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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 design.
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.
THE WHOLE WORLD IS IN A MASSIVE, EUPHORIC, INEBRIATED, UNSUSTAINABLE BUBBLE (February 12, 2006): There have been many financial bubbles in world history, but probably the current economic situation is the most extreme ever experienced, for two reasons: 1) it is pervasive across virtually all asset classes, and 2) so few people are able or willing to perceive the current situation as unusual or distorted. Race horses are selling for such high prices that buyers are admitting openly that they will probably never earn enough to become profitable investments. Even many multimillionaires are being priced out of the luxury yacht market. Art of all kinds, whether modern, ancient, or "primitive", is selling for record prices worldwide. Real estate valuations have just begun to decline from historic peaks in virtually all nations outside of Japan, which of course has the distinction of having been the first country to experience a real-estate bubble before its 64% nationwide plunge. The ratio of residential real estate prices to rents is just below last year's all-time record, worldwide. The ratio of residential real estate prices to incomes is just below last year's all-time record, worldwide. Equities worldwide are not showing quite the negative divergences seen in March 2000, when the Nasdaq was above 5000, but fear of a significant stock market decline is even lower now than it was then, and in fact in some surveys is at an all-time low. The ratio of debt to equity worldwide is at an all-time high. Total participation in real estate as a percentage of population is at an all-time record, worldwide. Total participation in the equity markets as a percentage of population is at an all-time record, worldwide. It's one enormous, glorious global party, but none want to admit that everyone is drunk, and not one participant dares to consider what the hangover is going to bring the next day. The "morning after" is not going to be a pretty sight. As bubbles beget bubbles, so do collapses beget collapses. One decade from now, we are likely to see depressed valuations for virtually everything, with the possible exception of certain commodities.
IT'S WHAT YOU FEAR LEAST THAT YOU SHOULD FEAR MOST (February 12, 2006): In a recent survey done by UBS, participants were asked to rank twelve potential risks to the U.S. economy in order of seriousness. The risk which was ranked dead last, meaning least worrisome, was the possibility of a decline in housing prices. Caveat emptor.
GOLD MINING SHARES ACCELERATE THEIR RECENT DECLINE (February 12, 2006): Gold mining shares have begun to accelerate their decline which began after HUI, the Amex Index of Unhedged Gold Mining Shares, had peaked at 349.48 on January 31. Given that the most speculative junior producers significantly outperformed senior producers in the final days of the rally, it is likely that the current downtrend is the fifth major correction in HUI in the past four years. If the current intermediate-term downtrend is of average severity, then HUI will make a low near 230. The 61.8% Fibonacci retracement of the entire gain in HUI from 165.71 on May 16, 2005 to its peak of 349.48 on January 31, 2006 would put HUI at 235.91. The level of HUI at its autumn nadir on October 20, 2005 was 214.30. Therefore, HUI is likely to make a major low this spring between 214.30 and 235.91. Since HUI held just above 225 immediately before its vertical ascent, my guess is that the best target price is slightly higher, around 228. HUI has a history of loving strong double bottoms, so 228 would represent exactly the kind of well-supported double bottom that this index typically enjoys.
THE KING IS DEAD; LONG LIVE THE KING (February 5, 2006): On January 31, 2006, the baton of U.S. Federal Reserve leadership transitioned from Alan Greenspan to Ben Bernanke, and it is surely no coincidence that the U.S. financial markets responded by making major shifts and by accelerating trends which were just beginning to be established. The U.S. dollar resumed its post-2004 rally after having declined for most of January. U.S. Treasuries, which had been slumping toward support, resumed their steady three-month rally. U.S. equities, which had only declined modestly from their peak of January 11, with some smallcap indices even setting new all-time highs on January 31, accelerated their downtrend in earnest. Major technology indices including QQQQ are back to their levels of the first trading day of 2006. The shares of commodity producers, especially gold mining shares, retreated from their highs of January 31, with senior producers especially leading the way lower as many speculative juniors continued to set new all-time highs. It is becoming increasingly clear that, since the U.S. economy is not showing sufficient signs of overall weakness to justify ending the pattern of Fed interest-rate increases, that this will be negative for equities of all kinds, especially those of commodity producers. As short-term interest rates increase, the real rate of return on investments such as bank CDs and short-term time deposits increases, making them more attractive relative to commodities, which pay no interest. In addition, as the increase in short-term interest rates causes the Treasury yield curve to become increasingly inverted--currently the most extreme in five years--the likelihood of a recession proportionately increases. In a worldwide recession, there will necessarily be reduced industrial production, and therefore at least a decline in the increase in demand for commodities, if not an outright decrease, thus leading to lower commodity prices over the next several months.
NEGATIVE DIVERGENCES INCREASE, WHILE KEY SUPPORT LEVELS LOOM LARGE (February 5, 2006): In virtually all world equity markets and all sector groups, smallcap shares are far outperforming large caps. In the technology sector, the most speculative companies with the least proven products have seen the greatest share price gains in 2006. With gold mining shares, even as senior producers have been modestly retreating, the shares of the most speculative producers have not only been mostly setting new highs, but have seen incredible share price increases in 2006 that cannot possibly be justified by their fundamentals. As is typical of a major market peak, new share issuance by gold producers is at its highest level since the summer of 1987. Meanwhile, major equity indices such as QQQQ are only 2% above the minor support level of the first trading day of 2006; that could provide a temporary pause in the current market decline once it is reached, but once it is inevitably broken to the downside, the next support level is far below, indicating the likelihood of a sharp collapse in the Nasdaq and related indices over the next several weeks. The recent demise of Google shows that the mystique of bubblemania is beginning to slowly wear off; reality usually bites hard.
MY FANS EAGERLY WRITE ME LOVE LETTERS--NOT! (February 5, 2006): On January 31, 2006, at 1:20:20 p.m. EST, HUI, the Amex Index of Unhedged Gold Mining Shares, hit a new all-time peak of 349.48. (HUI did not exist in 1987; if one extrapolates backward, the 2006 zenith was modestly below the level of the 1987 high). On the same day, silver futures made a high of $9.95, their highest level since March 30, 1984, while spot gold made a recent peak of $573.00 at 10:40:19 a.m. EST on Thursday, February 2, 2006, its highest level since January 22, 1981. It is interesting to observe how many e-mails I received within a few hours, and one dozen literally within a few minutes, of the January 31 peak in HUI--more than I have ever received in a single day. The language used in most of the correspondences was mostly similar to that which one might experience on a lengthy sea voyage, and I don't mean on the QE2. I am therefore convinced that HUI has seen its final high for the cycle, and will be experiencing a substantial decline, as detailed in the next paragraph.
THE TRUTH ABOUT GOLD MINING SHARES AND THEIR BULL MARKET (February 5, 2006): One reads or hears often in the financial media about how gold mining shares are in a "mighty bull market" or an "unstoppable upward trend". It is therefore important to take a sober look at the truth of the behavior of gold mining shares since their bottom of November 2000. It is unquestionably true that gold mining shares have performed extremely well since that time, as is evidenced by the number of gold funds which are in the top 50 of the best-performing mutual funds in the past five years; see
. From its historic nadir of 35.31 in November 2000 to its recent peak of 349.48, HUI had increased by more than 889% (not a misprint). Recently, its rise from its spring low of 165.71 to 349.48 represents a gain of more than 110%. It has also been the case, however, that HUI has had four substantial corrections since the spring of 2002, and if HUI is set for a decline, it could therefore be severe. Here are the four corrections:
2002: 154.99 on June 4, 2002 to 92.82 on July 26, 2002: 40.1%.
2003: 154.92 on January 6, 2003 to 112.61 on March 13, 2003: 27.3%.
2003-2004: 258.60 on December 2, 2003 to 163.81 on May 10, 2004: 36.7%.
2004-2005: 248.18 on November 17, 2004 to 165.71 on May 16, 2005: 33.2%.
In each case, the severity of the correction was proportional to the magnitude of the rally which preceded it. One can therefore conclude that the percentage of the current decline will likely be greater than 33% from its recent peak, but less than 40%.
THE TRUE LEGACY OF FED CHAIRMAN ALAN GREENSPAN (January 29, 2006): With Greenspan's stint as Federal Reserve chairman ending this coming Tuesday, it is worthwhile to examine his true financial legacy. The media have been almost unanimously adulatory, exclaiming how he steered the U.S. economy through both calm and stormy waters. The truth is that Greenspan has created the illusion of prosperity through the creation of a mountain of debt, both personal and private. As Warren Buffett has said, lend me a trillion dollars, and I'll show you a good time also. The U.S. economy appears on some levels to be generally prosperous, but that is only because Greenspan has strongly supported tax cuts, thus increasing profligate government borrowing, while even more enthusiastically encouraging reckless personal borrowing, especially mortgage and home equity loans, which are more than five times their normal historic ratio relative to GDP. If a person perceives himself to be better off, because the value of his house has doubled from $300,000 to $600,000, and that same person has reacted by borrowing $300,000, figuring it to be free money, then the spending of that $300,000 will indeed appear to make the economy more prosperous in the short run. The day of reckoning will be when that $300,000, plus years of compounded interest, will inevitably have to be repaid, especially if the housing bubble bursts, and the value of the house returns to $300,000, thus giving this person zero equity in his home. Another person in the same neighborhood, who recently bought his house at $600,000, on nothing down (43% of homes in the U.S. were purchased on no down payment in the past 12 months), and who sees his housing price fall to $300,000, will have a huge investment loss. If he is then forced to sell at this lower price, will the bank or mortgage company try to collect the other $300,000, or will they be forced to write it off? The whole economy is going to suffer badly in either case.
It should be kept in mind that most Federal Reserve chairmen were not able to create even a single financial bubble during their tenure. Alan Greenspan, on the other hand, was able to create two bubbles--a feat which may never again be duplicated. By foolishly cutting interest rates too low in 1998, he caused the Nasdaq bubble of 1998-2000, which ended not surprisingly with a 79% collapse in that index. By similarly cutting interest rates too low in 2001-2002, and encouraging the most absurd kinds of mortgage loans such as negative-amortization loans, in which the loan balance increases every month, he created the real-estate bubble of this decade, which will no doubt end the same way as the Nasdaq bubble did, even if it takes more years to completely unwind. The collapse of the U.S. real estate bubble will likely cause the second-worst recession in U.S. history, after the Great Depression, since so many people at all income levels will be adversely affected. One should therefore wish Alan Greenspan a long life, so that he is forced to see the full effect of the economic catastrophe that he has engineered.
U.S. EQUITIES MARKETS BEGIN TO SHOW MORE PERSISTENT NEGATIVE DIVERGENCES (January 29, 2006): In the past week, almost all equity indices are showing classic signs of negative divergences, as often happens before a sharp decline. The S&P 500 and Nasdaq are making lower highs, whereas the S&P Smallcap 600 is setting a new high. The best-established base metal commodity producers are making lower highs and/or double tops, whereas the juniors are setting new highs almost daily. Conservative oil producers are making double tops, whereas the most speculative drillers are continuing to surge higher. Senior and midcap gold mining shares are moving sideways, along with gold itself, whereas the most active silver futures contract hit a recent high of $9.80, and the most speculative gold mining shares had by far the greatest percentage advances. Volatility indices have plummeted sharply in just a single week. Investors, having virtually no fear, are buying those companies which have the most questionable and overrated prospects, just to get in on the action at any price. The behavior is not quite as stark as the all-time record divergences seen in March 2000, but they have exceeded those at other significant market peaks such as July 1990 and January 1973, and are amazingly similar to the readings seen at the market peak in the summer of 1929. Investors should be aggressively selling equities, rather than accumulating them.
REAL ESTATE CONTINUES TO DECLINE, WITH NO MEDIA COVERAGE (January 29, 2006): The U.S. Department of Commerce reported on existing home sales and new home sales in the past week. The media were busy concerning themselves with minor percentage changes in the total volume of sales--as though anyone cared, while ignoring the important fact that the PRICES of both categories have begun to decline after years of advances. Median new home prices in the U.S. have dropped for eight out of the past nine months. Inventory for both new and existing homes are at all-time records. When the media finally decides it is time to cover this story, the declines will be so substantial that no one will be able to ignore their importance.
NEGATIVE DEVELOPMENTS IN PRECIOUS METALS ARE BEING IGNORED BY THE MEDIA (January 29, 2006): As is typical, the financial media only mention positive developments when something is rising in price, and only mention negative scenarios when anything is declining. Thus, the sharp pullback in physical demand for gold and silver due to the sharply higher prices in recent weeks has been almost totally ignored, but is likely to be repeated as a major "reason" once gold has already fallen several percent. The talk of central banks turning from sellers to buyers, which was already old news when gold bottomed last May, will likely turn to which central banks are "suddenly" selling, and how that is putting downward pressure on the price. The Comex is likely to continue to raise the margin requirements for gold and silver speculators to protect commercials who are still substantially net short, and who are no doubt eager to have an opportunity to cover those positions.
GOLD MINING SHARES HISTORICALLY PERFORM VERY POORLY IN THE EARLY STAGES OF ANY BEAR MARKET (January 29, 2006): Recently I have seen a few essays in which gold analysts have attempted to show that gold mining shares can move in the opposite direction of the Nasdaq during an equity bear market. This conclusion is usually reached by comparing index levels of gold mining shares and the Nasdaq (or the S&P 500) at the beginning of any bear market, and then at the end of the same bear market, ignoring the long journey in between. The simple fact is that gold mining shares historically underperform the Nasdaq, and in fact underperform almost any general equity index, in the first several months of any bear market. For proof, one need look back no longer than the last bear market beginning, which was in 2000. Gold mining shares, as measured by HUI or XAU or any gold fund that you choose, had their biggest percentage decline in history that year (through November). The previous bear market in equities was in 1997-1998; again, gold mining shares had a huge decline, although some of that was of course due to the sharp drop in gold itself. In 1990, as the U.S. economy entered a recession, gold mining shares severely underperformed, again losing much more than the Nasdaq. In the stock market "crash" of 1987, although the gold price itself rose, gold mining shares collapsed almost as badly as in 2000, over a significantly shorter period of time, and far worse than the worst-performing general equity index. In the bear market of the early 1980s, gold mining shares also had a huge decline, bottoming virtually simultaneously with the Nasdaq in the summer of 1982. The reasons for this behavior are difficult to understand, but the pattern must be respected. Possible reasons include the following: 1) early in a bear market, investors dump shares indiscriminately, only later deciding that some companies will perform well in a recession; and 2) as market liquidity decreases due to a slowing economy, there is less money available for all equity sector groups, while much of the surplus cash is likely being diverted into rising long-dated Treasuries.
MISCELLANEOUS MARKET THOUGHTS (January 29, 2006): The U.S. dollar gave up several months of gains since the end of December, so as it reached a key technical level early this week, I sold half of my position in BEGBX, a fund of international government bonds (see asset allocation below). HUI, helped by a sharp upward spike in its most speculative names, set a new all-time high of 328.89 at 9:52:47 a.m. EST on Friday, January 27, 2006.
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.
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 1.2% 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 0.48%). 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 0.89% 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). 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 (February 12, 2006): 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%), 33%; BEGBX (American Century International Bond Fund), 6%; other U.S. and municipal government bonds, including TLT, MYJ, and inflation-protected, 13%; MRK, 2%; gold and silver coins and related metals collectibles, 6%; other collectibles, 0.5%; cash and cash equivalents, negative 25.5%; SHORT POSITIONS: Nasdaq-equivalent (QQQQ, NDX) and related shorts, including SMH and CFC, 49.5%; net short gold mining shares, 15.5%.
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. (February 5, 2006) At the current time, inflation is about 3.10% while the anticipated Federal funds rate is approximately 4.80%, yielding a real rate of return of positive 1.70%, 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. Investors in gold appear to have entirely forgotten its important negative correlation with the real rate of return, making it that much more important at this time. 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 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. (February 5, 2006) Amazingly, Jeremy Grantham, in the February 6, 2006 edition of Barron's, makes the exact same prediction: U.S. equities will achieve their deepest nadir in 2010. His logic is that any asset class typically takes about one decade to go from top to bottom (U.S. equities peaked in March 2000). U.S. residential real estate lovers, take heed: the peak in June 2005 implies that the bottom for U.S. housing prices will be around 2015.
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 1.89%, is between 6.5% and 10.5%. Great bull excesses are usually followed by equally severe recessions.
REMINISCENCE OF THE WEEK (February 12, 2006): In 1968, during the Presidential campaign of Humphrey versus Nixon, I took an informal survey in the cafeteria of my third-grade classmates. Everyone I queried was in favor of Hubert Horatio Humphrey, at least publicly, with the single exception of one person. This odd soul, whose name sounded something like Thornton Howell III, lived in one of the few 19th century stately mansions, not divided into apartments, that still existed in the neighborhood. I figured that Humphrey would surely win, given the apparent ratio of about 30 to 1 in his favor. I didn't appreciate at that time that my neighborhood could be anything other than completely typical of the nation as a whole, so when Nixon triumphed, almost all of us--including the teachers--were truly flabbergasted. None of us knew more than a few "strange" people who would have voted for Nixon. Things haven't really changed that much; among my current friends and even acquaintances, only a few odd souls seemed to prefer George W. Bush in 2004, and yet he still somehow emerged victorious. As they say, democracy is the worst form of government, except for all the others.
REMINISCENCE OF THE WEEK (January 29, 2006): When I was a sophomore at college, I saw an advertisement one day in the main computer room for a "half programmer". I didn't know exactly what that was, but I was interested in a part-time job, and figured I could do okay as a computer programmer, so I applied. It was a statistical research position working for a Ph. D. in a building a few miles away from the main campus. Since the head programmer was someone who saw me almost daily in the computer room, and for whom I used to buy cookies now and then, I was immediately hired. This was in the days before the internet and instant messaging, and also before PCs had been invented, so there would typically be one hundred or so people sharing the same minicomputer. We would communicate with each other by typing "who", to see who was logged in, and then sending notes to each other by login name. The computer allowed each user to enter a pseudonym, so instead of typing "Steven Jon Kaplan", I used the pseudonym "redhead". If I typed "who am I", the computer would respond, "You are REDHEAD". I was able to keep in close touch with my friends that way, even when I was several miles away. My boss, however, was very particular about following proper procedure, so I was forced to use a different login account, which made it difficult for my buddies to know that I was using the computer. I started to miss important messages and gossip, so I decided to use a different pseudonym when I was logged onto my employer's account. I chose "One Dumb Ass", which was catchy and easy to remember, so pretty soon my friends had no trouble finding me even when I was in my boss' office. After about 1-1/2 years on this job, I got a better offer from a different employer, so I switched jobs and forgot all about my old pseudonym, until more than a year later, when I was just a few days away from graduation. I got a phone call from my old boss, who asked me, "Did you do anything strange with any of my login accounts?" I had no idea what she was talking about, until she insisted, "I typed 'Who am I', and the computer told me 'You are ONE DUMB ASS'"! "Oh, yeah, that . . . I couldn't stop laughing.
REMINISCENCE OF THE WEEK (January 22, 2006): My brother is a well-published professor and researcher, and had been living within driving distance of my home since 1988. This past year he received a wonderful job opportunity in a distant city, even including full paid college education for his children, so he decided to make a move. I knew that this meant seeing him a lot less often, and was concerned that we would begin to lose touch. One evening, a few months ago, I was just beginning to walk home from the train station when my cell phone rang. It was my brother, who had just gotten into his car to drive home from his laboratory, and on a whim, decided to see if he could reach me. By an amazing feat of serendipity, although we are not even in the same time zone, our commuting hours from work to home exactly coincide. We now sometimes talk a few times per week. For fun, I'll have my brother listen in as I stop at a bakery and chat with the people behind the counter, or I'll hear my brother stop at a gas station and fill up the tank (sometimes he asks me to guess the price per gallon). It's not quite the same as when we shared a bunk bed all those years ago, but we're enjoying the unexpected chance to communicate so frequently.
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.
AUTOBIOGRAPHICAL SKETCH: I was born and raised in Baltimore, Maryland, U.S.A., and was graduated from the Johns Hopkins University with a Bachelor of Engineering Science degree in May 1982. I have been studying the precious metals markets since the 1970s, and began this web site in August 1996. I have been writing music and short stories since the mid-1960s. I maintain a fiercely independent stand toward the financial markets and toward everything else in life, and am not compensated for my writings by any person or organization with the exception of the advertising banners posted on this site. I am also a pianist, computer programmer, music composer, bridge player, and runner, and enjoy world travel. I appreciate all those who have quoted the various sayings on my web site over the years, which have wound up in some pretty interesting collections.
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