The Rude Awakening
Laguna Beach, California
Wednesday, December 6, 2006 - The dollar continues its graceless swan dive,
- Are your investments protected?
- The tourist treatment in Paris, diversifying with global currency ETFs and plenty more…
Eric Fry, reporting from Laguna Beach, CA… Seven years ago, gold elicited almost as much admiration as a registered sex offender. Today it elicits slightly more admiration than a registered Republican. That's an uptick, to be sure, but we're guessing that gold will evoke George Clooney-esque "oohs" and "ahhs" before this bull market has run its course. Seven years ago, the U.S. dollar had become the world's "it" currency. Meanwhile, gold's global esteem had plummeted to a pitiable estate. You could still find the stuff lying around in grimy rare coin shops…and in a few basements in Montana. But Western central banks could not wait to unload the vestigial gold reserves that still cluttered their vaults. And sophisticated individual investors would never go near the stuff, except when donning their Rolex watches. 
Nevertheless, since bottoming at nearly $250 an ounce in August of 1999, the gold price has soared more than 150%, while the dollar's value has tumbled 20%. Even so, it is gold that remains the "fringe" currency, the "speculation," the "uncertain asset." We beg to differ. The gold price will certainly suffer its selloffs and its sharp corrections, like, perhaps, immediately after we publish this column. But it will remain a compelling long-term diversification in a world of increasingly dubious paper wealth. ----- The Death Of The Dollar ----- The Languishing Greenback…The Housing Bubble…The Over-Leveraged American Consumer…Credit Based Growth… No wonder the world's greatest living economist warned of an imminent crisis earlier on this year. But…The man that predicted these events also outlined TWO ways you can safeguard your wealth. Become part of his elite circle of investors and protect your investments. The Full Report Is Available Here. ----------------------------------- Ingot We Trust
By Eric J. Fry Buying gold today might produce remorse five days from now…but probably not five years from now. The dollar's feeble footings should continue to inspire investors to buy gold, especially those investors who already feel that they hold one or two dollars more than prudence would dictate. As the dollar refugees flock into the gold market, prices will rise…or so we would guess. To better understand what the next five years might hold in store for gold investors, your California editor rummaged through the past five years of archives from the Rude Awakening and the Daily Reckoning. What were we saying about the dollar and gold in 2001, we wondered? And what were we saying in 2003? Is that message still as urgent today? Each reader will decide for him/herself, of course. But as we perused the archives of the Daily Reckoning and the Rude Awakening yesterday, the columns we examined evoked two potent, recurring reactions: - "Wow! These essays are awesome!"
- "Diversifying into gold is a timeless message, but it has become particularly timely today."
Please enjoy a few retrospective doses of timely insight: From the Daily Reckoning of May 8, 2002 (Gold at $308.15 an ounce): "'At the end of 2001, outstanding credit in the United States totaled almost $29 trillion,' Dr. Kurt Richebacher observes. "Given the rapidly growing supply of greenbacks - not to mention the nation's ever-expanding debt levels - gold holders might decide eventually that swapping an ounce of gold for 320 dollar bills is a bad trade. "Part of gold's growing appeal is that it has no CEO. It has no chairman of the board, and most of all, it has no option-laden management team. It is simply 'Gold.' And that's a refreshing change for investors who have grown tired of suffering abuse from self-serving corporate managements."
From the Daily Reckoning of May 23, 2002 (Gold at $322.05 an ounce): "Yesterday, the yellow metal coasted to its sixth straight winning session - up $2.20 to $318.30…Is the rally almost over or just beginning? No one knows, of course. But everyone has an opinion…In the eyes of most CNBC talking heads, the gold market's recent strength is freakish - like a two-headed billy goat. Gold stocks may be more popular than they used to be, but they are far from popular. "It's been a lot of fun to watch mutual fund managers and financial journalists try to grapple with something as alien as a gold rally. Much of the 'analysis' is comically uninformed. One financial commentator mentioned gold 'ig-nots' a couple of times, when he meant to say 'ingots.' We would have to assume, therefore, that the commentator is an 'ig-not-ramus' about the gold market. He seems to have plenty of company."
From the Daily Reckoning of November 11, 2002 (Gold at $321.75 an ounce): "'This is the bottom for gold,' Doug Casey declared from the podium yesterday at the New Orleans Investment Conference. 'It's not just going through the roof; it's going to the moon! This is the big one.' "Casey bases his prediction on what he considers the inevitable demise of the U.S. dollar - the currency he calls 'a floating abstraction.' Bearish predictions for the dollar are par for the course from folks like Casey and Robert Prechter. But now, even an incorrigible optimist like Sir John Templeton, who rarely neglects to praise America's economic prowess, is joining the ranks of dollar skeptics. Speaking to the conference attendees live via satellite from his home in the Bahamas, Templeton called the prospect of a rapidly weakening dollar the 'single greatest threat' to U.S. economic prosperity. "'The biggest risk to the U.S. economy is its unfavorable balance of trade,' Templeton warned. 'No country has ever had such an unfavorable balance of trade. If foreigners get nervous, they could start to sell the dollar aggressively, and the results could be catastrophic.' "The entire U.S. Daily Reckoning brain trust - Bill, Addison and myself - convened in New Orleans last week for the annual New Orleans Investment Conference. During the four-day blitzkrieg of investment presentations, the various speakers fired off a broad range of ideas and insights. But no matter the speaker, one recurring theme emerged: the dollar is in trouble."
From the Daily Reckoning of November 1, 2003 (Gold at $381.65 an ounce): "Richard Russell, editor of The Dow Theory Letters, appearing via live video-feed from San Diego, told the crowded auditorium of conference-goers in New Orleans that the gold bull market is for real and that it is in its infancy. "'Gold is now in the accumulation phase,' he says. 'Gold is moving to strong hands from weak hands… $556 per ounce is the first target.' "Russell colored his dispassionate technical analysis with a bit of macro-economic fire-and-brimstone. 'The system of fiat money is really immoral, almost evil. It will not last. Most of us will live to see the complete destruction of the U.S. dollar,' the octogenarian stack market observer predicted. 'When the dollar collapses, all hell is gonna break loose in the system.'"
From the Rude Awakening of January 18, 2005 (Gold at $423.05): "If gold is a 'collective hallucination,' as financial writer James Surowiecki asserts in a recent column for New Yorker Magazine, what is a U.S. dollar? Or a share of Google? Or a 30-year Treasury bond? Aren't these paper assets merely derivatives of a hallucination?… "Even conceding the fact that our eyes may be deceiving us, we think we perceive more value in an ounce of gold costing $432.00 than a U.S. dollar costing 1/432 an ounce of gold. Indeed, we suspect that the dollar's illusory value is the sort of deceptive apparition that entices unsuspecting investors to stroll off a financial cliff. "Surowiecki disagrees. 'Gold is valuable only as long as we collectively agree that it is,' he says. "It may be soft, shiny, durable, and rare, but it has no more intrinsic value than feldspar or quartz…Buying gold is the purest form of speculation…You're buying into a collective hallucination - exactly what those dot-com investors did in the late nineties. One could say that gold is the biggest, most durable bubble in history.' "In the sterile environment of pure financial theory, Surowiecki makes a valid argument. But when exposed to the virulent microbes of real-world economics, his thesis degrades rapidly. To be sure, the value of EVERY asset in the world relies upon a collective judgment - or hallucination, if you prefer. But this is hardly a groundbreaking insight. No financial asset - gold included - possesses an absolute, eternal value. Rather, all values are RELATIVE. "However, any financial asset whose relative value remains somewhat constant over time is deemed to be a 'store of value.' In this respect, gold has proven itself to be an extremely lifelike hallucination - having successfully retained its value relative to competing assets over several thousand years. The same cannot be said for paper currencies or government bonds, both of which routinely find themselves cluttering the waste dumps of financial history… "As the Daily Reckoning's Paris-based editor quipped in response to Surowiecki's essay, "Gold wasn't born yesterday…Mr. Surowiecki noticed that the metal has a past, just as it has a present. He turned his head around and looked back a quarter of a century. The yellow metal was not a great way to preserve wealth during that period, he notes. As a result, he sees no difference between a paper dollar and a gold doubloon, or between a bull market in gold and a bubble in technology shares. "'Pity he did not bother to look back a little further,' the Daily Reckoning editor continues. 'While Mr. Surowiecki has looked at a bit of gold's past, he has not seen enough of it. Both gold and paper dollars have history, but gold has far more of it. Both gold and dollars have a future too. But, and this is the important part, gold is likely to have more of that, too.'"
From the Rude Awakening of November 25, 2005 (Gold at $451.70): "As gold inches ever closer to $500 an ounce, many long-time gold bugs can scarcely believe their eyes. The barbarous relic has not kissed the $500-mark since 1987… "Gold's flirtation with two-decade highs is not merely a curiosity for the gold-bug cult to behold. It is also an indictment of the global faith-based currency regime…and we think the charges are warranted. The world's faith-based currency regime deserves gold's indictment. Which is why we suspect that the NEXT $500 rise in the gold price might arrive much more swiftly than the last. "Paper currencies, it bears remembering, roll off of printing presses controlled by politicians and ignite when held close to open flames. By contrast, gold, as James Grant points out, 'is recoverable at five parts per billion from the earth's crust and has no central banker.' "Gold's scarcity does not accord it any automatic value…but it doesn't hurt, especially amidst the exploding population of paper currencies and financial derivatives."
And finally…from the Rude Awakening of February 1, 2005 (Gold at $421.13): "The strongest aspect of the bull case for gold relies upon the fact that the 'Risk Factors' for owning the U.S. dollar are far more numerous, far more serious and far more likely than those for owning gold. If we were commissioned to write a prospectus for the U.S. dollar, we might caution: "The dollar's value may react adversely to changing investor perceptions resulting from:
- The retirement of a deified bureaucrat who chairs the Federal Reserv
- A rapid decline in the value of U.S. financial assets and/or real estate asset
- A growing perception of American fiscal imprudence, as evidenced by its growing current account deficit and rising foreign debt
- A derivatives debacle that becomes a banking crisis that becomes a currency crisis
- A rise in the inflation rate above that which the Federal Reserve chairman deems constructive
- The failure of an economy powered by Starbucks lattes and Destiny's Child CDs to continue attracting direct foreign investment."
"Gold's $4 drop yesterday reminds us of the risks of owning the yellow metal. On the other hand, the dollar's 40% drop over the last three years reminds us of the risks of owning the alternative."
Joel's Note: After reading yesterday's Rude column, "What's a Dollar?", our friends over at the Sovereign Society emailed us something that might interest all "dollar-phobic" investors: an easy way to diversify into foreign currencies. If you have been wondering how to protect your dollar-based portfolio from the greenback's swoon, you may wish to check out their new currency ETF service. We've included a link to their special report for you right here. Crooks on Currency --- Better Than Gold --- A Shocking Financial Prediction From the #1 Ranked Advisory Letter Your Chance to See Profits up to 257% - Or Your Money Back! If we printed this shocking prediction here, you wouldn't believe it - even though it's coming from the #1 performing advisory letter of the last five years. Mountains of evidence back them up. And if they're wrong, they'll give you your money back. Don't wait another second. Get the details on the massive move they see ahead… and discover 5 specific investments that could help you cash in! ------------------------ Enjoying a lazy afternoon aperitif in Paris, Joel Bowman reports… Yesterday we offered a little respite to our battered, and rapidly diminishing, greenback travel account by journeying to Euro-based France. While still exposed to a sliding exchange rate, a Euro balance slip is certainly better than the demoralizing receipts spat out by the English ATMs. Griping aside, we would gladly exist on the streets in this most romantic of cities. And that's a good thing, as it may well come to that. We write to you today, Rude reader, from a quaint café in Montmartre. Outside our window, effortlessly stylish Parisians saunter along the sidewalk, smoking their Gauloises cigarettes… We cannot help but feel overwhelmed with blissful romantic sentiment as we watch these passersbys from our window perch. Even when plans go awry here, our inner contentedness remains unwavering. Last night, for example, we arrived on our hotel doorstep at a quarter to eleven, fifteen minutes before check-in closed for the evening. Relieved to finally unload our backpack, we waited patiently as the concierge dabbled about with paperwork. The gentleman's seeming indifference to our presence, even after standing there for ten minutes, had us wondering whether he had noticed us at all. Finally he looked up and spoke to us. "Bonsoir Monsieur. Avez-vous un reservation? "Oui," We replied, fumbling around for our phrasebook. "Quel est le prix?" we clumsily inquired, fully expecting the price quoted when we made our reservation a few weeks back to have been subjected to some, "discretionary charges." "Quarante-cinq." This was fifteen Euros above what we had booked…but this wasn't all. After as series of hand gestures, phrasebook searches and miscommunications, we discovered that our room was not available due to a problem with the plumbing. We would, the concierge advised us, have to take a room around the corner at a considerably pricier address…a room our thoughtful concierge had already arranged for us.
It doesn't take a seasoned traveler to realize we were being given the run around. Still, we would have almost been disappointed had this custom been omitted from the whole experience. It always takes a while to find your bearings in a foreign city…to learn the local spots and pay the local prices. For the night, we were happy to go along with this fellow. After all, we still have a few American dollars left…just a few. We'll be back tomorrow with more from the Rude team. Until then, Au revoir! jOEL --- Demise of the Dollar --- Demise of the Dollar …and why it's great for your investments by Addison Wiggin 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. Addison Wiggin spent over a week in the #1 slot on Amazon's bestseller list - knocking Harry Potter to number two. He then showed up on Barnes and Noble's bestseller list and debuted on The Wall Street Journal's Business bestseller list at #8! The logical next step was for the book to get on the New York Times bestseller list…which it did, sitting strongly at #5! To purchase your copy, see: The Demise of the Dollar | 
