Goldilocks and the Three Bears

The Daily Reckoning
Weekend Edition
Saturday, July 10, 2004
Baltimore, Maryland
By Addison Wiggin and Tom Dyson

Your editor finds himself tucked in a corner of Balimore’s international airport. Today, we fly home…to London. For the next three weeks we will be under the wing of Adrian Ash, our British-based editor of the Daily Reckoning. We have much to learn.

Your editor is reading a new book by Howard Ruff…your editor is reading about gold.

Readers may remember Howard Ruff. He recommended buying gold in 1975 at $120 and then recommended selling gold in 1980 at $750. His sell recommendation created quite a stir. "It was as if the Pope had committed apostasy and become a southern Baptist," he jokes. Of course, he was right. Ever since, Howard Ruff has been bearish on the metals.

But guess what…

Howard – for the first time in 25 years – has turned bullish on the precious metal. In an addendum to chapter 9, dated January 2004, he writes, "It’s happened…We are now officially in a gold bull market that will last for some years…" [Ed. Note. For more on Howard Ruff, see Daily Reckoning Book of The Week, below…]

We note Howard’s claim with interest…gold has just completed its strongest week of the year. Bullion closed the week at $407.90, up 2.3% on the week. The ‘barbarous relic’ hasn’t dared tread these heady heights since early April, when Fed-induced panic first gripped the markets.

What does gold sense, dear reader? Might the smaller, more agile market be anticipating further dollar weakness and a test of the March lows? Have gold traders noticed that year-over-year M2 growth is currently near an 8-year low? We remind readers that changes in M2 have – over the last 40 years – been an excellent leading indicator of GDP growth. Weak May payroll data would tend to corroborate this theory.

Or could gold be raising the terror-premium after a senior Pentagon official, Tom Ridges, announced that al-Qaeda has both the means and intention to attack the U.S.?

Either way, the dollar recorded a new three-month low versus the euro on Thursday, hitting $1.2418.

Not to be upstaged, oil is making some waves of its own. ‘Black gold’ breached the $40 mark again last week, setting a new 5-week high at $40.33. Journalists were quick to blame terrorism and supply concerns, but your humble editor feels this blame is misplaced…the real responsibility for high prices lies right here in the U.S.A. Wasteful consumers can’t seem to squander enough energy. Last week’s crude inventory data indicate this. "No matter how fast OPEC increases supply, the consumer mops it all up," said one trader. "There is simply no margin for supply-induced error."

With so many sources of pessimism, readers won’t be surprised to learn that the market performed poorly. The Nasdaq fell 3% over the week, closing at 1,946. The Dow gained 42 points on Friday, but it wasn’t enough to erase the losses of previous sessions. The blue chip index closed Friday at 10,213, down 0.7% for the week. Meanwhile, the S&P finished the session at 1,113, chalking up a 1.1% weekly loss.

Enjoy the weekend,

Regards,

Tom Dyson,
The Daily Reckoning
July 10, 2004

P.S. As we were headed out the door, Mr. Addison Wiggin was finishing up a two part radio interview with Al Korelin of the Korelin Economics Report. Al and his partner Paul Warren are two of the most insightful commentators on gold, silver and financial markets in the business… and they hosts some of the more interesting thinkers and speakers of our time. The show is must if you want to keep up with what’s REALLY going on in the markets.

If you’re in the Los Angeles area, you can listen to the Korelin Economics Report on KCAA 1050 at 6:00am on Sundays. In Portland Oregon the show airs at 11:00am on Saturdays on KUIK-AM 1360… And in Youngstown, Ohio on WASN, AM 1500, Saturday morning at 7am.

For a complete listing of show times… or to catch the whole program online, follow this:

The Korelin Economics Report

P.P.S. And here’s an excellent contrarian play…when booking plane tickets on-line, always specify a ‘special dietary requirement’. Take your pick of Kosher, Hindu or Moslem fare. Your editor just enjoyed a delicious chicken curry. And here’s the best part…you get your food before anybody else…

— Daily Reckoning Book Of The Week —

Safely Prosperous or Really Rich: Choosing your Personal Financial Heaven by Howard Ruff.

He’s seen three serious recessions, three major bull and bear markets, the insane inflation of the 1970s, a real estate boom and bust, a historic gold bull market and its historic collapse. Not only did he experience them…he led his readers to profit from them.

Howard Ruff has always had an excellent ability to precisely anticipate market turning points. But his book is much more than just market predictions – in fact, Ruff only devotes one chapter to gold. The rest of the book presents two paths to wealth – one boring path to guaranteed financial freedom and a comfortable life, and one exciting path of problem solving, adventures and X-factors which eventually lead to untold riches.

THIS WEEK in THE DAILY RECKONING

REDISCOVER AMERICA 7/9/04
By Bill Bonner

"…Yesterday, we crossed a desert section of North America. That is, ‘desert’ in the old sense. We would say ‘deserted’ in today’s language. Explorers tromped from the north shore of Nova Scotia, on the Bay of Fundy, to the south shore on the Atlantic nearly 400 years ago. Today, along both coasts, there are modest habitations. But the interior is still kept in reserve by the Deity and mosquitoes…"

A QUICKSAND OF DEBT 7/8/04
By Hans F. Sennholz

"…Internationally, they have no legal status but are readily used because of their relative prominence and good repute. As the world’s most popular money, they have become "standard" money. Unfortunately, it is a precarious standard that may soon sink in the quicksand of debt…"

GUNSHIPS AND OPIUM 7/7/04
By Dan Denning

"…If anyone steals the election in 2004, it’s going to be the Chinese. China may be very close to picking a time to go after Taiwan while the U.S is preoccupied in Iraq. That might seem rash. But think about it in terms of winning without fighting…"

A MOST SAVAGE CREDIT CRUNCH 7/6/04
By Dr. Kurt Richebächer

"…In our view, the fate of the mortgage refinancing bubble and its further impact on the economy is presently the single-most important issue facing the U.S. economy. All other major GDP components are much too weak to take over as the new locomotive. Consider that nonresidential business investment contributed just 0.30 percentage points to real GDP growth in the first quarter of 2004. Consumer spending remains so predominant that any weakness on its part would instead pull down the other components…"

BET YOUR BOOTIE 7/5/04
By the Mogambo Guru

"…I snatch the microphone from the stand, bring it close to my lips, and with a magnificent rumbling basso profundo voice from deep down inside my Manly Mogambo Chest, I say "Simple." My arm slowly rises until it stands directly out from my shoulder, and the only sound in the hushed stadium is the whir of videotape machines. Suddenly, with a flick of my wrist I motion to the band, and we launch into my rousing hit song, "Bring Me the Head of Alan Greenspan…!"

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HEADLINE, NEWS And INSIGHT:

Monetary Independence Day
by Dan Denning

"…The so-called guardians of our money have destroyed it. Interest rates are about incentives and rewarding risk. A market determined rate of interest would fund good entrepreneurial risks and punish bad risk takers by limiting their ability to borrow through high rates…"

Beyond the Gold
by Mark Geoghegan

"…The nightmare Olympic case study is that of the Montreal Olympics in 1976, which lost money and left the Canadian city’s taxpayers to pick up the bill. Montreal’s Olympic stadium was finally completed in 1987…eleven years after the event. The final Montreal debt payment will be made in 2005-2006…"

Homeland Bound
by Bill Bonner

"…But in coming back to the New World, we bring with us our newly-acquired ‘esprit critique.’ The French are famous for it. They criticize everything and everybody. It is what makes France so agreeable and the French so annoying. The food is good. Things are usually nice to look at – even the people themselves. The French insist on it…"