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SAYING OF THE WEEK: Rare opportunities occur rarely. --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. Using an excellent suggestion of Mr. Dmitry Bouzolin, I am labeling each paragraph with the date on which it was written, beginning with my last update.

GOLD MINING SHARES ARE LIKELY TO CONTINUE THEIR MODEST PULLBACK AS U.S. EQUITIES CONTINUE THEIR DECLINE (June 26, 2005): The U.S. equity market began a sharp break lower on Thursday, June 23, 2005, as many key indices, including the Nasdaq, attempted to break to new highs, then sold off sharply later in the day, continuing through Friday's trading. A plethora of negative divergences is likely to lead to a continued sharp pullback for the U.S. stock market between now and October 2005, with the Nasdaq likely bottoming near 1515 in about four months. Gold mining shares also dropped this week, although modestly, as the gold price itself briefly went above $443, thus having rebounded more than $30 from its recent low. As recommended in last week's update, it will be far more profitable to be short QQQQ, SMH, and similar technology indices, rather than being short gold mining shares, since the Nasdaq decline will likely be generally sustained for four months with only brief, intense rebounds, while gold mining shares will remain in their uptrend following their very bullish double bottom, with only brief pullbacks. HUI, the Amex Goldbugs Index of Unhedged Gold Mining Shares, appears to be completing its 2005 head-and-shoulders bottom, and is likely to make one final low near 191, as the right shoulder thus almost exactly matches the February 8, 2005 left shoulder of 190.45. Gold itself is likely to decline about $17 over the next few weeks to $423, its key resistance level from 1988-1996, as previous strong long-term resistance becomes new strong support. Silver has not confirmed gold's recent move higher, strongly suggesting that the price of spot gold (GLD) is probably set for a short-term pullback. If HUI is at 191 and gold is at $423, that would indicate an HUI/spot spread of 232, which seems just about right for this point in the cycle. If readers have not yet completed accumulating short U.S. equity positions--maybe you got caught in traffic--do so as soon as possible, while if readers are interested in purchasing additional gold mining shares, it is probably best to be patient and wait for HUI to drop below 195. In addition to buying gold and its related coins and collectibles at any price below $425 an ounce, silver should be purchased at any price under $7 an ounce.

THE U.S. DOLLAR IS PEAKING; U.S. EQUITIES HAVE BEGUN WHAT IS LIKELY TO BE A FOUR-MONTH COLLAPSE (June 26, 2005): The traders' commitments for gold have deteriorated predictably as gold rallied in recent weeks, while the commitments for most currencies remain very positive, including near-record bullish ratios for the Swiss franc and euro. The euro touched 1.1981 U.S. on Friday morning, June 24, 2005; if that is not its final nadir, the eventual low is likely to remain above its August 2004 bottom of 1.1950. (IMPORTANT NOTE: Last week's apparent net short commercial stance on the euro was a calculation error by the Chicago Mercantile Exchange. See www.cftc.gov, "Current COT Reports", under "Special Announcement".) The U.S. dollar index is at a new all-time near-record commercial net short position. However you wish to sell short the U.S. dollar, do so soon; one simple way is to purchase shares of the American Century International Bond Fund, symbol BEGBX, which has been rebounding modestly from recent lows. Meanwhile, bearish sentiment toward U.S. equities is near its lowest level in nearly 20 years, as measured by many surveys, put-call ratios, and TRIN ratios. The average investor in U.S. equities is less worried about a stock market decline than at any time since before the sharp 1987 correction, including the late 1990s and early 2000. VXN and VXO, measures of implied index volatility, hit new multi-year lows this past week, while VIX came within three cents of its own 15-year nadir. This means that even institutional investors are no longer interested in purchasing portfolio insurance, because they foolishly believe that any pullbacks in the U.S. stock market will be brief and of no significant intensity. Implied index volatilities this consistently low have not been experienced since just before the U.S. recession which began in 1990. If you still hold general or technology U.S. equity mutual funds and have not yet sold them, do so as soon as possible.

A COMMENT ON REAL ESTATE, HAVES VERSUS HAVE-NOTS (June 26, 2005): It should be remembered that as recently as early 2000, the general opinion about U.S. equities was that there were two groups of people: the "haves", who owned U.S. equities and had profited from their enormous runup in the late 1990s, and the "have nots", who had no money in technology and similar shares. As it turned out just a couple of years later, there were indeed the "haves" and "have nots", but the "haves" were those who had either purchased U.S. equities before 1995, or had not purchased equities at all (!), whereas the "have nots" were those who had purchased equities close to the peak, and had therefore lost half or more of their money after the 2000-2002 collapse. The same is going to be true with real estate. The media is currently portraying the "haves" as anyone who owns real estate (many so-called owners have only title and zero equity, but that's a story for another day), and the "have nots" as those who have remained renters. But, a decade or less from now, the "haves" will be clearly seen as those who either purchased real estate before 2000, or who never purchased real estate, whereas the "have nots" will be the huge army of unfortunates who purchased real estate between 2000 and 2006, especially those who bought in 2005, and who thereafter lost half or more of their huge, foolish "investment".

THE LONG-TERM OUTLOOK FOR GOLD MINING SHARES REMAINS VERY FAVORABLE, BUT A SHORT-TERM PULLBACK HAS BECOME INCREASINGLY LIKELY (June 19, 2005): Perusing my favorite gold chat and advice sites, it appears that the gold share bulls have suddenly taken over just in the past few days, with the first talk about an "upside breakout" in several months. Combined with the fact that many gold mining shares made their highs of the day at the open on Friday, and with HUI just below a minor resistance level, this supports the likelihood that gold mining shares will be relatively weak in the short run, perhaps returning close to their 38.2% Fibonacci retracement level of 189.73. Gold itself has become overbought in the short run, and since $423 was key resistance for gold in many years including 1989, 1990, 1991, 1993, 1994, and 1996, it is probable that there will be a final retest of $423, which is now key support, before gold moves toward and above $500 next year. With the Nasdaq set for a sharp decline, weakness in equities in general is likely to carry over into gold mining shares, as the two usually correlate with each other in the short run. Instead of selling gold or gold mining shares, however, it is recommended that readers add to their short positions in Nasdaq- and semiconductor-related indices such as QQQQ and SMH. In typical equity bear markets, such as we had in 2001-2002, or 1973-1974, and which we are likely to have in 2005-2006, gold mining shares and equities will move together in the short run, but when gold mining shares are rising sharply, the Nasdaq will rise only modestly (as in late May and early June of this year); when the Nasdaq is falling sharply, gold mining shares will decline only modestly (as we are likely about to experience). Therefore, investors who have a roughly equal percentage of their assets allocated to being long gold mining shares and short the Nasdaq will enjoy overall net gains for the vast majority of trading days. Very conservative investors might want to have 80% of their assets in stable value funds and similar safe investments, 10% long gold mining shares, and 10% short the Nasdaq; more aggressive investors might want to have about one third in each (as I do), while the most aggressive investors might keep only 20% in stable value funds, 40% long gold shares, and 40% short the Nasdaq. If any readers of this web site have still not completed their gold share buying--perhaps you were on an aboriginal deserted island without internet access in May--wait for HUI to retreat below 195 before making additional gold mining share and fund purchases.

THE NASDAQ IS SET FOR A DECLINE OF HISTORIC PROPORTIONS (June 19, 2005): If you have not already been heavily selling short Nasdaq-related indices, now is the time to do so. VIX and VXO made new 15-year lows on Friday, June 17, 2005, while VXN had an intraday low only 20 cents above its all-time nadir. Equity put-call ratios are just above two-decade lows, while most investor surveys including Investors' Intelligence and AAII show nearly the lowest percentage of bearish respondents in two decades. These indicators are simultaneously confirming that even if investors have sometimes been more bullish on U.S. equities, they have rarely if ever been less afraid of a significant drop in the market. Even the bears in this week's Barron's Roundtable are afraid to predict a drop in the short run (and while you're reading Barron's, do peek at page M8, lower left corner, when you get a chance). When no one is prepared for a sharp decline, that is when it is most likely to occur. The Nasdaq is continuing repeatedly to fail to regain its March 7 high of 2100.57; often a major pullback is preceded by a repeated failure to surpass a key level, especially one which is a round number. Expect the Nasdaq to retreat rapidly to 1900, and then to fall thereafter to 1515, just below its 61.8% Fibonacci retracement level, by October 2005.

THE U.S. DOLLAR IS COMPLETING A MAJOR TOPPING PATTERN (June 19, 2005): The U.S. dollar has had a strong counter-rally in 2005, but it is now completing an important top. The greenback might move marginally higher in the very short run, especially after Friday's sharp losses, but will find upward progress increasingly difficult. For many currencies, it is likely that the nadir has already been seen; for those which are about to experience new lows, they are likely to be only marginally below their recent bottoms. For most currencies, this means that the key support levels of August 2004 are once again serving as support in June 2005, thus completing a double bottom, one of the most bullish chart patterns that exist. The traders' commitments for some currencies are at all-time extremes, either in commercial net long positions, or commercial long/short ratios, while the U.S. dollar index shows an all-time record commercial net short position. Expect the U.S. dollar to hit new multi-year lows against most currencies in 2006. Either sell short the U.S. dollar index directly, or else purchase BEGBX, the American Century International Bond fund, which invests in government bonds of stable countries outside the U.S., and does not do any currency hedging.

WHAT ABOUT TRADING GOLD MINING SHARES, RATHER THAN BUYING AND HOLDING THEM? (June 19, 2005): Many readers often ask if they should try to trade gold mining shares on a short-term basis, rather than simply accumulating them and then holding them until HUI is above 300 in 2006. Usually, unless there is a very compelling reason for selling them, it is better to hold onto these shares, for all of the following reasons: 1) if shares or funds are held by U.S. investors outside of a retirement account for more than one year, the long-term Federal capital gains tax is only 15%, versus a short-term tax rate which is equal to the tax on ordinary income, which varies, but is typically between 25% and 35% for most investors; 2) if gold mining shares are set for a pullback, then QQQQ is probably ready to drop much more in percentage terms, so one should simply sell short QQQQ instead whenever a decline is anticipated (see two paragraphs above); and 3) during the time when you are out of the market, even for just a few days, it may experience its sharpest gains. (June 26, 2005) The past week's market action underlines the importance of this advice. Another way of looking at this situation is that HUI is likely to slightly more than double from its May 16, 2005 nadir to its peak in June-September 2006. Given a 15% tax, this would mean that the net gain after federal taxes will be perhaps 90% in 15 months. In order to make the same gain from short-term trading, assuming a tax rate of 33%, you would have to make 135% in 15 months, not to mention that the commissions of much more frequent trading would likely require an actual gain closer to 140% to surpass the buy-and-hold strategy. Those investors who are confident of making 140% in 15 months can feel free to blissfully ignore the advice in the above paragraph, and when you get a chance, please e-mail me your trading secrets!

KEEP ON BUYING GOLD MINING SHARES INTO ALL PULLBACKS (June 15, 2005): HUI, the Amex Index of Unhedged Gold Mining Shares, continued its very bullish pattern of higher lows by making a new higher low of 181.67 on Thursday, June 9, 2005, just above its May 31 low of 181.29. Another higher low for HUI is likely later in June, possibly near 187. Use all dips in your favorite gold mining shares and gold funds and gold itself as buying opportunities. With silver, very poor traders' commitments suggest that one more sharp pullback is likely, so be more patient. The traders' commitments remain excellent for gold, with only light commercial selling into the recent modest price increase. The euro continues to decline versus the U.S. dollar, while the U.S. dollar index saw a new all-time record commercial short position on the New York Board of Trade, thus providing an excellent opportunity to sell short the greenback. Either short the U.S. dollar index directly, or else purchase shares of a fund which correlates inversely with the U.S. dollar; my personal favorite, described in my last update, is the American Century International Bond Fund, or BEGBX, which currently stands at its lowest level in several months. I am receiving no compensation from American Century for this or any other recommendation (nor do they probably have any idea that I even exist).

FOR THOSE WHO KEEP ASKING FOR "PROOF" THAT THE NASDAQ WILL DECLINE, HERE IT IS IN THE STYLE PAGES (June 15, 2005): As pointed out several times on this web site, the Nasdaq has an amazingly bearish chart pattern for 2005, consisting of eight lower highs. The March 7 peak of 2100.57 was recently closely approached, but could not be broken, while semiconductor shares (see SOX, the Philadelphia Semiconductor Index) have recently and very quietly broken to the downside, even in the face of a stream of positive earnings news and brokerage upgrades, after a classic topping pattern at yet another lower high for semiconductor shares, which as a sector group had peaked way back (June 19, 2005) on January 12-13, 2004. Semiconductor shares traditionally lead the Nasdaq both higher and lower. Here is the single best reason to be short technology shares: women's fashions (seriously). Women's hemlines are historically one of the most reliable predictors of the equity market over the subsequent one- to two-year period. In yesterday's (Tuesday, June 14, 2005) New York Times "Metro" section, page 1, is a photo at the bottom of the page, accompanied by this caption: "Heat Rises, but Hemlines Are Another Story: Skirts often get shorter as temperatures climb in New York. Not this season. Page B2." Moving to Page B2 is an even bigger photo, taken in Times Square, with this headline: "Billowing Frills (Ahh). Hidden Legs (Bah).", and this caption: "Penny Rae, 31, from England, in Times Square. Long skirts are again fashionable this spring." From this (the fact that the photographed person is not from the U.S.) we learn that the upcoming equity decline will not only affect the Nasdaq, but will likely occur worldwide. Here is the beginning of the accompanying article, with my personal comments in braces: "This is the moment to expect a lot of skin. Conventional fashion wisdom [about as meaningful as conventional market analysis] says that as temperatures rise, so do hemlines. So one might wonder what has gone amiss on a stroll through Times Square in the heat of late spring. [In other words, why are semiconductor shares moving lower with such positive news and brokerage upgrades?] Those long flowing skirts were everywhere, hiding knees below billowing fabric, sometimes keeping every inch of leg out of sight. [From my personal research into this issue, the last time that women's fashions turned so sharply conservative was in 1973, just before the Nasdaq plunged more than 60%.] Susan Alunan, a fashionable 46-year-old woman, might have been speaking for the masses when she professed her feelings about these suddenly trendy [notice the words "suddenly" and "trendy"; just as with the financial markets, the bell doesn't ring at the top, and as the bear market becomes "trendy", selling short could also become a fad] peasant skirts . . . . Predictably, there were other gentlemen not so pleased with the sudden bout of modesty. "What bloke doesn't like short skirts?" [i.e., my broker told me the market would keep going up] asked Lee Byford, 33, a tourist from Sussex, England. Meanwhile, his girlfriend, Penny Rae, 31, held down her dusty-brown skirt as it flapped in the breeze."

CONTINUE TO CAREFULLY PURCHASE GOLD MINING SHARES INTO DECLINES (June 5, 2005): Gold mining shares are in the late stages of the bottoming pattern of 2005, in preparation for a doubling from their recent lows through the spring or summer of 2006. As is typical of late bottoming action, fewer if any new lows will be set over the next several weeks, while minor support levels from the left shoulders in April and early May are likely to be seen more frequently as right shoulder support levels in June. Looking at HUI, the Amex Index of Unhedged Gold Mining Shares, this index had a left shoulder just above 180, a second left shoulder just above 175, a head at 165.71 on May 16, 2005, and then a right shoulder just above 181. If the right shoulder behaves similarly to the left, HUI should make a higher low than 181 over the next few weeks. This will be the last very good buying opportunity for these shares in 2005. (June 15, 2005) New readers should be warned that my predictions are not always going to be this accurate. Seasonality remains unfavorable for precious metals, but most other factors have turned from unfavorable to favorable just in the past month, and therefore will provide substantial support. The traders' commitments for gold and for most currencies have continued to show a marked improvement in recent weeks, and in some cases are especially noteworthy. The most recent commitments data for the U.S. dollar index showed commercials long 4,933, short 22,426, an all-time record short position by commercials for this (New York Board of Trade) futures contract. Gold's own traders' commitments showed commercials net short just below 53 thousand contracts when gold was at $417 per ounce on May 31, indicating that the net neutral price for gold is now probably at $411 per ounce. Gold touched $412.75 in the early morning of Tuesday, May 31, 2005, and $413.75 in the early morning of Wednesday, June 1, 2005. Gold's previous low of 2005 was $410.75 in the early morning of February 8, so this may be indicating a pattern of higher lows. If gold has a pullback over the next few weeks, it is possible that $410 may be broken to the downside by a few dollars, but it is more likely that the upcoming low will be slightly higher, such as $414.40. It was predicted on this web site that the euro would bottom at 1.2150 U.S.; an hour after the Dutch "no" vote this past Wednesday (June 1) on the EU constitution, the euro touched a low of 1.2157.

HAVE WE SEEN "THE" BOTTOMS? (June 5, 2005): The usual historic pattern is that gold mining shares bottom first, then gold itself bottoms, then the U.S. dollar completes a top. It is virtually certain that HUI made its 2005 nadir at 165.71 on May 16, 2005. With gold itself, it is more difficult to say, but there is about a 75% chance that it made its low on February 8 at $410.75, and a 25% chance that it will make a lower low near $406 later in June. As for the euro, there is probably a 25% chance that it bottomed at 1.2157 on Wednesday, and a 75% chance that it will make a slightly lower low over the next several weeks. (June 15, 2005) As predicted, the euro did make a slightly lower low. Those who have been faithfully following the advice on this web site, and have been accumulating gold mining shares but not gold itself, should now shift toward buying both the shares and the metal into all dips (below 190 for HUI, below $420 for gold). In addition, one should purchase any gold coins and gold collectibles which have little or no premium to their melt value for the remainder of June, or until a sharp rally higher makes them no longer a compelling bargain. Those who are interested in accumulating currencies or short U.S. dollar positions should also begin to steadily purchase them now, as any remaining upside in the greenback is very limited. For those who [thanks, Chris and Chad] want to short the U.S. dollar directly, but who do not have access to the foreign currency markets, or who prefer to purchase U.S. mutual funds rather than anything else (as I often do), should consider steadily buying shares of the American Century International Bond Fund, symbol BEGBX. (June 15, 2005) Continue to purchase BEGBX each day. This fund, which has been in operation for more than 13 years, purchases government bonds of stable countries outside the U.S., and is intentionally unhedged against currency fluctuations. The idea is to attain primary appreciation from a decline in the U.S. dollar versus the currencies of the bonds held, and the remaining profit from the interest paid on these government bonds. The annualized management fee is 0.83%. Vanguard has no such fund; Fidelity has one which has an attractive-sounding name, but which actually is more of a junk and emerging-markets play, rather than a currency play, and which therefore I do not recommend. Other fund companies with these kinds of funds have fees that are too high.

THE RECENT NASDAQ FAILURE WILL LEAD TO A NASDAQ COLLAPSE TO 1900 (June 5, 2005): As predicted last Monday, the Nasdaq closely approached, but could not surpass, its March 7 high of 2100.57, which had been the fifth lower high in the Nasdaq in 2005. This week's high was on Thursday, June 2, 2005, at 2097.80, and is therefore likely to be established as the sixth lower high for the Nasdaq in the past five months. A pattern of several successive lower highs from a major zenith (2191.60 on January 3, 2005) is almost always bearish, and therefore an acceleration of selling of technology shares is likely over the next several weeks. I expect that we will see the Nasdaq at 1900 within a short period of time, en route to its likely October nadir of 1515, representing support just below its major Fibonacci (61.8%) retracement of its entire gain from October 10, 2002 through January 3, 2005. If you have not already sold short technology and semiconductor indices, it is growing late in the topping process, but is still a good trade as long as QQQQ is above 38.

PATIENTLY AND SELECTIVELY PURCHASE GOLD MINING SHARES ON ALL PULLBACKS (May 30, 2005): Now that HUI has increased by 12-2/3% since its nadir of 165.71 on May 16--just two weeks ago--the ideal bargain-basement buying opportunities in gold mining shares have come and gone. As usual, it is best to act when almost everyone is telling you why you should not do so. Nevertheless, as long as HUI is below 190, it is a relatively good time to add to long positions, since it will soon become clear that the recent Fed rate hikes, combined with other negative economic factors that are usually seen in the first half of any U.S. Presidential term, are going to cause the U.S. economy, and most other world economies, to go into recession in early 2006. The anticipation of a worldwide recession, and its accompanying economic deterioration, is almost always positive historically for precious metals and their shares, even as it is usually negative for most other equity groups. This was most clearly seen in the period from November 2001 through early June 2002, as the previous Bush recession appeared and intensified, and gold mining shares had one of their sharpest half-year rallies in history. This time, the percentage gain will likely be less, while the duration will be somewhat greater, but it is still reasonable to assume that from its May 16 nadir, HUI will more than double by the time it reaches its next important peak in the spring or summer of 2006. It is interesting to note that, even as HUI has risen by 21 points in the past two weeks, the price of gold itself has dropped by one dollar, so the entire gain in gold mining shares has been a result of the sharp contraction of the HUI/GLD spread. This pattern is likely to continue for the next several weeks, especially since seasonal and trend factors are not likely to turn positive for gold and silver bullion until late June or early July. Those who read too many fools' gold web sites and were afraid to buy gold mining shares at the recent lows, or who did so only tentatively and still have substantial funds sitting in cash, should be disciplined and set a ladder of limit orders, as there will be occasional sharp pullbacks over the next several weeks, while the unfavorable seasonality makes it unlikely that there will be a runaway gold rally in the near future (although occasional sharp up days are likely). Here is one strategy for those who have not yet finished their buying: as often occurs during a recovery from an important low, there is likely to be a period when gold mining shares decline for three consecutive days. When that happens, purchase some gold mining shares early in the morning on the third down day. (June 15, 2005) Give yourself full credit if you bought on Wednesday or Thursday of last week, June 8 or June 9.

THE COMMITMENTS HAVE MADE AN INCREDIBLE IMPROVEMENT (May 30, 2005): The traders' commitments for those assets which correlate most closely with the price of gold have shown an incredible improvement just in the past month. Gold itself has seen commercials cover their net short position at a rate of about twelve thousand contracts per each one-dollar drop in the gold price, a rate not seen since the first half of 2003. COMEX gold commercials are currently net short just under 60.5 thousand contracts. Even if they temper their enthusiasm and only cover at half that rate from now on, which would be six thousand contracts per one-dollar drop, that would make commercials net neutral at $408 per ounce, the first time since the late 1980s that commercials were net neutral above $400 an ounce. Although this is fundamentally (but not technically) very bullish for gold and gold mining shares, many gold analysts--the same ones who were bullish when gold was above $440--have recently lowered their gold price targets. I am therefore going to be a true contrarian and raise my own price target: instead of a nadir of $396 for 2005, I am raising this by $10 to $406. Assuming that the HUI/GLD spread will contract to 218 if gold reaches $406, that would put HUI at 188, less than one percent above its current level. Thus, even if gold mining shares are volatile in the coming month, they are likely to see little overall net change until after gold has rebounded from its eventual low.

THE GREENBACK CONTINUES TO RISE, BUT IS SLOWLY APPROACHING THE END OF ITS UPTREND (May 30, 2005): Those who are regular readers of my web site know that I have been bullish on the U.S. dollar for several months, and since late December 2004, the U.S. dollar index has responded with a substantial counter-rally. The euro has meanwhile fallen from 1.366 in December to 1.240 early this morning immediately after the French "no" vote; the euro has since rebounded slightly later in the day. In recent weeks, as with gold itself, there has been a dramatic improvement in the traders' commitments for those currencies which correlate most closely with the gold price, especially the Swiss franc and the euro. The Swiss franc has seen a steady heavy accumulation since April, with commercials currently long 59,616, short 7,279. For the euro: long 92,321, short 68,523. This is a less favorable ratio for the euro than for the Swiss franc, but marks one of its greatest net long commercial positions since the young currency was introduced. Similarly, the U.S. dollar index shows commercials long 4,844, short 21,231, an unusually lopsided anti-dollar stance by those such as corporate treasurers who are most knowledgeable about likely future movements in the greenback. The British pound has a modest net long position, while the Australian dollar shows commercials still net short, though less so than previously. In spite of these deteriorating fundamentals for the U.S. dollar, the rally in the greenback is likely to continue in the short run, as those who sold short the U.S. dollar as part of the nearly unanimous anti-greenback consensus in late 2004, or "because Warren Buffett is doing it and he knows what he is doing", and who have not yet covered or been stopped out, will likely use the French vote and any other anti-EU votes or public anti-EU pronouncements by politicians as an excuse to cover their short positions, thus putting additional upward pressure on the U.S. dollar, and likely leading to a euro bottom near $1.215 U.S. (June 5, 2005) Followup: One hour after the Netherlands voted "no" to the EU constitution, the euro touched 1.2157, its lowest point since September 2004. Although there has been speculation in the financial media that Buffett has been covering his U.S. dollar short position, exactly the opposite is true: his brokers and/or other "interested parties" are spreading these rumors to enable him to add heavily to his short position, which he is likely to eventually double or triple as the U.S. dollar continues to rally. Remember when Buffett bought silver at $4.60 and $4.70 and then announced it; when the silver price thereafter declined, the financial media had persistent rumors about how he was unloading when the price was at $4.20 and $4.10. Instead, he was busy tripling his long position during that pullback. Silver is now close to $7 an ounce. The same is true this time. (June 5, 2005) Look for this headline in July 2005: "Warren Buffett announced earlier today that in June 2005 he more than doubled his short position in the U.S. dollar." The U.S. dollar's current upward move is its last hurrah. When it ends, almost certainly in the summer of 2005, it will be followed by a dollar collapse to all-time lows against most currencies over the following year.

SELL SHORT THE NASDAQ AND SEMICONDUCTOR SHARES (May 30, 2005): Now is an ideal time to sell short ETFs such as QQQQ and SMH. The important volatility indices VXO and VXN recently hit new multi-year lows, indicating record complacency by U.S. equity market participants, even as rising short-term interest rates are squeezing corporate profits. The elimination of the spread between long-term and short-term rates will cause the financial divisions of many multinational U.S. corporations to experience substantially reduced profits, thus forcing the current rosy growth outlook to be sharply curtailed in the near future. The first half of any U.S. Presidential term is also historically weak, while the pattern of lower highs in the Nasdaq for 2005 is likely to continue as the Nasdaq soon fails to regain its previous high of March 7 of 2100.57. (June 5, 2005) A bold call, but so far accurate: the past week's intraday high in the Nasdaq was on Thursday, June 2 at 2097.80, less than 3 points below its March 7 high. (June 19, 2005) The Nasdaq has once again failed to regain its March 7 high. Once institutional investors and hedge fund managers realize as a group that the Nasdaq will not break its pattern of lower highs in 2005, a sharp decline will ensue. This sudden drop is just around the corner. An ideal blend would be to have just over one quarter of one's total assets in gold mining shares, and another quarter short the Nasdaq (see my own portfolio a few paragraphs down), with enough cash or other "safe" funds remaining in case these positions become more exaggerated before they move in their inevitable directions: higher for gold mining shares, lower for the Nasdaq.

CONTINUE TO ADD TO LONG POSITIONS IN GOLD MINING SHARES ON DIPS (May 23, 2005): It is likely that the final 2005 low for HUI, the Amex index of unhedged gold mining shares, was seen on Monday, May 16, 2005, when it touched an intraday nadir of 165.71, its most depressed level since it made its 2004 bottom of 163.81 on May 10, 2004. On May 16, I received a record number of bearish e-mails on gold mining shares, including one person who sent me three on the same day after the close. There remains a small chance that HUI will make a very slightly lower low close to 165, but for that to happen, gold will have to rapidly decline, since the HUI/spot spread has been zooming lower in recent days after having been 257 a few weeks ago and 254 as recently as one week ago, while it is now down to 239. Thus, as the gold price has fallen five dollars in the past week, HUI has risen 10 points. This spread is likely to contract to around 216 within a month or so as gold continues to move lower, while gold mining shares continue to move higher. Almost all of the developments in this equity sector have been positive; in addition to the rapidly contracting spread, which will continue to put upward pressure on gold mining shares even as the gold price declines, the traders' commitments for gold have been improving at their most rapid pace since the first half of 2003. It is likely that the spot price for gold at which commercials are net neutral (neither net short nor net long) is above $400 an ounce for the first time since 1988. Thus, gold may not even reach $400 an ounce. If it does, and it is probably still a greater than 50/50 chance that it will go below $400 an ounce in June, it will likely be only slightly below $400, and for a very brief period of time, such as a rapid dip to $396 to clear out the stale speculator longs, followed by a complete recovery above $400 within a few days. The traders' commitments for currencies have also been improving considerably, with very bullish postures seen in the Swiss franc, the Canadian dollar, and the euro, with a great improvement in the British pound, the Australian dollar, and the most bearish position in the U.S. dollar index since the summer of 2004. This does not mean that the U.S. dollar has completed its rally, but it does mean that any continued gains will be met by heavy commercial accumulation of currencies, and that the euro is currently only about four or five cents away from its final low of 2005, as the euro bottoms near $1.2150, probably this summer. As Warren Buffett has been adding heavily to his short dollar positions--don't believe those ridiculous rumors that he has closed any of it out--his groupies have been covering their short positions in a panic. If there are "no" votes from any of the European union countries toward ratifying a common constitution, this may provide a convenient excuse for a final push higher in the greenback. If so, and if gold and silver react negatively, it would mark an ideal time to either buy currencies or else gold and silver bullion itself. Gold mining shares traditionally bottom about two to three months before a peak in the greenback, so a dollar high in July or August would coincide nicely with the probable HUI low that was seen on May 16. If this analysis proves to be correct, it will imply that HUI completed a double bottom of 163.81 in 2004 and 165.71 (or a slightly lower level) in 2005. A double bottom is classically the most bullish chart pattern known to exist, and will likely lead to HUI reaching approximately 340, or more than twice its recent low, in 2006.

OBSERVE THE LEMMINGS, HOW THEY LOVE TO SELL LOW AND BUY HIGH (May 23, 2005): As mentioned last week, there are thousands, perhaps tens of thousands, of investors who sold their gold mining shares earlier this month with HUI near 170 or so, confident that they would be able to repurchase them near 155, or 150, or even lower, and encouraged in this action by a whole army of phony analysts on certain web sites (you know who you are). These people would rather be pummeled into unconsciousness by all of the members of the Sopranos' extended mafia family than to miss out on a gold mining share rally. Therefore, once they realize that HUI is not going to reach 155, or even 165, they are going to watch with increasing nervousness as it moves to 180, then 190. Finally, they won't be able to stand it any more, and will be buying heavily when HUI reaches 200, (June 19, 2005) as we saw on Friday morning, June 17, when HUI touched 204.52, or 220, or 240 . . . . The greatest fuel for the buying power in 2005 will be goldbugs who are killing themselves since they sold at 170. The greatest fuel for the buying power in 2006 will be the public who begin to buy gold mining shares once the media trumpets the "incredible" news that gold has reached $500 an ounce for the first time in almost two decades.

ADD AGGRESSIVELY TO POSITIONS IN GOLD MINING SHARES (May 15, 2005): HUI is now only a few percent above its lowest point of 2004, which was 163.81. Even those who are supposedly bullish on gold mining shares in the long run are afraid to buy them now. This means that there is a huge amount of cash held by goldbugs--who hate more than anything in the world to miss out on any rally in these shares--that will come pouring into them as soon as they make their next sharp upward move. On a week when gold rose 20 cents in the active June contract from Tuesday, May 3 to Tuesday, May 10, commercials covered 29 thousand contracts of their net short position, indicating that commercials are eager to eliminate the heavy short positions that they have held for months. This is an extremely unusual and bullish stance for commercials, who generally buy only into dips, and indicates that those most familiar with the gold market want to position themselves for a significant move higher that is likely to begin in June. It also means that even if gold goes below $400 an ounce, which is probably still more likely than not, it has very little chance of going below $390 an ounce. If gold bottoms at $396, and the HUI/spot spread contracts to 228, that would put HUI at 168, thus matching its current level. Gold mining shares usually bottom a few weeks before the metal itself, indicating that the bottoming process is already underway. Even if the absolute nadir for some of the gold share indices is not reached until May 25 or thereabouts, a moderate number of gold mining shares have likely already made their final bottom, and others are about to make their final lows which might hold for two or three years, if not longer. In 2006, HUI is very likely to go above 300, so worrying about whether the final bottom for HUI is at 168 or 164, or even 157, is going to appear to be a very petty argument several months from now. When I recommended selling gold mining shares as HUI went above 235, many pointed out that I was "wrong", since HUI went above 245, in fact touched 251. Well, perhaps, but I think those that sold HUI at 235 are pretty happy now, and those who are buying HUI when it is below 170 are getting a rare opportunity, no matter what happens in the short run. (June 19, 2005) Rare opportunities only come along rarely, as Yogi Berra might have said, but didn't; I said it. Not since March 2003, when I recommended buying gold mining shares "with both hands and both feet," did I receive so much e-mail in just one week telling me that I had no idea what I was talking about. Usually my predictions are most correct when the greatest number of people believe them to be the most idiotic.

IN OTHER NEWS (May 15, 2005): The U.S. dollar remains in its uptrend, and is now 4 to 5 cents from its final peak. As a rule, gold mining shares usually bottom about two to three months before the dollar makes a final high. The Nasdaq appears to be completing its peak, but be sure that SMH makes a pattern of several consecutive lower highs before adding to short Nasdaq positions, as semiconductor shares usually lead the broader technology indices lower. The commitments for many currencies, especially the Swiss franc, the euro, and the Canadian dollar, are turning noticeably more bullish, also pointing toward the fact that the greenback rally is in its late stages. Don't jump off the dollar bandwagon just yet, but be sure to have an exit strategy just as the hordes are starting to climb onboard. (June 19, 2005) If you have not already covered your U.S. dollar long positions, plan to do so over the next few weeks, while the profits are still juicy for the taking. (June 26, 2005) The clock is ticking. The high is probably already in for the greenback, or nearly so. Waste no time in covering all long-dollar positions.

GOLD MINING SHARES REMAIN ATTRACTIVE; CONTINUE TO PURCHASE THEM INTO DIPS (May 8, 2005): Obviously gold mining shares are not quite as good a bargain as when I did my last update, but should continue to be purchased into all pullbacks, especially early in the day, and whenever HUI is below 180. Gold mining shares are much more frequently making lows in the early morning, and then recovering as the day progresses, as is typical of the final stages of an intermediate-term correction. If the recent HUI low of 175.32 on Thursday, April 28, 2005 was not "the" bottom of 2005, the upcoming nadir (probably in May or June) will be only slightly lower than that point. After having reached an all-time high of 257 on Friday, April 29, 2005, the spread between HUI and spot gold, which can be defined as GLD times 10 minus HUI, contracted sharply in the past week to less than 241, marking a sharp weekly contraction of 6%. This spread, which historically averages 200, is likely to continue to contract substantially over the next several weeks. A sharply contracting spread is historically the precursor toward a major rally in both gold and gold mining shares, although such a move higher in gold itself is not likely to begin until its current correction has run its course. The traders' commitments improved significantly over the past week, indicating that gold is unlikely to go below $388 per ounce, although a move below $400 is still more likely than not, probably in June. Keep in mind that even if gold bottoms at, say, $396 per ounce, an HUI/spot spread of 210 would imply a corresponding low for HUI at 186, which is slightly above its current level. Thus, a falling gold price is not a significant threat to lower gold mining share prices, unless gold goes substantially below $390 per ounce, which the traders' commitments indicate is very unlikely. After going slightly below $400 an ounce within the next few months, gold is likely to move above $500 an ounce in 2006, with HUI moving above 300. If you are interested in physical gold or silver, be patient and wait until the U.S. dollar has finished its current rally. The greenback remains technically powerful, as it continues to recover convincingly from all setbacks. In addition, until it becomes apparent that the recent Fed rate hikes will cause another recession, the current perception is that U.S. real interest rates are positive and likely to become even more positive in the near future. A rising positive real interest rate increases interest in U.S. dollar-denominated time deposits, thus decreasing interest in non-interest-bearing hard assets such as gold and many other commodities. Many market funds and bank CDs are paying their highest returns in more than two years. Meanwhile, U.S. equities, which have been modestly rebounding in recent weeks, are likely approaching yet another lower high for 2005, which will provide an excellent opportunity to add to short Nasdaq positions. One more sharp up day may occur before such a peak is reached.

CONTINUE TO CONSISTENTLY AND VERY AGGRESSIVELY PURCHASE GOLD MINING SHARES (May 2, 2005): Reading a number of well-known gold chat sites, such as http://kitco.com and http://321gold.com, it strikes me that there are an unusually high number of so-called "analysts" who are proclaiming that gold mining shares are a great long-term investment, but don't buy them yet, since they're going lower in the short run. These "analysts" (let's call them bozos, for clarity and accuracy) are primarily folks whom I call technical geeks, since they know or care nothing about historical trends, or about what is happening in the world economy. Their prose style is usually barely coherent, and populated with enough useless data to sink the Titanic without the aid of an iceberg. They blindly follow idiotic charting techniques from Economics 101, talk out of both sides of their mouth simultaneously, show their emotions and biases on their sleeves, and show zero comprehension of basic investment philosophy or psychology. However, no matter how dumb these geniuses are, the importance of these bozos in the market is significant, since the average investor does not trade gold mining shares, so those who read these web sites probably constitute a substantial portion of the total investors in gold mining shares. Therefore, there is likely to be a huge contingent of goldbugs who are currently less invested than normal in gold mining shares, or in some cases are perhaps not invested at all. Now, the one thing that a goldbug most fears is that a gold share rally happens when he is not fully invested. A goldbug would rather have his wife sleep with three different guys--all at once, even--than miss out on a gold rally without being fully invested. (No doubt there are female goldbugs, too, although they are still far outnumbered by the Y-chromosome set.) So there is a huge cash hoard of buying power ready to pile into gold mining shares as soon as these folks realize that, once again, they've been led down the primrose path by these bozos. As these goldbugs wake up and realize that the 4-1/2 year pattern of higher lows in these shares remains intact, they will be tripping over each other to buy, no matter how rapidly these share prices are increasing, or whatever else may be happening in the financial markets. Do the exact opposite of these bozos' advice. Assume that there will be a significant SHORT-TERM rally in gold mining shares, and let the long term take care of itself.

BULLISH DIVERGENCES CONTINUE TO ACCUMULATE RAPIDLY IN THE GOLD SHARE MARKET (May 2, 2005): The HUI has made a pattern of three consecutive similar lows; whenever three or more days see a closely matching bottom for any financial asset, a short-term rally usually follows. On Friday, April 29, 2005, the spread between HUI and spot gold, which can be defined as GLD times ten minus HUI, touched an all-time record high of 257. On Monday, May 2, 2005, this spread contracted sharply and progressively throughout the day, and ended at just about exactly 251. If this spread continues to reverse and move lower, as is most likely, it could reach 225 or even less within a few weeks, and 210 within a couple of months. Keep in mind that even if gold plunges to $396, which is possible given its bearish traders' commitments, a spread of 210 would put HUI at 186, which is almost six percent above its current level. So gold could fall sharply while gold mining shares experience a net gain. Each day, even as gold mining share indices make roughly matching lows, fewer gold mining shares have set new lows. The South African producer GoldFields (GFI) was the first major producer to positively diverge, by gaining ground several days ago after early intraday losses; since then, Harmony (HMY), Golden Star Resources (GSS), and other producers have joined GoldFields in completing an important bottoming pattern. Of course, it is quite possible that the recent low in HUI will turn out to have been a left shoulder rather than "the" bottom, but if there is a lower low for HUI in its future, it is likely to be only a few percent or less below the recent nadir, and even if that happens, a significant number of gold mining shares have likely already seen their final lows of the year, and possibly for the next few years as well. Gold mining shares, especially on days when the gold price itself is down, are more consistently showing early weakness and later strength, as is typical of any financial asset making an important bottom. Keep in mind that a gold share bottom is a process, not an event. Different shares will make lows on different days, rather than all at once, so opportunistically take advantage of temporary weakness in your favorite names to add to your long positions in them.

HERE COMES THE FED (May 2, 2005): Tomorrow, of course, the U.S. Federal Reserve is going to raise the federal funds rate by one-quarter percent to 3.0%, thus having completed a full two-percent rise since June 30, 2004. That will not be a surprise. The "unexpected" result of these interest-rate hikes will be the popping of the real-estate bubble and, after an early move higher over the next several trading days, another major leg lower for U.S. equities, as the Nasdaq inevitably reaches its major Fibonacci support level of 1515 no later than October 2005. This will force the manic-depressive Fed to eventually lower interest rates, possibly as soon as late 2005. Is anyone else predicting this? Not that I know of. But that would follow the pattern from President Bush's first term. It is especially interesting that no one is using the first Bush term as a prototype for the second Bush term, even though that seems like the most obvious and reliable parallel. Well, those who cannot remember the past are condemned to repeat it, as George Santayana so aptly said.

CONTINUE TO AGGRESSIVELY PURCHASE GOLD MINING SHARES, BUT DO NOT BUY GOLD (April 27, 2005): When my last update was written, HUI was slightly above 180. Currently it is just below 179, down almost 1% from the last update. There is very strong support for gold mining shares just a few percent below current levels from the lows of 2004 as well as from the 38.2% Fibonacci retracement of the entire gain in HUI from its all-time low on November 15-16, 2000 (35.31) through its peak on December 2, 2003 (258.60). Investor sentiment toward gold mining shares is even more pessimistic than it had been at last year's bottom, while valuations of many shares are forming very bullish double bottoms with lows from previous years. Be sure to buy aggressively in the early morning, as gold mining shares are likely to show more consistently reliable bounces from early intraday lows, in some cases leading to a gain of several percent by buying early in the day rather than later. As the U.S. dollar generally rises over the next two months, the prices of gold and silver are likely to continue to fall, occasionally sharply, thus creating emotional panics that should be capitalized upon by using ladders of GTC limit buy orders on gold shares. HUI will probably complete its bottoming pattern ahead of the June 30, 2005 Federal Reserve meeting, at which time Greenspan & Co. are likely to announce that, because of increased evidence of a pending recession, they are going to slow down their pace of interest-rate hikes. (No such "favorable" message, if one considers a recession to be favorable, is likely to emanate from the upcoming May 3, 2005 Fed meeting, however.) Do not buy gold or silver bullion or collectibles until the HUI/spot spread moves below 220, since the risk of a sharp collapse in the metals themselves is still far too great.

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 three 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. Appendix (May 30, 2005): One of my readers, Mr. Alan Sorin, pointed out that FSAGX, the Fidelity Select Gold Fund, has an expense ratio of 1.00% and a short-term trading fee of 0.75% for shares held less than 30 days. While this is not as low a fee as BGEIX, there is one big advantage: FSAGX is priced every hour on the hour, beginning at 10 a.m. New York time, rather than only at 4 p.m. As readers who have been tracking gold mining shares for many years already know, being able to buy and sell at 10 a.m. is worth a lot, since it is around this time of day that gold mining shares usually make their lows when they are forming an important bottom. Sometimes HUI will rise several percent between 10 a.m. and 4 p.m., as it did on May 10, 2004 (when HUI made its nadir of 163.81 last year). Once it is appropriate to sell gold mining shares--probably in the summer of 2006--again it is usually advantageous to do so at 10 a.m., when they generally peak during the formation of market tops. Therefore, I am adding FSAGX to my recommended list.

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. (May 30, 2005) Notice that ASA, like HUI, made a slightly higher bottom in 2005 than it did in 2004, thus continuing its very bullish pattern of higher lows that has existed since 1998. Since there is no ETF of gold mining shares yet listed in the U.S., this is your next-best choice. Meanwhile, if you have family or friends who are in charge of starting ETFs, tell them to get their heads out of the clouds and start a gold-mining-share ETF as soon as possible! (June 5, 2005) Followup: Several Canadian readers wrote to point out that there is a gold-share ETF in Canada with the ticker symbol XGD. There is no equivalent in the U.S. market. Hopefully, it won't take as long for the U.S. to follow Canada's lead in this matter as it is taking for the U.S. to follow Canada in adopting the metric system, establishing stricter gun control, and cleaning the streets.

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.

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%), 34%; Nasdaq-equivalent (QQQQ, NDX) and related shorts, including SMH and a new small short position in CFC, 34%; net long gold mining shares, 31%; BEGBX, 3%; gold and silver coins and related metals collectibles, 6%; other collectibles, 0.5%; cash and cash equivalents, negative 8.5% (not considered margin since only half of the nominal position is counted as collateral for a short sale).

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 (May 30, 2005) what amounts to very thin margin, that would never be allowed for equity purchases. According to the National Board of Realtors, the average down payment in the past twelve months was exactly 3%! Total mortgage borrowing is now more than 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. I expect real estate in coastal U.S. cities to decline by at least 60% from now through some point over the next decade, and likely by more than 70% in many of the most overheated areas including New York City and San Francisco. (May 30, 2005) For most of the urban coastal U.S., I would anticipate a drop of at least 45% over the next three years, and then an additional 45% or greater decline from that level over the subsequent four to eight years, for a total drop of 70% or more. [For those who are not mathematically inclined, two successive drops of 45% is 70%--1 minus (.55 times .55)--not 90%.]

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.

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.

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': 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%. (May 30, 2005) At the current time, inflation is about 3.00% while the anticipated Federal funds rate is approximately 3.40%, yielding a real rate of return of positive 0.40%, its highest positive level in more than two years. Since gold and silver strongly prefer a negative real interest rate to a positive one, this remains 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.

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. (June 5, 2005) Followup: In recent weeks, notice that gold is rallying in terms of almost all world currencies, especially including the euro. This is the typical historic pattern; expect gold's outperformance to intensify over the next 12 to 18 months as the likelihood of a worldwide recession becomes increasingly evident in late 2005 and early 2006. (June 15, 2005) Gold is continuing to rally against the euro and against most other world currencies. (June 19, 2005) Gold recently touched a new all-time high versus the euro. 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 (June 26, 2005): Continuing in the "good old days of computers" theme, when I entered college in the fall of 1978, I discovered that I could use the university computers as word processors, so that if I were writing a paper for a class, I could easily edit it, and even rearrange entire paragraphs, which were impossible with the typewriters still being used by almost all of the students. In one of my classes, an introduction to philosophical aesthetics, I wrote what I thought was a fairly clever paper about how we perceive objects based upon our prior experience in life. I was puzzled when the professor told me he wanted to speak privately about my essay, especially as his tone of voice sounded ominous. We went into his study, and he commented that the printing quality was very consistent, which was unlikely to be produced by a typewriter, and the right margins were all lined up perfectly, which was absolutely impossible with a typewriter, and that therefore I must have ordered the paper from one of the various "cheat services" that supplied them for a fee. I responded that it was my original work, and as I still had the paper in my computer files, I would show him how it was done. He was skeptical, but his attitude soon turned to amazement as I showed him how I could edit the document to change the spacing, or the font, or do underlining, and use the computer's printer to generate a brand new copy of the document, all in a few minutes. He was delighted by the concept of e-mail, and sent a note to one of the professors in his department who was apparently more technologically up to date. Within a week, he had obtained his own account, and became almost as adept with the machine as some of the students in his class.

REMINISCENCE OF THE WEEK (June 19, 2005): When I was near the end of my junior year in high school, we were offered the unusual opportunity to take a class in computer programming the following year (1977-1978). The reason was that the county where I lived, Baltimore County, Maryland, obtained its very first computer for use by students. (They previously had other computers for government use only.) Because one computer had to be shared by all high schools in the county, a strict timesharing arragement was necessary; every second Monday at 10:30 a.m., we would arrive by school bus at Loch Raven Senior High School, and enjoy the use of the computer for exactly 1-1/2 hours. If this was not enough time to complete our assignments, we were permitted to optionally share private carpools to attend the school between 3:30 p.m. and 5:00 p.m. on Wednesday afternoons. Since there were not enough keypunch machines for the Hollerith cards that we had to use, we were given Sharpee black markers to manually mark the cards; if one minor error was made on any card, it had to be thrown away. Inevitably, once or twice each hour, one of the students would make an error on the card and request a full page between each line sent to the printer, rather than a single line; this caused paper to come flying out wildly, the printer to become jammed, the computer supervisor to become enraged, and a screaming tirade to follow. Ah, the joys that today's kids will never experience.

REMINISCENCE OF THE WEEK (June 5, 2005): Whenever I visit my parents in northwest Baltimore, I enjoy taking a long morning run through the neighborhood just north of where they live, where there are a lot of horse farms and private tennis courts and swimming pools, and the scenery is spectacular. From time to time, I was sure that I spotted one or two buffalos along one section of the run. I thought perhaps that I was imagining it, but I found out from a family friend that a somewhat quirky guy had been keeping buffalos on his property for several years, and enjoyed showing them off. I conjured up a fantasy whereby the buffalos would somehow get free, and terrorize the tony neighbors. Each morning, on my commute to downtown Manhattan, I pick up "Metro", one of the free newspapers that are handed out each morning to New York City area train commuters. On the front page of the April 27, 2005 edition was a huge photo with this story: "An American bison tramples through a makeshift barrier of lawn chairs and netting, knocking down a police officer on a tennis court at Greene Tree gated community yesterday in Pikesville, Md. A herd of American bison escaped from Buzz Berg's Stevenson, Md., farm, and police corralled the nine buffalo into the courts . . . ."

REMINISCENCE OF THE WEEK (May 30, 2005): In the summer of 1983, I worked with an interesting man named Bill Knox who lived in Rockville, Maryland. One Friday afternoon he asked me, "Would you like to go flying tomorrow?" I didn't know exactly what he had in mind, but I met him just after dawn at a tiny airport only a ten-minute drive from where I lived, and soon we were airborne in his twin-engine four-seater Cessna. He flew the tiny plane along roads that I had only seen while driving and we covered parts of four states altogether (MD, VA, WV, PA). After about half an hour in the air, I asked him, "What are these controls doing on my side of the airplane?" He said, "You can fly this baby equally well from either seat; let's see how you do on your side," and proceeded in a few seconds to remove his hands from the steering wheel, push a button, and give me full control over our destiny. After recovering from the sudden surprise of what had happened, I was able to guide us pretty well for the next half hour; of course, all I did was make minor adjustments to our speed and make a few slow, easy turns, but it was the first time that I had been a pilot, and was a real thrill. As we approached our destination, Bill took over in order to land the vehicle, and I thought that would be our adventure for the day, until he said he wanted to take a glider around some particularly challenging and partially uncharted peaks in the Appalachian Mountains. That was too risky for me; while he went up in the glider to happily flirt with the fine line between life and death, I hiked alone up the highest ski trail in the area, enjoying the wildflowers and being on solid ground. He returned safely, after which we flew in the Cessna back to our original point of departure. Bill and I got together a week later to see Mose Alison perform in a small club in Georgetown, D.C.; it was a fabulous evening. A week later, Bill suddenly took a job in another town, while I simultaneously moved to a new neighborhood in Baltimore; in the confusion, we lost touch with one another and have not been in communication since. P.S. If you haven't crashed your plane yet and you're still out there somewhere, please contact me.

REMINISCENCE OF THE WEEK (May 23, 2005): I usually pride myself in being able to find my way back to wherever I want to be, even when I am thousands of miles away from home. Once, however, I got lost less than a mile from the house where I spent most of my childhood. My sister and I were visiting our parents several years ago, when we decided to go jogging together. We started out toward our former high school, then took a familiar path through the woods. We thought we were following along a well-marked stream trail, but soon found it became increasingly overgrown, and after making a turn toward what we thought was the main road, found ourselves surrounded by a thicket of thorny brambles with no obvious way out. Our only clue was the sound of heavy, fast traffic nearby, indicating that we were only a hundred yards or so from the Baltimore Beltway. We spent several minutes trying to find our way back to the original trail, or else some alternative path to a known area. We were almost ready to give up and run painfully through the sharp thorns toward the sound of the traffic, hoping to hitchhike a ride from a passing motorist on the highway, but we finally saw some trampled twigs where we must have entered originally, and rediscovered the main passage without getting too badly scratched. The moral of the story is that even the most familiar path can sometimes lead to utter confusion.

REMINISCENCE OF THE WEEK (May 15, 2005): About a decade ago, I went to Philadelphia with some friends. They didn't want to take Amtrak, since they said it was too expensive, so we took a PATH train--basically a subway--to Jersey City, where we switched to another PATH train to Newark, and then at Newark, switched yet again to a New Jersey Transit train to Trenton. Once in Trenton, we had to purchase tickets for the Philadelphia transit system, known as SEPTA (not to be confused with a septic tank). The train in Trenton was only a few minutes away from departing, and it is a long walk up a staircase to get to the human ticket sellers, so most people were buying their tickets from a machine on the train level. My ticket cost $3.20, but I didn't have anything other than a few $20 bills that I had recently gotten from an ATM machine, so I put in one bill and hoped for the best. On the PATH system, often the change from a large bill in those days arrived in the form of clunky dollar coins from 1979. I was prepared for that, but I guess that near Philadelphia they had run out of those coins, and they don't like to give away their quarters so easily, either, so after a brief pause, the machine gleefully spit out 168 dimes. It was like winning the jackpot in Vegas, except that the dimes were bouncing all over each other and rolling around the platform, and meanwhile about a dozen people behind me in line were impatiently waiting for me to pick up my "winnings". The total trip to Philadelphia took about 1-1/2 hours more than the Amtrak train, so the actual savings was questionable. I got a slight measure of revenge on the return trip when I paid for my New Jersey transit ticket, and for those of my companions, entirely from those dimes, but it took a few weeks to disgorge my coat pockets of all of the ten-cent pieces. The worst part: not a single one of the 168 was a silver (pre-1965) dime.

REMINISCENCE OF THE WEEK--A MOTHERS' DAY TALE (May 8, 2005): The most physically painful experience of my life occurred when I was just 3-1/2 years old. I was going to preschool as a part of a carpool. The driver that day, who was the mother of one of the other kids, was slightly impatient when I was leaving the car, and did not check carefully enough to ensure that my entire body was out. She slammed the door on my left ring (fourth) finger, almost severing it in half. To her credit, she quickly rushed me to the hospital, and the surgeon was able to sew it rapidly and efficiently enough so that, even though there is still a visible scar, it does not adversely affect even the most difficult piano playing. Perhaps that is not the most upbeat story, so here is another: my great-grandmother (my mother's mother's mother) always loved to prepare special food and a lively atmosphere whenever I visited her house, and tried to encourage me in whatever I was doing, such as learning to play the piano. Her greatest lesson to me was to keep pursuing your dream, no matter how difficult it may seem.

REMINISCENCE OF THE WEEK (April 27, 2005): When I was a kid, our family joined the local swimming pool, called the Colonial Village Swimming Club. One of my favorite activities, after leaving the water, was to walk dripping to the snack bar to buy little codfish cakes served between two Saltine crackers and lavishly dabbed with sharp mustard--all for just 15 cents apiece. A good friend of mine lived down the block from me; for many years, we invented our own song-and-dance routines that we performed for our parents and for whoever else was unlucky enough to be around at the time. I was visiting my friend and his mother several months ago, and we spent some time talking with his mother's friend, an older gentleman who was interested in telling tales from the past. He asked me what I remembered of Baltimore in the olden days, and I told him my fond memories of the codfish cakes. "Do you know what they were called?" he asked me. "No, I forgot", I admitted. "They were called Cohen's Coddies," he replied. "Oh, yes, that's right. How do you remember such a detail?" "I'm the Cohen who started Cohen's Coddies."

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: 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: 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.