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SAYING OF THE WEEK: Those who most lament missing the last bull market inevitably participate most fully in the ensuing bear market. --Steven Jon Kaplan

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A special thanks to Mr. Don McEachern for designing the beautiful banner at the top of the web site, and a slightly different one seen on the back issue list.

WELCOME! This is True Contrarian by the same yours truly. I will attempt to create an entertaining, readable viewpoint a few times per month. Each issue will feature my intermediate-term financial outlook, my long-term financial outlook, and a personal reminiscence from my journal. Please write to let me know how you like my new design. Notice that each paragraph now has a lead-in heading.

Recent comments are in boldface.

GOLD CONTINUES EVEN HIGHER, WHILE GOLD MINING SHARES COLLAPSE: In a dramatic extension of the divergence that has existed in the past several weeks, gold has continued to march higher, reaching $456.75 on Thursday, December 2, 2004, and nearly matching that level again on Friday, marking its highest point since June 21, 1988. Silver made an even sharper advance over the past week, moving within five percent of its early April high, before partially retreating at the end of the week. However, gold and silver mining shares not only underperformed the metal, as they had been doing for several weeks, but actually fell in absolute terms, with junior miners and silver shares showing by far the greatest price declines, and in some cases reaching their lowest levels since the late summer. This would appear on the surface to be intuitively the exact opposite of what one would anticipate given the change in the prices of precious metals, as well as new record lows of the U.S. dollar versus the euro, and greenback weakness in general. The spread between spot gold and HUI, the Amex Gold Bugs Index of unhedged gold mining shares, has continued to widen, from 211 at my last update just four trading days ago, to an amazing 228.5 today, its highest level in nearly four years. Most gold mining shares have completed yet another lower high in their pattern of lower highs dating back to early December 2003, and some have made actual downside breakouts. Insider selling has continued in gold and silver mining shares, although it appears to have abated significantly in the past few days, which is not surprising since insiders in the mining industry generally only like to sell when the share prices are close to their peaks. Whenever there is a divergence between gold and gold mining shares, almost always it is the shares which are leading the way either higher or lower. In this case, the shares appear to be leading the way down, which is confirmed by the highest insider selling in gold and silver mining shares since the late spring of 2002, just before HUI plunged more than 40% in eight weeks (from 154.99 on June 4, 2002 to 92.82 on July 26, 2002). The traders' commitments for gold futures for last Tuesday showed commercials slightly reducing their net short position for gold, and slightly increasing it for silver; these remain modestly below their all-time record levels recorded in April 2004.

WHY THE DIVERGENCE? A number of theories have been advanced on gold chat sites and in the financial media about why gold and silver mining shares in general are so significantly underperforming bullion. One theory is that, with the end of the year approaching and these shares showing one of the greatest percentage losses of all equity groups, they are being heavily sold for tax-loss purposes to offset gains in other equity groups. Another theory, discussed on this web site in the last update, cites the existence of a new exchange-traded fund of gold bullion (to be followed very soon by a second such fund). Now, investors who want a liquid trading vehicle no longer need to purchase gold mining shares, since they can achieve similar objectives by purchasing one of the gold ETFs. Since the gold ETF exactly follows the gold price, investors also do not have to be concerned with the unpredictable volatility of any given gold mining company, or with the management capability, unexpected geology, and political developments at any particular mine, or with the nasty tendency of gold mining shares to often decline whenever the Nasdaq is falling sharply, even if the gold price is rising. Some have even gone as far as to say that, with gold ETFs, investing in gold mining shares is obsolete. Other theories fall along the well-worn, but hardly credible, conspiracy line, in which some shadow powers are intentionally depressing these share prices. Although these various theories, except for the conspiracy nonsense, each contain some kernel of merit, it is likely that the shares are just following their usual historic pattern of leading the metals, and that once gold and silver decline, the normal spread will reassert itself, as it has always eventually done, and which I personally expect it to once again do.

I DON'T CARE IF YOU MISTREAT ME, BABY, JUST GIVE ME A REASON: Many participants in the financial markets feel more comfortable if they feel there is a logical explanation for various developments that are occurring, especially if such developments feel counterintuitive (as with the divergence between the prices of precious metals and their shares). If the U.S. dollar rebounds, therefore, people will be looking for reasons, no matter if they have nothing to do with the rally; just so they feel there is a "rational" justification for the move. To that end, here is a whole set of such reasons, so you can pick your favorite(s) on any day when the dollar is higher: 1) John Snow, the clearly incompetent Treasury secretary, is likely to resign soon. Even if Mickey Mouse is appointed to take his place, it will be seen as an improvement, and will therefore be interpreted as dollar-friendly. 2) Yesterday, congressional Republicans began to speak for the first time in many years about the idea of raising taxes on the wealthy. As long as such talk continues, it will be perceived as potentially reducing the huge U.S. budget deficit, as Kerry would probably have attempted to do, and will therefore be interpreted as dollar-friendly. 3) There has been a lot of evidence about slowing economic growth in Europe. This evidence has been mostly ignored, but if the U.S. dollar rallies, especially against currencies such as the euro or British pound, you can be sure that there will be a lot of talk about declining German business confidence or higher unemployment in France. 4) Any time that the dollar moves higher, there will be "talk of currency intervention", even if it is meaningless. 5) After the U.S. dollar has moved noticeably higher, there will be a lot of talk about how the greenback had been "clearly oversold" (even though no one apparently has such clarity today) and that a rebound was therefore "inevitable".

SECOND VERSE, SAME AS THE FIRST: Although there are always many attempts to simplify predictions in the U.S. financial markets, I have not seen a single commentator make the very elementary suggestion that the behavior of the markets in the second Bush term will almost exactly follow the behavior in the first term. This even has the advantage of being supported by historical precedent. Although a precise repeat is unlikely, the basic themes are likely to be similar. Therefore, knowing that the price of gold made an important historic low (at $254 per ounce) in April 2001, it seems reasonable that gold will make an important low in April 2005, give or take a month. The yellow metal may also gain about 60% overall in the second term, as it did in the first Bush term. Just as the stock market declined sharply from the Presidential inauguration through October of the following year (2002), it would be reasonable to expect a repeat performance there also, with the Nasdaq likely declining by a similar percentage (about two thirds) through the autumn of 2006.

TURN, TURN, TURN: It is likely that we are at a juncture of multiple inflection points in the financial markets. Most U.S. equity indices are likely set to continue the pattern of lower highs that began in early 2000, and which was temporarily interrupted by the partial rebound since October 2002. Gold mining shares, along with commodities in general, appear set for another correction in what will likely be a very long-term bull market. The U.S. dollar, which has been in a general downtrend since 1956 (not a misprint), is likely to undergo a multi-month rally of between 10% and 15%, after which its downtrend will likely continue in earnest.

INSIDE THE GOLD MARKET: The heaviest insider selling in gold mining shares since May 2002 (just before HUI plunged more than 40% from June 4, 2002 at 154.99 to July 26, 2002 at 92.82) was seen in the past week. Newmont Mining (NEM) saw substantial cumulative insider selling, including a sale of 100,000 shares by its CEO, while Freeport McMoran Copper and Gold (FCX), Hecla Mining (HL), and Vista Gold (VGZ) also saw substantial insider unloading. There was new issuance of shares by Placer Dome (PDG), Coeur D' Alene Mines (CDE), Eldorado Gold (EGO) and Central Fund of Canada (CEF), while Barrick Gold (ABX) and Apex Silver Mines (SIL) issued new debt. Only Golden Star (GSS) saw insider buying, the latter of which has a very different chart pattern from the others. With gold mining shares, there is a very strong historic correlation between insider activity and the behavior of these shares over the subsequent four months. Insider selling has continued in NEM, FCX, and HL since the last update, with Newmont president Pierre Lassonde selling more than 90% of his total holdings just below the annual high. There was even more selling in Newmont and Hecla reported after my last update, but the selling has substantially decreased in the past few days, as insiders are not fond of selling when prices have dropped this far below historic highs.

THE TIMES, THEY ARE A CHANGIN': In addition to a sudden burst of insider selling in gold mining shares, there has been a marked increase in insider selling in most industry groups, roughly matching the highest levels ever seen in U.S. history, such as in early 2000. The official insider buying/selling numbers for November 2004, as reported by Thomson Financial, show the highest overall insider selling since August 2000, with some ratios setting new all-time peaks. The VIX, a measure of implied volatility for OEX options, hit an intraday nadir of 12.40 on Friday, December 3, 2005, its lowest level in almost a decade. With near-record complacency, combined with low cash holdings in mutual funds, it is likely that investors have committed all available capital to the financial markets, and that another down cycle in most equity markets is about to begin, which could end in two years with these markets at roughly fair value, which would be below 700 for the Nasdaq. This would be a fairly common development, especially for the first two years of a second Republican Presidential term. The reality of a slowing economy, combined with the waning of the temporary economic stimuli brought on by temporary tax cuts and the since-departed mortgage refinancing boom, are likely to lead to a recession which will begin in 2005 and intensify in 2006. The semiconductor indices in particular, which have been a reliable leading indicator of the financial markets since the 1960s, have been very weak, in many cases not even reaching their levels seen when Kerry conceded the election to President Bush in the morning of Wednesday, November 3. The Philadelphia Semiconductor Index, or SOX, has seen a pattern of nineteen lower highs since its all-time peak of 1362.10 on March 14, 2000, including nine lower highs in the year 2004 alone. As liquidity is drained from the financial markets, exacerbated by the commitment of many nations toward raising short-term interest rates, equities and commodities are likely to decline in tandem. One important difference is that commodities are likely in a long-term bull market, so the upcoming drop will be merely a correction within a longer-term upward trend, whereas with general equities, the upcoming drop will be a resumption of the trend of lower highs which began in early 2000 and which is likely to continue for several more years.

THE GREENBACK'S LAST STAND: Sentiment toward the U.S. dollar is, in some surveys, at its lowest level ever recorded. Similarly, there is near-record bullish sentiment toward many other currencies such as the euro, Swiss franc, British pound, Canadian dollar, Australian dollar, and New Zealand dollar, combined with record or near-record traders' commitments for these currencies, as well as for the U.S. dollar index itself. Given that sentiment indicators and the traders' commitments are many times more significant at extremes than when not at extremes, and that the correlation is universal across virtually all these currencies, it is likely that the U.S. dollar index will rally above 90, and that the euro will drop below $1.20 U.S. over the next several months. Gold mining shares are also likely to fall, partly confirmed by the recent heavy insider selling. Given that, even with their latest move higher, gold mining shares are mostly slightly lower for the year, should they drop even modestly in the second half of November, they are likely to become tax-loss selling candidates in December. Assuming they bounce in the first half of January, they might then bottom in late February or early March 2005. (If instead they fall further in January as investors sell the losers of the previous year, they could bottom around the time of the Presidential inauguration on January 20.) Given that the most recent in the series of higher lows in HUI was 171.91 on July 27, one would expect that the next low for HUI will be between that level and 200. As stated on this web site several weeks ago, gold will probably bottom around $388, also likely in the late winter or very early spring of 2005.

LOOKING BACK NOSTALGICALLY ON THE PRESENT; IT'S DÉJÀ VU ALL OVER AGAIN: I was truly stunned that Bush was able to defeat Kerry in yesterday's U.S. Presidential election. Kerry carried exactly the same states that Al Gore won in 2000, plus New Hampshire, and minus New Mexico and Iowa, all of which were obviously not enough. I guess the American public is eager for another four years of stubborn incompetence, including mostly declining stock markets, a falling U.S. dollar, ever-widening deficits, continued "temporary" tax cuts, and whatever else is needed to ruin what is still left to destroy in the U.S. economy. Four years from now, Americans will likely look back nostalgically toward the present time, since real estate is almost certain to join the Nasdaq in the category of assets which have collapsed. Meanwhile, after having the first net job loss since Herbert Hoover, Bush will prove that the performance in the first term was no fluke by causing the unemployment rate to at least double from its current level of 5.4%, meaning that it will be 10.8% or higher, which has not been seen in the U.S. since 1983. One should never overestimate the intelligence of the American voter. The greatest strength of a democracy is also its greatest drawback: those who are least informed about government policy carry equal weight in decision making with those who are most informed. On the positive side, if you can call it that, it is clear that if the U.S. economy collapses over the next four years, which is almost certain, the fact that the President, the Senate, and the House of Representatives are all Republican will enable whichever Democratic candidate becomes President in 2008--in a landslide--to enact real change. This change will hopefully be for better rather than for worse, and will ideally not contain make-work programs and other government giveaways. Of course, this is getting a little too far ahead, so let's return back to the sordid present. The euphoria that the election is over will give way very quickly to dread of another four years of government mismanagement of the economy. President Bush cannot be totally blamed, of course; Alan Greenspan's policy of playing with interest rates as a cat plays with a ball of yarn is probably more culpable than Bush both for creating the U.S. financial bubble and then popping it.

THE BATTLEGROUND IN PRECIOUS METALS: The future of precious metals has been strongly influenced by the existence of a second Bush term. The uptrends in gold and silver which began in April 2001 are likely to accelerate. Of course, the short-term commitments for gold, and those assets which correlate most closely with gold, are terrible, and bullish sentiment toward gold remains above 80%, which means that any very short-term momentum attempt by precious metals to move higher as a result of the Bush victory will soon run into stiff resistance. The lopsided commitments mean that commercials are ready to cash in on their short-side bets by pushing the price lower over the next several months, while the very high bullish sentiment means that all but the most tardy and/or poorly informed speculators, or those who have been on a deserted island for the past 3-1/2 years, have had plenty of motive and opportunity to get on the long side, leaving little cash available for future gold and silver speculations. In addition, central banks worldwide seem determined to raise short-term interest rates in the near term, thus increasing real interest rates in most countries, which is negative for gold. Thus, there are three very powerful forces all acting simultaneously: 1) the long-term very powerful bull market in precious metals; 2) the intermediate-term strong downtrend over the past eleven months, as seen in the pattern of lower highs in HUI; 3) the recent excited momentum push toward higher precious metals prices even in the teeth of terrible commitments and euphoric sentiment. The most likely resolution of these forces would be a very brief move higher in precious metals, as we have continued to see over the past several weeks, followed by a period of several weeks of mostly declining prices back roughly to their summer lows, which is likely to end in late winter or early spring of 2005, followed by a slow backing and filling rebound, followed by a well-financed upsurge toward new 17-year highs that might even be accompanied by "name" buyers and serious media coverage.

CHINA AND COMMODITIES: The Chinese government in late October raised short-term interest rates by 0.27%, and promised to continue to raise rates until the overheated economy cools down. This has very negative implications for worldwide commodities and equities prices, since the name of the financial game has been liquidity, and the entire world economy has been fueled by the strong growth in China. This appears to be a serious attempt by the government to put the brakes on, the first such effort since the Communists took power in 1949. Declining liquidity will cause all world financial markets to decline, and commodity prices in particular, including gold and silver, to retrace some of their very strong gains of the past four years.

SAME OLD, SAME OLD: We all know what Bush's economic policy has been in the past four years, and it is unlikely to change much over the next four years. The price of gold rose by roughly half during the first Bush presidency, so the gold price will probably end a second Bush presidency with an additional rise of about one half. In last week's edition of Barron's, there was speculation about who either Presidential candidate would name as Fed chairman assuming that Greenspan retires when his term ends in 2006. According to Barron's, Bush would likely name Ben Bernanke, who on November 21, 2002 stated that "the U.S. government has a technology, called a printing press (or today, its electronic equivalent) that allows it to produce as many U.S. dollars as it wishes at essentially no cost." It is obvious what this implies for even further potential gains in the gold price in a second Bush presidency. Notice that in the first year of Bush's first term, gold made an important low in April. Expect that pattern to be roughly repeated once again in Bush's second term.

HOW BULL MARKETS BEHAVE: What is currently happening with commodities is typical of a bull market in any financial asset. Given an improvement in underlying fundamentals, a strongly undervalued asset becomes less undervalued as savvy bottom-fishers purchase this asset near an important cyclical low. As time passes and the chart patters for this asset look more positive, combined with short covering by speculators who were previously confident of a continued price decline, the price of this asset rises first to fair value and then higher. As the rally continues and becomes more noticeable by average investors, a large contingent of buyers who are trading purely for momentum pushes this asset into a level of clear overvaluation. Initially, this serves to push prices even higher, as media coverage becomes almost unanimously positive and a new crop of long-side promoters encourage the least informed segment of the investing public to become involved. This stage has finally been reached in the commodities markets in general, as those advisors and media which had been almost universally bearish on commodities just three years ago are now almost unanimously bullish. Speculation has driven commodities prices to the levels at which those most closely connected with the industry, who have been progressively selling short in recent weeks, are now in a position to benefit handsomely by engineering a sharp, short-term price collapse, just as they did exactly six months ago. Since the futures markets were created for the benefit of the commercials, Comex commercials can simply ask the exchange to raise the margin requirements for speculators. Such an action would force speculators to raise their sell stops for tens of thousands of contracts much closer to current prices, and therefore a mild price drop could easily be exaggerated by a cascade of stop-loss selling to create a short-term collapse. This most recently happened in a six-week period from April to May of this year, as described above, and conditions are almost as ripe for a repeat performance. One indication that a pullback is imminent are the number of covers of financial publications in the past two weeks that excitedly tout either commodities themselves or the shares of commodity-producing companies. Media coverage toward commodities at this time is even more positive than it was in early April, raising the danger that recent very heavy fund flows into commodity and commodity share mutual funds have been swelled by the ranks of latecomers who have no emotional or knowledgeable commitment to the sector, and are buying only because "everyone says its going up, and I don't want to miss out". These investors are notorious for bailing out when faced with even a modest price decline, and are therefore likely to exacerbate any downside move by their inevitable selling when things turn sour.

GOLD AND REALITY: Gold often correlates closely to the real rate of return for short-term U.S. time deposits. The lower the real rate of return, the better for gold, and vice versa. The real rate of return is equal to the nominal time deposit rate (roughly equal to the anticipated Federal funds rate) minus the inflation rate. Of course, one can quibble over the current inflation rate, as well as which rate to use for the nominal rate, but in general, it can be seen that when gold peaked this past winter, inflation was about 2.0% while the anticipated Federal funds rate was about 1.0%, thus yielding a real rate of return of negative 1.0%. At the current time, inflation has risen to about 2.3% while the anticipated Federal funds rate is about 1.8%, yielding a real rate of return of negative 0.5%. As this is a less negative rate than before, it is logical that the gold price should be lower now than it was seven months ago. Looking forward, most observers expect the Fed to continue to gradually raise short-term interest rates; if this rise occurs more quickly than the corresponding rise in U.S. inflation, which is likely, then the real rate of return for U.S. time deposits will become even less negative (although it probably won't quite reach zero), and therefore the price of gold should drop further. It should be noted that when gold experienced its lowest point in 1999-2001, the inflation rate averaged 2.0% while the anticipated Federal funds rate was as high as 6.5%, yielding a real rate of return of as much as positive 4.5%.

REINING IN THE RAND: At 9:17 a.m. on Thursday, August 12, 2004, the South African central bank surprised most observers by lowering a key lending rate by half a percent, instead of leaving it unchanged as had been expected. No reason was given for this decision, but many presume that the central bank was concerned about the rand's powerful rally from 13.5 to the U.S. dollar in December 2001 to 5.9 to the dollar in late July 2004. Since most South African workers are bound to union contracts which are denominated in rand and include annual raises of roughly 9% per year in rand terms, the rand rally caused these workers to be paid more than twice as much in U.S. dollar terms, which caused a significant erosion of profit margins for those manufacturers who sold their goods in U.S. dollar terms, such as precious metals miners. The rand responded to the central bank decision by falling from 6.18 rand to the greenback just before the announcement, to 6.48 rand to the dollar immediately afterward, and 6.60 rand to the dollar a few days later. The rand/dollar exchange rate has remained close to 6.6 rand to the greenback. South African gold mining shares responded to the rate cut decision with a sharp price surge that lasted for eight calendar days, through August 20. It remains to be seen whether this is a permanent change in policy by the South African central bank, or merely a one-time event. Since the South African economy is growing sharply in real terms, it also remains uncertain whether or not the rand will continue to decline, or will resume its uptrend if currency participants perceive the current rand level as being undervalued. In recent weeks, with the very weak U.S. dollar, the South African rand is once again trading near and sometimes slightly below 6 to the U.S. dollar.

REAL ESTATE PRICES CAN GO BOTH WAYS: I am expecting official U.S. government data to show a "sudden" drop in real estate prices, which will change the entire perception of real estate as a "sure thing" and likely cause a sharp drop in investor confidence, and perhaps even help to trigger a recession which could become quite severe as early as 2006. REIT investors already know about this decline, as evidenced by the very bearish chart patterns of the REIT indices IYR and RWR, but most U.S. homeowners and recent home buyers, aided and abetted by the media, foolishly believe that record high real estate prices will continue to show significant annual gains for many years to come. The consensus is about as strong as the surveys four years ago that showed the average investor expecting the Nasdaq to continue to rise 30% per year for at least another decade. Notice that recent official U.S. government data of U.S. new home sales and existing home sales do in fact show a modest downward trend in price over the past several months. It is especially noteworthy that the headlines accompanying each report tout the volume of sales, rather than the price. This would be like a news headline proclaiming "Nasdaq volume up 15%" without mentioning that the Nasdaq itself was down 1% on the day.

LOOKING FORWARD TO 2060: I'll make a very far forward prediction by stating that I believe U.S. equities will make a double bottom in 2010 and 2018, with the Nasdaq bottoming near 300 in 2010, rebounding to around 550 sometime thereafter, and then making a final double-bottom retreat to around 400 in 2018, followed by a roaring bull market that will bring the Nasdaq to the 3000-3500 level by perhaps 2035, followed by a relatively mild bear market. The all-time Nasdaq high of 5132 from March 2000 will probably not be seen again until 2060 at the very earliest.

FIBONACCI LIVES (and so does WD Gann)!: I have found the Fibonacci retracements to be quite accurate in predicting retracement levels within the context of long-term bull and bear markets. If one takes the Fibonacci sequence 1, 1, 2, 3, 5, 8, 13, 21, 34, etc. (each number represents the sum of the two previous numbers), one finds that the ratio of these numbers eventually approaches almost exactly .618. Similarly, in the financial markets, if any financial instrument in a long-term trend has a retracement in the opposite direction of that trend, most often .618 of the most recent previous gain is surrendered during such a retracement. (There are other retracement levels that apply in certain situations, but the .618 level is the key for most multi-month studies.) Now, let's put this theory to work. Gold shares as measured by HUI bottomed at 112.61 in the morning of March 13, 2003, its lowest level that year. HUI peaked at 258.60 on December 2, 2003. If HUI had given up 61.8% of this gain, then its bottom this year would have been 168.38. The actual bottom for HUI was 163.81 just after the open on Monday, May 10, 2004, which I suspect may have been the final low for the current cycle. For the Nasdaq, the post-bubble intraday low was 1108.49 on October 10, 2002; the recovery peak on January 26, 2004 was 2153.83. Assuming that the January 2004 peak is not exceeded in the near future, if 61.8% of the gain is retraced, then the bottom for the Nasdaq over the next several months will be 1507.81. Be sure to save these numbers for future reference, so you can either congratulate me (or Fibonacci, a monk who lived in the twelfth century; they had gold back then, but not the Nasdaq), or else curse the both of us if "we" are wrong. To give credit where credit is due, this observation was first discussed in detail by W. D. Gann (1878-1955). Since the late great Gann had only a slide rule, not a calculator, he used the 5/8 level, which is .625, and almost exactly matches .618.

LONG-TERM GOLD OUTLOOK: Gold will continue to make a pattern of higher lows as its strong bull market from April 2001 to the present continues throughout the next 10 or 15 years. The most recent major low was at $319.10 on April 7, 2003, so the next low will likely be between $350 and $370 an ounce later this year. Gold's lowest recent price was $371.25 spot in the morning of Monday, May 10, 2004. Gold has surpassed $400 per ounce in many years in the past dating back to 1979, but has gone above $440 per ounce in only a few years, so that barrier has apparently reasserted itself once again. Inevitably gold will go above $500 per ounce, perhaps even as early as 2005, and then above $600 at some point in the next several years. A decade or so from now, after the U.S. stock market has had some time to recover from a very deep bottom, gold might stage a typical late-recession rally and spend a few years above $1000 per ounce. Since gold averaged about $350 per ounce from 1979 through 1996, it seems reasonable that its median price in the next two decades will be perhaps at twice that level, near $700. My guess is that gold will probably not ever exceed in inflation-adjusted terms its all-time peak from January 21, 1980, but given the recent U.S. equity euphoria, perhaps anything goes.

YES, GOLD REALLY CAN RISE AGAINST THE EURO: Since gold's rally has been almost entirely due to the U.S. dollar's decline, gold's price has been basically flat in terms of most other major world currencies. This is likely to change in the future, with gold rising perhaps twice as much as the U.S. dollar declines, and gold generally rising in terms of most world currencies. The reason is that the world's major industrialized nations are not just going to sit back and let the U.S. devalue its currency uninhibitedly. Given any threat of recession, the European central bank and Japan's central bank and Canada's central bank and Australia's central bank are going to depreciate their currencies aggressively, and given that their short-term rates are generally far above those of the U.S., they can depreciate more aggressively and more impressively than the U.S. can, given that the U.S. has basically exhausted nearly all of its interest-rate cutting potential already. This process of competitive devaluation will help gold to rise even without cooperation from a falling U.S. dollar. For that reason, gold producers in South Africa, which have been suffering from the price of gold actually declining in South African rand terms while wages have been rising at about 10% per year, will see far improved profits relative to most other producers. Meanwhile, gold coins and collectibles are still selling at historically low premiums to their melt (intrinsic) values, and therefore merit consideration whenever gold is oversold.

YOUR TYPICAL GARDEN-VARIETY SEVERE BEAR MARKET BOTTOM: U.S. equities in general will continue to decline until the dividend yield on the S&P 500, currently at only 1.72%, is between 7.5% and 10.5%. Great bull excesses are usually followed by equally severe recessions.

REMINISCENCE OF THE WEEK:

REMINISCENCE OF THE WEEK: When I was a kid, once or twice each year, our family would visit my father's father, who lived in a housing project in the Pelham Parkway neighborhood in the Bronx. We also went to see my great uncle, who lived in the same housing project a couple of blocks away. My great uncle loved to tell jokes and do magic tricks, and to talk about the subway; both he and my grandfather worked on the same subway train line, the "Brighton line", from the 1920s through the late 1960s. My grandfather passed away in 1975, but I still visit my great uncle, who will be 100 years old next month.

REMINISCENCE OF THE WEEK: At the Walden School music composition summer camp in 1974, discussed below in another reminiscence, one person was chosen by the faculty to serve as the "secret inspector". This person had the task of carefully examining all dorm rooms to make sure that all beds were made properly, all trash cleaned up, and other standards generally enforced, and to report any violations to the camp staff. It was necessary that the identity of the secret inspector not be revealed, so that we would not attempt to bribe this person, or to otherwise act in a way which would adversely affect his or her duties. Unknown to the rest of us, one of the female campers surprised the secret inspector when she returned unexpectedly to her room one morning and found him there, but she was sworn to secrecy. On the final day of camp, we had to guess who the person was. About three quarters of us, including myself--especially myself--thought that it was Jeff Cohen, since he was a couple of years older than most of us and had known connections among the faculty. Jeff has since gone on to considerable fame as a classical pianist living in Paris. But a contrarian approach would have worked better, as the secret inspector turned out to be none other than my own roommate.

REMINISCENCE OF THE WEEK: Two years ago, I was at work in downtown New York City when the person sitting in the cubicle next to me said his chair was shaking. I thought he was joking, until about a half minute later when my own chair began to rattle and then the apparently solid floor below us began to vibrate. Soon, we could hear books and glasses crashing down all around us. A few people started yelling, and shortly thereafter an announcement was made on the fire system to "please evacuate the building through the stairs". When we gathered on the sidewalk below, a few hundred of us could talk about nothing else but what we figured was the first serious earthquake in Manhattan in history, until we noticed that only people from our building were clustered outside. Everyone else from neighboring offices and down the street was working at their desks as usual, apparently unconcerned. Puzzled, we couldn't figure out what was going on, until a fire department investigation determined the cause of the tremors. An aerobics class of fifty people was entirely responsible for creating resonance and massive vibrations that had affected a dozen floors of a major skyscraper.

REMINISCENCE OF THE WEEK: As mentioned in more than one previous reminiscence, in November 1977 I played piano for our high school production of "Guys and Dolls". One of the liveliest and cutest members of our cast played the role of a "Hot Box girl", performing two burlesque numbers in the show. As a student, she was quiet in class, but outside the classroom, she was very outgoing and enjoyed life fully. She was always the center of attention when we would go to the local diner during rehearsal breaks. Since high school graduation, I have not seen her again, but three years ago I was, shall we say, somewhat surprised to see her name in print. In the "New York Times" Sunday "Styles" section, from September 2, 2001, was a front-page article by their lead society writer, Guy Trebay, entitled "All Undressed and So Many Places To Go". On the page 8 continuation, she is given two full paragraphs. One sentence should suffice for a family-oriented web site: "For herself, however, the experience of going naked at Lighthouse Beach this summer was liberating."

REMINISCENCE OF THE WEEK: I used to attend a summer music composition camp known as the Walden School. It was run by an energetic, inspiring man named W. David Hogan, Jr. We were each assigned to a kitchen crew in order to set out the dishes and silverware, and to serve the food and drink. There were two crews per meal. One day, our crew showed up as usual, but the other crew was nowhere to be found. We didn't know what to do, so we decided to do the best we could with our limited numbers. Naturally it took twice as long to set up as usual, so we still had a few tables to go when the counselors and kids began to pour in for supper. We tried to work a little faster, when the other crew suddenly showed up. It turned out that they had been playing a close game of handball that went into overtime, and they didn't want to interrupt the game to do something boring like setting the tables. The second, tardy crew tried to cover up for their misdeed by rushing to set out the final table, which was comprised of the most senior staff and counselors. They did a good job at first, but when they served Mr. Hogan himself, the head of the tardy crew rushed just a little too energetically, and tipped an entire meal and large cup of grape juice onto David Hogan's freshly washed shirt, tie, jacket, and pants, not to mention splattering the director's face with some kind of vegetable medley. Needless to say, that particular crew did quite a bit of floor scrubbing, lint cleaning, and every other conceivable and inconceivable task for the remainder of the summer without a complaint.

REMINISCENCE OF THE WEEK: When I was a kid, the most popular birthday activity by far was to have a duckpin party. In Baltimore, unlike other American cities, almost every bowling alley is divided into two halves. In one half, there are lanes with tenpins that require fifteen-pound balls and where you throw the ball twice per frame, as you can find throughout the U.S. In the other half, there are lanes with pins that are much smaller, known as duckpins, for which you throw a ball weighing only 3-1/2 pounds, and where you get three throws per frame. It's more difficult to throw a strike (all pins down in a single throw) or a spare (all down in two throws) with duckpins, since the ball is far less powerful, so a score of 120 is considered very good. Kids almost always prefer duckpins, because they can hardly lift the larger balls needed for regular tenpins, and because it has been the norm for Baltimore youth for decades (although this tradition has somewhat faded in the past twenty years, alas). Our parents would drop us off at the bowling alley, whereby we would bowl for about 1-1/2 hours. Afterward, we would gather in a big room nearby to eat strawberry ice cream and pound cake, and be entertained by someone dressed as a clown, who would then suffer the indignity of having leftover melted ice cream and cake thrown at him whenever any of his antics were less than excellent. As a true contrarian even then, I decided that for my ninth birthday, I would have my friends meet at Patapsco State Park just west of the city limits. Instead of bowling, we all went on a five-mile hike along a stream with a waterfall, and instead of ice cream and cake, we had barbecued goodies with lemonade and root beer. The general attitude afterward was "it was weird, but we had a lot of fun and we learned something". I guess that's similar to the reaction of those who read this page after perusing the usual web sites.

REMINISCENCE OF THE WEEK: In the summer of 1983, I went to visit my best friend from high school, who had moved to Chicago to attend the university in Hyde Park. He was rather busy during the daytime hours, so I explored a lot of the city on my own. One morning around 10 a.m. I headed for a park, and discovered an elaborate sculpture which looked like it might be or once have been a fountain. I walked over to it, and finding it intriguing in its design, I went toward its center to examine it more closely. Suddenly I heard a whirring sound, and soon discovered that it was very much a live fountain, which began to spout prodigious amounts of water. Since it took me quite some time to climb out of the middle of the contraption and move away from the range of the spray, I was thoroughly drenched, at which time the fountain shut down as rapidly as it had started up. I walked around to the other side of the massive sculpture and saw that it was called "Buckingham Fountain", which I later discovered was the most famous fountain in the city. Its posted hours of operation were clearly in the afternoons and evenings only, so the person in charge of its maintenance must have turned it on that morning solely for my benefit.

REMINISCENCE OF THE WEEK: In my senior year in high school, there was a family living next door that had grown up in the farm belt of North Carolina. They grew corn and other crops in the back yard, instead of planting the traditional lawn grass, and they had a huge dog which lived in a doghouse in the front yard. One day in January they went on vacation for two weeks to visit their family back on the farm. While they were gone, a small brown-and-white stray dog moved into the doghouse and begged for scraps in the neighborhood. Whenever I left the house for a walk, the stray dog would follow me for a block or two, unless our own family dog was with me, in which case it would stay at a distance and whimper. After a week had passed, the dog was still in the doghouse and I knew it would get kicked out the following Sunday when the next-door family was scheduled to return. On Saturday afternoon, as snow flurries fell, I walked to the library to return some books, and the dog followed me all the way, more than a mile, but stayed just outside the library door. I only took about half a minute to drop off the books, but when I went back outside, I couldn't see the dog anywhere. I looked around for almost an hour, then gave up and walked home. Perhaps the stray dog somehow sensed that the doghouse would no longer be available, and decided to head for a new place to live.

REMINISCENCE OF THE WEEK: Several years ago I was teaching piano in Chinatown in downtown Manhattan. My star pupil not only improved his performing ability, but also began to write his own songs. One day, he surprised me by telling me he was treating me to supper for my birthday. I selected my favorite Thai restaurant called "Thailand" at the corner of Baxter and Bayard Streets (it has been there now for twenty years). My protégé asked me what to order, and I told him probably he should get one of their excellent curries, but not the "jungle curry", since that would be too spicy for him to eat. Naturally, he ordered the jungle curry, telling me that since he was from southern China, he could certainly eat much hotter food than any red-haired wimpy American from Baltimore. I warned him again to get either the red, green, or yellow curries instead, but he insisted, so I intentionally ordered the yellow curry for myself, the mildest of their signature dishes, so that he could swap later without losing face. When the jungle curry arrived, my overeager student took one bite, then without a word switched plates with me. I was truly surprised when he discovered that even the yellow curry was a lot spicier than anything his mother usually cooked (he was only a high school junior at that time, and had not eaten out very frequently), since that was mild even to my taste. I ended up eating both of our entrees, encouraging him to order something even more harmless than a Big Mac, such as pad Thai, but he was too embarrassed to want to order anything further at that point. Finally, the bill arrived, and he made a great show of very proudly taking out his first, very recently obtained credit card to pay for both of us, only to discover that the restaurant accepted only cash; he had less than five dollars in his pocket. We have since become good friends, although to this day he becomes upset if I remind him of this incident.

REMINISCENCE OF THE WEEK: In the late summer of 2001, my brother and I visited Iceland. We went horseback riding, swam in thermally heated pools, went biking, and marveled at the Northern Lights (the aurora borealis). I had met an Icelandic man while playing bridge on the internet; we later sent e-mails and talked on the phone, and he was kind enough to drive my brother and myself around the country for two days. We saw amazing geysers and waterfalls, wide open countryside with a few domestic animals, and a generally austere landscape. Rainbows were almost an everyday occurrence. On the second day together, after we had just visited an ancient Icelandic graveyard, my friend said, "I'm not sure why, but I'd like to hear the news on the radio for a few minutes if you don't mind." My brother and I couldn't understand what was being said, but my friend told us "the World Trade Center was just hit by an airplane." That didn't make any sense to us, and then shortly thereafter he told us "another plane just hit the other tower, and they say it's terrorism." We drove immediately to my friend's house and, just as we arrived and turned on the television, on CNN we saw the South Tower fall.