Interesting to see that then rate of supply of money expansion...

Interesting to see that then rate of supply of money expansion is greater in Australia than other developed countries including the US!!!!




November 1, 2003 -- November is here, and many Californians never thought we'd make it. But at least in La Jolla the air has finally cleared, the skies are turning blue, the temperature is dropping, and the worst of the fires are either under control or are out.

My electricity is on, my garage doors will open, my computers work, and I'm sitting here at 4AM writing -- and reading. And what I'm reading is the latest copy of the Economist magazine. I'm looking at the money section -- at the broad money supply of various nations and their rate of expansion. Australia 12.2%, Britain 7.4%, Canada 5.5%, Denmark 6.2%,Sweden 4.9%, Switzerland 7.8%, United States, 7.2%, Euro area 8.2%.

Let me put it this way -- a heck of a lot of paper currency is being created. Why? My guess is that the various central banks are battling the forces of deflation. And it certainlyl seems that the central banks are winning, or at least they're winning in the area of asset inflation. Home prices and stock prices are rising throughout the world. And so are commodities.

According to the Economist's Dollar Index, "all items" are up 25.0%, "non-food agriculturals" up 27.9% and "metals" are up 22.5%. In other words, all that currency creation is producing inflation.

There's another trend that I want to talk about. It's the trend of the US dollar -- I mean the major trend of the dollar. And it's down. The US is producing those two now widely-recognized deficits -- the trade deficit of half a trillion dollars and the budget deficit of another half a trillion dollars. The trade deficit seems to be holding steady, but the budget deficit is apparently getting even worse.

If these two deficits continue, and everything I see suggests that they will, then the dollar will also continue under pressure. Ultimately we will have a dollar crisis. The dollar crisis, I believe, is what we should be thinking about. It's "the next big thing."

Two new books talk about the dollar crisis. One I've already recommended, and I want to recommend it again. It's "The Dollar Crisis" by Richard Duncan, a terrific book. Now a new book has been published, It's entitled, "Fortune Favors the Bold" by Lester Thurow. His chapters on "The Real Dangers to the Global Tower" are must-reads. Here are a few quotes:

"Put simply, a plunge in the value of the dollar has the potential to do to the world what the collapse of the banking system did to the United States at the onset of the Great Depression -- it could start the global economy plunging downward."

Again Thurow writes, "What happens to globalization in the midst and the aftermath of a big fall in the value of the dollar? The truth is no one knows. But if there is an economic crisis that could destroy the global system, this is it. Putting up trade and investment barriers and retreating back to more isolated national economies might start to look good."

The Duncan book forecast a coming major recession. Duncan sees the timing based on two items -- "The first is the timing of the collapse in consumer spending in the United States that will ring in the second phase of the New paradigm recession. This in turn depends on when the US property bubble bursts. . . . The second event will probably come in 2003 or in 2004 at the latest. The second event that must be timed is the correction of the US current account deficit. . . The timing of that correction will hinge on how long the US dollar remains at its present, extraordinarily overvalued level."

The Russell comment -- these are two very intelligent, very knowledgeable guys. And as I see it, the big question is not whether the dollar declines, it's whether the dollar declines slowly as it has been doing, or whether the dollar suddenly collapses. Either way, the dollar is fated to decline big time. It has to -- in the face of the current massive twin deficits.

In view of all the above, I believe that all my subscribers should have bullion gold, gold stocks, and the rest is sort of "what do you like, and how much of it do you want to hold?"

In the "rest" category I list DIA (Diamonds which are proxies for the Dow), Spyders (proxies for the S&P), oil stocks, some preferred stocks, some utility stocks, top-rated muni bonds, German bonds denominated in euros. And what the hell, you've got to be somewhere, so if you're not sure of anything -- it's T-bills and T-notes.

Subscribers who are in gold bullion and gold shares have done all right so far. Subscribers who bought gold shares early when I first urged you to get into gold shares back in June 1999 (Newmont 19 7/8) and held on have done very well.

Since April, gold has been up five out of the last seven months. Dec. gold closed at 388.10 in September and 384.60 in October. so gold was actually down a few dollars last month. Is gold overbought? I don't think so.

I listed six low-priced gold shares to buy at the end of July. A few days ago the average of these six was up 85%. That's a lot, and it may be telling us that gold shares need a rest. But this is early in the gold bull market, and my guess is that the gold bull market could have three to five years or more to go. So timing your buying in gold or gold shares is difficult, and I'm not sure its necessary. Just get in, get in piece-meal, get in on corrections, get in when you have the money, but I believe the most important thing is to "get in."

For those who are timid or sceptical about gold, my suggestion is that you at least "get your feet wet." This means buying a small position in a gold fund or a few gold shares, and watch them. As the bull market in gold works it's power, your stocks should start rising in price. The rise may tell you that you're on the right path -- in which case you can add to your early positions.

I've received many e-mails from subscribers who say that their brokers warn them against buying any gold shares, or that their firm warns against any purchase of gold stocks because they feel that gold is not going anywhere, and that gold stocks "are too volatile." My advice -- get another broker or move to another firm.

And that about does it for Saturday. And what's this? Here at 5AM in the morning it's raining in San Diego. Talk about change, this is really a change. I can't remember that last time we had rain. My Cacti will love it. And so will our fire fighters. Hmm, but no sooner did I write this then the rain stopped. That's life on the semi-desert of San Diego.

Signing off for the weekend --

Russell
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