The Rude Awakening
Istanbul, Turkey
Friday, August 24, 2007 ------------------------- - Helicopter Ben fires away - What for gold and the
dollar? - A hard, contrarian look at the bigger picture in the
resource markets, - The Dow hovers precariously, Asian banks contract
"subprimitis" and plenty more…
------------------------- Joel Bowman, reporting from Istanbul, Turkey… At 10:00am today, the Commerce Department will release the new homes sales report in the nation's capital. Talk about an unenviable task! Forecasts by most economists suggest this month's numbers will be even less popular than last month's. According to a survey of 73 such economists taken by Bloomberg News, "Purchases fell to an annual rate of 820,000 last month from 834,000 in June." This would be the lowest number of new homes sales in seven years. This is no surprise. Many will shrug off this latest abysmal statistic as just one more warning in a long procession of harbingers and red ink. Many have become desensitized, are suffering from bear fatigue and simply turn away from their screens when analysts scream "Armageddon!" They will complain that they've had enough with all this subprime kafuffle, that it's time to move on and get down to business as usual. "The Fed's already provided enough liquidity to stave off a crisis," they will moan, "rates have been cut…all this fuss is way overblown." Relentless optimism can be an honorable trait…provided it doesn't fly in the face of respectful pragmatism. In the first six months of this year over one hundred thousand Californians were handed notices of foreclosure. Add another 65,000 Floridians, 44,000 Ohioans, 40,000 Texans, and 40,000 folks in Michigan and the reality of the picture begins to set in. Across the nation, almost a million people defaulted on their mortgage in the first half of this year, more than double the number for the same period of 2006. Thanks to all this unpaid debt being spun-off by way of fandangle derivatives, the crisis has spilled over to markets around the world. Just yesterday The Bank of China, the nation's second-largest commercial bank, announced that it had gobbled up almost $10 billion of securities backed by American subprime loans. Japan's biggest banking company, the Mitsubishi UFJ Financial Group, has around 300 billion subprime-tarnished yen (US$2.6 billion) and 16 banks around Taiwan are in for about $1.2 billion. The scope of the credit crisis is not yet fully known and risk is impossible to price. Following a bad debt through a maze of financial reincarnations can be like trying to follow a wisp of smoke around a hookah bar. After a while you're thrown off the scent and become more interested in finding a comfortable cushion just to plant your behind on. But enough of all that. In the column below, David Galland investigates the decidedly more tangible world of resource investing. Here the trends are easier to track…if you know where and how to look… --- Urgent Survival Report Alert --- THE "SUBPRIME" TIME BOMB TICKING UNDER WALL STREET Thought you were "done" with the property bust? Think again -- then get ready as a deadly subprime lending time bomb ticking under Wall Street sparks the worst property-led recession of the last 76 years! This triple-edged "housing hedge" strategy could shelter both you and your money against the fallout IF you let me rush it to you FREE, as soon as possible…Read On Here. ------------------------------------- The Mega-Trend is Your Mega-Friend
By David Galland
Managing Editor, Doug Casey's International Speculator Would it seem out of the question that, with only four trades, one about every ten years, you could turn $35 into $100,000? Well, you could have… Global investment markets are extremely complex. However, if you take a hard, invariably contrarian, look at the bigger picture, there are times when you can spot large trends in motion that are likely to stay in motion. Casey Research Chief Economist Bud Conrad compiled the chart below that shows how being directionally correct on a "mega-trend" is exceptionally profitable. String together a few of these mega-trends and there is a private plane and mansion in your future. 
Of course, the odds are microscopic that anyone could have made these exact trades at exactly the right time. But the illustration holds water nonetheless: catching big trends early can pay off in a very big way. So what is the current trend? In today's economic environment, the big money is being made in the natural resource sector. But isn't this trend a bit long in the tooth? Yes and no. Certainly, the "easy" money was made by those who invested in the resource stocks before 2000. But we remain convinced that the big money in the trend is still ahead…especially in the gold market. Since 2000, of course, gold has better than doubled, but the quality gold stocks have gone up much more… 400%, 1,000% or more. Over the last 12 months, however, gold and gold shares have been languishing. But don't let this listless price action fool you. The current bull market in gold has the potential to produce an astonishingly powerful and enduring advance from current levels. The only fundamental reason for gold to go higher is when competing forms of money - usually paper money - lose their purchasing power. For instance, if you lived in Zimbabwe today and were offered an ounce of gold or a brown paper bag of rapidly depreciating Zimbabwean dollars, what would you take? (Hint: take the gold; inflation in Zimbabwe is so bad that a roll of toilet paper now costs over 200,000 Zimbabwe dollars.) But the world doesn't trade off the back of the Zimbabwean currency unit. That honor belongs to the U.S. dollar which, as you are no doubt aware, has evolved into the de facto reserve asset of virtually every central bank in the world today. That the unbacked currency of one country is now the core holding of all the countries in the world is unprecedented in the history of the world. Books have been written about how it happened. The short version of this fascinating story is that it came about as a direct result of the U.S. being the "last man standing" after World War II. In 1944, as the war wound down, delegates from 44 war-battered countries gathered at Bretton Woods, New Hampshire, and, after some arm twisting, agreed to accept the role of the U.S. dollar as the currency of global commerce. The decision to make the greenback the supreme currency was made easier because, as a component of the agreement, the U.S. agreed to make it forever convertible into gold. Unfortunately, when dealing with politicians, "forever" has a different meaning than to regular folks. In 1971, when a rush of European dollar-holders began converting their greenbacks into gold, Richard Nixon unilaterally canceled the dollar's gold convertibility. From that moment on, the U.S. dollar became an abstraction, backed by nothing at all… and unrestrained by anything other than political whim. The growth of dollars outstanding since Nixon ended convertibility has been stunning. There are many implications attached to this global flood of unbacked money. But the primary concept to understand is that the supply of dollars increases rapidly; the supply of gold increases slowly. The debasement of the dollar knows no limits. Over time, therefore, gold's value in dollars should increase substantially. Since the end of gold convertibility, there have been no limits on what the politicians can promise or what they can spend. A fresh example is provided by the sub-prime credit crisis, in response to which the government has gone on record stating it would provide "unlimited" credit to banks. But "credit creation" is just a clever way of saying: "dollar-printing." That's why credit creation is a dangerous game - one that threatens to eliminate the U.S. dollar as a serious competitor to gold. Any number of the investors who entered the gold trend early look at the price action of the yellow metal over the last year - which has been flat to slightly down - and worry that this is a sign that this gold bull market is over. What they are doing is letting their emotions run their investment portfolio, a classic reaction during the "Wall of Worry" stage of any bull trend. They have made big money in gold shares, they understand the fundamental arguments, yet declining prices or volatility in the shares (which is especially prevalent in the summer months) gets them to thinking, then worrying, then selling. Big mistake. Look at the chart below. It is the price of gold during the height of the last major gold bull market. Notice the long, almost two year, decline right in the heart of the trend. That is what we are looking at now… a very normal, to-be-expected consolidation phase. Understanding that fact opens the door to big profits. Right now you have the unique opportunity to buy the very best junior gold companies at a Wall of Worry discount, in essence taking an extraordinarily profitable, time machine trip back to an earlier point in this long trend. 
When buying gold stocks, investors always face two basic choices: Major companies or "juniors." The first, more conservative path, is to choose from among the big gold stocks - the larger producers that will find favor with the big money institutional players and hedge funds. These giant mining concerns will, when things get rolling, provide solid double- and even triple-digit returns. In the last resource share bull market, triggered by a series of major discoveries in the mid-90s, for instance, Kinross went up 197% over a two year period; Barrick went up 57%; and Newmont 74%.Nothing to sneeze at when compared to "traditional" investment sectors. The second, and most exciting path, however, is to invest in the better-quality junior exploration stocks. These are the junior Canadian stocks overseen by seasoned exploration geologists - many of whom used to work for a major - who use their knowledge and investor capital to find prospective new geology. When they find something, they typically joint venture it to a major company, who spends the high-risk money on follow-up drill programs. Alternatively, the junior company will sell its projects, or even itself, to one of the majors. Returning again to the mid-90s resource stock bull market provides a measure of the potential of the junior exploration companies: Cartaway, up 26,040%; Arequipa Resources, up 5,692%; Francisco Gold, up 3,350%. Over the last few years, a record amount of money has gone into exploration programs around the globe - money which will start coming back in the form of major discoveries in the next year or two. Pick up your shares now, then plan on holding them as this gold bull trend regains momentum. In other words, buy right and sit tight. Furthermore, given the financial turmoil gripping the world just now, gold-related investments provide extremely important diversification of risk. In times of crisis, gold shines particularly bright. But don't delay getting on board this trend. The slow summer months, coupled with Wall of Worry concerns, are depressing the prices of many premier gold companies. So the time seems opportune to build a portfolio that makes the most out of gold's long-term advance.If gold is going to $1,000 an ounce, you'll want to be along for the ride. [Joel's Note: David Galland is the Managing Editor of Doug Casey's International Speculator, now in its 27th year. Today, it is following over 30 high-quality resource stocks on behalf of subscribers, with new buy and sell recommendations monthly. To learn more about a no-risk, no obligation three month trial, click here now. ---------------------------------------------- Did You Notice? - "Helicopter" Ben Lifts Off
By Dan Amoss Investors have been panicking out of money market funds recently - fearing that these funds contain risky mortgage-backed securities - and are piling into 3-month Treasury bills (driving their prices up and their yields down). The 3-month T-bill yield has plummeted all the way to 2.85%, down from 4.8% just one month ag 
This fear-inspired stampede into T-bills stands in sharp contrast to the non-stampede into the gold market. Despite America's traumatized financial system, investors still consider T-bills to be the ultimate safe-haven - not gold. In other words, faith in paper assets may have wavered, but it certainly did not break…at least not yet. As the Fed intensifies its battle against America's unfolding credit crisis, faith in the U.S. dollar will face assaults. That's because the Fed will utilize tactics that dramatically increases the supply of dollar bills. For example, cutting interest rates and injecting billions of dollars into the financial system are the Fed's standard weapons against credit contagion, and the Fed has been deploying these weapons aggressively during the last several days. Unfortunately, by using these weapons, the Fed invites inflation and undermines the value of the U.S. dollar. So gold might not behave so tepidly during the next wave of America's unfolding credit crisis. Companies leveraged to the prices of gold and oil should face improving conditions, as the Fed accelerates its inflation campaign. But in the short term, the price of all stocks is determined by an emotion-driven auction. As more hedge funds receive redemption requests from clients in the coming months, the stock market may likely suffer days of heavy selling pressure on ANY asset class that is liquid and transparent - high-quality stocks would not be immune…nor would gold itself. But that just means that buying opportunities may present themselves. Stay tuned… [Joel's Note: Dan will be following all the buying opportunities for his Strategic Investment readers in his upcoming monthly issue. If you have not done so already, you may wish to check out his recent report detailing a few places where he believes you ought to have a few dollars invested…and a few places you certainly should not. Click here for the full read: Dan Amoss' Strategic Investments --- Wealth Insurance: Zero-Downside Gold Report --- Introducing a revolutionary investment… A "WEALTH INSURANCE" POLICY with a potential 201% upside in two years… and zero downside With the stock market gyrating wildly in recent days, wouldn't you like the security of an investment guaranteed to never lose money… while giving you the ability to cash in on a gold price that could reach $2000? I'm so confident about gold tripling in price and protecting your hard-earned wealth, I'll even make a triple-your-money guarantee… (But you have only until September 11, 2007 to act… or this "wealth insurance" may never be offered again.) All the Details Are Available In This Special Report: Wealth Insurance: Investing in Zero-Downside Gold ---------------------------------------------------- Rude Endnote: Yesterday the Dow sat precariously on its perch, closing within a fraction of a point of its open at 13,235. Will today be a similarly sideways day on Wall Street? Our mates in Baltimore will have all the intraday action for you when the fire out the 5 in a few hours. Stay tuned… Cheers, Joel Bowman
Rude Awakening aussiejoel@the-rude-awakening.com | 
