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SAYING OF THE WEEK: Whenever the financial markets move in the opposite direction of that which the "news" would seem to indicate, the force behind the market move is usually powerful indeed. --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.

A MIXED PICTURE FOR PRECIOUS METALS: The short-term outlook for precious metals and their shares has developed strong crosscurrents. On the positive side, the HUI/spot spread, which had expanded for several weeks and which reached a four-year high of 230.5 on Tuesday morning, contracted sharply over the remainder of the week, and now stands at 223.0. In general, a contracting spread indicates that a pending rally in both gold and gold mining shares will begin within three months or less. On the negative side, the traders' commitments for gold deteriorated even as the gold price declined over the previous Tuesday/Tuesday; whenever this occurs, it is almost always the case that an accelerated decline in gold (but not necessarily in gold mining shares) is two weeks or less away. The most bearish development for gold was the U.S. dollar response to Friday's economic data showing weak employment gains in the U.S., weak economic growth, and rising inflation: the greenback initially fell sharply, then regained all of its losses within an hour, then moved sharply higher by the end of the trading day. The euro moved to 1.306 by 8:50 a.m. EST, then closed at 1.289, a very sharp intraday move. Similarly, gold initially rallied after the employment data, and tried once again to rally at 10 a.m., but ended the day moderately lower. This means that the U.S. dollar rally almost surely has a long way to go on the upside, which will continue to put downward pressure on gold and silver. Commodities are also likely to decline, including crude oil, which will also put downward pressure on precious metals. Assuming that gold falls to $396 over the next several weeks, if the HUI/spot spread contracts all the way to 200, this would mean that HUI will make a final low at 196, just above its recent nadir (on Tuesday, March 29, 2005, HUI touched 195.28). If the HUI/spot spread contracts to 210, then HUI will be at 186 instead of 196. My guess is that we will see a low for HUI somewhere in between these two levels, but it is too early to know what the exact bottom will be. Whatever it is, it will likely be the final prime buying opportunity for gold mining shares for at least another year or two. The best strategy is to continue to gradually purchase gold mining shares following all short-term declines, and to buy more heavily the lower that gold mining shares are. Remain disciplined. After gold mining shares have fully completed a bottoming pattern, then buy gold and silver bullion and related collectibles.

RESPECT THE SPREAD: The price of gold is set to either closely approach $400 per ounce over the next several weeks, or even more likely, to go below $400 per ounce, although I do not believe that in any event gold will fall below $388, its important proven support from July/August 2004. Gold mining shares at some point will resist the continued downward pressure on gold, which is being intensified due to the U.S. dollar's sharp counter-rally. Notice that the HUI/spot spread, after expanding to 230.5 on Tuesday, has contracted sharply since then, and is now 223.0. The traders' commitments for gold are poor, which supports the contention that gold is probably headed slightly below $400. There are heavy concentrations of sell stops for gold at $420, $410, and $400, the latter two ($410 and $400) which have not been tested since August 2004, and which therefore are likely to cause a cascade of sell stops by very stale speculator long positions in gold futures. At this point, gold mining shares should be gradually bought on the evidence of their clear pattern of many higher lows in their long-term bull market, and on the fact that fear is substantially increasing toward this sector, as almost always signifies an approaching major bottom.

ONCE AGAIN, BEGIN TO VERY GRADUALLY PURCHASE GOLD MINING SHARES: As HUI prepares to make another in its series of higher lows dating back to November 2000, it is once again time to slowly purchase gold mining shares. The long-term bull market in these shares is surely intact, but HUI could theoretically drop as low as 172 (the July 27, 2004 low was 171.91) without breaking the general uptrend, so a disciplined ladder of limit orders in your favorite funds or securities is mandated, to prevent overcommitting to the sector before the bottom has been reached. The best plan is to utilize a small percentage of your total planned investment capital each day, and to spread these purchases over the next several weeks; that is exactly the plan that I am following with my own money. It is very likely that the upcoming nadir will be the final major low of 2005, and perhaps the last sustained move by HUI below 200 for several years. For the first time in many months, I will discuss exactly which funds and shares I prefer for investment at this time. Also be sure to keep in mind that when gold mining shares are forming a true bottom, they often drop sharply early in the day, then rebound strongly later in the day. Therefore, a ladder of limit orders is critical to ensure that early sharp declines lead to purchases early in the day, even sometimes at the open itself, when the best prices are often seen. Always be more eager to buy at lower prices, and to buy less at higher prices.

WE BEG YOUR DIVERGENCE, GENTLEMEN: The most likely interplay between spot gold and gold mining shares is a positive divergence. In such a scenario, perhaps in April, gold drops to $406 while HUI bottoms at 191; then in May, gold falls further to $394, but HUI makes a higher low at 196. Such a divergence almost always leads to sharply higher prices for both the metal and its shares several months later. A far less likely outcome is that both bottom simultaneously; in such an instance, HUI will likely reach a lower nadir, such as gold making a low at $398, with HUI at 186. The rule of thumb is this: buy gold mining shares early; buy gold coins and other physical gold late.

A FRIENDLY NOTE OF WARNING ABOUT MY RECOMMENDATIONS: I don't play favorites when it comes to investing. The only criteria that matters is setting up for the greatest potential return with the least potential risk. What is the best investment today was not necessarily the best investment a month ago, and may not be the best investment a month or even a week from now. If a particular gold mining company has a sudden price drop, I will generally be much more favorable toward the company than before the decline. For example, South African shares collapsed on Thursday on word of a labor strike in that country; the exaggerated collapse in the shares in response to the news made them, in my opinion, much more favorable for investment than they had been just a day earlier. So these recommendations could be entirely different if prices change considerably, even in the short run.

CONSIDER FUNDS FIRST: Most readers will probably be interested in purchasing gold funds for the majority of their investment, either not having a brokerage account or not wishing to assume the increased risk and volatility of owning shares of individual companies. There are several dozen gold funds. However, all but two charge more than 1.5% percent of the total assets each year as a management fee, in some cases two or three percent annually. Some of these funds even charge significant upfront or redemption fees. If you feel that a particular fund manager has a track record which justifies such a high expense ratio, then please continue to invest in such a fund. However, it is possible that such a manager may not continue his winning streak, or that his success may encourage him to leave for another company or to start his own hedge fund, and the subsequent management will not necessarily be as competent, and may charge a significant fee for switching out of the fund. Caveat emptor. The two funds which charge a reasonable fee are BGEIX, the American Century Global Gold Fund (current annual expense ratio 0.68%), and VGPMX, the Vanguard Precious Metals and Mining Fund (current ratio 0.55%). I have money invested in both of these mutual fund holding companies. However, I have a strong preference for BGEIX over VGPMX, for the following reasons: 1) BGEIX charges a redemption fee of 1% only if the shares are held for less than 60 calendar days. VGPMX charges a 1% fee if the shares are held for less than a year. 2) BGEIX contains all pure gold mining companies. VGPMX contains several energy and base metal producers. If there is a fear of a recession, or similar economic developments, energy and base metal producers will likely underperform ordinary gold mining shares. Besides, I do not want diversification if I am purchasing a gold fund; I want gold mining shares, period. 3) BGEIX has always been open for new investment. VGPMX sometimes is closed for new investment, even if one has a considerable current holding in the fund.

INDIVIDUAL GOLD MINING SHARES: There are so many choices here that it is difficult to narrow them down. For starters, I will eliminate the small junior producers, since there is no way I know of to get truly reliable information about them. If you have a trusted source of such data, then go ahead, but remember the source, and remember that there may be an implied bias or other distortion of this information. I personally do not purchase the shares of small gold producers on principle, but if you have successfully traded juniors in the past, you should continue whatever gives you the greatest degree of confidence.

GIVE A CLOSE LOOK TO SOUTH AFRICA: The shares of the big three South African mining companies (AU, GFI, HMY) are below their highs of spring 2002, and have thus provided little or no profit over the past three years except with good market timing. The primary reason for this underperformance has been the very strong rand, which increased from 13.5 to the dollar at the end of 2001 to 5.7 to the dollar a month ago. The current exchange rate is about 6.2 South African rand to one U.S. dollar. Therefore, local costs, especially union wages denominated in rand and negotiated to rise an average of 9% annually in rand terms, have increased enormously in dollar terms in the past three years. Thus, even with the higher gold price in U.S. dollars, profit margins have in many cases actually decreased. This is due to a number of factors, including the weak U.S. dollar, but also reflecting artificially high short-term interest rates in South Africa relative to their domestic inflation, as well as the general boom in commodities that has caused a sharp rise in the currencies of nearly all economies which are heavily based upon commodity production. It is likely that the South African central bank will gradually ease its short-term rates to assist with exports, which are a significant percentage of their GDP. Thus, even if the U.S. dollar is generally weak over the next several years, the rand will likely rise only modestly relative to the greenback, and may well fall versus the euro, the yen, and many other currencies. On Thursday, March 24, 2005, there was news of a strike at Harmony, with rumors of its potentially spreading to the other producers. The subsequent substantial price decline in South African gold mining shares in response to this news caused these shares to surrender a significant portion of the gains that they have enjoyed since early February, and thus makes them once again a prime candidate for purchase. I am gradually buying these as they form likely double bottoms with their corresponding early February nadirs. There is a closed-end mutual fund called ASA which invests in all of the above shares, heavily favoring GFI and AU, in that order, in addition to platinum miners and a small percentage in other diversified South African mines, as well as other worldwide gold mines. ASA's current discount to net asset value is slightly above average, but puzzlingly did not decline much on Thursday, in spite of the sharp fall in its primary components. The expense ratio of ASA has risen somewhat in recent months, and is now 1.03%. ASA is still a viable alternative to open-end funds such as BGEIX, since open-end funds only permit purchase at restricted times of the day (such as the close), whereas ASA can be traded intraday. This is advantageous given the historic pattern of gold mining shares to rebound sharply from early intraday lows when they are forming a true bottom.

O CANADA: In general, I am familiar with gold mining shares which have a liquid market in the U.S., so I will only discuss those Canadian shares, rather than those which are not listed in the U.S. As a rule, I prefer to purchase shares which are just above important historic chart support, especially if they are showing signs of stubbornly refusing to break below such support. If you purchase shares of companies which are just below a key support level, they often fall all the way down to their next support level in just a few trading days, thus creating an immediate and in my opinion generally avoidable short-term loss. As an example, I have no particular bias for GLG over AEM, and in fact, in early February I was purchasing shares of AEM, but not GLG. In early February, AEM was holding strongly above support, whereas GLG was wandering in no-man's land. Both rebounded along with HUI, but now GLG is just above strong support, whereas AEM, having rallied strongly in late February, is in danger of falling to its next lower support level. Thus, whereas in early February I strongly preferred AEM to GLG, I now strongly prefer GLG to AEM. Other shares which appear to be close to bottoming, and which have strong historic chart patterns, include PDG, which has about half of its operations in South Africa. ABX has an excellent cash position and development prospects, but uncertainty about its hedging policy makes it perhaps a less than optimal choice, especially if gold goes to $500 an ounce or higher in 2006. As for the other Canadian gold and silver producers, use the charts as your best guide. Be especially eager to purchase all shares when they are completing very bullish patterns such as long-term double bottoms.

BORN IN THE U.S.A.: The largest American precious metals producers have suffered from historically inconsistent earnings histories and occasional environmental stumbling blocks. Nonetheless, they are worth a closer look, in order of total market capitalization, largest first. The best-known, Newmont (NEM), is in my opinion one of the worst candidates for purchase. Every single institution and hedge fund seems to own this one, and tout it endlessly. Every article about gold mining shares recommends Newmont. Enough already. Along with the second-largest U.S. producer, FCX (which also mines copper), these are the only two gold producers in the S&P 500. Both NEM and FCX have frequent insider selling, which is hardly encouraging. (Disclosure: I am short NEM at this time.) Should insider buying emerge in these shares, that would be a very positive sign, but it hasn't happened yet. In general, as U.S. equities decline over the next several years, there is likely to be an exodus out of currently very popular index mutual funds, and therefore NEM and FCX are likely to see steady selling over that time, which will depress their P/E ratios even if their fundamental business is increasingly profitable. The next largest producer is SWC, which produces 3/4 palladium and 1/4 platinum, but no gold or silver. This is a more intruiging choice, as it provides some diversity in a portfolio while generally following HUI more closely than it follows the prices of either palladium or platinum. Management appears to have succeeded in turning around earlier incompetence in mine expansion, and the chart pattern is improving as well. Next on the list, SIL. I know Bill Gates and a bunch of other famous people own this one, but it keeps losing money, and honestly I don't see what its great attraction is. Next are CDE and HL. Both of these have a lot in common: they produce silver in addition to gold; they both have very substantial percentage gains from their November 2000 lows, but also substantial percentage declines from their highs of January 2004; they are both headquartered in the Rocky Mountains; they both pay no dividends; they sometimes lose money. Hecla has a better cash position with no debt. This pair should appeal most to those who prefer to own "fallen angels". Following this in terms of capitalization is RGLD, which does not produce gold, but helps other gold mines in exchange for a royalty fee which various according to price. RGLD has an intriguing business model, but it is currently way above major chart support, so is asking for trouble to buy it at this time. (Disclosure: I am short RGLD.) Should it collapse all the way to support, then it could well be worth purchasing. Then comes GSS, which has turned around its operations and may have a brighter future; it even has occasional insider buying, and like CDE and HL, also produces silver. Finally, there's VGZ and CAU. VGZ has periodic insider selling and I don't know much about it; still, it's probably worth a shot whenever it is just above support. CAU lost a critical ballot issue last year and has suffered ever since; perhaps they will be eventually taken over by one of the other producers already listed. (If I have omitted any U.S. precious metals producers, please contact me and let me know; I will include them in my next update.)

AND THE BEAT GOES ON: U.S. equities continued their stealth downward trend of 2005. The Nasdaq composite touched its lowest level of the year, and is now below its 2003 close, thus wiping out all the gains of 2004, and then some, in less than 3 months. Complacency continues to reign, as can be seen in the persistently low implied volatility indices such as VIX, VXO, and VXN. VXN continued its peculiarly complacent decline over the previous few weeks, and is currently less than a point above its multi-year low. Investors are less concerned about a Nasdaq drop the lower the Nasdaq falls. This virtually guarantees that any near-term bounce in the Nasdaq will necessarily be of short duration. Media coverage of the financial markets remains generally upbeat, although somewhat less so than at the end of 2004. Corporate bonds have recently joined equities in moving lower, removing one by one those sectors of the financial market perceived to be safe havens, as is typical of most true bear markets. Money market fund deposits are close to a multi-year low as a ratio of total investor assets, even as money-market fund yields are near a multi-year high. Expect the Nasdaq to reach 1900 by the end of March, which is its first real support level. Other support levels for the Nasdaq that are likely to be closely approached within the next several months are the 2004 summer low of 1750, and the 61.8% Fibonacci retracement just above 1515. Meanwhile, other typical signs of reduced liquidity in the financial markets are evident in the late-cycle rally in crude oil, which is probably just about finished, given the inordinate media coverage of daily or even hourly price changes, and which will probably lead to crude going below $40 per barrel over the next several months. The price of crude has already begun to modestly decline, and this drop will likely accelerate over the next several months. The U.S. dollar is continuing its recent rebound, and is poised for a sharper rally in coming weeks. Notice that "the incredible shrinking dollar" made the cover of Newsweek; whenever the popular non-financial media is loudly proclaiming a particular trend in the financial markets, it is over, finished, adios, baby. A few U.S. dollar bulls have even emerged from their media-proof bunkers and proclaimed publicly that they expect the greenback to continue to rally. Gold is likely to move slightly below $400 per ounce over the next few months, which should be an excellent buying opportunity for precious metals and their shares, as gold will likely rebound later in 2005, and especially in the first half of 2006, once the Fed acknowledges that its interest-rate hikes may cause the U.S. economy to slip back into recession. Notice that the real rate of interest has turned positive for the first time in almost two years, meaning that investors in U.S. time deposits, especially if the U.S. dollar is rising, will actually get net positive returns. Historically, this tends to be bearish in the short run for precious metals, which strongly prefer a negative real interest rate. In 2004, gold mining shares made a bottom on May 10 and a confirming right shoulder low on July 27, 78 calendar days later. In 2005, gold mining shares as measured by HUI bottomed on February 8; 78 calendar days later would be April 27.

GO GREENBACK GO: Is anyone besides myself wildly bullish on the U.S. dollar over the next several months? There are some folks in that category, although they have not been getting much media attention lately, or have perhaps gone into the witness protection program. Almost every article or comment on the U.S. dollar has been somewhere between bearish and hopeless. Even as the mainstream media are divided about other topics, they are virtually unanimous in calling for a lower American currency. Yet, if you look at a chart of the U.S. dollar index, or of the euro, there is a compelling head-and-shoulders formation that screams for a rising greenback. The U.S. dollar needs to hire a better agent, or at least set up its own web site. Expect the U.S. dollar index, which touched 81.28 on Friday, to reach 88 within the next four months. Notice that the greenback is still continuing to make higher lows throughout the past few weeks. Unfavorable dollar news on Friday initially pushed the greenback lower, but it regained all of its losses, and then a whole lot more. The dollar is on fire. Respect its heat.

THE CRIME AND PUNISHMENT OF JOE AND JANE DUMBO: The next decade is likely to be the most painful for the "Joe and Jane Dumbo" folks of this world. These are the people who bought U.S. equities heavily in the late 1990s, "since stocks sometimes drop a little, but pretty soon hit new all-time highs". By and large, they have held most of these shares throughout the volatility of the past several years, and figure that they will do fine "in the long run". Recently, these folks have been buying second and/or third homes for speculation, on almost nothing down and perhaps with an interest-only, adjustable-rate, no-cap mortgage, "because real estate never goes down". As both equities and real estate collapse in tandem, these folks will go into the red on both fronts, thus creating a negative wealth effect that will sharply curtail consumer spending, and likely cause a worldwide recession. Joe and Jane Dumbo are looking dumb, dumber, and dumbest as the weeks pass in 2005.

SELL SHORT SEMICONDUCTOR SHARES: Although various broad-based equity indices have hit their highest levels since the summer of 2001, the Nasdaq and related technology shares have been severely underperforming. Semiconductor shares in particular have been weak, with most semiconductor indices such as SMH and SOX forming a pattern of several lower highs dating back to late 2003, more than 15 months ago. On Tuesday, March 1, 2005, SMH exactly matched its high of December 3, 2004, before turning lower, and continuing to make lower highs each day last week, thus hinting at a very bearish intermediate-term double top. It is likely that semiconductor shares are pointing the way lower for the Nasdaq, and in turn, the Nasdaq is pointing the way lower for the broader market over the next several months. As the U.S. real estate market inevitably turns lower, this will put additional downward pressure on U.S. equities, since a record percentage of Americans are overinvested in real estate, especially for speculation, and will therefore significantly reduce their spending patterns as they anticipate the negative wealth effect of their reduced net worth. The fun is still continuing in this sector. Remain aggressively short semiconductor shares.

THE NASDAQ AND HUI: VIX, VXO, and VXN, important measures of implied index volatility, recently approached multi-year lows, with VIX itself touching 10.92 on Friday, February 25, 2005, just two cents above its multi-year bottom. This strongly suggests that the Nasdaq is likely to accelerate its downtrend of 2005; already there are five lower highs on its chart. With the U.S. dollar likely to gain ground as the Nasdaq declines, this will initially put downward pressure on gold mining shares as well; after this initial period, in which some goldbugs will complain that gold is "not responding to" the decline in equities, gold mining shares will begin to make a strong positive divergence by reversing direction and moving higher even as the Nasdaq continues its pattern of lower highs and lower lows. The Nasdaq is likely to touch 1900 within several weeks before making a significant bounce; this should be followed later in 2005 by lows at 1750 (matching the August 2004 nadir), then 1515 (the important 61.8% Fibonacci retracement of its entire gain from October 2002 through the first day of January 2005, when the Nasdaq peaked at 2191.60), and finally some even lower point in the autumn, perhaps near 1280. Notice that Barron's has an article in this week's issue in which the person being interviewed agrees exactly with my timewise guess of a major Nasdaq low in the autumn of 2006, even though his price projection, in my opinion, is far too optimistic (he is probably just being wimpy). Based upon the steepness of the Nasdaq decline, there are nine alternative scenarios for the upcoming right shoulder low of HUI, as follows: 1) HUI bottoms around 205. This is the most optimistic scenario, in which gold mining shares have only above 5% downside from current levels. Given that there is no chart support for HUI until it is much closer to 200, as well as the great unlikelihood of there being such a shallow drop from the neckline, this scenario can probably be dismissed. Obviously dismissal was the proper approach. 2) HUI bottoms near 201. This would be a symmetric right shoulder, in which the right shoulder low is fractionally above the left shoulder low. That would look beautiful on a chart, but gold mining shares usually don't display such precise symmetry. 3) HUI bottoms near 197. This would put HUI fractionally above its September 2004 low. 4) HUI bottoms near 193. This scenario would signify a classic double bottom, but is less common as a historic pattern for gold mining shares, except when equities in general are very weak, as they are currently. 5) HUI bottoms around 189, making a slightly lower low than on February 8. If the spread between HUI and spot gold refuses to contract, this scenario becomes increasingly likely, and coincides closely with my original 2005 prediction of a low at 188. 6) HUI bottoms near 185. This is the most pessimistic of the likely outcomes. 7) HUI bottoms near 181. This is considerably less likely than the above scenarios, and would only happen if the HUI/spot spread remains roughly steady as gold falls, which historically is quite unusual; the chance is only about 1 in 10. 8) HUI bottoms near 177. Should the U.S. Federal Reserve actually raise rates by a half percent at their May 2 meeting, that will open a brief window in which gold mining shares could collapse by such a magnitude. However, I think the chance of HUI dropping this much, even with a half-point Fed rate hike, is only about 1 in 15. 9) HUI bottoms near 173. This would make a complete double bottom with its July 27, 2004 low of 171.91. I think the probability of such an outcome is perhaps 1 in 20. The chance of HUI breaking below its July 27, 2004 nadir is only about 1 in 25. As in early February, I believe that the risk/reward scenario for being long gold mining shares has become quite favorable, being roughly equivalent to being short the Nasdaq, and therefore gold mining shares should be accumulated gradually over the next several weeks. The Nasdaq should continue to be played on the short side, most easily by selling short QQQQ. Those who prefer physical gold to the shares should have their opportunity over the next several weeks to buy at what will likely be the lowest prices of 2005.

THE LONG AND THE SHORT OF IT: At this point, it would be useful to mathematically analyze the risk/reward scenarios of my current two favorite alternative investments: being long gold mining shares, and being short the Nasdaq. First, let's consider the Nasdaq. I am strongly convinced that the Nasdaq in the second half of 2005 will complete a 61.8% Fibonacci retracement of its entire gain from its nadir in October 2002 through its peak on the first trading day of 2005, plus an additional 1% percentage decline, as it its usual pattern. This would put the Nasdaq around 1515. The mathematics of being short are slightly different from the mathematics of being long, assuming no margin is used in either case. If one is short one thousand shares of QQQQ at 40 dollars per share, then that requires an investment of 50% of the total, assuming no margin, which would be twenty thousand dollars. If QQQQ then falls by half, to 20 dollars per share, then the position gains 20 thousand dollars in value, becoming worth 40 thousand dollars altogether, or double the initial amount. Therefore, when you are selling short, if the asset being shorted falls by half, the percentage gain (100%) is identical to going long and having the asset double in value (also a 100% gain). Mathematically, using a lognormal distribution, the purely random chance of any asset losing half its value is the same as the chance of it doubling in price. Therefore, if one sells short the Nasdaq at its current price, and it falls to 1515, then one will make a profit of approximately 52%. Therefore, I have committed a substantial percentage of my personal funds to being short the Nasdaq, since I believe there is a high probability of making a 52% gain between now and late 2005. On the other hand, suppose that one has been recently purchasing, and continues to accumulate, gold mining shares with an average HUI price of 200. HUI still has stiff resistance at its prior high near 258, so with a generally rising U.S. dollar over the next several months, combined with bouts of periodic equity weakness, perhaps HUI will reach 250 between now and the time that the Nasdaq reaches 1515, for an HUI gain of 25% (assuming HUI was purchased at an average price of 200). Since the anticipated gain for being long a basket of gold mining shares is thus only about half that for the gain for being short QQQQ, I am committing a smaller percentage of my personal assets to being long gold mining shares than I am committing to being short the Nasdaq (thanks to Mr. Allen Munro for correcting the error in the previous sentence). Even if one were to conservatively cover a Nasdaq short position entered at current levels once the Nasdaq has fallen to 1760, just above its 2004 summer low, the resulting gain of 30% would exceed the possible profit from being long gold mining shares unless HUI is able to set a new all-time high above 260 before the Nasdaq can reach 1760, which is relatively unlikely. Of course, should there be a sharp volatility spike at the same time that the Nasdaq reaches 1515, such as VIX going above 40, making it necessary to cover the Nasdaq shorts, then if gold mining shares make a simultaneous partial pullback at the same time that the Nasdaq is bottoming, it may become prudent to put some of the cash from covering these Nasdaq shorts into additional purchases of gold mining shares. Notice that in 2001-2002, periodic reallocation would have been a powerful winning strategy, as the Nasdaq was weakest from January 2001 through September 2001, and again from August 2002 through October 2002, while gold mining shares staged their strongest upsurge from November 2001 through early June 2002. Thus, it was possible to emphasize either one or the other, depending upon its risk/reward scenario at the time. I believe that a similar blend, and periodic reallocation, will be a blueprint for success in 2005-2006, the first half of Bush's second Presidential term, just as it was in the first half of the first Bush administration.

CURRENT ASSET ALLOCATION: My own personal funds are currently allocated as follows: stable value fund (retirement fund with stable principal paying variable interest, currently 4.75%), 35%; Nasdaq-equivalent and related shorts, including SMH, 35%; net long gold mining shares, 4.5%; gold and silver coins and related metals collectibles, 6%; other collectibles, 0.5%; cash and cash equivalents, 19%.

GREATER RISK IMPLIES A MORE SERIOUS RECESSION: It should be noted that GDP growth in the U.S., which was 7% a year ago, has declined an average of 1% per quarter. Assuming this trend continues, the U.S. economy will be in recession in slightly less than one year. Here are two reasons why the upcoming recession is likely to be far worse than the mild recession from 2000-2002: 1) In 2000, the only true bubble in the U.S. economy was in the Nasdaq, and those who were invested in the Nasdaq were at least on 50% margin. Currently, there are bubbles in the Nasdaq, in smallcap shares, in midcap shares, and more importantly, in real estate. So many Americans are invested in real estate, on such a huge mountain of borrowed money, that a decline of merely one third in real estate values (Japan real estate is down 60% since its peak in the early 1990s) is likely to have a far greater negative effect on the economy than the 79% drop in the Nasdaq had from 2000-2002. We therefore have a very dangerous "double bubble". 2) In addition to much more risk in real estate, many Americans have purchased real estate on as little as 5% margin. Total mortgage borrowing is four times what it was in 2000, while the ratio of price to household income is at an all-time record. This means that, given even a mild downturn in real estate, many Americans will have a total mortgage obligation which will exceed the value of their homes, encouraging defaults and exacerbating the likelihood of nationwide bank failures, particularly in the most overvalued coastal urban areas.

A LONG-TERM PERSPECTIVE ON GOLD-MINING SHARES: At this juncture, it would be useful to take a break from the typical short-term outlook and review the performance of gold mining shares over a period of several decades. After performing very strongly during the Great Depression and reasonably well through the 1940s, gold mining shares generally declined during the boom years of the 1950s and 1960s. In the early 1970s, gold mining shares once again outperformed, as a sudden rise in inflation and a worldwide recession stimulated interest in the yellow metal, which was sharply increased when the U.S. left the gold standard. The excitement died down somewhat after the stock market bottomed in late 1974, but revived even more strongly in the late 1970s, as a sudden burst of inflation caused sharply negative real interest rates. By the end of 1979, and of course in January 1980, even Joe Q. Public was talking about gold and silver and precious metals mining shares. Gold prices declined throughout most of the 1980s, but even as late as the summer of 1987, gold mining shares continued to outperform most equity indices. This changed abruptly during the sharp stock market correction of 1987, when gold mining shares suffered a collapse of more than 40% as a group. After this catastrophe, both inflation and commodities began a more serious long-term decline, while real interest rates began a long-term ascent. Gold mining shares mostly continued to plummet, with periodic bounces, for more than 13 years, until they reached a historic very deep bottom in November 2000. For the next 1-1/2 years, convincingly reversing this trend, gold mining shares more than quadrupled in value as a group. Since June 4, 2002, gold mining shares have gone through an extended consolidation period, lasting almost twice as long as the powerful rally which preceded it. As a group, these shares are generally higher than they were at their spring 2002 peak, but not by much; assuming that we have not yet seen the bottom, the total rise from June 4, 2002 through the upcoming nadir will be roughly as great in percentage terms as a decent stable-value fund, with of course considerably more volatility. However, this may be a positive development for gold mining shares, rather than a negative one. In the financial markets, often a lengthy consolidation helps to shake out momentum players and other speculators who are indifferent to the sector, and are only looking for whatever is going up fastest and being hyped the most. The behavior of gold and silver mining shares since late 2003, in particular, has surely discouraged most short-term speculators who have had to suffer significant losses in mining shares even as the prices of precious metals have generally risen. Given the tendency of gold mining shares to perform most strongly in anticipation of a recession, as we saw in the 2000-2002 surge, combined with the fact that real U.S. GDP growth has declined steadily by one percent per quarter for each of the past four quarters, another meaningful move to the upside in gold mining shares is probably the most likely outcome once the current rising-dollar shakeout is complete.

RING OUT THE OLD, RING IN THE NEW: Since everyone else is making their predictions for 2005, I see no reason to miss out on the fun. GOLD: I expect the low for 2005 to be $388 per ounce sometime in April, after two more quarter-point Fed rate hikes accompanied by steady or slightly slowing inflation makes the real rate of return on the best U.S. money market funds only slightly negative, or perhaps even slightly positive for the first time since 2001. As with almost each new congressional term, the U.S. dollar will likely rise for several months as optimism increases that the U.S. deficit will decrease in a bipartisan attempt to cut the account deficit, while a slowing economy and falling housing prices dampen the demand for imports, thus also improving the trade deficit. The massive army of stale long-side speculators is sitting with their sell stops precariously at and near $400, so even if gold bottoms at $382 or $393 per ounce instead of $388, the yellow metal will surely break below $400 to shake out this horde of uncommitted longs. The high for gold in 2005 will likely be near the end of the year, as the U.S. economy finally goes into recession; $510 per ounce looks like a reasonable level if worldwide real estate prices finally decline substantially (meaning at least 12%), or $480 per ounce if they do not (yet). Notice that the rate of U.S. GDP growth, according to official U.S. government data, was 7% a year ago, and has now declined an average of 1% per quarter for each of the past four quarters. Assuming this trend continues, the rate of U.S. economic growth will be negative 1% a year from now. SILVER: As with gold, the low will probably be in April 2005, with a price either slightly below or slightly above six dollars per ounce. The high for 2005 will be near the end of the year, with silver near $9.50 per ounce. Silver will remain more volatile than gold, and will probably be one of the best worldwide investments over the next 20 years, with silver's greatest percentage gains likely occurring in 2010-2020 after U.S. equities finally complete their deep bottom sometime within the next decade. HUI: The Amex goldbugs index of unhedged gold mining shares, which is currently down about one sixth from its highs of a year ago, is likely to fall by an additional 10% to 15% until it bottoms in March 2005 near 188. This prediction of HUI's 2005 bottom at 188 was derided by most readers when it was first published, but it was very closely approached on February 8, 2005, when HUI made a low of 190.45. This will likely turn out to have been the nadir for 2005; if not, the upcoming low will be only slightly below this level. One possible scenario is a double bottom: in March, gold makes a low of $394 as HUI reaches 188, and then in April, gold makes a lower nadir of $388, while HUI makes a higher low of 194, thus forming a classic positive divergence. As is usually the case, buy gold and silver mining shares early, and the metal itself later. Late in the year, HUI should break above its December 2003 high, and then gain an additional 10% to 15% above that level. GREENBACK: The U.S. dollar will likely rise against most world currencies for several months, reaching a late spring peak near 90 on the U.S. dollar index, and the euro falling simultaneously to almost exactly $1.20. By the end of the year, the U.S. dollar should be at an important low, with the euro at a corresponding new all-time high near $1.48. NASDAQ: In a virtual repeat of 2001, the stock market will move progressively lower. Expect the Nasdaq to first decline to 1750 in the spring, then after bouncing to 1900, to drop again to 1500 in the summer, and finally after another bounce by late summer, to make an autumn bottom near 1250, before ending the year very close to 1475. INTEREST RATES: The U.S. Treasury curve will continue to flatten, with short rates rising to approach but not quite reach 3%, with long rates falling in the first quarter, but later rising to end the year with the ten-year Treasury yield near 4.75%.

FIRST THE EXTREMES, THEN THE INEVITABLE REGRESSIONS TO THE MEAN: All three key measures of implied index options volatility, VIX, VXO, and VXN, are close to multi-year intraday lows. Equity put-call index readings are at their lowest sustained levels since the summer of 1987. Investor bullishness in some surveys is at its highest level since the 1980s. Insider selling has returned to its all-time record levels seen in 2000, with technology shares in some cases setting new all-time records. Semiconductor indices remain in an extended pattern of lower highs dating back to early 2000. It is likely that U.S. equities will continue their usual pattern of declining sharply in the first half of the second term of a Republican president.

LOOKING BACK, LOOKING FORWARD: After three consecutive very strong years in 2001, 2002, and 2003, gold funds at the end of 2003 had dominated the list of top-performing mutual funds over the previous three years. However, after their loss of one sixth of their value since early December 2003, gold funds have been overtaken by various specialty midcap, smallcap, and international funds in the list of top multi-year performers. This will likely lead to continued weakness in the first several months of 2005, as some investors habitually chase winners and sell assets which appear to be losing momentum. However, by the end of 2005, gold funds are likely to powerfully dominate the list of top-performing mutual funds over the previous five years. This is due to three factors: 1) their extremely depressed levels in late 2000; 2) their very strong gains since then; and 3) most other equity groups likely having substantial losses from late 2000 through late 2005. So early 2006 should see extended gains for gold mining shares, as some investors purchase the fund winners of 2005 while others buy the five-year winners, which will be mostly gold funds at the top in both categories.

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. This waterlogged theory, really more of a poor excuse than anything else, was trounced by the activity on Wednesday, January 12, 2005, when gold rose 1%, but gold mining shares fell 0.5%, as well as by a recent sharp surge in the spread between HUI and spot gold. Or maybe some gold investors don't realize that tax-loss selling doesn't work after December 31. Another theory, discussed on this web site in the last update, cites the existence of the exchange-traded funds GLD and IAU, each equal to one tenth of a troy ounce of gold bullion. 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 ETFs exactly follow 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. Notice that in the past 3-1/2 trading days, the HUI/spot spread has contracted sharply from 230.5 to 223.0.

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) Recently, 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.

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. With near-record complacency and a new greater extreme of investor bullishness in many surveys, 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.

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.

GOLD AND REALITY: Gold and gold mining shares often correlate 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 its shares, 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 mining shares 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 2.85% while the anticipated Federal funds rate is about 2.95%, yielding a real rate of return of positive 0.10%, its first positive level in almost two years. Since gold and silver strongly prefer a negative real interest rate to a positive one, this development should be profoundly negative for precious metals in the short term. 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%. This positive 4.5% rate of return five years ago is the primary reason why gold fell all the way to $252 per troy ounce, not because of some ridiculous manipulation theory.

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 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. The latest housing data shows the first year-over-year decline in U.S. new home prices in a long time. 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. It is still early in the year, but REITs are still the weakest-performing sector group so far in 2005.

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.

LONG-TERM GOLD OUTLOOK: Gold will continue to make a pattern of higher lows as its strong bull market from a nadir of $254.00 in 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; an important higher low was $371.25 spot in the morning of Monday, May 10, 2004. Expect the next higher low for the yellow metal to be seen this spring, very close to $400 per ounce. 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, central banks around the world are going to depreciate their currencies aggressively. This process of competitive devaluation will help gold to rise even without cooperation from a falling U.S. dollar. Meanwhile, historic gold coins and collectibles are still selling at unusually 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 1.85%, is between 7.5% and 10.5%. Great bull excesses are usually followed by equally severe recessions.

REMINISCENCE OF THE WEEK: When I was a kid, my grandpa Allan gave me a collection of Indian-head pennies. I almost never found those in change, but I soon began to collect the more modern Lincoln cents, as well as Jefferson nickels. When our family went to West Virginia for a week one summer, I noticed that it was much easier to pick up old coins in change than it was in Baltimore, so when I went to buy candy or other small items, I would make sure to buy an amount which was not a round number, so that I would get as many pennies and other small change as possible with each purchase. On rare occasions, even at a store near home, I would get a pre-1965 dime or quarter (and still do now and then), although that began to happen much less frequently after the late-1970s spike in silver, which alerted the general public to the rarity of these coins. Until about 1980, I had no trouble finding 1943 steel cents in change, which are a bright gray color, but nowadays one almost never sees them, even though one-cent coins from the 1930s, 1920s, and even earlier are more easily available, probably because they look to the average person just like "regular" pennies. Someday, because it costs more to make a cent than it is worth in currency, copper pennies will be taken out of circulation entirely, perhaps to be replaced with 2-1/2 cent pieces of some cheap metal, especially if inflation accelerates sharply at some point over the next decade or two. The rarest coin I ever got in change was at my high-school cafeteria in tenth grade; one of the pennies looked abnormally large. It was an 1868 two-cent piece, which I keep at the bottom of my sweater drawer for good luck.

REMINISCENCE OF THE WEEK: I enjoy eating Haas avocados, which are an especially tasty variety with a black craterlike skin. After I eat one, I take the hard central pit, which is inedible, and put it into whatever pot of dirt is most conveniently nearby. About 80% of these pits just sit there and slowly decompose, but the rest, after taking several weeks to germinate, can surge rapidly to a height of ten feet or more. My wife eventually got weary of seeing yet another avocado plant, so I began to take the pits to work to plant them next to the usual boring office greenery that one finds in any professional building. Nothing happened with the first few pits, but finally an avocado tree arose close to the staircase leading down to the next floor. It soon towered above all the other plants nearby, so more and more people began to notice it. I pointed it out to a few of my co-workers, one of whom started calling me "Farmer Steve". Then, one late evening--as I found out second hand the next day--someone from another department brought in a large pot of dirt, carefully dug up the tree, and transplanted it into their own pot, so they could bring it home. Imagine that, an avocado tree thief right in my own building. I'm still eating avocados and still planting them, so sooner or later, another creation will arise to take its place. Perhaps I'll have to hire an armed guard for the next one.

REMINISCENCE OF THE WEEK: In June 1982--about two months before U.S. equities completed a 16-1/2-year bear market--I graduated from college and got my first real full-time job with the computer programming division of a high-tech manufacturer. The company had a 401K program with several investment choices. I checked the Nasdaq-based fund as my preferred investment vehicle. The next day I got a call from human resources, telling me that since I had picked the riskiest option for my retirement money, I would have to get my manager's signature to approve it (imagine that happening today!). I went to my boss and told him that I needed his signature for my 401K plan, since I wanted to put my money in the Nasdaq. As usual, he was very helpful, and signed the paper without delay. After he handed it back to me, he inquired curiously, "so what's the Nasdaq?"

REMINISCENCE OF THE WEEK: Recently my wife and I visited Santo Domingo in the Dominican Republic. We went to a club which features traditional Cuban "son" music every night, and on a particular evening the band included several of the world's most famous Cuban musicians, among them a bass player 93 years old, and a marvelous trumpeter in his 80s. It was an amazing performance: the trumpeter walked through the audience for fifteen minutes during one extended set, giving each table the benefit of a personal rendition. During breaks, the club's MC took over as lead singer; unfortunately, the quality of his own performance did not match that of the guest band. True to the spirit of a modern Cuban club, the MC's girlfriend was fourteen years old, and had several of her young teenage pals with her. The MC decided to show off his knowledge by going from table to table and guessing where people were from. He obviously had some experience; at one table, he was not only able to surmise that the guests were Haitian, but also what part of Port-au-Prince they lived in. (Perhaps Haiti does not have too many wealthy neighborhoods.) However, the largest table of all, front and center, completely bedeviled the MC. He guessed over and over, saying that "he'd be back," then made some more wrong tries later on. Finally, he gave up, asking one of the folks yet again "are you sure you aren't from Toronto?" One of them responded, "We're from Dublin. We Irish get around a bit more these days."

REMINISCENCE OF THE WEEK: Last week, one of my co-workers left the company where I am employed as a computer programmer. Whenever this happens, the rest of us quickly descend like vultures on the departed person's desk, to see if there are any goodies worth taking. Sometimes one finds nothing but a few paper clips. Other times, one might find a decent book or a useful computer accessory. As I was going through this man's treasures, I found something I had never seen before in the desk of a fellow programmer: a tabla. For those who are not familiar with Indian music, a tabla is a conical drum carved out of a solid piece of hardwood. It is a real one, too; not some plastic or cheap imitation, and is accompanied by its proper holding stand. I do have some co-workers from India and Pakistan, but the person who left the company is of Italian descent. Naturally, I couldn't resist playing it, which garnered quite a bit of attention from everyone else, who wondered where I got the instrument. Then, a few days later, the person sitting next to me decided to go through the remaining items in this person's cubicle, and found--seriously--a second tabla(!), which he immediately began to play. Now we can perform duets. How someone happened to own--and discard--two of these Indian drums is an interesting mystery. I do have this person's forwarding e-mail, so I can perhaps satisfy my curiosity by finding out the rest of the story.

REMINISCENCE OF THE WEEK: In my freshman year in college I drove a very used Plymouth Fury, which looked almost like an ancient, faded blue monster compared with the small Japanese cars that had become popular after oil prices had surged. On one of the first warm days of spring, during the height of the evening weekday rush hour, I became impatient as I had to wait three times for a traffic light to change before finally being able to make a left onto the main road. I screeched my wheels and "burned rubber" as I turned the corner, so even though my speed did not approach the posted limit, a policeman looked dimly upon my driving manner, and flashed his lights as he approached from behind. Even if I had wanted to pull to the side of the road, there was no way to physically do so, as I was already in the rightmost lane. Meanwhile, the traffic cop was four or five cars behind me as all of us moved less than ten miles per hour on a very crowded Charles Street heading downtown. As I signaled for and made a right turn onto University Parkway, the policeman had a bright idea and took a shortcut through the driveway of the corner apartment building in order to catch up to me more quickly. At that point, the traffic became even more intense, so we were going only four or five miles per hour, and I noticed that an amazing event had occurred--the cop was actually four or five cars ahead of me, instead of behind me. Not eager to keep pace, I slowed down to maybe two or three miles per hour, and the cop noticed my maneuver, so he slowed down to match my snail's pace. After another minute, I was almost not moving at all, and he eventually stopped, so I did also. I thought that he would simply get out of his car and walk back on the sidewalk to give me a ticket--something he probably wished later that he had considered--but instead, we remained in a frozen stalemate for another few minutes. Finally, the policeman himself burned rubber and surged across to the opposite side using a short break in the median strip to head the opposite way in an attempt to catch me from the other direction. That was a hopeless idea, however, as the traffic was simply too heavy for even his flashing sirens to have any effect. It was a simple matter for me to keep driving slowly forward as, surrounded by dozens of cars, I was soon unreachable a few blocks away. I kept looking in my rear view mirror for the next several blocks, and still looked even after I had driven a few miles on the rapidly moving Jones Falls Expressway, just in case, but nothing ever happened. I guess the moral is that even the best shortcut has its pitfalls.

REMINISCENCE OF THE WEEK: In January 1987 I had an interview with a company that had offices in both Manhattan and Staten Island. I performed well at the Manhattan meeting, so all that remained to be hired was a brief visit to the Staten Island office. In order to get there, I had to take a subway to downtown Manhattan, board the Staten Island ferry, and finally connect to a bus for a half-hour ride, a total of nearly two hours. After all this traveling, and being a full hour early for the scheduled interview, I noticed some tall cattails growing on the side of the road that were just the right size and color to go nicely into a large basket at my girlfriend's place. Since the temperature was several degrees below freezing, I didn't notice while I was picking them that they have tiny but definitely prickly thorns. My hands began to bleed, but I was oblivious to this, and continued to the site of the interview. I found a place to unobtrusively hide the cattails, and foolishly without going into a bathroom, I headed toward the receptionist. She noticed my hands, which by now were turning a bright crimson, but she didn't say anything about them directly, merely asking me if I was feeling O.K. I responded that I never felt better. I was directed without further ado to the head of the department where I would be working, and that person and myself noticed simultaneously that I looked like Frankenstein after a particularly gory feast. I couldn't even figure out for a moment what had happened, until I realized what should have been obvious. After the interview, I had to carry the cattails onto the bus heading back to the ferry; if you have never tried to fit several pointy nine-foot objects onto a crowded public vehicle, it can be quite a challenge. On the ferry itself, the main difficulty was preventing a strong wind from carrying them into the water. An elderly woman noticed my unusual baggage and made an excellent sketch of my holding them, which cost me several bucks, but was definitely worth it. Then I had to get on a subway and avoid poking anyone's eyes out, and finally walked to my girlfriend's place. Epilogue: She hated the cattails, and I didn't get the job. (Post-epilogue: Two months later, my girlfriend dumped me, but let me keep the cattails. I think I was left with the better end of the bargain.) Moral: If you depart from the usual path, expect more thorns than praise.

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. Postscript: my great uncle died in January 2005, two weeks after reaching his 100th birthday.

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.