From Gold Eagle

Britain's Blair Bashes GoldBugs

Way back in February my "Why American Eagles Are Being Rationed" suggested that advice to buy gold due to a shortage was premature. I also said that there may be a "Strategic Gold Reserve" that would be used to keep a gold ounce below $315 an ounce. There is no concrete evidence of that, but I did get the $315 price limit right. Regardless of whether an antitrust lawsuit is ever filed, no reasonable person can doubt an organized, central bank conspiracy to suppress gold's price exists. That the Central Bank of England is involved is no surprise, it is just another example of elitist arrogance.

Readers may remember that the English government used to set interest rates and economic policy until very recently. As part of the "One Europe", EURO and assorted political and economic measures, England voted to let the "experts" handle economic policy. By doing this, England's Blair willingly gave up the British people's right, through their elected representatives, to set economic policy. Unless I'm mistaken, up until then the English Parliament would have had to vote on whether to sell gold reserves. But how convenient! A quick transfer of power, in order to help Britain fit into the European MegaBlob Union, and then shortly thereafter half of the gold reserves are to be sold. Holy Black Helicopters Batman! Looks like a Conspiracy. The Penguin is now a Central Banker and The Joker has taken over10 Downing Street!

If you can't actually increase the supply of Gold American Eagles, due to minting capacity production constraints, then you must change the psychology by creating the illusion of abundance. This is what Britain's gold sales are all about. Tactical goal one is to shatter the market momentum to the upside due to Y2k panic buying. Tactical goal two is to change the momentum to a negative and impress upon goldbugs that anytime gold hovers near $300 disaster looms. Get goldbugs sweating with Pavlovian intensity, quaking with dread that yet again they will get burned by price collapse number 398. Seems to be working doesn't it?

The Central Bankers, their political arm called the Council on Foreign Relations and their military arm called NATO, all have one central strategic goal towards gold; namely, complete and utter extermination. There is simply no place for any precious metals in the New World Order. There is simply no excuse for them to exist in our electronic, computerized global economy. Primitive relics from economic savages who don't believe. Heretics who must be hunted down and squashed like the insects they are. Goldbugs, ugh filthy little cockroaches scurrying around our shiny fiat money temples. Kill them all! Central Bankers may not actually say the preceding, but they sure think it.

Britain's Blair wins the round and knocks gold down to under $278. The Central Bankers go and celebrate another victory. The goldbugs go scurrying off into the wall seeking solace. The precious metals market returns to its normal state of affairs for the last few years. Or is there more than meets the eye going on here? The answer being yes.

I'm not sure fear is the right word to describe Central Banker's et al, what is labeled the system, attitude towards Y2k. Terror, horror and perhaps amazement, would be better choices. The system brought down by something so simple? With the serfs roused into questioning the economic and political foundations of our global system; gold seriously mounting a challenge to toilet paper money-the ruling elite's must be dumbfounded. The elite's must at all cost keep the one indicator, the price of gold, people will recognize stable. A thousand stories about generator shortages, Y2k related bank runs and the like will not have the impact of one day where gold goes above $1000 an ounce.

Spin, spin and more spin on Y2k and let not the price of gold rise, this is the mantra of those at the top of the food chain. Let not the price of gold rise, lest people figure out the scam. Let not the price of gold rise, lest people question our authority. Let not the price of gold rise, lest the illusions be revealed. Let not the price of gold rise, lest we be exposed and then doomed. Needless to say, our global masters will do whatever it takes to keep gold low, illusions intact and their positions of prestige and power. When we finally do go to scalp them, we will find they were wearing toupees all the time.

A "Godzilla" movie trailer I saw explains exactly where the system is today. This old guy is heading down to the river to fish, passing two drunks who laugh at him since he never catches anything. Our old guy casts his line into the river and lo and behold actually hooks something. There is a huge churning in the river as he looks where his line goes. Slowly a giant red eye rises above the surface and stares at him. He has hooked Godzilla! Running in terror as the wood dock collapses behind him, our fisherman realizes that he has hooked the mother of all aquatic creatures. Such is Y2k, the price of gold and our Central Bankers. All they can see is the great churning without realizing what is coming. The central bankers have hooked into gold-godzilla and will soon be running terrified with their fiat money dock collapsing one plank at a time behind them. This is what really drives their frantic efforts to keep gold at $300 an ounce. They know what will happen if gold-godzilla gets loose in the fiat money city. Squashed cars and buildings all over the place.

And they know that Y2k has hooked the price of gold. They know that people are questioning the very basis of fiat money. They know that television pictures of bank runs in Indonesia and SouthEast Asia, in Russia and Central Europe and closer to home in Brazil and South America are starting to sink in. They know that people are worried about Y2k, despite the most concentrated, organized and blatant disinformation campaign in world history. And our masters are worried. They are worried that they haven't done enough to keep the rabble content. They are worried that the price of gold will rise uncontrollably, giving fiat money a case of the economic bends. Fiat money fatally swamped by a sea of bad credit, bankruptcy and confidence shattering economic crisis'. Fiat money challenged by gold and then defeated in the confidence arena. This is what keeps central bankers and their cronies up at night. They fear people, great masses of people, will see that gold and silver are a credible alternative to fiat money and the credit system. The credit systems that keeps them in power and authority. This is why the powers that be will do anything they can to keep gold at $300 an ounce.

Tony Blair, England's Churchill lite for the nineties, has signed on the globalist agenda. He has used Britain's military in an illegal NATO offensive in Yugoslavia and now has agreed to strip Britain's gold reserve. It would appear that the England's gold reserve isn't the only thing being debased. But so be it. It's not like goldbugs should be surprised when central bankers and their cronies act like central bankers and their cronies. These people are in charge, now. These people are in control, now. These people run the show, now. They will do anything to maintain that control, authority and power. This should be quite obvious by now. In order to maintain economic control they are now prepared to dump hundreds, if not thousands, of tons of gold onto the market. Understanding this allows goldbugs to take the long view and buy gold. Knowing full well that the price may continue to go down for the rest of the year, doesn't bother me in the slightest.

I believe that the fundamental philosophy underpinning fiat money and the global economy is flawed. I believe that it ignores human nature, historical precedence and indeed, economic reality of supply and demand. I believe that Y2k, getting closer every day, is the catalyst for a sea change in attitudes. It is true that the globalists sit on the riverside with their fishing poles and are slightly alarmed at the churning under their bobbers. I know what the churning is and if they did also they wouldn't be so arrogant. By the time they see Godzilla's red eye, it will be too late for them. Only it will be gold-godzilla's yellow eye they see and he will be looking to have them for appetizers.

The only questions you should ask yourself are these: What asset do I want to have when the bank runs start? Am I willing to hold onto gold or silver for twenty or thirty years? Do I really care if I "made" or "lost" money, when the goal should be how do I feed myself. And then remember to watch the news and focus on the scenes of people trying to get their paper assets out of banks. England's Churchill lite Tony Blair selling off 400 tons of gold-good, it will drop the price and allow poor people to buy more. Sounds like a good thing to me.

WHO WILLS CAN-WHO TRIES DOES-WHO LOVES LIVES

Doug McIntosh 13 May 1999

-- Andy (2000EOD@prodigy.net), May 15, 1999

Answers

Also from Gold Eagle

Lies, More Lies and Plain Old B.S.

(Is the LBMA in trouble?)

Professor von Braun

The Rocket School of Economics

We have made mention before of the discrepancy between the supply and demand numbers for gold published by Goldfields Mineral Services (GFMS) and the published turnover on the London Bullion and Metals exchange (LBMA). This "difference" is huge. Even though this turnover dropped to 27 million ounces per day according to recent announcements, this number still amounts to 900 tonnes per day. The entire worlds known above ground gold reserves are traded two and one half times per year (????) Yet the supply /demand numbers are estimated at 4000 tonnes on the demand side and 2600 tonnes on the supply side per annum.

The LBMA numbers include paper contracts and the percentage of what is what (paper vs physical) re the daily turnover has never been revealed. The daily turnover on the New York Comex is minute when compared to the LBMA.

It has been known for some time that there exists an unknown large short position in the gold market that has resulted from the sale of leased gold into the market (with the intention of buying it back at a lower price) and these sales have certainly made up the estimated 40% shortfall on the supply side.

The continual noises coming out of the Bank of England about large potential sales have been going on for some time. Gordon Brown, the Chancellor of the Exchequer, (a very high faluting name) has been bleating for some time. Pre Euro days he was insistent that the ECB would be a seller (didn't happen), then it was the Swiss sale (has not happened yet), then it was the IMF sale (still has not happened), and now it is the Bank of England itself. So what gives here? What are these people actually up to ?

If ALL Central Banks sold all the gold reserves they had over a period of fifteen years (1600 x 15 = 24,000) there would still be a shortfall re the supply/demand situation. In other words in fifteen years time gold would still be in short supply re the demand side of the equation. Fifteen years is not a long period of time in the over all scheme of things. Gold as a currency and symbol of wealth has been around for several thousand years and as much as Gordon Brown may prefer otherwise, this is not about to change.

What the dear old Chancellor may not be telling us is that gold can not simply be produced out of thin air as can paper currencies. All these bleatings are telling us that something is not right here. What could it be ?

Regardless of the rhetoric there is no real reason to demolish the gold market. A falling gold price is not reflective of the true market supply and demand situation.

The members of the LBMA are of course bullion banks, many of whom are directly connected to the old traditional banking houses of Europe and the U.K. Not much goes on in Europe that these people don't know about. The same connections go directly to the Bank of England and the Federal Reserve and the same players names appear as part owners of both of these institutions. In a sense dear old Gordon is a proxy for the LBMA members and any statements coming from him, or his office, should be regarded with suspicion at the very least. The wisdom of pre- announcing a sale of anything into a rising market is not exactly a prudent strategy. Its a bit like Ford announcing a discount on current models because they believe next years cars will be cheaper still. The buyers will wait.

Surely the Bank of England has a fiduciary duty to it's shareholders (bullion banks) to obtain the maximum benefit from the sale of any of it's reserves. Unless of course dear old Gordon knows something that we don't.

What is known at present is that there is a shortage of physical metal in the market place, as demonstrated by the supply demand numbers issued by GFMS and seconded by the World Gold Council. What is not known is the reality of the magnitude of the published numbers re the turnover on the LBMA. (How is it possible to trade the entire known gold reserves 2 1/2 times per year when at least 40% of that amount is in vaults somewhere?). This number becomes even more absurd if one looks at the estimates of the amount of actual physical metal available to be traded.

How much of this turnover is physical metal and how much is paper contracts ? This is the question.

If there was a potential problem, then the members of the LBMA would be the first to be aware of it and being based in London, would have to advise the B of E at some stage. London's big problem is its decline as the financial center of Europe, an event currently unfolding as the ECB begins to exert is new found power and financial transactions are moved to European cities.

The only problem the LBMA and its members could be facing would be one of delivery of physical metal. There simply is not a lot of gold out there available for immediate delivery. The rush to embrace all forms of derivative contracts and trade these "things" willy nilly as they say, has led to one near collapse of recent times and I am referring to the Long Term Capital (LTCM) debacle. But messing with paper contracts that are dependent upon delivery of a physical commodity is a different ball game. Instructing lenders to deliver a capital injection to LTCM is different from instructing members to deliver physical metal to the metals market. Not so easy to do, old chap.

While most look at these announcements of potential official sector sales (the ones that don't materialize), as further evidence of gold's now redundant role, perhaps it may be a desperate attempt to induce the appearance of actual physical metal into a market that may be in deep smellies. We all know that politicians and central bankers have several things in common and the inability to recognize reality is one of them.

The belief in their own ability to manipulate reality is another, as is underestimating their opponents intelligence.

One would sincerely hope that the Chancellor of the Exchequer is not involved in advising NATO as to what actually is a legitimate target. It seems that the same sort of arrogance which results from a false belief in ones ability to lie ones way out of a screw up appears common to both. As does the refusal to acknowledge the original mistake. Mistaking the Chinese Embassy for some legitimate Yugoslavian military target may be symptomatic of an ability to get it wrong in other areas as well. It was a mistake, albeit a serious one, of "officialdom", the same "officialdom" that seems determined to mess with the gold market.

These recent gurgles and hollow bleatings by the good Chancellor may be a clear signal that it is time to go long the physical gold market and be cautious on futures contracts that are dependent upon delivery sometime in the future.

May 10th, 1999

Professor von Braun may be contacted at profvonb@aol.com

-- Andy (2000EOD@prodigy.net), May 15, 1999.

And one more from the same site...

WAR ON GOLD

Britain, The USA and The IMF are running scared, trying to keep confidence in the faltering Keynesian economic game. Britain is the latest to announce that they are selling huge stock piles of low yielding gold to purchase higher yielding paper money investments. They have announced the selling off of more than half of their gold reserves, 415 tones of their 715 tones reserve over the next 2 years. This follows the April 28, 1999 announcement by the IMF that it is ready to sell some gold, perhaps one-and-a-half-billion dollars worth. President Clinton proposed last March that the International Monetary Fund should sell a large portion of its gold reserves to finance debt relief for heavily indebted countries.

Why is Britain, The USA and The IMF selling their gold reserves? Because it is bulky and not a profitable investment? Because there is too much of the shiny metal about? Has the world lost interest in gold?

Rather it is fear! Fear that the current fiat money game is about to collapse before their eyes. And out of desperation they have declared war on honest money. And eventually nothing good will be held sacred as "all is fair in love and war".

It was the near collapse of Long-Term Capital Management (LTCM) last September that accelerated this fear. LTCM is a hedge fund specializing in large-scale speculation, and its near collapse caused light to be shown upon the ugly workings of the money manipulation game and unfunded paper assets. LTCM was heavily exposed to Asian currency devaluations and gold loans. Had LTCM been allowed to collapse it would have sent shock waves throughout the economic house of cards and would have caused full blown panic and economic chaos. Gold would have risen to the top of the economic food chain as the real store of value. Paper currency would have been exposed as the great fraud that it is, and the bubble like economic system that likes to play money games would have been blown apart.

Impending Y2K chaos has also raised the Governments fear level. Gold sales are at record levels and signs of mistrust are showing themselves through out society. Even the Governments own experts are not 100% sure that there will be no fallout from Y2K. People are beginning to hoard valuable supplies instead of hoarding Federal Reserve Notes as feared by Greenspan. Y2K survival items are getting impossible to find with waiting lists growing longer. Survival retreats are skyrocketing in value and anxious folks are being told by the official media not to worry.

But why would they sell gold?

It is like fixing the game. First, by dumping large amounts of gold they mesmerize the herd. Then suddenly uninterested in gold they turn to paper money assets. The herd is unable to do anything but follow, stampeding alongside, trying to be the first one's to get those now precious paper money assets. A classic Wal-Mart style Christmas season run on Furbys.

Secondly, by waging war on gold they hope to bail out the other hedge funds that are at risk. What they are not telling us is the true health of the Keynesian economic game. And of the similar fate awaiting other hedge funds and similar investment schemes, unfunded paper assets, Federal Reserve Notes and the stock market.

The Keynesian economic game has aged and has been on its death bed for a long time. But it is going to die hard. Rubin, Greenspan, Central Bankers and other economic power houses have a vested interest in keeping the economic body alive. Adrenaline shots are repetitiously administered to the patient in the form of lower interest rates. They are hoping you will shop until you drop to keep the game alive. You would think the economic patient is alive and well but it is more like an electrified Frankenstein Monster that you see dancing about. About the only organ still alive in this animated body is the ferociously cancerous loans that are racing though out the system.

And where is this propelling us? Because of outright denial of the problems associated with the Keynesian game the economic ilite are forcing this game into overtime. The patient who once had a good heart and brain is now so weakened beyond saving that most of the organs are now considered to be unfit even for transplant. I am left to wonder, will the decaying, artificially animated mater cause the spread of disease to social bodies (riots) and political bodies (war)?

What this all mean to you?

Because of the war being raged against gold, the dollar will remain strong going into the next depression and world wide deflation. But the menace to the bubble that Rubin and Greenspan are trying to keep inflated is the faith of the American people. And they are gambling that they can keep us out of a deflationary spiral by enticing us to bail out the world through spending. As we go into deflation we will find ourselves way over our heads because of our spending sprees done on remortgaged upon remortgaged loans and unable to service our debts because of the softening of our economy. There will be increased bankruptcies, people will become spooked and will curb their spending habits. Getting into debt will become scary even though Greenspan keeps dropping rates. The economy will stall and the markets will tank. Realize that the only thing floating the economy right now is spending.

Most of the rest of the world has already curbed their spending. Now, it is up the American consumer to do the spending for the whole world. The good faith and credit of the American people will begin to come into question. Strong currencies like the US dollar will begin to be seen for what they have become. Backed by nothing real and unredeemable. Remember the economic collapse of Rome. The people ran to the streets to dump their debased Roman money for anything of value. The faith in the currency was lost, people realized they really couldn't see the value of coins made mostly of tin, with a likeness of an important person stamped on them. Chaos ensued and war reigned happily there after.

For us the worst case scenario will spell the death to paper assets and civil unrest, remember Indonesia? Yes, my prediction for the future is grim, much worse than many of you expect. I sincerely believe this is where we are heading. I have prepared for the worst, have you? I also look forward to the new beginning on the other side of the economic collapse. Do you have the means (Game Money on hand) to survive through the accelerating deflationary period? Do you have the means (Gold and Silver) to preserve your wealth through the following hyper-inflationary period? Do you have what it takes to make a good life for yourself and your friends after the economic reset button has been pushed and everything restarts. I hope you will view my comments as coming from a very prepared optimist. And that you will try to be open to the possibilities and get prepared just in case.

In this war the casualties will be vast. The survivors will be in a whole new world of opportunity.

See you there.

Darren Perkins May 12,1999

-- Andy (2000EOD@prodigy.net), May 15, 1999.

Nice articles Andy. However, the type of people that have read Dickson White's FIAT MONETARY INFLATION IN FRANCE (that's not the exact title but I'm sure you know what I'm taking about) will read those and say, "so what else is new?" While the other 98.5% of the population will say, "huh?". Is it .5% or .005% that will say, "hmmm....."?

The handwriting is truely on the wall if the two different polls http://cnn.com/US/9901/10/y2k.poll/index.html and http://www.sciencedaily.com/releases/1999/01/990108080346.htm truely represent what people are actually going to do, not merely what they say they are going to do.

These two polls are very old. "In politics, one week is a very long period of time" - Harold MacMillan Is there any poll more recent to indicate that people are going to collapse the US banking and monetary system?

-- Ken Seger (kenseger@earthlink.net), May 15, 1999.

Andy,

Yes, thanks for putting this stuff on the forum. Looks like a vital part of long term preparation to me. I guess I'm one of those readers that Ken refers to as saying "hmmmm." I have never previously paid a lot of attention to the gold scenario, blame it on growing up in the sheltered economy of the past 50 years here. However, I can see that ancient history is calling us to take a deeper look, once again.

-- Gordon (gpconnolly@aol.com), May 15, 1999.

Back up your theories with facts. That is what we are always told. Well no one espousing "a bump in the road" scenario has been able to. They have trotted out their "experts", and so do we have ours. For what it's worth, take a look at at the following sites: USA Gold, The Street, G.A.T.A. Anyone with additional links, please post them. The financial sector is playing "Chicken" with us.

-- Gia (Laureltree7@hotmail.com), May 15, 1999.

Outside of giving the vote Blair is an ass.

As long as he has his nose stuffed up Clinton's ass gold, war or any other topic is pale here.

Can't see storing bullion, but, have bought another futures contract.

-- Ian M (ianm@inverness.com), May 15, 1999.

Ian,

Curious as to what you bought.

I was considering dec 99 gold call at I believe 390.

What do you think your chances are of collecting if you have a similar contract? Or is it silver :)

later,

-- Andy (2000EOD@prodigy.net), May 15, 1999.

Beating the Dow with Bonds & Gold

Last Month I demonstrated how an investor could have greatly enhanced the performance of his or her portfolio most of this century, by allocating 15% to Homestake Mining Company. Aside from Homestake, our portfolio was comprised of a blue chip portfolio, namely the thirty stocks that make up the Dow Jones Industrials (DJIA). We noted that during the two periods of time this century when stocks entered two of their worst bear markets (i.e., the 1930's and the 1970's), a 15% allocation to Homestake virtually eliminated portfolio losses, even during the darkest days of the Great Depression. Moreover, the inclusion of Homestake significantly enhanced overall returns. The value of allocating 15% to Homestake Mining since 1903 at various milestone dates this century is summarized as follows:

From 1903 to Year Ending: Value - DJIA Only DJIA + Homestake Advantage of 15% in Homestake 1931 1940 1980 1998 $2,830 $2,780 $20,590 $195,160 $3,350 $4,640 $39,140 $245,300 18.4% 66.9% 90.1% 25.7%

It is difficult to find assets that tend to move counter to stocks. Gold is one of a few that do. The price of gold rose significantly during the 1930's and 1970's when stocks plunged in value. Gold's negative correlation with stocks combined with the fact that the price of mining shares are leveraged to the price of gold is the reason gold shares offer a very efficient form of portfolio insurance against catastrophic stock market declines. For example, an investor who had allocated 15% of his portfolio to Homestake Mining at the beginning of each year from 1929 through 1940 would have suffered a loss of just 1-%. By contrast, an investor who placed his entire investment in the DJIA would have suffered a 45.5% loss. And as shown in Chart I, an investor who allocated 85% to the DJIA and 15% to Homestake Mining at the beginning of each year, from 1903 until the end of 1980, would have enjoyed seeing his portfolio gain 90.1% more than a portfolio comprised only of the DJIA.

Add Bonds for Even Better Returns

Although investing in a gold mining company like Homestake Mining can reduce risk and improve returns, Michael B. O'Higgins has demonstrated that you can beat the sox off of our DJIA & Homestake portfolio. In his latest book titled Beating the Dow with Bonds, (Harper Collins Publishers  1999) O'Higgins provides a significant amount of data and he explains the logic behind his methodology. Mr. O'Higgins originally gained fame as the creator of "The Dogs of the Dow" theory, in which he illustrated that an investment portfolio could be significantly improved if an investor bought last year's worst performing Dow Jones Industrial stocks on the first business day of each new year. In Beating the Dow with Bonds, O'Higgins has illustrated how, by using bonds, investors can beat the Dow by an even more remarkable margin. As noted below, we have imposed a gold investment on the O'Higgins results to see whether we could further improve on the fantastic results gained by O'Higgins.

I personally like the O'Higgins approach because: 1) it is logical, 2) it represents a value-orientated contrarian approach to investing, and 3) because it is very simple. I must admit that it was upon reading this book that I suddenly opted out of the S&P 500 in favor of U.S. Government Zero Coupon bonds in January and February of this year.

It would be unfair to Mr. O'Higgins to tell you the step-by-step process outlined in his book if you have not purchased it. If you are a serious investor, purchase of Beating the Dow with Bonds is worth every penny of its $24 price. However, even if you do not buy the book you will benefit from it by subscribing to this newsletter because the O'Higgins methodology has become a major input into the shaping our own Model Portfolio. In general the value orientated methodology and logic behind the O'Higgins strategy is the following:

Step 1. - If the ten-year U.S. government T-Bond yields exceed the earnings yield for stocks during the last calendar year, then on January 1st of each year, you begin the new year owning bonds rather than stocks. Earnings yields are simply equity earnings divided by the price of equities. O'Higgins uses the earnings yields for the S&P 500.

Step 2. - If Step 1 tells you to buy bonds, you then look to the gold price to determine whether you should buy long term or short term bonds. If the price of gold on January 1 of the New Year is higher than on January 1 of the prior year, you buy short-term bonds. Otherwise, you buy long term bonds.

Step 3. If the earnings yields on stocks exceed the yield on 10-year U.S. government T-Bonds, then you buy stocks on January 1. Applying the O'Higgins "Dogs of the Dow" model you would buy the five worst performing Dow Jones Stocks of the prior year. The logic behind the Dogs of the Dow? Because these are Dow stocks, they are high quality companies, which you are buying at low, out of fashion prices.

Huge Gains from the O'Higgins Model

Chart II on the opposite side of this page illustrates an enormous advantage using the O'Higgins model. If one had applied this process since 1971, he would have beaten the sox off of the Dow. Unfortunately, we do not have data going back to 1903 as we did for our study of the effects of Homestake on the portfolio returns of the DJIA. But the results of the highly intuitive O'Higgins model are nothing short of phenomenal. A glance at Chart II tells the reader that $1,000 invested in 1971 in the DJIA only would have resulted in a value of $10,324 by the end of 1998. Not too bad. But by comparison, that same $1,000 initial investment in 1971 would have multiplied to $171,284 by December 31, 1998 if the O'Higgins "Dogs of the Dow" approach were applied. Even more astounding, a $1,000 investment in 1971 would have exploded in value to $374,831 by the end of 1998 if a combination of the Dogs of the Dow and the New O'Higgins approach had been followed. Is this believable? I think so because the figures are based on historical fact.

Can a superior performance of this magnitude be sustained in the future? Probably not, especially when, as one would expect, masses of investors begin following the O'Higgins "value investing" approach. Also, O'Higgins gains in long-term bonds benefited greatly from extremely high interest rates during the 1970's and 1980's. However, given current market insanity, when the trend of the day is "momentum investing" rather than value investing, I believe there is an enormous opportunity to "beat the market" by following the O'Higgins model. Accordingly, I have begun using this tool as a major input in shaping the Model Portfolio as it appears in this letter.

Chart II O'Higgins Performance Chart

What was especially shocking to me was the fact that during the greatest bull market ever in stocks, from 1982 until the present, O'Higgins stayed out of stocks! Yet as seen above, he beat the Dow handily. The only time since 1971 that O'Higgins owned stocks (i.e., The Dogs of the Dow) was from 1974 through 1980, just before the great bull market began!

In fact, O'Higgins has, through his work disproved a modern day myth being sold by Wall Street to the masses, namely that the only logical place to invest your money is in stocks. What a fib! O'Higgins has demonstrated that value investing makes sense, over the long run - in 18 of 27 years (67% of the time) - by being mostly in bonds, not stocks! And in a few of those years, he did so much better than the Dow that the compounding of those superior returns  many years earlier, led to far superior long term returns. For example, in 1982 his selection of 30-year zero coupon bonds resulted in a 156% gain compared to a DJIA return of 25.79%. In 1985 his model once again told him to buy 30-year zero coupon U.S. Treasuries, which delivered a 106.9% return compared to a robust 32.8% return for the DJIA. And in 1995, his 30-year zero coupon selection provided a total return of 85.11% vs. 36.49% for the DJIA.

What about Gold?

So far, I have ignored the interplay of gold on the O'Higgins model for one very good reason. O'Higgins does include gold in his investment strategy. He cares about gold only in that it tells him whether to own short or long term bonds. What he has discovered is that the price of gold at the end of each year, when compared to its price at the end of the prior year, can provide a very reliable signal as to whether to buy long or short term bonds. In fact, using this model, gold correctly steered investors into short- or long-term bonds in 28 out of 29 years or 96.6% of the time! As O'Higgins points out, there is not an economist in the world that can beat that tack record.

But what about gold as an asset alternative? We certainly created a case for owning the yellow metal last month as discussed on page one. Might it be possible to further improve on the great performance of the O'Higgins model. The answer is "Yes, most of the time, but not always."

To find the answer to this question, I examined the performance of the International Investors Gold Fund. This fund was chosen rather than using data from Homestake Mining or another major gold mining firm for at least two reasons. First, a gold fund can be expected to provide less risk through diversification. Secondly, the International Investors Gold Fund was about the only gold fund in existence dating back to 1971 from which date the O'Higgins data is available.

In Chart II, on the previous page, the right most column displays the value of a $1,000 investment, 85% of which is invested in the O'Higgins model and at the start of each year, 15% is allocated to the International Investors Gold Fund. As the data illustrates, from 1971 until 1995, even the enormously successful O'Higgins model would have performed even better with a 15% allocation to International Investors Gold Fund. In 1980, when gold briefly exploded to $850 per oz. from its $35 fix nine years earlier, a 15% allocation to the International Investors Gold fund would have resulted in a portfolio worth 40% more than the enormously robust O'Higgins portfolio. However, in recent years, with the price of gold declining to levels not seen in real terms since shortly after gold was set free from its $35/oz. fixed price (i.e., the mid 1970's), owning this gold fund (and any other gold fund?) lowered portfolio returns.

Chart III Gain/Loss from Gold Exposure

But Don't Sell Gold Short

Most investors, including investment professionals, will argue that gold's performance during the past four years proves that "gold is dead," to which I would reply "I heard that one before." In 1968, for example, when market forces were pushing gold above $35/oz., our government officials were selling the same spin as Wall Street and President Clinton are selling now. In 1968 under President Johnson, the U.S. sold gold aggressively in an unspoken effort to drive gold from the minds of investors. Why? The answer is simple. If gold can be eliminated as a superior form of money, politicians will have destroyed a major competitive threat to their ability to print money used to finance pet projects and buy votes. President Johnson's efforts to destroy gold failed. So will the current efforts of President Clinton and other heads of major governments around the world. For the time being, the massive gold sales and gold leasing programs may seem to be working in favor of the politicians and Wall Street. But one day, perhaps soon, this effort will fail. Why? Because the value of gold, unlike paper money, is not dependent on some one else making good on a promise to pay. Unlike paper money, gold is not some one else's liability. The value of gold cannot implode as all paper currencies throughout history have when the economic dominoes began to fall. This is the reason gold will ultimately outlive the U.S. Dollar as a currency of choice by the people.

Keep the Party Going. But when the Music Stops.?

I take it as a given that Wall Street and our politicians will try to keep the game of "musical chairs" going as long as possible. The manipulation of gold toward that end may last for quite a while longer. Only the Almighty knows when it will end. But when the music stops, I want to own gold, because as demonstrated during the 1930's and again in the 1970's, investors who were positioned in the yellow metal and gold shares saw their portfolios suffer only minimal damage. There should be no doubt that with stocks being the most overvalued in history and with debt levels greater than ever before, gold is more needed now as a portfolio insurance policy than at any time this century, including 1929!

The End Might Be Quick & Furious for Equities Markets, Democracy & Freedom

The importance of gold in this letter centers on its use to optimize investment returns. But what few people these days understand is how this natural and honest form of money protects individual liberty. Nor do most people understand how the use of fiat currency by the rich and powerful to reallocate still more of this world's riches to the 1% of Americans who own 50% of the stock market. One day we will all wake up to the fact that our government's spin machine and printing presses have been used for the destruction of democracy and free enterprise. When we working stiffs wake up to this fact, it may be too late to save democracy. In all likelihood, it will be too late to opt out of paper into gold. Given the enormous levels of liquidity created by government printing presses, the price of gold could skyrocket to many thousands of dollars per ounce in a matter of days if not hours as millions of common folks suddenly realize our currency system is built on hot air, not real value. But wait until that realization becomes common to buy gold and it will be like trying to squeeze through a 2 ft. wide door along with thousands of other people trapped inside a burning building. Because there may be little time to react to financial panic, we continue to recommend investors allocate at least 10% of their portfolios to quality gold shares and/or a mutual fund like the International Investors Gold Fund or The Midas Fund NOW! Take your position in gold now when you can buy all you want peacefully and at the lowest price for gold (in real terms) since the 1970's. Let the momentum players chase Internet stocks all they want. History is on the side of the value investor. Buy gold and bonds now. Both are cheap. Both are out of fashion. Now is the time to buy these assets and to stay away from the current market mania which most certainly will end in financial ruin for millions of investors.

Jay Taylor

Gold Resource & Environmental Stocks JTaylo5203@aol.com

17 May 1999 Back

From gold eagle

-- Andy (2000EOD@prodigy.net), May 16, 1999.

see www.usagold.com

and www.usagold.com/cpmforum/ in particular

-- alan (aelewis@provide.net), May 16, 1999.