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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.

IT HAS ALWAYS BEEN TRUE THAT, IN THE SHORT RUN, VIRTUALLY ALL EQUITIES MOVE IN TANDEM (January 16, 2006): It is interesting to go beyond the headlines and read the financial commentary and analysis for individual sector groups during January 2006. Each of the "experts" for any given group, oblivious or indifferent to the opinions of those in all other groups, think that their particular sector has somehow discovered the fountain of youth, the key to Galahad, the hidden door to Camelot. On a tout page for oil producers, one discovers on an authoritative-looking monograph that "because of permanently declining world supplies of oil, shares of oil drillers will continue in a bull market indefinitely". On a gold chat site, one reads near the top of one professorial-sounding essay that "because gold and silver represent the only true means of portfolio diversification, the normal laws of supply and demand do not apply". On a popular commentary page for base metals, one sees that "due to the ever-increasing demand for basic commodities from emerging nations with their billions of people, the prices of these critical assets will remain in a continuous bull market for years, if not decades". On a brokerage commentary compilation for high-technology shares, one observes that "the proliferation of P/E multiples that have not been seen in several years should not be a sign for concern, since they are not nearly as extended as they were in early 2000". This is eerily similar to the worldwide housing bubble, in which each city, in fact each neighborhood, believes that it has the perfect combination of convenience and attractions which make its individual area sure to experience rising housing prices for decades to come, without any downturns. The financial markets have always been cyclical, not linear. It is precisely when they are thought by the most unanimous majority to be most assuredly linear that they inevitably make the sharpest reversals, since so few people are prepared for such a possibility, and the financial market always acts to surprise (and thereby disappoint) the greatest number of its participants. One simple but often overlooked fact about equities is that in a bull market, almost all stocks are rising; in a bear market, almost all stocks are falling. Even if a company has fantastic earnings, if the Nasdaq is in a downtrend which will last for nine months, that company will see a falling share price along with all of those companies which have terrible earnings. If one looks at a 34-year chart of HUI and compares it with the Nasdaq, the dates of intermediate-term and short-term bottoms are remarkably similar; in some cases coinciding exactly; in almost all other cases, varying by less than two weeks. That is true even given the fact that the Nasdaq has declined by more than half in the past five years, whereas HUI has risen by a multiple of almost nine. It is surely no coincidence that the price targets of $2000 for both the share price of Google and the spot price of gold were released to the major financial networks in the same week; such a simultaneity of absurd "forecasts" is typical when a major peak in market liquidity is closely approaching. The reason is that the financial markets in the short term are driven primarily by liquidity and psychology, not by fundamentals. When liquidity increases, equities rise; when liquidity is reduced, equities decline. Just before equities decline, they often experience their sharpest advances, as those who correctly anticipated the decline become afraid as the market moves sharply against them, and in a panic cover their short positions. Such has been the case in January 2006, as the most speculative and most overvalued shares, especially those which are the greatest number of standard deviations above their respective 200-day moving averages, have been precisely those which have experienced the greatest share gains. It is not going to continue that way for long. The more difficult it is to take the opposite side of euphoria, the more essential and profitable it is to do so.

U.S. EQUITIES, ESPECIALLY SPECULATIVE SHARES AND SHARES OF COMMODITY PRODUCERS, PROVIDE THEIR BEST SELLING OPPORTUNITY SINCE THE FIRST HALF OF 2002 (January 8, 2006): In the first week of 2006, U.S. equities, especially those of very speculative corporations, as well as virtually all commodity producers, have made a very sharp move higher. Some of this is due to people being bombarded with media coverage of the "winners of 2005"; believing foolishly that last year will repeat itself, many folks have simply and blindly purchased those shares and funds which were the best performers last year. Another likely major contributor to this sudden upward move is short covering by those who have either "given up", or who were trading with positions that were too large for their account and were forced to cover, or who may truly believe that they were on the right side but who automatically cover whenever the market moves a certain percentage against them. Mortgage borrowing, the primary driver of the U.S. economy in the past several years, has already dropped substantially to its lowest level since early 2002, while the U.S. Treasury curve recently inverted, both of which are pointing to an upcoming U.S. recession. Thus, as the U.S. economy slows throughout 2006, those companies which had the greatest share price gains in the first week of the year are precisely those which will likely decline the most between now and October. This provides a fabulous selling opportunity for those who still have long positions in these shares, and an equally excellent short-selling opportunity for all market participants. If you "missed out" on the 79% collapse in the Nasdaq from 2000-2002, here's your chance to make up for it. Gold mining shares are likely to drop by roughly 28% between now and May, while the Nasdaq will probably experience a pullback of more than 30% between now and its likely autumn nadir. Meanwhile, Treasuries and government bonds of all nations have held up very well during the first week of 2006, in spite of almost everything going against them, therefore indicating that they should continue to be held for at least the next several weeks.

THE RECENT SHARP MOVE HIGHER IN COMMODITY PRODUCERS AND SPECULATIVE SHARES OF ALL KINDS IS DEFINITELY A HEAD FAKE (January 5, 2006): On the first two trading days of 2006, U.S. equities, especially those of commodity producers and the most speculative issues of nearly all sector groups, made a sharp move higher. There is substantial proof that the financial markets will act exactly the opposite for most of the last 51 weeks of 2006, than they have so far for the first week. Here is the evidence: 1) U.S. long-dated Treasuries are continuing to rally, with securities such as TLT repeatedly recovering from early selloffs to stage late rebounds. If money is continuing to move into Treasuries, then to pay for them, sooner or later other assets will have to be sold. When Treasuries "disagree" with equities, almost always Treasuries have the last word. 2) The U.S. Treasury curve has persistently inverted since December 27. This is a very reliable historic indicator of an upcoming economic slowdown, especially as more and more analysts are dismissing its rock-solid record. Those shares which have recently risen the most are almost invariably those which have the most to lose from an economic slowdown. 3) Mortgage applications have hit their lowest level since May 2002. Mortgage money has been the primary driver of the U.S. economy, so if there is a decline in the amount of new cash coming from this sector, consumer spending will be sharply curtailed. This will likely lead to a recession, accompanied by falling housing prices and declining equity valuations. If the U.S. economy slows, this will affect the economies of all countries which rely heavily on exports to the U.S., including China and many emerging markets. As these exporting nations experience a slowdown in economic growth, they will need significantly less of those commodities that they have substantially contributed toward achieving multi-year peaks. No doubt some of those who had correctly analyzed the fundamentals of the worldwide economy, and had taken short positions in commodity producers, covered their short positions just in the past two days either out of habit or out of fear. In many instances, such as with gold mining shares, or with individual base metal producers including Phelps Dodge, these shares currently stand several standard deviations away from their 200-day moving averages. Historically, this is when the greatest corrections emerge "suddenly and unexpectedly". The last time that HUI, the Amex Goldbugs Index of Unhedged Gold Mining Shares, was this overbought was at the beginning of June 2002, just before it plunged more than 40%. This time, the decline is likely to be less dramatic in percentage terms, since gold mining shares are unlikely to go significantly below their most recent higher low of 214.30 on October 20, 2005. However, a drop of more than 25% in these shares is mathematically fifteen times more likely than normal. Aggressive investors who are comfortable with selling short should seriously consider initiating short positions in the shares of commodity producers, including gold mining shares, as well as in the shares of highly speculative companies of all kinds.

END-OF-YEAR SUMMARY AND WINTER OUTLOOK (January 1, 2006): Treasuries continued their pattern of higher lows dating back to their double bottom completion of November 4. I expect long-dated Treasuries and municipal bonds to continue to rise for the next several weeks, receiving support from falling equities, declining inflation, and money exiting junk bonds and mortgage-backed securities. The U.S. dollar has completed a head-and-shoulders peak (the head was on November 16) in classic fashion, and should stage a more pronounced and persistent decline throughout the remainder of the winter. The Nasdaq continued its downtrend which began on December 6; there will be occasional sharp bounces, but entering the weakest year of the Presidential cycle, I am anticipating a decline of approximately 30% to the 2006 bottom, probably late in the year. Oil and especially oil shares will glaringly disappoint investors, continuing to underperform for all of 2006 and possibly even in early 2007. Gold and its shares will have a split personality: notably weak until the spring of 2006, as happens with all post-euphoric letdowns, with HUI, the Amex Goldbugs Index of Unhedged Gold Mining Shares, bottoming near 210 (its current level is 276.90); then a powerful rally through the summer or autumn, with HUI surging to approximately 355; then another sharp selloff thereafter, with HUI returning to around 265 by the first half of 2007. On Thursday, December 29, 2005, at 3:54:04 p.m., HUI touched a new all-time high of 281.22. Gold mining shares have continued their recent pattern of new highs preceding subsequent selloffs, likely indicating repeated media-inspired waves of heavy amateur buying which is soon followed in each case by substantial insider and institutional selling.

A REVIEW OF MY ASSET ALLOCATION MODEL FOR 2005 (January 1, 2006): Now that 2005 has ended, it would be instructive to review the successes and failures of my asset allocation during the past year. This allocation is kept timely for each update, showing exact percentages of recommended investments (see several paragraphs farther down). Each kind of investment will be considered and analyzed in its turn.

STABLE VALUE FUND: STEADY AS SHE GOES (January 1, 2006): For those readers who do not live in the U.S., a stable value fund is like a money market fund, with a guaranteed principal and a fluctuating interest rate. Unlike a money market fund, which lends money for an average period of one month, a stable value fund makes loans of anywhere from 5 to 30 years. Therefore, its return is most closely correlated with the 10-year or 30-year Treasury yield. Generally, only retirement assets are permitted to be invested in such a fund. Just under one third of my total assets were kept in this fund throughout 2005, earning a total of 4.75%. REPORT CARD: B+. Obviously this simple, nonvolatile fund outperformed the S&P 500, the Nasdaq, and practically every other major U.S. equity index in 2005, with no sleepless nights. WHAT I MIGHT HAVE DONE DIFFERENTLY: Nothing. Even the most aggressive investor needs a safe harbor.

LONG-DATED TREASURIES: GOOD MARKET TIMING (January 1, 2006): My timing with long-dated Treasuries has been unusually good over the past several years. In 2004 and 2005, I recognized early on that the yield of the 10-year and 30-year Treasuries can be accurately predicted by understanding Federal Reserve policy. As long as the Fed continues to raise interest rates above the inflation rate, investors will perceive that the Fed is sincere about fighting inflation, which will cause long-dated Treasuries to continue to rally. As soon as the Fed signals that it is done with its series of interest-rate hikes, investors will fear that the Fed is more concerned with a recession than with inflation, and long-dated Treasuries will thereafter somewhat decline, although such a decline will be modest because substantial amounts of money exiting falling U.S. equities, declining mortgage-backed securities, and slumping junk bonds will continue to go into Treasuries at least until late 2006. This strategy produced a total Treasury return of approximately 8.5% in 2005. REPORT CARD: A-. WHAT I MIGHT HAVE DONE DIFFERENTLY: Made an early simultaneous short bet on short-term yields. I thought as early as January that the Treasury yield curve might invert late in 2005, but took no action in that regard.

U.S. DOLLAR: RIGHT ON TARGET EARLY, THEN TOO BEARISH LATE (January 1, 2006): When I saw the Newsweek cover story from the last week of December 2004, "The Incredible Shrinking Dollar", I knew that the greenback would have a powerful first half of 2005, and it did. Thereafter, I figured that the fundamentals of a huge trade deficit and budget deficit would doom the U.S. dollar for the remainder of the year, but it suffered only a moderate pullback, then regained half of its losses near the end of December. My pet selection from late June, the mutual fund BEGBX, therefore produced a net loss of approximately 2%, including reinvested dividends. REPORT CARD: C+. WHAT I MIGHT HAVE DONE DIFFERENTLY: Remained more cautious regarding a decline in the U.S. dollar until the Treasury yield curve actually inverted. That will be a lesson to be remembered the next time we're set to enter a major recession.

NASDAQ: AN EXCELLENT FIRST HALF, BY BEING MODERATELY SHORT EARLY AND COVERING 25% OF THE SHORT POSITION IN LATE APRIL, BUT LACKLUSTER THEREAFTER (January 1, 2006): The strategy of being 32% short the Nasdaq at the beginning of 2005 paid immediate rewards, as the Nasdaq peaked at 10:30 a.m. on the first trading day of the year, then declined for almost four months thereafter. The clear signs of a potential short-term bottom encouraged me to cover 25% of this short position in the third week of April, and indicate to my readers to do the same, thus putting me 24% short. Thereafter, the Nasdaq did in fact stage a modest rebound. However, the Nasdaq did not in the second half of 2005 demonstrate the high volatility in both directions that is usually seen in that index, especially in the second half of the year. All subsequent pullbacks were too modest to warrant further short covering. A late autumn surge in the index provided an opportunity to double the total short position, which is finally beginning to be rewarding, but will require an additional decline in 2006 to be truly worthwhile. The total gain from this strategy for 2005 was therefore only 2.5%, hardly more impressive than someone who was merely long the Nasdaq for the entire year. REPORT CARD: B-. WHAT I MIGHT HAVE DONE DIFFERENTLY: When Nasdaq volatility is at a multi-year low, it usually does not pay to assume that it will decline further. I think I therefore would have done exactly the same, given exactly the same circumstances. Sometimes the market simply does not reward you immediately, even if you make the right moves.

PRECIOUS METALS AND THEIR SHARES: PERFECT TIMING FOR THREE QUARTERS; THEN A DISAPPOINTING FOURTH QUARTER (January 1, 2006): Given the seasonal pattern which had seen gold peak in December in 2002 and 2003, and given that the end of 2004 displayed similar sentiment and investor behavior, I figured that 2005 would be roughly a repeat of 2004. I therefore recommended gradually adding to long positions in gold mining shares in the spring, and once the double bottom in HUI was confirmed in May, thereafter adding very heavily to these positions, so that the total precious metals allocation by the end of the spring was 6% in gold/silver bullion and 31.5% in gold mining shares. On September 19, when HUI had difficulty remaining above 245, it appeared that any remaining upside would be limited to the metal only, so I indicated selling the shares. In the final days of September, as HUI approached its September 30 peak of 250.33, I actually went net short the shares by 8%, while keeping the 6% in bullion. At first, this strategy appeared brilliant, as the metal continued to outperform, while the shares made a perfect shoulder bottom at 220, inducing me to cover half of the short gold share position at 221 with an amazing short-term profit, leaving 6% long the metal, and 4% short the shares. I expected a typical neckline rebound, but instead was surprised as gold mining shares set a new all-time high. The sharp gain in the bullion more than offset the loss in the short share position, while further highs in HUI induced me to modestly increase the net short position throughout December, including the final few days of 2005. The current allocation is 6% long bullion, 10.5% short shares. (2% of this 10.5% is actually a short position in GLD, thus almost exactly offsetting one third of the bullion gain). The total gain for 2005 was therefore 41% (HUI rose more than 51% from May 16 through September 30), but could perhaps have exceeded 50%, if played somewhat more intelligently. REPORT CARD: B+. WHAT I MIGHT HAVE DONE DIFFERENTLY: Obviously, I wouldn't have changed anything in the excellent first three quarters of 2005. In the fourth quarter, the above trading activity represents classic, defensive money management when responding to unpredictable market moves. However, perhaps the new high in HUI should not have been so surprising; on my own web site on May 23, I intuited, "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." In other words, I should have been able to foresee that the "dumb" first-time amateur buying once gold hit $500 would be so powerful, that in the short run it would temporarily overcome the inevitable heavy selling of insiders and institutions. Thus, instead of being content to play tough defense, I should have used an aggressive offense until there were more persistent negative divergences.

ALL OTHER RECOMMENDATIONS: RIGHT ON TARGET (January 1, 2006): Besides the above sector groups, I recommended two miscellaneous trades in my asset allocation: buying MRK after the unwelcome news and incredibly negative media coverage regarding potential Vioxx lawsuits (subsequent gain to date, including dividends received, 23%); and selling short CFC each time it went above 39, assuming that companies with heavy issuances of negative-amortization and interest-only mortgages will go bankrupt at some point in the next decade (total gain, including dividends paid, 12%). REPORT CARD: A-. WHAT I MIGHT HAVE DONE DIFFERENTLY: Shorted other companies connected with the housing bubble, such as homebuilders, which have experienced a substantial price drop as new home valuations have steadily fallen and nationwide housing inventory in the U.S. is at its highest level since April 1986, with a record new supply anticipated for 2006. I will definitely add new short plays in the mortgage/housing sector in 2006, as the real estate bubble, which peaked in June 2005, has just begun what will likely be a historic collapse. If other companies suffer the same fate as Merck, I will likely recommend their purchase for similar contrarian reasons.

RING OUT THE OLD, RING IN THE NEW (December 26, 2005): Since my next update will likely be in 2006, this seems a good a time as any to make the usual annual predictions. Fortunately, since this is the fourth "deep low" year of the Presidential cycle, when analysts are most glaringly off base with their selections, it should be an easy matter to outdo the competition, simply by going against the herd. Each of the major features of the financial markets will be discussed, one by one, in the following paragraphs.

TREASURIES: EXPECT WINTER STRENGTH IN 2006, THEN LITTLE NET CHANGE THEREAFTER (December 26, 2005): U.S. Treasuries have been in a strong, persistent intermediate-term bull market since they completed a double bottom on November 4. Their traders' commitments have moved somewhat from their historic bullish slant less than two weeks ago, but still remain supportive. As the U.S. economy slows, and the Federal Reserve raises interest rates, it is just a matter of weeks [actually, it took only a single day!] before the yield on the 2-year U.S. Treasury exceeds the yield on the 10-year U.S. Treasury. This concurrence, known as an inverted Treasury curve, has always accurately signaled an upcoming recession, although when it happens, you'll hear armies of analysts explaining why "it's different this time". The bottom line: it isn't different this time. The U.S. economy will go into recession no later than the summer of 2006. Once the inevitability of recession becomes evident to the public, Treasuries will no longer receive important buying support. They are unlikely to decline sharply in a recessionary environment, but could experience surprisingly high volatility, although likely little net change by the end of 2006.

U.S. DOLLAR: LOOK FOR THE GREENBACK TO RESUME ITS DOWNWARD TREND THROUGHOUT 2006 (December 26, 2005): After having declined sharply and very persistently for 3-1/2 years through December 2004, even rating a Newsweek headline at the end of December 2004 touting "the incredible shrinking dollar", the U.S. dollar, naturally, staged a sharp contrarian-delight rebound for most of 2005. Since November 16, the greenback has been moving progressively lower, but not with either notable force or any media support. The U.S. dollar's bear market resumption will receive a lot more media coverage in 2006, as dollar declines become increasingly persistent and sometimes violent. In addition to the already huge U.S. budget and trade deficits, the upcoming collapse in U.S. real estate prices, which should be at least twice the average decline in the rest of the world, will outweigh the apparent attractiveness of high short-term rates on U.S. dollar-denominated time deposits. The greenback will probably not break below its 2004 lows, but it could approach them more closely than most observers currently anticipate.

U.S. REAL ESTATE: LOOK FOR THE FIRST TRUE NATIONWIDE COLLAPSE OF U. S. REAL ESTATE IN ITS HISTORY (December 26, 2005): U.S. housing prices in many markets have more than doubled in the past five years, even as U.S. rents have only moved up with inflation. In spite of this fact, a fairly substantial number of financial analysts are not expecting a significant decline in real estate valuations because "it has never happened before on a nationwide scale". What these folks always fail to consider is that there have never been interest-rate-only mortgages and negative-amortization mortgages before, either, in any part of the world, at any time in its history. Japan had the closest thing, with 100-year mortgages in the late 1980s; its real estate thereafter declined 60% nationwide (collapsing even more in some previously "hot" neighborhoods). Just today, at a nearby realtor's office, I saw a sign in huge letters: "40-Year Mortgages!", as though they were a sure path to wealth. Caveat emptor! One third of all mortgages in 2005 were of the negative amortization variety, meaning that buyers' total mortgage debt increases each month, rather than decreasing, as was formerly the case back in the "old days" (meaning before 2003!). Touts for mortgage companies such as Countrywide Financial frequently boast about how their innovative products are making it possible for anyone to buy the house of their dreams. They're absolutely correct--which is exactly why the housing market is so dangerous. Already, inventory in the U.S. is at a 20-year high nationwide, and at a 30-year high in many cities, while new home prices have been falling for several months--4% just in the past month, according to this week's offical government data. It's just a matter of one year, two at the most, before "60 Minutes" runs a segment on how honest, sincere, working-class Americans were misled by devious, greedy mortgage brokers into getting a negative-amortization loan, and how they have therefore been led to the brink of bankruptcy. Also expect this kind of media coverage of the real estate collapse by the end of 2006: "Denver's real estate market is down 15% in the past year; Las Vegas is down 20%; Phoenix, an incredible drop of 30%. Will your town be next?" The accompanying photos will, of course, show residential blocks with a "For Sale" sign on more than half of the lawns, with a few aerial shots of large condominium projects--ideally, with a few key elements that are obviously not completely constructed--in foreclosure.

THE NASDAQ: U.S. EQUITIES WILL EXPERIENCE THEIR USUAL FOURTH-YEAR BLUES (December 26, 2005): For the past half century, the U.S. stock market has made an important low each fourth year, sometimes in the summer, but usually in the autumn. The last such low was on October 10, 2002. (The 1990, 1982, and 1974 nadirs, each of which are part of this cycle, all represented major historic bottoms for the U.S. stock market.) The next deep bottom will therefore likely be in the second half of 2006. On the way down, there will be a series of lower lows for major U.S. equity indices such as the Nasdaq composite. Key numbers to look for on the Nasdaq are 1900, which represented support several times since November 2003; and, below that, its 61.8% Fibonacci retracement of its entire gain from October 10, 2002 (1108.69) to its recent high on December 6, 2005 (2278.16), which would be 1555.43. Most likely, the Nasdaq will find support at 1900 in the spring, and then reach 1555 in either the summer or fall. A much deeper low than 1555 is possible if the U.S. real estate market falls rapidly enough to cause a noticeable loss of confidence in U.S. assets; otherwise, if housing prices only drop modestly, 1555 should represent the low for the year. In early January 2006, even if the Nasdaq sets a new high, QQQQ is likely to remain below its December 6, 2005 peak (even adjusting for dividends), as happened in early January 2002 and early January 2005.

GOLD: LOOK FOR A CORRECTION TO $444, THEN A POWERFUL SURGE TO NEW HIGHS ABOVE $600, THEN AN EVEN SHARPER CORRECTION (December 26, 2005): Financial analysts always find it incredibly unpopular to give a forecast for a single asset which involves more than a simple direction of "up" or "down", since they are much more worried about getting their "message" across to their "target group", rather than they are about accuracy, even assuming they have sufficient insight to realize that sharp moves in both directions are often the rule rather than the exception in a highly volatile market, such as gold has been in the past decade, and is likely to remain in the next decade or more. (They also generally avoid sentences of more than about a dozen words, unlike the previous one of 94.) Although most precious metals analysts like to pretend that seasonality is irrelevant, it is historically an even more powerful factor for gold and silver than for most agricultural and industrial commodities. Given all of the following: the recent Market Vane measure of 89% of investors bullish on gold, continued insider selling in gold mining shares (including Bill Gates), persistent very positive media coverage toward gold and gold mining shares, a flurry of recent brokerage upgrades of gold mining shares, frequent intraday peaks near 10:30 a.m. in HUI, traders' commitments showing commercials reluctant to buy even on a $50 price decline; the coincidence of all of these negative factors coexisting simultaneously must surely indicate a market which is set for a substantial downward move in the first several months of 2006. Given a 61.8% Fibonacci retracement of HUI, that would put HUI near 206 and gold itself around $444 at their respective bottoms, which will likely occur in the spring. Following this, all of the fundamental factors that are currently being touted as reasons for buying gold will have the technical support needed to support a true, sustained rally, similar to the one that we enjoyed from May through September 2005, when HUI surged 51%. By the second half of 2006, HUI is likely to set a new all-time high above 330, while gold itself will probably surpass $600 an ounce. As with this year's peak, or perhaps even more so if gold is the only major asset class in a strong upward trend, the public will once again purchase near the peak the same gold mining shares that they will end up having sold in the spring of 2006, and it will be time for yet another sharp downside correction, which could begin as early as late August if the euphoria becomes intense enough at that time. I would anticipate that such a downward move will put gold all the way back to around $500 an ounce by the first half of 2007. So gold and gold mining shares are likely have a very volatile period ahead of them, but I would anticipate that the gold price will be almost exactly the same in March 2007 as it is today.

LONG-DATED TREASURIES CONTINUE THEIR RALLY (December 18, 2005): Long-dated U.S. Treasuries have been in an uptrend since they completed a bullish double bottom on November 4, with traders' commitments that were as bullish in their most recent reading (on Tuesday, December 13, 2005) as they had been at the nadir. As Treasuries continue to rally over the next few months, all of the following are likely to occur: 1) as money enters the Treasury market, which is five times as big as the equity market in the U.S., there will be net outflows from equity and equity funds; 2) as the ten-year U.S. Treasury yield eventually moves below the two-year U.S. Treasury yield, we will have an inverted yield curve, which has accurately forecast each recession since the Civil War; 3) as the U.S. housing market continues to weaken, a huge amount of money will exit mortgage-backed securities for the safe haven of Treasuries of equal duration; 4) as the U.S. economy slows, assets in junk bonds and other low-grade corporate bonds will decrease in favor of U.S. Treasuries.

IF IT LOOKS LIKE A RECESSION, AND IT SMELLS LIKE A RECESSION, AND IT ACTS LIKE A RECESSION, THEN IT IS PROBABLY A RECESSION (November 20, 2005): There are increasing signs that the U.S. economy is heading for a recession in 2006. The most reliable historic indicator of an upcoming U.S. recession is an inverted U.S. Treasury curve. This is defined as a situation in which the yield of the 2-year U.S. Treasury exceeds the yield of the 10-year U.S. Treasury. At the present time, the 10-year Treasury has an interest rate which is 0.09% higher than the 2-year Treasury, so the curve is not yet inverted. However, it is close to its lowest spread since February 2001, several months before the most recent recession began (in the late summer of 2001). Given that long-dated U.S. Treasuries such as the 10-year are likely to continue to see higher prices, and thus lower yields, while the 2-year is likely to remain stable or rise as the Fed raises short-term interest rates, we will likely have a true inversion within a few months, if not sooner. Historically, an inverted Treasury curve is the single most reliable indicator of a recession approaching within roughly a half year. Thus, if the curve becomes inverted in December 2005, that would indicate that a recession will arrive in the late spring or early summer of 2006. Anothe reliable indicator of an approaching recession is that financial commentators, observing the Treasury curve about to invert, are already coming up with explanations as to why it's different this time. As this recession approaches, the U.S. stock market is likely to begin a decline which should accelerate more sharply. Supporting evidence includes the 4-year stock market cycle, in which U.S. equities make a deep low every four years; the next such nadir is scheduled for the autumn of 2006. Cash levels in U.S. equity mutual funds currently average 3.8%, their lowest level in history, even below their previous all-time record from March 2000. There is also increasing evidence that the housing bubble is beginning to burst in the U.S., including record inventory in many areas, combined with a scheduled enormous amount of new housing that will become available in 2006 and 2007. This is confirmed by the very poor performance of homebuilders, which are the weakest equity sector in the past four months.

CONTINUE TO PURCHASE GOVERNMENT BONDS OF ALL FIRST-WORLD COUNTRIES (November 7, 2005): Government bonds are out of favor around the world. This is due to many factors, but the most important is sentiment: the more they decline, the more they are unloved. From a fundamental point of view, it is very likely that there will be a worldwide recession beginning in 2006, which will reduce demand for equities, and increase demand for the safest fixed-income securities, especially those issued by the most well-established government entities which are least likely to miss an income payment or have any threat to principal repayment. From a technical point of view, one need only look at a chart of TLT, which looks almost exactly like a chart of HUI in May 2005, completing a very bullish double bottom. In this case, the previous low in U.S. long-dated Treasuries was in March 2005. The traders' commitments for the 30-year U.S. Treasury bond show it to be among its highest commercial net long positions of the past several years. Since the U.S. Treasury market is five times as great in dollar terms as the U.S. equities market, as Treasuries rally, they will slowly but steadily drain money from equities and almost all other investment sectors. My favorite choices include the exchange-traded fund TLT, as well as the mutual fund BEGBX, which invests in government bonds of countries such as England, Japan, France, and Germany. This latter fund, managed by American Century, will also gain from the inevitable decline in the U.S. dollar. The U.S. dollar index has the worst traders' commitments since this index began trading. It is interesting to observe that when the U.S. dollar was bottoming in December 2004, I got flooded with e-mails telling me why the dollar would continue lower; now, I get quite a few e-mails telling me why the dollar will continue higher. (Not quite as many this time; it's likely that many of my readers maintain a strong anti-dollar bias no matter what the situation. Given the greenback's history in the past decade, or even in the past century, this is an understandable and justifiable bias.)

GOLD MINING SHARES, AT LONG LAST, SHOW SOME POSITIVE DIVERGENCES (November 1, 2005): As predicted in Sunday's October 30 update, gold and silver have begun a sharp pullback, as evidenced by the fact that last week's Market Vane showed 83% of participants bullish toward gold, the third consecutive weekly reading of 82% or higher (the exact peak was 84% on October 11, when gold set an 18-year high of $477.20). Historically, readings of this extreme are usually followed by a decline of several weeks, to shake out late-arriving speculators enticed by the recent positive media coverage toward precious metals. GLD is an exchange-traded fund equivalent to exactly one tenth of one troy ounce of gold, while HUI is the Amex Goldbugs Index of Unhedged Gold Mining Shares. The HUI/GLD spread is equal to 10 times GLD minus HUI. This spread had been increasing since the middle of September, when it was 220, and moved slightly above 250 several times last week, but fell sharply yesterday and today, closing today at about 235. This is a classic positive divergence, demonstrating that by dropping 11% during October, gold mining shares were anticipating by one month the November drop in gold itself (and silver). The shares almost always lead the metal both higher and lower. One cannot be sure exactly how low gold will go before it reaches its next low, or when that will be, but a reasonable guess would be that gold will decline to perhaps $433 by early December. If HUI reaches its cheapest level when gold is at, say, $438 (since HUI will likely make its low a couple of weeks ahead of gold tiself), and the HUI/GLD spread at that time is 227 (just a guess), that would put HUI at 211. In any event, HUI is almost certain to make a low above its August 30 nadir of 198.78, to keep intact the bullish pattern of higher lows that has prevailed for five years. Given the sharply contracting HUI/GLD spread, I covered half of my short positions in North American gold mining shares, while maintaining all of my short position in GLD and most of my short positions in South African gold mining shares (see asset allocation halfway down the web site). Usually, South African gold mining shares peak and bottom last, coincident with or slightly ahead of gold itself, while North American shares bottom a few weeks earlier.

BUY U.S. TREASURIES (October 25, 2005): The exchange-traded synthetic fund TLT, a synthetic 25-year U.S. Treasury, fell below 90 dollars per share again today. This fund is a compelling buy whenever it is below 90, as are most funds of long-dated Treasuries and municipal bonds. There are increasing signs of a slowdown in U.S. consumer spending, especially since the huge volume of mortgage borrowing is beginning to slow, which will depress long-term Treasury yields. As junk bonds' default rates sharply increase, bond investors will be increasingly shifting from corporates into Treasuries, adding to support for long-dated Treasuries such as TLT.

THE HUI/GLD SPREAD MAKES A DRAMATIC TURN HIGHER, TRIGGERING A SHORT-TERM SELL SIGNAL FOR PRECIOUS METALS AND THEIR SHARES (September 20, 2005): HUI is the Amex Goldbugs Index of Unhedged Gold Mining Shares, the most useful index of how gold mining shares are performing. It is updated frequently from 9:30 a.m. to 4:00 p.m. Eastern time like any other index, such as the Nasdaq Composite. GLD is an exchange-traded fund which is equal to exactly one-tenth of an ounce of spot gold, and is actively traded during the same hours. The HUI/GLD spread is equal to 10 times GLD minus HUI. In trading on Monday, September 19, 2005, in the first hour after the market opened in the U.S., the HUI/GLD spread continued to contract, as HUI rose nearly 7 points, while the price of gold was initially higher by less than 5 dollars an ounce. However, for the remainder of the trading day, this spread began to move progressively and dramatically higher, eventually expanding by more than 5% from its first-hour peak to its closing value. HUI itself made a very bearish pattern of successively lower highs throughout the trading day. Therefore, this was a short-term sell signal for gold mining shares. Investors who were closely tracking this spread should have already begun to either sell their gold mining shares, or sell covered calls against their positions, in anticipation of a period of weakness. Given historical precedent, in which precious metals and their shares often make either an important high or low in November, and given that it is likely to be a low in 2005, rather than a high (it was a high in November 2004), November 2005 is likely to signal the next higher low for HUI in the bullish series of higher lows that this index has experienced since May 16, 2005. Keep in mind that the long-term bull market in gold mining shares remains absolutely intact; this is only a short-term sell signal, not a major peak. Given that the most recent low for HUI was 198.78 on August 30 (less than three weeks ago!), and that HUI is making a reliable pattern of higher lows, my guess is that in November we will see another higher low for HUI within a few percent of 206, which would mark roughly a 13% additional decline for HUI over the next two months. As the old saying goes, your friends may buy gold for Christmas, but you should buy gold for Thanksgiving (the fourth Thursday of November in the U.S.; my apologies to Canadians who celebrate their own version on the second Monday of October). Far too many gold analysts, in many cases the same ones who were bearish on gold four months ago when it was below $420 an ounce, have suddenly "found religion" and turned bullish just in the past week, reaching almost a unanimous consensus that gold will soon reach $500 an ounce. Historically, this has been a reliable confirmation of a short-term peak in gold mining share prices.

GOLD FINALLY BEGINS A TRUE BULL MARKET (September 18, 2005): You're probably saying, wait a minute, gold has been rising for more than four years. Doesn't that count as a true bull market? Well, gold has increased sharply in value in U.S. dollar terms since April 2001 at an annualized pace of roughly 15% per year, but has made modest gains averaging only about 5% annually in terms of most other world currencies over the same period of time. Thus, gold has been useful for U.S. investors as a means of diversification, but for most investors living in England, France, Germany, Japan, and elsewhere, gold has only slightly outperformed ordinary time deposits located in those countries, with significantly greater volatility, and has therefore generated limited attention as a compelling worldwide investment alternative. In the past week, however, gold gained substantially in terms of all world currencies. In several instances with precious metals producers, share gains in the past three trading days alone exceeded the entire gain from the low of May 16 through this past Tuesday, September 13. This past Friday, September 16, 2005, gold reached an all-time high against the euro, a young currency, as well as at its highest point against the U.S. dollar since it reached $474 an ounce in June 1988. This has caused mining shares which had previously underperformed, especially South African shares, to make a sharp surge higher just in the past three trading days. On Friday, silver began finally to rally from its nearly fixed position of $7 per ounce, helping the shares of Hecla Mining (HL) and Coeur D'Alene (CDE) to be the second-best and fourth-best performing shares on the NYSE on Friday, gaining 13.6% and 9.2% respectively. Harmony Gold Mines of South Africa (HMY) rose 9.1%, while its somewhat larger "rival" GoldFields of South Africa (GFI) completed one of its greatest three-day surges in its history. Stillwater Mining (SWC), which produces mainly palladium, and Placer Dome (PDG), which produces silver in addition to gold, saw one-day gains of 6.7% and 6.6% respectively. More significantly, the HUI/GLD spread, equal to 10 times GLD minus HUI, continued to contract, signaling that the rally is not yet over for precious metals and their shares. As a rule, when this spread expands on three or more consecutive trading days, especially when the gold price is rising, it signals a short-term peak. Therefore, the peak for this cycle is still some indeterminate distance away; keep an eye on this spread to recognize when it has arrived. (September 20, 2005) Given the behavior of the HUI/GLD spread on Monday, September 19, 2005, in which this spread contracted in the first hour of trading, but then expanded progressively and dramatically by more than 5% for the remainder of the trading day, this was a short-term sell signal for gold mining shares. Below is a chart of this spread going back five years, followed by a chart of the spread over the past one year.

PRECIOUS METALS BEGIN A MASSIVE RALLY; HI HO SILVER! (September 5, 2005): On Tuesday, August 30, 2005, HUI touched an important low of 198.78, marking yet another higher low in a long sequence of higher lows dating back to May 16. On the same day, silver briefly touched a nadir of $6.63, its lowest level since January 10, before rebounding sharply to close slightly above $7 an ounce on Friday, just three days later. Gold's traders' commitments improved substantially in the past week, but are still worse than historic norms, while silver's traders' commitments showed the smallest (most bullish) commercial net short position in two years. When combined with the fact that silver is usually one of the best investments whenever there is an increased likelihood of a worldwide economic slowdown, as well as the existence of an above-average ratio of gold to silver at this time, silver is likely to significantly outperform gold in percentage terms over the next year or two.

WATCH THE PRICE OF UNLEADED GASOLINE COLLAPSE (September 5, 2005): Here's a bold prediction: the price of retail unleaded gasoline in the U.S, currently averaging $3.45 per gallon nationwide, will plunge by more than $1.00 per gallon over the next few months. This would not even require any drop in the price of crude oil, although that is likely to happen also, given normal seasonality patterns and a recent surge in supply combined with gradually falling demand. The ratio between the price of unleaded gasoline and the price of crude oil is at a record high, by far. As this spread inevitably returns to normal levels, even a modest drop in the price of crude to $63 per barrel would result in an average retail price of $2.42. If crude reaches $55 per barrel, that would put unleaded gasoline at $2.12. My guess is that we will actually see prices below $2 per gallon in some states before the drop is over. Recessions and falling gasoline prices usually go hand in hand. (September 18, 2005) This gasoline price collapse, expected by so few just two weeks ago, is already well under way, with the wholesale price for crude oil more than a dollar per barrel below the level it had reached before Hurricane Katrina first came into existence. The retail price of gasoline will likely continue to fall sharply for about another two months. (November 13, 2005) I rest my case.

WATCH HOUSING PRICES FLIP--INTO REVERSE (August 22, 2005): As reported by Elliott Wave International, three new television series have debuted in the U.S. in the past two months: "Property Ladder", "Flip This House", and "Flip That House" (seriously!). If this doesn't immediately trigger memories of the Nasdaq in early 2000, then nothing will. Whenever the working class heavily participates in any kind of investment, it inevitably collapses; this has been true for centuries. Although oil has been getting most of the headlines in recent months, it will be the collapse of the real-estate bubble that will be by far the strongest lasting legacy of the coming decade. Returning to gold mining shares, they are completing their next higher low somewhere above the previous week's nadir of 200.98, with a likely final target near 206. Historically, gold and its shares often make a seasonal low about one week before the end of August. Silver is an especially good buy, being below $7 an ounce (currently near $6.95), and providing its final lifetime opportunity for purchase at such a low valuation. Many gold mining shares are already showing the kind of behavior which is seen just before a major rally. The U.S. dollar is completing the right shoulder in its head-and-shoulders peak, in preparation for a likely collapse below its 34-year support level in 2006. The Nasdaq and other major U.S. equity indices are continuing their pattern of lower highs that began on August 2. Oil prices have also begun their decline, as they move toward $50 a barrel by November. U.S. Treasuries are in the midst of what will likely be their final rally of 2005; after another month or two of gains as money flees equities, Treasuries are likely to reverse sharply in response to the collapsing U.S. dollar, and decline toward an important intermediate-term low in the spring or summer of 2006. Mortgage-backed securities of all kinds will suffer their worst collapse in history over the next few years.

HUI COMPLETES YET ANOTHER HIGHER LOW (August 15, 2005): On Tuesday, August 9, 2005, HUI completed yet another higher low since its nadir of May 16, touching 200.98. This completes the chart symmetry with January 6, 2005, when HUI made its first 2005 low at 200.30. A few negative divergences are starting to appear as gold mining shares begin to correlate less closely with each other, while the traders' commitments showed commercials net short approximately 151 thousand contracts this past Tuesday. The traders' commitments for the Swiss franc and British pound remain solidly bullish, while those for the U.S. dollar index remain strongly negative, those for the euro are modestly bullish, and other currency commitments are neutral or negative. Thus, a potential short-term top for HUI may be formed over the next several weeks. Should HUI rally to around 240 or 250 over the next few months, thus closely approaching its two-year peak of 258.60 from December 2003, while displaying increasing negative divergences at that time, it would likely signal a typical short-term pullback. (October 2, 2005) We have, indeed, seen exactly this kind of strong rally in HUI from August 30 through September 30, and are equally likely to see exactly this kind of substantial pullback between now and November 30. The more signs of economic weakness are evident in the next few weeks, the stronger that HUI is likely to rally before its next pullback. Given that a worldwide recession is almost inevitable over the next half year, this should push gold well above $500 and HUI above 300 in 2006. In the very short run, gold may experience a brief correction, although HUI will likely remain significantly above last week's nadir of 200.98 as it continues to build its pattern of higher lows that began on May 16.

U.S. RESIDENTIAL REAL ESTATE, AT LONG LAST, BEGINS ITS GREAT COLLAPSE IN DRAMATIC FASHION (August 8, 2005): The most important development in the U.S. financial markets passed almost unnoticed by most investors last week, at least before the Barron's cover article on Saturday, which was that companies connected with real estate suffered their largest two-day percentage declines on Thursday-Friday since August 1990, or in some cases, their largest two-day collapses ever. The carnage was across the board: in REITs such as HME, as well as REIT indices such as IYR and RWR; in mortgage-related companies including CFC, which had already been declining for a few weeks; in homebuilders, such as TOL, HOV, and LEN, along with their indices such as HGX; and in companies that provide home furnishings or are otherwise closely connected with the U.S. housing bubble. The only actual negative news was a report from Toll Brothers (TOL) that the housing market in Washington, D.C., was "beginning to soften" (translation: residential housing prices in the national's capital stopped rising). This should not be particularly surprising, given the fact that residential housing prices had already begun to decline in other world markets such as the U.K. and Australia, and given the inordinate popular obsession with the topic, as evidenced by "Extreme Home Makeover", "This Old House", the popularity of Trump (who was also a key player just before the 1990 peak), and the number of commercials touting how you, too, can get wealthy buying properties you have never seen, with the intention of never seeing them. This weekend I heard a radio commercial touting the purchase of raw land in all kinds of obscure places at some kind of auction. A personal note: where I work in Manhattan is the building where the New York City real-estate license exam is held each week. Five years ago, one or two people each week might arrive to take the test; I would help them to find the correct floor. The past few months, the line to take the real estate exam has extended from the front desk, out the door, down the entire block, around the corner, down that entire block, and around the next corner. An extra security guard has been hired just for the extra identity badges and associated paperwork to keep track of these people each week, and to make sure the crowd does not get unruly, as I already saw happen on two separate occasions. Even the Barron's cover story, excellent as it is, does not give enough emphasis to the potential long-term collapse of real-estate prices, given how much they have risen relative to incomes in the past several years, as well as the very real danger to the entire U.S. economy of such a decline, given that so many people, even those who bought their homes years ago, have borrowed money against the value of their houses. There are three major negative implications from the collapse of the real estate bubble: 1) banks will stop lending to anyone who wants to borrow, thus curtailing the consumer spending that has kept the U.S. economy out of recession the past few years; 2) those who have already borrowed money will have to repay thier loans, thus diverting a large percentage of money from more worthwhile expenditures or savings; and 3) if real estate prices decline to their 2001 levels, or lower, many borrowers will have a mortgage which substantially exceeds the value of their houses, thus encouraging massive nationwide abandonment, and eventual foreclosures. In the first phase of the decline, as real estate prices fall, speculative buyers will suddenly disappear, realizing to their amazement that, just like the stock market, real estate prices go both up and down. This first phase will probably take only a few years, but will likely see real-estate prices experience roughly half of their total eventual pullback. In the second phase of the drop, as banks are eventually saddled with millions of foreclosed properties, their eagerness to sell these properties will put additional downward pressure on the real-estate market as their selling will compete with both speculators selling and the usual sellers who wish to relocate, or whose owners have died, or who simply want to move. This second phase will be a more gradual drop than the first, but will likely last for several years. Since many major banks will likely suffer large losses from these sales, they will be subject to severe financial difficulties and potential bank failures, thus putting additional pressure on the overall financial markets. The Nasdaq may therefore end up declining as much in percentage terms as real estate itself, and perhaps more quickly. Look for the following typical "60 Minutes" coverage of the real-estate collapse in 2006: "Housing prices in Denver fell 15% in the past few months, in Las Vegas, 20%. In tiny Santa Fe, they collapsed 25%. Will your town be next?" Eventually, the trendiness of renting will hit the Styles section of the Sunday New York Times, in a cover article by Guy Trebay sometime in 2008: "Twenty-somethings Christie and Shelby decided to rent an apartment in Greenwich Village this year, rather than buying. 'Buying an apartment is like so three years ago', said Christie. 'Anyone who is not totally lost in the past is renting these days, since everyone knows prices will be lower next year. What's the point of throwing away your money on a stupid mortgage, like my older sister did?' Shelby chimed in, 'Your sister, my brother. Why go broke with nothing to show for it? If I spend all my money, it's gonna be on a really great mega-party that people will remember for years, not on some dumb old co-op that the bank is going to end up owning anyhow.'"

CIBC MAKES A BAD CALL (August 8, 2005): The brokerage firm CIBC announced on Thursday morning, August 4, 2005, that since the gold ETF caused gold mining shares to decline after its introduction late last year, that the upcoming silver ETF will cause the shares of companies which mine silver to similarly decline. They also stated that the price of silver would likely remain unchanged for the next two years or more. Let's consider both of these claims. First of all, the issuance of the gold ETF did not either cause the gold price to drop, or gold mining shares to decline, any more than the issuance of the first general equity closed-end funds in 1929 caused the U.S. stock market to fall later that year. More than one gold ETF had been planned for several years before the issuance of two such funds in late 2004, and both of them were further delayed for many months. Finally, the pressure from a sharply rising gold market caused the gold ETFs to make their debut at almost exactly the top of the market. This is no different from the introduction of new technology funds that always seems to happen at Nasdaq peaks, or the introduction of new municipal bond funds at peaks in that market. Gold fell in the first half of 2005 not because of the gold ETF, but because public sentiment toward the U.S. dollar had become so pervasively negative that even Newsweek, a non-financial publication, had a headline about "the incredible shrinking dollar". Gold mining shares declined not because of competition from the gold ETF, but because a double top in HUI, as is the case with almost any double top in a major index (such as the recent very bearish double top in QQQQ), is profoundly negative, and caused disappointed speculators to abandon these shares in the first 4-1/2 months of 2005. The silver ETF, on the other hand, is not being issued at the top of the silver market. It is likely to debut as silver is just beginning to recover from its own very bullish double bottom. It is therefore likely that CIBC will have both of their silver theories disproven: as the U.S. dollar continues its recent decline, gold and silver are likely to continue their recent rallies. These moves higher will be choppy with frequent pullbacks, of course, as they always are, but will likely see gold above $500 and silver above $9 or even $10 an ounce as early as 2006. Far from putting pressure on shares of companies which mine silver, the silver ETF will sharply increase physical demand for silver, especially as this ETF begins to outperform most other financial assets (including even the gold ETF, as silver is usually more volatile in percentage terms on both the up and down side). As the physical demand for silver increases, the incremental demand for it from new shares of the silver ETF will push its price even higher than it would have been without the silver ETF, which will therefore improve the profit picture for many silver producers, and sharply increase their share prices, rather than causing them to decline. Take advantage of the recent pullback by purchasing the shares of those companies which mine silver and were downgraded by CIBC. Some of these shares have already begun to bounce back a few percent from their deeply oversold early Friday afternoon nadirs.

AN IMPORTANT COMMENT ON THE RECENT SHARP INCREASE IN MEDIA COVERAGE OF THE U.S. RESIDENTIAL HOUSING BUBBLE (July 17, 2005): In recent weeks, there have been considerably more articles than usual about the so-called residential housing bubble in the U.S., even in non-financial publications. Some people have contended that a preponderance of such articles has positive contrary implications for housing prices. However, I believe that the current situation is much more like the unusually high media coverage of the Nasdaq in early 2000, rather than the preponderance of bearish articles about U.S. equities in late 2002, when they made an important low. Here's why: in 2002, almost all articles that discussed the Nasdaq near its multi-year low gave varying bearish price targets, such as 700, 500, etc. In addition, they gave advice as to which funds to purchase to profit from the Nasdaq decline, and which shares to sell short. They detailed how much each of these shares was likely to drop, and why. On the contrary, when there was a lot of talk about the Nasdaq bubble in 2000, almost none of the media coverage gave downside targets, or gave advice as to how to benefit from the upcoming decline. Instead, almost all financial articles in 2000 quoted some professor or other authority about how, at worst, the Nasdaq might fall to 4000, and why a sideways move was the most likely negative scenario. The media coverage of the real estate bubble today is very similar to the Nasdaq coverage of 2000, rather than the Nasdaq coverage of 2002. Most of the recent articles about real estate accurately detail specific instances of incredible price increases in specific regions in the past few years, but very few of them state that "real estate will fall by 25%" (or more), and none that I have seen give specific downside targets for various cities. The most negative commentators hint that a small drop is possible, or that a sideways move is the worst likely scenario. None of the articles that I have seen, and I do mean none, give advice as to how to profit from the collapse. They don't even suggest that one should sell one's vacation home or investment properties, much less that one should sell one's primary residence. Therefore, as with the Nasdaq bubble articles in 2000, the more intense media coverage of real estate today does not signify a bearish tilt by the press. It is the exact opposite: a typical attempt at a market peak by the media to comfort those who are nervous about recent sharp price increases, and to provide ample assurance that a serious price decline is not going to happen.

GOLD MINING SHARES CONTINUE TO COMPLETE THEIR HEAD-AND-SHOULDERS BOTTOM OF 2005, WHILE GOLD IS COMPLETING ITS THIRD HIGHER LOW OF 2005 (July 17, 2005): HUI, the Amex Goldbugs Index of Unhedged Gold Mining Shares, is completing its extended head-and-shoulders bottom of 2005. The left shoulder saw a low of 190.45 on February 8, so it is possible that this level will be visited one last time over the next few weeks. (July 25, 2005) The actual low for HUI was 191.62 on Tuesday, July 19, 2005. Gold itself made its 2005 bottom on the same day, February 8, at $410.75, and its second higher low on May 31 at $412.75. Last week, gold touched $417.00 on Friday morning, July 15, 2005. Gold is likely making its third higher low of 2005, so if it breaks below Friday's bottom, it will do so by less than one percent. The U.S. dollar appears to have already completed its counter-rally of 2005, as detailed in last week's update, while silver had also previously finished its bullish double bottom at $6.81, and currently stands at $6.95. Therefore, with less than one percent possible upside in the greenback, and less than two percent potential downside in both gold and silver, this week will provide a very good buying opportunity for gold mining shares. Physical silver should be purchased eagerly at any price below $7 an ounce, as such a buying opportunity will likely not be seen again, ever. (July 25, 2005) This statement already appears to be true, as silver has rebounded to $7.10. Physical gold should continue to be bought at any price below $425, which is also a final call on the yellow metal at such a low price. In addition to gold mining shares, many gold and silver coins and collectibles, even rarities, continue to trade only a few percent or less above their melt value. At some point in the future, this premium is likely to increase substantially, as it did in the late 1970s when gold became trendy. Palladium also completed a bullish double bottom at $170.

GOLD MINING SHARES CONTINUE THEIR UPTREND, EVEN AS GOLD RETREATS (July 10, 2005): Gold mining shares continued their uptrend which began on May 16. On Monday, July 5, 2005, HUI, the Amex Goldbugs Index of Unhedged Gold Mining Shares, touched an intraday low (196.24) exactly one cent below its previous trading day's low (196.25 on Friday, July 1). Thereafter, it continued in its two-month pattern of higher lows. It is interesting to observe that since bottoming on May 16, the price of gold itself has risen by only 1.2%, whereas HUI has gained 20.6%, indicating that when sentiment is extremely bearish toward anything, it is almost always worth buying, no matter what the fundamentals. If you have been kept in captivity without internet access for the past two months, be sure to complete your buying of gold mining shares as soon as possible. Gold appears to have made its third higher low of 2005 just above $420 an ounce, while silver retouched $6.81, which had served as support earlier this year. Palladium also appeared to complete a double bottom at $170. Continue to purchase gold, silver, and palladium, each of which have much greater upside than downside potential over the next year.

SY JACOBS EXPLAINS THE HOUSING BUBBLE BEST (July 4, 2005): I was going to make a remark about the absurd U.S. housing bubble, but in this week's Barron's, there is an interview with Sy Jacobs, a respected Manhattan money manager. The article is accompanied by a photo of one of my favorite small streets in New York City, located one block north of Washington Square Park in Manhattan. I will therefore simply quote directly from Mr. Jacobs: "In a letter to my investors recently, I looked back over the last 10 years and talked a bit about what I expect the next 10 years to be like. In addition to rates being a headwind, I said I suspect, timing aside, the bursting of the housing bubble to be a dominant theme for investing in financial stocks in the next decade. There will be major implications for financial stocks. We have gone through largely 10 years where the credit quality of lenders has been getting better. A lot of that has been driven by rising collateral prices. It's hard to lose when the price of the underlying collateral is going up. A change in the value of the collateral is going to be a second headwind in the face of financial stocks. Also, competition for making loans has increased because everybody feels good about making mortgage loans and real estate loans and it's human nature to loosen credit standards to maintain or grow market share, and that has been going on. During the next 10 years, we are going to be dealing with worsening, perhaps dramatically worsening, credit at some point. From a sociological point of view, housing feels so much like 1999 and the Nasdaq. Somebody showed me a Website today called condoflip.com that teaches how to flip condos. It made me feel like the end is near. There is a lot of speculation coming front and center, and it reminds me of a proverb, "What the wise man does in the beginning, the fool does in the end." Personally, I just sold my loft and I'm renting a townhouse. So it's clear how I feel. I'm trying to stay out of trouble and looking for situations on the short side where companies are exposed to housing, and where the market seems to be mistaking their recent growth for long-term growth, and where there's a lack of understanding of the cyclicality of the underlying business. In other words, where investors are mistaking the past for the future." Thank you, Mr. Jacobs. I definitely couldn't have said it better myself.

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".

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).

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.

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.

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.

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.

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 the most reasonable fees 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, it is also 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.

CURRENT ASSET ALLOCATION: My own personal funds are currently allocated as follows: LONG POSITIONS: stable value fund (retirement fund with stable principal paying variable interest, currently 4.75%), 32%; BEGBX (American Century International Bond Fund), 12%; other U.S. and municipal government bonds, including TLT, MYJ, and inflation-protected, 12.5%; MRK, 2%; gold and silver coins and related metals collectibles, 6%; other collectibles, 0.5%; cash and cash equivalents, negative 27%; SHORT POSITIONS: Nasdaq-equivalent (QQQQ, NDX) and related shorts, including SMH and CFC, 49.5%; net short gold mining shares, 12.5%.

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%. (December 18, 2005) At the current time, inflation is about 3.00% while the anticipated Federal funds rate is approximately 4.60%, yielding a real rate of return of positive 1.60%, its highest positive level in almost five years. Since gold and silver strongly prefer a negative real interest rate to a positive one, this is bearish for precious metals. 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 below 400 in 2010, more than doubling sometime thereafter, and then making a final double-bottom retreat to below 550 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. Important higher lows included $319.10 on April 7, 2003; $371.25 in the morning of Monday, May 10, 2004; $410.75 on February 8, 2005; and $428.00 on August 30, 2005. A decade or so from now, after the U.S. stock market has had some time to recover from a very deep bottom, gold is likely to 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.

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 1.81%, is between 6.5% and 10.5%. Great bull excesses are usually followed by equally severe recessions.

REMINISCENCE OF THE WEEK (January 8, 2006): In order to guarantee a minimum of exercise, I jog to the local train station each morning, and walk home from the same station each evening. When I am running in the morning, I pass several schools, along with dozens of little shops, so quite a few people have gotten to know me over the years, at least by sight. It is usually bright daylight at that time, so I am easily seen by anyone who cares to look. It is my favorite way to intimately observe the passing of the seasons, the slow life cycle of new stores opening and old ones closing, and the even slower inevitable process of people growing older and the neighborhood changing. In the evening, when I am walking home, it is mostly dark except during the late spring and early summer, so I pass almost invisibly. There is one group of about seven boys, probably in sixth grade, who occasionally wave to me at 8:15 a.m.; they are on their way to school, while I am jogging by in the opposite direction. Last week, around 8 p.m., as I was passing the park at City Hall, they saw me walking. I saw them suddenly stop their street game, heard them whispering among themselves, and then looked at them directly as they cautiously approached me. "You're the ones I see every morning, right?", I inquired. The leader of the group paused for a moment, then responded, "Yeah, but we're worried about you. How come you're not running?"

REMINISCENCE OF THE WEEK (December 26, 2005): In October and November 1987, I was fortunate to be able to spend some time visiting Tokyo. I could write several dozen reminiscences of that trip, with the smell of persimmons in the air, elevated trains running determinedly here and there, and the most unusual people that I met in the city's small parks. There was a series of over one hundred woodblock prints that were done of Tokyo by an artist named Hiroshige a decade before it became the modern capital in 1868; almost all of them show the famous Mount Fuji in the background, usually partially covered with snow. In real life, a resident of Tokyo almost never sees Fuji-san: besides being 60 miles away, with modern industrial pollution in Tokyo and frequent fog by the mountain itself, it is primarily a vision of the imagination. After I had spent about two weeks in the capital, there was one especially clear November afternoon that was said to be among the crispest in months, so I took the opportunity to ride an elevator in the downtown Kasumigaseki building all the way to the observatory level at the top. There were several dozen people milling around, almost all with cameras: most of them were locals with the same idea that I had. All of us looked in the direction of the famous mountain, but not even the faintest outline could be seen. Gradually, the hour became late, and as the sky became dimmer, most of the previously hopeful onlookers began to descend. Finally, the last brilliant light shone a deep orange, and suddenly Mount Fuji appeared, in all of its glory, perfectly backlit by the sunset. A few people gasped, and the entire room crowded together to take photos for one glorious half minute; then the sun's rays dimmed for the last time, and Fuji-san faded once more into invisibility.

REMINISCENCE OF THE WEEK (December 4, 2005): For the past nine years, I have lived across the street from a man named Roy. I don't even know his last name, but he was the first person other than the landlord to say hello, and had the most interesting stories about growing up in Scotland and how he studied piano from a young age. I invited him over to hear me perform some of my songs, and soon we became good friends. After listening to his brogue for several months, I decided to try to imitate it--when he wasn't around, of course. I eventually wrote a Scottish whaling song in Roy's honor and had the privilege of performing it for him before anyone else could hear it, including intentionally attempting to mimic his thick accent. He was totally silent for a full minute, then chuckled that "it sounds like the kind of tune we used to listen to around the fireplace when I was a kid". Roy then added, "Were you trying to sound like me, or did I just imagine that?" I continued to practice imitating his voice, but never got it precisely right. Roy loved to tell stories about "the good old days". He was always outside, chatting with neighbors, playing soccer with kids that happened to be walking past, or working on his house--if he would finish remodeling it, he immediately ripped it apart again, so that he could do it better the next time, and the next. Roy passed away this past Wednesday.

REMINISCENCE OF THE WEEK (November 22, 2005): I studied music for ten years at the Peabody Preparatory Institute in downtown Baltimore. The main building in those days looked very much the same as when it was first constructed, with almost everything decades old, including the ornate contraptions needed to get drinking water, the long, narrow benches on each floor, the elevators which had to be operated by a live person, and even the light switches, which were of the small black pushbutton variety not seen in most other buildings in the U.S. since the 1920s. One room even had a telephone dating back that far; although it no longer functioned, it still had its phone number imprinted (only six digits!). One day, I was sitting on the bench in front of the main elevator on the basement level, with my music books spread out along with my lunch, as I tried to eat while studying Mozart's 20th piano concerto. I always loved the basement floor the most, as I could hear distant sounds of many different instruments coming from all directions, mingled with the muted shouts of the ballet teacher barking directions to her students at the far end of the hall. A friend of mine boarded the elevator, telling me he was going to the fourth floor, the topmost one in the building. Feeling somewhat mischevious, and knowing that it would take a few minutes for the elevator man to stop at each of the floors along the way to let people out and in, I gathered together my books, my drink, and my food, put them quickly in my bag, raced up the marble steps to the fourth floor, unpacked everything, and arranged it as similarly as possible on an identical-looking bench in front of the same elevator. When my friend walked into the hallway, he stared at me for a few moments, then turned back into the elevator, wondering why he had ended up where he started. The elevator man had to explain to him that he really had changed floors. Finally, after another half minute, he broke out laughing, and kept on laughing for an unusually long time.

REMINISCENCE OF THE WEEK (November 1, 2005): In junior high school, I had a very unusual teacher of social studies for eighth and ninth grade. He was a charismatic man, but somewhat vain, and always eager to have the last word. On occasion, he would ask one of the students to make a paper crown. He would take his chair, place it on top of one of the tables, put the crown on his head, and declare himself king of the class. He gave each student a nickname, and called each of us by that name, rather than by our true name. I was "eighty-eights" because I played the piano, which has 88 keys. When the class would get too rowdy, he would inevitably shout, "All right, babies, sit down!" He had a previous career as a magician, and when we least expected it, he'd pull something out of a student's ear, or something equally whimsical. To his credit, he always made the class lively and informative, and was well prepared for each lesson. The other teachers considered him something of a freak, and did not always include him in their social gatherings. Once, we were studying the California gold rush, and he asked me to sing a few songs that were in the textbook. I'll never forget the first line of one of the tunes: "The happy days have passed, the mines have failed at last . . . ." For a teachers' talent show, he was the hit of the evening, performing incredible magic illusions. His greatest ability was to make even the most boring topic seem exciting.

REMINISCENCE OF THE WEEK (October 25, 2005): Three decades ago, my family took a car trip to the Outer Banks of North Carolina. My father decided that we should visit the starkly beautiful Bodie Lighthouse, which would have been an excellent idea, except that there was a sharp nail located in one of the parking spots in the lot, which our automobile naturally drove directly over, making the right rear tire immediately very flat. Given the somewhat remote location, we were stuck at the lighthouse for five hours. Bodie Lighthouse is located on a tiny island, and the opportunities for exploring it by foot are limited, especially as most of the small "land" area is below sea level, quite marshy, and not really walkable, even if you have thick waterproof boots, which we did not. There was a ten-minute film on the second floor introducing visitors to the history of the lighthouse. There was also an aquarium on the first floor that featured two healthy goldfish, one very sick goldfish, and one small, young crab. Well, there you have it. My brother and sister each watched the film, and watched it again . . . about 25 times altogether. After seeing it once, I concluded it wasn't going to win any Academy awards, so I went downstairs to see if the crab could catch the sick goldfish. After more than four hours, and about a hundred attempts, the crab finally succeeded. That was my cue to finally go to the bathroom. Oddly, when I look back on the trip, the Bodie Lighthouse is always the first thing that comes to mind, even 30 years later.

REMINISCENCE OF THE WEEK (October 16, 2005): When I was at Johns Hopkins, I joined the chess club, which met every Saturday night at 8 p.m., and was run by a real chess aficionado named Steven Immitt. There was no rule about who could join, but only guys did. The only space large enough to hold the dozen or so chess games that were typically played simultaneously was a room in the basement of the Student Union building. The same basement was host to the university's Rathskeller, a place where students would party hearty every night of the week, but especially boisterously on Saturday evenings. This was in the days when the drinking age was 18, beer was cheap, and disco dancing a la "Saturday Night Fever" was king, so it was common to have well-dressed, but very drunk students saunter, or more accurately stumble, from the Rathskeller into the chess club, and challenge one of us to a game. We had a grandmaster in our group, who loved to challenge these overdressed inebriated strangers, and who refused to play anyone unless there was a stake of at least a quarter. The rest of us usually witnessed at least a few speed-chess contests between this genius and some sorry drunk frat boy, the latter who soon proceeded to lose a few bucks, and then would usually turn either somewhat violent or occasionally break down in tears. The campus security had to be called in at least once per month when the situation would get out of hand, especially if the player had a few pals with him. A general melee sometimes ensued, with chess pieces, clocks, and/or a few bodies flying, and a lot more excitement than you usually associate with that usually sober, intellectual board game. On rare occasions, a female student wanting a break from the Rathskeller noise would wander into the club, leading sometimes to even more interesting situations to be described (perhaps) in another reminiscence.

REMINISCENCE OF THE WEEK (September 20, 2005): For ten years I studied piano and music composition at Peabody Preparatory in downtown Baltimore. I soon discovered a marvelous quiet sanctuary only a few blocks from the music school, which was the main branch of the Baltimore Public "Enoch Pratt" Library. Upon entering the massive old building, the main hall had incredibly high ceilings, with dozens of the old-fashioned card catalogs arrayed in a few dozen rows in the center. Paintings of Baltimore's entire founding Calvert family, including distant cousins, hung along the walls, as though one had entered the home of a wealthy and very eccentric surviving member of that family. If one continued in a straight line, one entered an even more unusual inner room, with a loft level of ancient books that appeared to rise into the sky, and which was apparently entirely inaccessible by normal human means, unless one had developed the ability to fly, since it was more than fifteen feet up, with no obvious staircase or ladder. The room contained a massive globe that the public was permitted to use and explore closely, as well as the library's primary collection of up-to-date reference volumes. On other floors were complex labyrinths of all kinds of books, including some very old ones, as well as the most modern, and an entire room of the collected works of Edgar Allan Poe. Walking into the building was like entering a temple; exiting, like returning to reality after a strange dream. Once, when I was nine years old and departed by the main entrance, I was immediately approached by a street bum who begged me for a quarter. That was an even more startling return to the real world than I had bargained for.

REMINISCENCE OF THE WEEK (August 15, 2005): When I was in junior high and high school, I had a friend whose father was a jazz musician named Jack. Jack had later left the music business to become a salesman, but continued to closely follow the jazz music scene. As my own music knowledge, which began with classical piano, gradually evolved into a broader appreciation of all kinds of music, Jack served as a teacher of jazz, going with me to see whom he considered the best performers of the 1980s, whether or not they were famous. We went together to nightclubs, to outdoor pavilions, to concerts in local universities where some of the greatest unheralded players sometimes had an audience of only 40 or 50, and even to shopping malls. In some cases, it was years later before I realized how special and unusual was this musical journey. On one occasion, we drove early on a Sunday morning for 1-1/2 hours to visit a friend of Jack who lived in a tiny town in western Maryland. His friend was also a former musician, and he had five kids still living at home, all of whom played different instruments. I ended up accompanying each of them in turn on the piano as they played everything from a Mozart violin concerto to a modern jazz clarinet improvisation. Although they had never seen me before, or even heard of me, they all treated me like part of the family and fed both of us a marvelous supper, after which more music followed. It was an unexpected day that I will never forget.

REMINISCENCE OF THE WEEK (July 4, 2005): When I first moved to New York City, I interviewed with many companies before finally deciding where I wanted to work. One of these interviews was at a bank on a very cold early December morning in 1985. I had been preparing to purchase a new overcoat since the previous winter, but had continued to procrastinate about making the purchase, so I was stuck that day having to wear an old navy blue sailor's pea coat with threads literally hanging off the sides, and with a few noticeable holes in various places. When I arrived at the interview, I naturally did not want the person meeting me to see the coat under any circumstances, and got a lucky break: the interview was on a high floor of the building, so when I arrived at the lobby, there was a closet with coat rack right there, near the elevator. I asked the doorman if I could use the coat rack, and he said to go right ahead. By the time I arrived at the interview, I looked professionally appropriate. After meeting with several people, and having what I thought had been a very successful afternoon, the last person interviewing me, a vice president, decided for whatever reason to accompany me all the way down to the lobby, as he was leaving for the day. When we arrived at the ground level, the doorman immediately understood what was happening, and did not attempt to retrieve my hopeless garbage from the closet. However, as we went to go outside, the vice president realized that I was going into the 20-degree evening without an overcoat. He inquired, "Aren't you going to be a bit uncomfortable outside?" I didn't know what to respond, so I said in a cheerful voice, "Well, it's just a short walk to the subway, and the wind has died down quite a bit." He called my bluff, and I had to stop from shivering as we went together to the #2 train downtown, and headed to Brooklyn, continuing the interview informally. He finally departed at the Atlantic Avenue stop to catch a commuter train, about a 15-minute ride from the bank. I waved goodbye, discreetly returned to a train going the other way, and returned to the interview building. Unfortunately, another person who had interviewed me was leaving just as I was about to take my coat out of the closet, so I had to whirl around, say a few pleasantries, and again go outside in the cold for a minute to wish him a proper farewell. I returned once again, and finally was able to get my coat in quiet and peace. Before returning home, I went out one final time in the chilly evening to purchase a proper winter coat. After all that, I didn't get a job offer from the company, for reasons unknown.

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.