforcement mechanisms and the fundamental political will they signal, the inbuilt political bias in favor of red ink will once again become entrenched.****In 2008--just four years from now--the first cohort of the baby-boom generation will reach 62, the earliest age at which Social Security retirement benefits may be claimed and the age at which about half of prospective beneficiaries choose to retire; in 2011, these individuals will reach 65 and will thus be eligible for Medicare. ... This dramatic demographic change is certain to place enormous demands on our nation's resources--demands we almost surely will be unable to meet unless action is taken. For a variety of reasons, that action is better taken as soon as possible.****The budget scenarios considered by the CBO in its December assessment of the long-term budget outlook offer a vivid--and sobering--illustration of the challenges we face as we prepare for the retirement of the baby-boom generation. These scenarios suggest that, under a range of reasonably plausible assumptions about spending and taxes, we could be in a situation in the decades ahead in which rapid increases in the unified budget deficit set in motion a dynamic in which large deficits result in ever-growing interest payments that augment deficits in future years. The resulting rise in the federal debt could drain funds away from private capital formation and thus over time slow the growth of living standards.****...no one should expect productivity growth to be sufficient to bail us out. Indeed, productivity would have to grow at a rate far above its historical average to fully resolve the long-term financing problems of Social Security and Medicare....we will eventually have no choice but to make significant structural adjustments in the major retirement programs.Sound private and public decisionmaking will be aided by determining ahead of the fact how one source of risk, namely demographic developments, will be dealt with.The degree of uncertainty about whether future resources will be adequate to meet our current statutory obligations to the coming generations of retirees is daunting. ... This uncertainty is an important reason to be cautious--especially given that government programs, whether for spending or for tax preferences, are easy to initiate but can be extraordinarily difficult to shut down once constituencies for them develop.*****I believe that a thorough review of our spending commitments -- and at least some adjustment in those commitments -- is necessary for prudent policy. I also believe that we have an obligation to those in and near retirement to honor what has been promised to them. If changes need to be made, they should be made soon enough so that future retirees have time to adjust their plans for retirement spending and to make sure that their **personal resources**, along with what they expect to receive from the government, will be sufficient to meet their retirement needs.*****...tax rate increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base. ... The dimension of the challenge is enormous. The one certainty is that the resolution of this situation will require difficult choices and that the future performance of the economy will depend on those choices.+It falls on the Congress to determine how best to address the competing claims. In doing so, you will need to consider not only the distributional effects of policy change but also the broader economic effects on labor supply, retirement behavior, and private saving. ----(see url for full speech)----For your own good, remove as much of this dreaded "uncertainty" from your future as you possibly can. Load up on solid gold as your private savings to ensure you have adequate **personal resources** to take care of yourself and your family, assuming a failure of the government to stand by as your personal nursemaid. And really, who would want to fall into dependence on that government-as-caretaker scenario anyway??R. TownCrier (2/26/04; 08:44:22MT - usagold.com msg#: 117752) The Chairman's 3 in 3, continued. Very important concepts to grasp. http://www.federalreserve.gov/boarddocs/testimony/2004/20040224/default.htm ---(the part on Freddie and Fannie's interest rate risk ties in nicely with the final section of the speech I posted earlier -- regarding fixed mortgages. That very thing that works in favor of lowering risk to homeowners is something that puts the lender in jeopardy. see ** below)--- February 24 -- On Government-Sponsored EnterprisesGSEs collectively dominate the financing of residential housing in the United States. Indeed, these entities have grown to be among the largest financial institutions in the United States, and they now stand behind more than $4 trillion of mortgages either by holding the mortgage-related assets directly or assuming their credit risk.During the 1980s and early 1990s, Fannie Mae and Freddie Mac (hereafter Fannie and Freddie) contributed importantly to the development of the secondary mortgage markets for home loans and to the diversification of funding sources for depository institutions and other mortgage originators. Although the risk that a home mortgage borrower may default is small for any individual mortgage, risks can be substantial for a financial institution holding a large volume of mortgages for homes concentrated in one area or a few areas of the country. The possible consequences of such concentration of risk were vividly illustrated by the events of the 1980s, when oil prices fell and the subsequent economic distress led to numerous mortgage defaults in Texas and surrounding states. The secondary markets pioneered by Fannie and Freddie permit mortgage lenders to diversify these risks geographically and thus to extend more safely a greater amount of residential mortgage credit than might otherwise be prudent. The key to developing secondary markets was securitization, and Fannie and Freddie played a critical role in developing and promoting mortgage securitization, the process whereby mortgages are bundled together into pools and then turned into securities that can be bought and sold alongside other debt securities. Securitization by Fannie and Freddie allows mortgage originators to separate themselves from almost all aspects of risk associated with mortgage lending: Once the originator sells the loan into the secondary market, he or she may play no further role in the contract. ... This innovation in the mortgage market led to the securitization of many other assets and to the creation of many other types of securities.+Mortgage securitization continues to perform this crucial function, and its techniques have now been applied by the private sector in many markets, including markets for automobile loans, credit card loans, nonconforming mortgages, and commercial mortgages. ... Moreover, credit supply is far more stable today than it was because it is now founded on a much broader base of potential sources of funds. The aspiring homeowner no longer depends on the willingness of the local commercial bank or savings and loan association to hold his or her mortgage. Similarly, the sources of credit available to purchasers of cars and users of credit cards have expanded widely beyond local credit institutions. Unbeknownst to such borrowers, their loans may ultimately be held by a pension fund, an insurance company, a university endowment, or another investor far removed from the local area. This development has facilitated the substantial growth of nonmortgage consumer credit. Indeed, in the United States, more than $2 trillion of securitized assets currently exists with no government guarantee, either explicit or implicit.Given their history of innovation in mortgage-backed securities, why do Fannie and Freddie now generate such substantial concern? The unease relates mainly to the scale and growth of the mortgage-related asset portfolios held on their balance sheets. That growth has been facilitated, as least in part, by a perceived special advantage of these institutions that keeps normal market restraints from being fully effective. +The GSEs' special advantage arises because, despite the explicit statement on the prospectus to GSE debentures that they are not backed by the full faith and credit of the U.S. government, most investors have apparently concluded that during a crisis the federal government will prevent the GSEs from defaulting on their debt. An implicit guarantee is thus created not by the Congress but by the willingness of investors to accept a lower rate of interest on GSE debt than they would otherwise require in the absence of federal sponsorship.+Because Fannie and Freddie can borrow at a subsidized rate, they have been able to pay higher prices to originators for their mortgages than can potential competitors and to gradually but inexorably take over the market for conforming mortgages.The Federal Reserve is concerned about the growth and the scale of the GSEs' mortgage portfolios, which concentrate interest rate and prepayment risks at these two institutions. Unlike many well-capitalized savings and loans and commercial banks, Fannie and Freddie have chosen not to manage that risk by holding greater capital. Instead, they have chosen heightened leverage, which raises interest rate risk but enables them to multiply the profitability of subsidized debt in direct proportion to their degree of leverage. Without the expectation of government support in a crisis, such leverage would not be possible without a significantly higher cost of debt.**Interest rate risk associated with fixed-rate mortgages, unless supported by substantial capital, however, can be of even greater concern than the credit risk. Interest rate volatility combined with the ability of homeowners to prepay their mortgages without penalty means that the cash flows associated with the holding of mortgage debt directly or through mortgage-backed securities are highly uncertain, even if the probability of default is low.+In general, interest rate risk is readily handled by adjusting maturities of assets and liabilities. But hedging prepayment risk is more complex. To manage this risk with little capital requires a conceptually sophisticated hedging framework. In essence, the current system depends on the risk managers at Fannie and Freddie to do everything just right, rather than depending on a market-based system supported by the risk assessments and management capabilities of many participants with different views and different strategies for hedging risks. Our financial system would be more robust if we relied on a market-based system that spreads interest rate risks, rather than on the current system, which concentrates such risk with the GSEs.As always, concerns about systemic risk are appropriately focused on large, highly leveraged financial institutions such as the GSEs that play substantial roles in the functioning of financial markets. ...[T]o fend off possible future systemic difficulties ... preventive actions are required sooner rather than later.[On the problems of mixing markets with socio-political realities...]As a general matter, we rely in a market economy upon market discipline to constrain the leverage of firms, including financial institutions. However, the existence, or even the perception, of government backing undermines the effectiveness of market discipline. +... The issues are similar to those that arise in the context of commercial banking and deposit insurance--indeed, they are the reason that commercial banks are regulated and subject to stringent regulatory capital standards....This is the heart of a dilemma in designing regulation.... On the one hand, if the regulation of the GSEs is strengthened, the market may view them even more as extensions of the government and view their debt as government debt. The result, short of a marked increase in capital, would be to expand the implicit subsidy and allow the GSEs to play an even larger unconstrained role in the financial markets. On the other hand, if we fail to strengthen GSE regulation, the possibility of an actual crisis or insolvency is increased.The expansion of homeownership is a widely supported goal in this country. A sense of ownership and commitment to our communities imparts a degree of stability that is particularly valuable to society. But there are many ways to enhance the attractiveness of homeownership at significantly less potential cost to taxpayers than through the opaque and circuitous GSE paradigm currently in place.------(full speech at url)----To the extent that home ownership is a stabilizing force adding to a nation's general well-being, the same could be said of widespread gold ownership to insulate the purchasing power of the population's savings from credit degredations and default losses.So buy gold. It's good for you and for your country because a nation of hungry and penniless basket-cases is a dangerous and frightening thing.R. Socrates964 (2/26/04; 08:42:25MT - usagold.com msg#: 117751) Gold stock comments If one believes that stocks lead metal, then we seem to be getting some kind of bottom signal here from the stocks (fingers crossed).What could be prompting this? Talking to some of European equity contacts, they said that their fund clients were getting very uncomfortable with tech/growth and switching into dull, underperforming sectors - notably energy/nat resources (although the Eurostock universe doesn't have many miners in it).Is this what we're seeing in the gold stocks? Max Rabbitz (2/26/04; 08:04:53MT - usagold.com msg#: 117750) Blinded by the Shiny? http://www.chaos-onomics.com/thts020613.htm Last Paragraph of the article pasted above."One of my probable future scenarios involves the realization among market participants that inflation is rising even though Gold is not keeping pace. In a sense it seems a bit ironic, the monetary authorities went to considerable effort to free the monetary system from the shackles of Gold. Keeping the price of Gold low now does little besides blinding people to the coming inflation, which is not caused by the rising price of Gold any more than a fever causes one to be sick. It would be truly and tragically comic if the powers that be have confused symptoms with causes so much that they feel keeping the price of Gold down will guarantee low inflation." Goldilox (2/26/04; 08:04:04MT - usagold.com msg#: 117749) Fixed Rate Mortgages @ Townie:Although the fixed/variable ratio is still pretty high (about 3:1), it has fallen from about 5:1 pre RE bubble. Americans are getting sucked in by schills like GS telling them how much they'll "save" with an adjustable. Sure, they'll save, until rates start to go up, which we all know will be sooner than many expect.It's gonna be ugly, as the adjustable mortgages will quickly become unserviceable, and the 125% LTVs will really float like the Titanic.I'll keep my gold, which has dropped a measely 5% this month. In fact, I'll buy more! Goldilox (2/26/04; 07:56:06MT - usagold.com msg#: 117748) Venetian Rigged Contests CNBC just reported that the Venetian just paid $1M in fines for "rigging" three contests on the Casino floor to favor high rollers who had lost a bundle at the tables. Not too different from the big Casinos in NY.In one case, they said, a Casino exec hid the winning ticket in his sleeve and pretended to draw the winner from the bin.Elliot Spitzer would have a field day with this one, even if he is unwilling to listen to the GATA claims. TownCrier (2/26/04; 07:52:30MT - usagold.com msg#: 117747) Chairman Greenspan's three speeches in three days. http://www.federalreserve.gov/boarddocs/speeches/2004/20040223/default.htm ---(good food for thought in all three)----February 23 -- On Household Debt...households own more than $14 trillion in real estate assets, almost twice the amount they own in mutual funds and directly hold in stocks. Over the past two years, significant increases in the value of real estate assets have, for some households, mitigated stock market losses and supported consumption.One concern of many lending institutions has been the increase in bankruptcy rates during the past several years to an unusually high level. .... But bankruptcy rates are not a reliable measure of the overall health of the household sector because they do not tend to forecast general economic conditions, and they can be significantly influenced over time by ******changes in laws and lender practices.*********[On the art of jumping from bubble to bubble...]...the surge in mortgage refinancings likely improved rather than worsened the financial condition of the average homeowner. Some of the equity extracted through mortgage refinancing was used to pay down more expensive, non-tax-deductible consumer debt or used to make purchases that would otherwise have been financed by more expensive and less tax-favored credit. Indeed, the refinancing phenomenon has very likely been a supportive factor for the general economy. The precise effect is difficult to identify because it is hard to know how much of the spending financed by home equity extraction might have taken place anyway. Nonetheless, we know that increases in home values and the borrowing against home equity likely helped cushion the effects of a declining stock market during 2001 and 2002.[On growing credit card debt...]The rise in homeowners' debt service burdens over the 1990s, albeit small, is associated with increases in their nonmortgage debt and, in particular, with rising levels of credit card debt. The financial obligation associated with credit card debt is difficult to measure. On the one hand, households are obligated to pay only a minimum amount and thus, in times of financial stress, a household can forgo making more than this minimum payment. On the other hand, we know that many households make more than the minimum payment and indeed likely would be quite uncomfortable paying only the minimum amount. During financial difficulties, these households might even consume less to pay more than the minimum. Defining the point at which households feel they should pay down their credit card debt is difficult, and thus our measure of debt service relies on estimates of minimum payments required by credit card lenders. There are several reasons that homeowners might carry more credit card debt than they did a decade ago, but these reasons generally do not indicate financial weakness among homeowning households. Indeed, as noted, delinquency rates on credit card payments have been falling during the past year, despite households' relatively larger holding of credit card debt.[On home mortgages as a sort of debt-hedging tool...]Rising debt service ratios are a concern if they reflect household financial stress and presage a drop in consumption or a rise in losses by lenders. Most homeowners and renters are aware of the possible difficulties should they lock themselves into a high level of debt payment obligations.+One way homeowners attempt to manage their payment risk is to use fixed-rate mortgages, which typically allow homeowners to prepay their debt when interest rates fall but do not involve an increase in payments when interest rates rise. Homeowners pay a lot of money for the right to refinance and for the insurance against increasing mortgage payments. ... Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward. American homeowners clearly like the certainty of fixed mortgage payments.-----(see url for full speech)-----If we can generalize from this, below the surface of eager credit acceptance (or reliance), that Americans are fundamentally financially conservative as evidenced by their striking preference for fixed-rate mortgages, it is quite possible that we are also fundamentally a nation of gold owners -- apopulation just a spark away from awaking that latent potential into reality.And if you think about it, of course we are! We're all the great-grandchildren of people who went bonkers during the various gold rushes in our nation's history. It's in our genes, gently slumbering for the moment.R. USAGOLD Daily Market Report (2/26/04; 07:12:43MT - usagold.com msg#: 117746) Page Update! http://www.usagold.com/DailyQuotes.htmlThe Daily Gold Market Report has been updated.If you are considering investments in gold we invite you to request our free introductory information packet detailing the products and services offered by USAGOLD ~ Centennial Precious Metals. We welcome your inquiry and look forward to working with you. steady (2/26/04; 06:54:05MT - usagold.com msg#: 117745) hmm breathing teathing, this market is getting revealing 3 and 4 federal reserve note moves in matter of min, in times not so past things didnt trade that fast.the die has been cast up the mast we raise our flag, signaling the old hag, ( u can use a rag if u aint gort the white flag) in this game of tag you it, lets here teh latest sound bit, while ours are forward looking and revealing yours are backward looking and concealing, its old, we no longer (the market) will do what we are told, our hope, our trust sold out by men of old, men of new will renew the social contract, detailed by mills cuse some renigend o this deal in the efforts to steal what wasnt theres by printing money from the airs,unfortuatly its going to take angry bears to return everyones fair share.so dont just sit and stare, take what u know to the stairs walk around town, telling pele to stop looking down, hold there head high and start to ask the important question why> DO NOT TOLERATE THE LIE> ESPECIALLY WHEN THEY WONT EVEN LOOK U IN THE EYE, fiat money about to die. For me its off to the front with my battle cry...........gold and silverhonest money forhonest peole! USAGOLD / Centennial Precious Metals, Inc. (2/26/04; 06:30:48MT - usagold.com msg#: 117744) Knowledge is power. A solid gold education in 175 pages for only $5.95. http://www.usagold.com/cpm/abcs.html
"Without waxing philosophical, a few words are helpful concerning the mind-set with which you pursue your interest in gold ownership. Some enter the gold market to make a profit, others to hedge disaster, some to accomplish both. No matter into which category you fit, make sure you understand why you are going into the gold market. Convey that understanding to the individual with whom you are structuring your gold portfolio. The whys have quite a bit to do with what you end up owning.
"Frequently investors will say that any kind of gold will do because after all gold is gold, isn't it? This type of attitude has helped a great many coin shop owners unload unwanted inventory they hadn't been able to get rid of for years. This is probably a good deal for the coin dealer, but it could spell disaster for you. In the same vein, I have talked to hundreds, probably thousands, of investors in nearly a quarter century in the business. Quite often, potential investors have no more reason for buying gold than 'everybody else is doing it.'
"In Chapter 16 on portfolio planning, you will find some details on this important subject. For now, consider the inscription over the entrance to the temple of the ancient Delphic Oracle: 'Know Thyself.' Study. Read. Learn what's going on around you. Call a few gold firms and ask questions. There's nothing like conversation to stimulate thinking. Take time to lay a little groundwork. Then make your move. The political and economic situation being what it is, there is no better time to start than now. Know thyself -- your goals and needs -- and you will be a more confident, happier gold investor." (more)
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