The Rude Awakening
Wall Street, New York
Tuesday, August 29, 2006 ------------------------- - The case of "The People vs. The Dollar" and what it
means for your investments,
- Rude readers strike it rich mining for gold with some
sexy takeover targets,
- Gold and her perennial bridesmaid lead the charge of
double digit gains for the year, the rest of the
markets and more...
------------------------- Justice Litle, reporting from a home on the range... As the eminently quotable Mark Twain observed, "denial"
ain't just a river in Egypt. A sadly ridiculous example of
denial has arisen in a recent Federal Reserve study. John
Fisher and Saad Quayyum, economists at the Chicago Fed,
essentially wish to absolve their institution of all
responsibility for the housing bubble. To do this, they
have declared that clouds are cotton candy and the moon is
made of cheese. Well, maybe not those words exactly. But
the words they used were just as silly. "The housing boom has not been driven by unusually loose
monetary policy," Fisher and Quayyum assert. "Current
levels of spending on new housing are largely explained by
technology-driven wealth creation over the previous
decade." Technology-driven wealth creation over the previous decade,
eh? Would that be like the "technology-driven wealth" that
got incinerated by the great dot-com/Nasdaq bust of 2000-
2002, when a collective $7 trillion of stock market value
went up the flue? And isn't it remarkable that "unusually
loose monetary policy" played no role in the recent
mortgage-lending boom! It must have been something else
that got the banks excited enough to offer no-money-down,
negative-amortization loans to anyone with a pulse. What's worse, the Chicago Fed's finest deny the validity of
the term "bubble," on the grounds that no excessive real
estate speculation has occurred. As if single mothers in
Vegas buying 19 properties on a $30,000 income is a run-of-
the-mill, non-speculative occurrence. As if Web sites like
condoflip.com (slogan: "Bubbles Are for Bathtubs") pop up
in sober climes. As if the threat of adjustable-rate
mortgages blowing up all over the country is nothing out of
the ordinary. This doltish display of revisionism would be more amusing
if it weren't so darn infuriating. The authors of this
"study" should be dunked in maple syrup, blasted with
chicken feathers and ridden out of town on a rail. ------------------------ 257% Profit Guaranteed - Justice's Gold Prediction Right Here
http://www.isecureonline.com/Reports/OST/EOSTG921 ------------------------ When agents of a prominent institution choose to
deliberately distort reality and obfuscate the past, they
rob themselves and others of the opportunity to learn from
mistakes, or indeed to learn from anything. This mind-set
of "All's well, no matter what" fuels a sort of accidental
nihilism; when a fantasy world is actively preferred to the
real one, understanding of the world that actually exists
gets eroded and destroyed. When you think about it, it's more frightening than funny
to see an official stamp on this kind of thing. The idea
that quasi-governmental officials are now brazen enough to
say anything, no matter how outlandish, sends chills down
my spine. What happens in the event of a serious fiscal or
monetary meltdown? What happens when all branches of
government see perpetuating a fantasy as a matter of
national security? How far is this from occurring? Dogged optimism, preferably tempered with realism, is a
noble trait. (Churchill comes to mind.) It's usually good
to reserve some hope, to believe that things can be turned
around. But there comes a point when an institution can
become so deluded, so philosophically and ethically
bankrupt, so divorced from reality, that there is nothing
to do but wait for the walls to cave in. It seems a number
of today's dominant institutions, including the Federal
Reserve, are already at that point. If so, gold could be
the final judge and jury. ...Back to Eric Fry in Laguna Beach, CA... Your California editor has no idea when gold might don the
black robes of justice, or exactly what verdict and
sentence it would render against the U.S. dollar. But he
fears the worst. Which is another way of saying that he
continues to expect the best from gold and gold shares...
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By Eric J. Fry Here at Rude Awakening Headquarters, we have no idea if the
U.S. dollar's value will decline, we only know that it
should...or, at least, that it could. Nothing says
"currency debasement" quite like $76 trillion of debt. The
United States owes so much money to so many people that
most of the world has simply stopped counting. "We're the
richest country in the world," we continue to tell
ourselves, while we borrow from third-world nations to
finance our first-world consumption. There is nothing
necessarily wrong with this bizarre arrangement, but there
is nothing intuitively right about it either. Bill Gates, for example, has never knocked on your editor's
back door to scrounge a few bucks for the week. Bill Gates
spends the money he earned for himself. Isn't that what
rich people do? Isn't that what rich nations are supposed
to do? Aren't they supposed to earn the money they
spend...and to spend only the money they earn? Poor people
borrow money they don't have to buy what they cannot
afford. That's what your editor does. That's not what Bill
Gates does. If Bill Gates started borrowing money from your editor, he
would probably not appear at the top of the Forbes list.
But the American economy still tops the list of "World's
Richest Nations"... As long as everyone else keeps playing along, no one here
at Rude headquarters will breathe a word. But we're just a
little worried that everyone else might STOP playing along. We're worried, like our colleague Justice suggests, that
the gold price will soon grab a gavel and head for the
bench to hear the case of "The People vs. The Dollar." And
we're also a little concerned that this hangin' judge might
render an unfavorable verdict. Gold does not sit in judgment each and every moment, of
course. Sometimes the yellow metal takes a day off - a
"personal day." In fact, gold sometimes takes an extended
sick leave, like from 1981 to 2000. But eventually – we
emphasize, EVENTUALLY – gold renders its judgment. And most
often, the judgment it renders is, "Guilty!"..."Guilty of
impersonating an asset of value." A guilty verdict is never good news for the currencies that
stand accused (or for the nations that issue them).
Remember the Brazilian cruzeiro, Brazilian cruzado,
Brazilian cruzado novo and all the other "condemned"
Brazilian currencies? But a guilty verdict for paper money
can be very good news for the holders of gold and gold
stocks. For the moment, the dollar remains free on its own
reconnaissance. But the evidence against its enduring value
continues to mount. Perhaps that's why gold and gold stocks
continue to move steadily higher. Almost everything gold-related has rewarded investors so
far in 2006. Gold has gained 22% year-to-date, while gold
stocks, as measured by the XAU Index are up 18%. Within the
gold stock universe, takeover candidates are performing
particularly well. (In yesterday's column, our go-to gold
stock expert, Michael Martin, kindly identified a stock he
expects to disappear into the embrace of an acquirer
sometime over the next coming months – read the whole
column right here:
www.the-rude-awakening.com/RAissues/2006/march/RA090606.html). The strong results of would-be takeover candidates should
come as no great surprise to faithful readers of the Rude
Awakening. Last December, we asked you, the Rude
readership, to "identify mid-sized gold companies that YOU
believe would be attractive acquisition targets for a
larger gold or resource company...The suggested stock must
have a market capitalization greater than $250 million." The recommendations you submitted have produced some
dazzling results. The chart below tallies the results of
every "takeover candidate" that appeared in the Rude
Awakening columns of December 5, 2005 and December 20,
2005. www.the-rude-awakening.com/RAissues/2005/Dec/RA120605.html www.the-rude-awakening.com/RAissues/2005/Dec/RA122005.html Since December 20, 2005 these stocks have delivered an
average gain of 56% - double the return of the XAU Gold
Stock Index over the same time frame...and 8 times Newmont
Mining's meager 7% gain. Within this short list of candidates, Novagold and Viceroy
were the first two companies to attract suitors. On July
24th, Barrick Gold made a hostile bid for Novagold. A month
later, Yamana made a friendly take-over bid for Viceroy.
Whether hostile or friendly, both take-over offers provided
a welcome boost to the target companies' share prices. As long as large mining companies struggle to discover new
reserves, many mid-tier gold stocks will enjoy the sudden
boost of buyout offers. Indeed, over the coming months, we
would expect the ranks of takeover prospects to thin as
dramatically as Nicole Richie's waistline...or your
editor's hairline.... [Joel's Note: There is little arguing with gold's meteoric
rise this year. Already everyone's favorite precious metal
has shot up an incredible 23.31%. Not too shabby. Well, not
until you compare it to silver, the perennial bridesmaid.
Silver has enjoyed a rally of 46.91% - more than double
that of her glittering sister. Silver ETFs are an easy way
to invest and can deliver considerable yields. But then,
why would you buy a silver ETF when you could trade like a
maniac and sock away 400% in just 34 days? To find out how
this exact trade was done and ensure you are in on the
ground floor for the next one, read on right here: Stomping the Silver ETFs
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