Gold and silver ended up making handsome gains during 2005, and the good news is that 2006 promises
to be better still. Both took off during the last four months of the year, to such an extent that a reaction set in towards
mid-December, which has partially alleviated the short to medium-term overbought condition that had developed, although in
a powerful bull market it should be noted that prices can run an overbought condition for a considerable time.
Moneyization: The global financial phenomenon of individuals and businesses moving their
funds to monies in which they have the highest confidence, or money in which they have a higher store of faith.
Good intentions, when guided by error and ignorance, may have undesirable consequences.
There is no better example than minimum wage legislation. It means to raise the wages and improve the living conditions of
poor workers but actually condemns many to chronic unemployment. It forcefully raises the costs of unskilled and inexperienced
labor and thereby lifts it right out of the labor market. Yet, many politicians who neither own nor manage a business and
do not employ such labor never tire of lamenting and deploring low wages and promising to raise the wage minimum by law and
regulation.
Dr Bernanke stands ready to facilitate this new borrowing. He is
eager to create new dollar entries in the Fed's balance sheet and swap these for new Treasury debt, in what would amount to
a transfer of purchasing power away from existing bondholders. The effect is akin to the dilution suffered by existing shareholders
when a company carries out a new stock offering to raise capital. Foreigners, who own half of all outstanding Treasuries,
could not be coerced into accepting the uncompensated losses that such a scheme implies. Their exit from the Treasury market
would make borrowing prohibitively expensive, putting the government in a position where it can neither tax nor borrow effectively.
At this point, the Fed's usefulness would be in serious doubt and confidence in the notes backed by its balance sheet in tatters.
In six of the past seven years, the Platinum 400--also known as America's Best Big Companies--outperformed
the stock market over the following 12 months. The Platinum 400 had its best 12-month run in 2003, when it gained an average
26% versus 13% from the S&P 500 and 10% for the Dow Jones Industrial Average.
Will the U.S. dollar lose some of the recent wind beneath its 2005 wings? Will GDP stumble
into a recession owing to all the Fed rate hikes? Will corporations cut their hoarding and crank up capital spending? And
what about world stock markets? Will Japan and all those emerging markets investors and hedge funds have been pouring money
into remain hot? And here at home will large capitalization or small caps win the day? Or will it be growth versus value?
Gold just hit a quarter century high. What's up there: panic buying by the Japanese to hedge against a falling yen or real
inflation fears?
As readers of our reports are aware, last year we showed a little known ratio that has a high degree
of fit with the dollar index. Basically, we take the ratio of the 3-week TBill to 30-year yield. This shows us the market's
expectation of short term interest rates in the US, which is the primary mover in currency markets. We said the market was
predicting higher short term rates in the US and with Europe looking sickly, higher US rates would attract deposits.
As the medium of International Exchange, the United States and its Currency remain in
the unique position of Seignorage or having our currency accepted as the medium of International exchange. From this privileged
perch the United States has been able to spend far in excess of what it earns in trade merely by having the Federal Reserve
create whatever amount of money it needed.
Have home prices peaked? Or is there still life in one of the greatest equity booms ever?
For the real estate mogul in us all, FORTUNE looks at the 100 top U.S. markets.
It would appear that we're all going to be 'flying blind' as to how much money the Fed
is truly going to pump into the system folks. My best guess is that the gold market [and perhaps the oil market, natural gas
market, copper market, etc.] has already sensed this and is reacting accordingly. Better get your wheel barrows early, they
might be harder to find than rocking horse droppings or M3 related statistics come April!
As the Federal Reserve raises interest rates again and the trade deficit breaks another
record, the American economy continues to confound the sceptics. Thanks for that go largely to resilient consumers and booming
productivity.
“In the accompanying statement, the Fed said growth remained ‘solid’, inflation excluding food and
energy prices had ‘stayed relatively low,’ and inflation expectations were contained. But it also warned that the possibility
of further erosion of spare productive capacity and high energy prices ‘have the potential to add to inflation pressures.’"
From recent US Federal Reserve Board meeting minutes, it would appear that monetary policies
will move from a tightening bias to a neutral or easing mode within the next six months or so. In the past, I have maintained
that the US, with a debt-to-GDP ratio of over 300%, has no other option but to print money.
OF all the great insights that Friedrich August von Hayek bequeathed to us in his work, one in particular
shines out today. For its truth has never been more evident, its application never more universal. It is that running through
the ideological and political divisions of human history are two distinct and different ways of looking at the world. Between
them is a deep and irreconcilable divide. One Hayek called constructivist rationalism. The other he called evolutionary rationalism.
China's economy grew faster than expected in 2005 and will maintain strong growth of at least 8.5%
in 2006. Declining profitability suggests an imminent downturn in industrial production and investment, but structural factors
indicate continued rapid medium-term growth. Real GDP growth is expected to be 9.4% for 2005--only slightly down from the
9.5% recorded in 2004. However, about one-fifth of the growth has come from a surge in the trade surplus. Domestic demand
is thus weaker than in 2003 to 2004 and will weaken further in 2006.
What does this mean for you and your family? Since your dollars have no intrinsic value,
they are subject to currency market fluctuations and ruinous government policies, especially Fed inflationary policies. Every
time new dollars are printed and the money supply increases, your income and savings are worth less. Even as you save for
retirement, the Fed is working against you. Inflation is nothing more than government counterfeiting by the Fed printing presses.
Chances are most people will remember 2005 for its ferocious Gulf Coast storms. But for
investors the weather has been much less tempestuous. Since January the S&P 500 has ebbed and flowed around the 1200 level,
posting a total return of 4.1% through mid-November. That’s nowhere near the double-digit returns of the past two years, although
it’s much better than the carnage visited upon stocks in 2002.
Mutual fund companies should be turned into not-for-profit organizations. At least, that's
what David F. Swensen thinks. In his new book, Unconventional Success: A Fundamental Approach to Personal Investment, the
head of Yale's endowment lambastes the entire mutual fund industry for failing the American investor. Its sins, he says, are
funds with trailing performance, excessive portfolio turnover and high management fees. He points to recent fund scandals,
in which some managers benefited at the expense of ordinary investors, as another indictment of all that is wrong in the industry.
Copper is at all time highs, but the question many are asking is, where does it go from
here. The first long term chart illustrates that another parabolic advance is taking place for copper. Parabolic advances
are powerful moves that at some point can no longer be supported by gravity. What I mean by this, is when they top out, the
the decline is (almost) always as sharp as the advance. The price action can't be sustained for these type of advances and
the reversal can be devastating if not prepared.
After leaving interest rates unchanged for more than two years, the European Central Bank
has finally raised its key rate by a quarter of a percentage point. The bank is trying to establish its credibility as an
inflation hawk, but this may be hard to do without endangering the fragile recovery in some of the euro zone’s biggest economies.
On the surface he toes the party line and goes along with traditional optimism. But when
you listen carefully to his words and read between the lines of his speeches, you will find another message. It is a message
remarkably similar to that preached by the gold bugs, the doom-and-gloomers. In fact, if you dig deep below the surface, down
to his root beliefs, you will discover that Mr. Greenspan is a closet gold bug.
If you ask me to name the proudest distinction
of Americans, I would choose- because it contains all the others . . . the fact that they were the people who created
the phrase "to make money." No other language or nation had ever used these words before; men had always thought of
wealth as a static quantity . . . to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were
the first to understand that wealth has to be created.
