The Rude Awakening
London, England
Tuesday, December 5, 2006 - The dollar, on the ropes again, weathers a barrage of body shots,
- A nostalgic trip back through recent contrarian publishing history,
- Getting out of dollars and into gold, what one CEO is doing with 22% of his own paycheck and more…
Eric Fry, reminiscing about the good old days, reports… Not so long ago, the U.S. dollar was the world's premier currency brand. It was the currency of champions - the currency of Alan Greenspan, of Wall Street bull markets, of Silicon Valley tech geniuses and of "Shock and Awe" military campaigns. Not so long ago, everybody wanted these green paper symbols of American hegemony…and nobody wanted gold. As Western central banks rushed to unload their gold reserves, the only people who seemed to want the stuff were Indian brides and Mexican dentists…and a few overly educated financial journalists. The year was 1999…and it was also the year that the Daily Reckoning first appeared on the scene as a barely visible voice of contrarian insight and dubious wisdom. It was an unknown publication - delivered through the uncertain medium of the Internet - that offered an unpopular message: the dollar deserves to go down, gold deserves to go up. Very few readers cared to hear this message in 1999, as our colleague, Dan Denning, recently recalled: "It's funny now…but it sure was grim at the time…No one wanted to buy gold, or read anything we published…except about 10,000 readers. I imagine these readers must have felt like they'd been cornered…boxed in…with no lines of retreat…whatever you want to call it. With so much evidence they were wrong on the front pages of the papers and on CNBC, all they had was their common sense.
"Then the DR started going out like a reverse Bat Signal…or a Star of Bethlehem…or a 'beacon of sanity,' as my Aussie buddy said. And day by day, it became a little rallying cry for some things and against others.
"I'd say the rest is history. But that's not quite right…Bill Bonner [the founder of Agora and the Daily Reckoning ] sort of drew his line in the sand…took out his editorial sniper's rifle…and waited for editorial reinforcements…which soon arrived."
Addison Wiggin and Dan Denning numbered among the earliest "reinforcements." Your California editor arrived in early 2001 to join this quirky squad of dollar skeptics…and gold apologists. Over the ensuing five-years-and-counting, the Daily Reckoning's former and current editors and columnists penned millions of words, drafted thousands of essays and conducted hundreds of TV and radio interviews about the likely demise of the dollar and the likely resurgence of gold. Drawing upon this rich legacy of dollar/gold commentary, Addison Wiggin authored The Demise of the Dollar, an easy-to-read analysis of what ails the greenback. This New York Times best-seller first landed in bookstores one year ago. But it seems even more timely today, in light of the dollar's latest slide. The Demise of the Dollar examines the reasons for the dollar's slide - including the nation's historic trade deficit, the euro, government spending habits, globalization, and other international factors - and offers an up-close look at the Federal Reserve's attempts to "manage" the dollar's value. To pick up your copy you can simply follow this link. Therefore, dear investor, we may not have said everything there is to say about the weakening dollar and the strengthening gold price, but probably more than most folks care to hear. Even so, we're not about to abandon the topic. In fact, we're just warming up. The dollar's prognosis is no better today than it was in 1999. Gold's potential is no worse. And yet, the dollar remains the world's reserve currency, while gold remains a fringy, "non-core" asset. In other words, the epic monetary struggle between the dollar and gold is just beginning. We might not have anything new to say about dollars and gold, but at least we have a different way of saying it. The dollar is falling! Read all about it! ---- Out Of Dollars And Into Gold ---- These Gold and Coal Stocks Are Set to Outpace the Market 19-Fold In the Next 6 Months…
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By Bill Bonner Along the banks of the Thames…Christmas lights are beginning to appear. It gets dark by 4 p.m. By 5 p.m., the lights flicker and sparkle, reflected in the dark river. Crowds walk along the riverfront…gaily chatting…stopping into a pub or a coffee shop…or walking up to the West End for a theater outing. With its new architecture…its trendy new sections in Southwark…its Russian millionaires and Saudi princes…its museums, its fancy shops, its classy restaurants, London has never been a more agreeable place to visit. But woe to the poor traveler who wants to buy anything, unprepared for the prices. Yesterday, the pound sterling hit a 14-year high against the dollar. Now, after paying an exchange fee, the Yanks pay almost $2 for every pound. And since nominal prices tend to about the same as in the United States, visitors from the States pay about twice as much for everything they buy. Sometimes more. Meanwhile, here in Europe, things are not much better. The dollar hit a record low against the euro two years ago - at $1.36. Then the greenback rose to $1.22 per euro in June of '05. Now, the American brand is on the ropes again…getting pummeled by the European's money. Yesterday, the dollar fell to $1.32 per euro. "Watch the dollar," we have been urging. Not because we know what it going to happen, but because we don't. And whatever happens, it should be interesting. Investors, businessmen, bankers, and consumers all have to communicate. The consumer has to state his preferences. Investors have to give their judgments and guesses. Businessmen have to listen carefully and respond. The world of finance speaks in the language of dollars. An ounce of gold is worth so many dollars. A new car sells for so many dollars. A house in Houston…or a sack of grain in Bombay…or even an hour of a Chinese worker's time - it is all expressed in terms of dollars. Global markets speak in dollars. But the trouble with the language is that nobody knows what a 'dollar' means anymore. The term has lost its fixed meaning. Instead, it has developed different inflections wherever it is spoken; it has changed…evolved. One day, a dollar means - "a solid thing, a sure store of value…equal to approximately 1/300th of an ounce of gold." A few days later, you look in the dictionary and you might find an entirely different meaning: "America's weak currency, beware…currently worth about 1/600th of an ounce of gold…but falling rapidly." Mightn't we some other day - if we live long enough -- pick up a copy of the Random House Dictionary of Financial Terms, published in 2030, and read the following entry: 'U.S. Dollar…currency used by America, from 1780 to 2025, when hyperinflation rendered it valueless. It was replaced by the gold-backed American Yuan.' The immediate problem for the dollar is simple: the smart money is betting on lower short-term rates in the United States, while rates in Europe rise. The European economy is booming; the central bank seems sure to increase lending rates. But the U.S. economy is softening…and is threatened with a severe slump, led by weakness in the housing sector. Can Ben Bernanke really increase rates when so many homeowners are trying to sell? He has warned that he might, but we don't think he will be able to. And neither do currency speculators…or the bond market. And since the dollar is going down, a lot of major dollar holders are getting worried. The Swiss, the Italians, the Russians, the Chinese, and the United Arab Emirates have all announced that they were lightening up on their dollar holdings. China has about $1 trillion in foreign currency reserves, of which 70% is said to be in dollars. "The U.S. dollar is supposed to the anchor that stabilizes the global currency market," complained Fan Gang of the national Economic Research Institute of China. "Instead it is a major source of instability." Humpty-Dumpty is still sitting on the great wall of the world market system…presiding. When he begins to slip, however, there will be a lot of people eager to give him a kick. He may never get back on his feet again in our lifetime. What's ahead for the dollar? Can't all prices be figured as a product of supply and demand? The feds stopped reporting the growth in M3, the principal measure of the U.S. money supply, earlier this year. But Adrian Van Eck, who keeps track of these things, estimates that the world's supply of dollars has increased by $3 trillion over the last three years. That is an astounding figure. But dollars have become such an abstraction…such whiffs of smoke…we don't know what it means. Let's compare the figure to the world's supply of gold. Gold stocks grow at about 1.7% annually. If the base of 155,000 tonnes above ground - the figure provided by the World Gold Council - is correct, that means we only have to do a little math to know where we are headed. Let's see…there are 28.35 grams to the ounce…and 1,000 grams to a kilogram…and 1,000 kilograms to a metric tonne. If we're doing the figures right, we end up with an above-ground supply of more than 5 billion ounces…which, multiplied by 1.7% over three years…gives us an addition to the world's gold supply of about 25 million ounces over the last three years. In other words, for every ounce of gold added to the world supply over the last three years, the United States has added $120,000. But wait, we are talking about the world's total supply of new gold. So, in addition to the new supply of dollars, we have to include the increases in the rest of the world's money supplies. We won't even try. Instead, we will guess that, altogether, the foreigners added about the same amount of new currency - about $3 trillion worth. Which gives us a total of about $240,000 for every ounce of gold added to the world supply. What does this mean? We don't know, exactly. But our guess is that the incremental dollar could be worth less than people think…and the incremental ounce of gold a bit more. Ed. Note: The falling dollar is just another reason to buy gold. And if you are at all intimidated by the thought of diversifying your portfolio with our favorite yellow metal - don't be. Our friends at EverBank have made it incredibly easy - and practically risk free - to access the gold market with their 5-Year MarketSafe Gold Bullion CD. Click on the link below for all the details…but hurry, these CDs are only available until December 12, 2006: Get EverBank's MarketSafe Gold Bullion CD for a Limited Time --- Wall Street Place Their Bets --- A CEO Bets 22% of His Modest Salary That His Company's Stock Will Rise At Least 74% in the Next 11 Months His CFO agreed, and invested 31% of her salary…a scant 2 hours later. Fact is-this $300 million company has just seen the largest insider-buying surge in its 48-year history. If the CEO and the CFO, among other top execs, have this kind of confidence-shouldn't you get a cut of the coming profits too? Click here to learn more. ------------------------------------ Joel's Note: Because your penniless junior editor is just that, penniless, he is feeling the brunt of the sliding dollar value here in England. We arrived in London less than an hour ago and bring you this Rude column from a dank little internet café near King's Cross. Despite the facilities being decidedly sub-par and the connection as slow as an indignant mule, this little email is setting us back a personal fortune. And the exchange rate at the next stop isn't going to be much better. In a couple of hours we will board a budget carrier to Paris where the Euro has also been battering the greenback. Wish us luck, Rude reader, as we delve into the adventures of near poverty in the City Of Lights. If you receive no Rude mailing tomorrow, feel free to assume the worst. Until then, be sure to check out Addison's Demise of the Dollar and stock up on that gold! Cheers, JOEL | 
