Forum Archive Index - May 2002

["Nick Kearney" <nickk@quicksilver.net.nz>]

FYI

 

Nk

Goldie Locks And The Free Bears

No 50 May 24 2002

Economics

Page 1 - GOLD HOT TO TROT AND CRACKING THE GREENBACK: The mighty dollar has been falling for three months against nearly every other currency…

Page 2 - DOWN UNDER MOUNT IDA: International gold investor Frank Timis has bought a major position in the small Western Australian gold exploration company, Hamill Resources…

Page 3 - BUYING BACK THE FARM: Japan’s Sumitomo is said to have sold its Hunter Valley coal mine for just $1 million, yet the new operators hope to make $50 million profit this year…

Politics

Page 4 - TURKEY JOINS JIHAD: television programs and newspaper articles in Turkey have begun attacking Christianity and stirring up hatred among the Muslim majority…

Page 5 - MEDIA ACCUSE BUSH OF CONSPIRACY: Stories like NY Post’s “911: Bush Knew” charge Washington with knowing about the attack and doing nothing to prevent it….

Psychology

Page 7 - WHY CAN’T THEY READ? Archbishop Pell told activists disrupting Pentecost Sunday services in Sydney’s Cathedral that God created Adam and Eve, not Adam and Steve…

Gold Replaces Greenback

The mighty US dollar has been falling now for three months. Most currencies are gaining on it. Even the Australian dollar, since hitting its nadir of 48 cents, has risen 16%.

But it’s gold that everyone’s talking about, the greenback’s greatest competitor as the world's alternative currency. Gold is hot - up 13% against the dollar so far this year. The ones profiting are the bears, independent-minded mavericks and free spirits.

As yet only 1% of mutual fund and pension fund assets are in gold. Institution investors are not smart but rather conformist clones that always run with the herd. “The smart money group,” though, as our Issue Number 3 on August 10 2001 mentioned, “are more concerned about the economy than they are letting on. With the greenback increasingly shaky, to more and more people, gold, the ultimate crisis investment, is looking once again like the way to go for protection.”

Now what would happen if the world’s institutional investors suddenly wanted to double the proportion of their assets in gold from 1% to 2% - ore more? Take the Japanese. "Japanese buying of gold is tiny when compared to the country's GDP per capita," writes Hong Kong-based financial guru Marc Faber in his excellent Gloom Boom Doom Report. “Japan currently imports only about 100 tons of gold annually for a population of 120 million with a GDP per capita of more than $35,000. Compare this to India, which imports close to 900 tons of gold for a population of one billion but with a GDP per capita of only around $300. Compared to India's purchases with a far lower purchasing power, Japan's gold buying has so far been very small, but it could rise significantly in the future and become a price- driving factor in the gold market." See http://www.dailyreckoning.com/home.cfm?loc=/body_headline.cfm&qs=id=2088.

So what’s driving the yellow metal? Renewed inflation, the central banks’ excessive money-printing, war, terrorism and political crisis, the lack of alternative investments against a backdrop of a stagnant economy, an overpriced stockmarket and a falling bondmarket, supply and demand, especially with the closure of so many gold mines due to the historically low gold price.

But the biggest factor of all could be the huge derivative position which the major gold producers and the banks have taken out against gold. There are said to be more than 800 million ounces of gold tied up in derivatives contracts. That’s more than ten year’s world supply from mines. This strategy has been a very profitable gamble for the banks until now. But with the rising gold price these institutions are bleeding. To staunch the bleeding, cut a loss and extricate themselves from these losing positions, they have to buy gold. And that pushes gold higher still.

The bank most in jeopardy is JP Morgan Chase Manhattan. Like its debtor Enron, JPM has not been disclosing the information to its shareholders but the Office Of Comptroller Of The Currency in its Bank Derivatives Report for the 4th Quarter 2001 shows that JPM had about $41 billion of gold derivatives on its books as of December 31 2001. That's almost six times the hedge book of the next biggest player in the gold derivatives market.

We had already warned our readers in Issue No.7 on September 18 2001 in an article entitled Laughing All The Way To The Bank: “JP Morgan Bank’s quarterly financials lodged with the SEC Securities and Exchange Commission - see www.jpmorganchase.com/pdfdoc/jpmchase/10Q2Q01.pdf  - report stockholders' equity at $42 billion but a derivatives position of $26 trillion. In other words, each dollar JPM shareholders have put up has been leveraged by management to $600 worth of exposure to the risky derivatives market. That is on top of their exposure - their money many times multiplied as banks are wont to do - to residential house mortgages, business loans and government securities.

“Derivatives are financial bets: futures and put and call options. They are a zero sum game: for every winner there is a loser. So there must be some big losers out there. What is worrying is that, when one or more of them is broken by a sudden price swing in financial instruments, a chain reaction could be triggered. So when your investment adviser tells you to sell your shares and real estate, reduce your debt and get into cash, by cash he might not be referring to bank deposits but gold. 600 to one! How would you like to keep track of that every morning? Snap, crackle and pop.”

What will happen? Our No. 4 Issue of August 18 2001 posed this very question: “Are the banks safe? If not, where can one park one’s savings? Gold seems increasingly like the only safe haven, the last resort in the gathering storm. Some very interesting developments are emerging on the gold scene. Like who owns Fort Knox? Where has all America’s gold gone? They are saying the gold scam is bigger than Watergate.”

While JPM shares have fallen to $38 from their 2000 peak of $66 to $38, that’s still three times what they were fetching 10 years ago. Will JPM like the Japanese banks have to run to the government to bail them out? Will Treasury then release some of its gold reserves from Fort Knox “to stabilise the gold price.” What reserves, what Knox? who’s been sleeping in my bed? cried Goldie Locks.

Attractive Grades At Mount Ida

Chairman of Canada’s Gabriel Resources, Frank Timis, has bought a 15% stake in Perth-based junior gold explorer Hamill Resources - at a 30% premium over the share price.

When you know what you want, and there is not much of it around, you have to pay for it. Linking up with Timis gives Hamill (ASX: HML A26c) a whole new complexion. Timis achieved great results with Gabriel, taking it from a company not much bigger than Hamill - marketcap $3m - to a major miner with a resource base above 10 million ounces - and a marketcap approaching $300m. He recently raised some $50m for Gabriel through his contacts among European and North American investors. HML owns the Mt Ida project in Western Australia's Eastern Goldfields, encompassing the 18 kilometre Timoni shear with its high-grade old underground mine which produced about 260,000 ounces at 16gpt. Success at Mt Ida has rapidly transformed it into a going concern. Using non-debt financing HML will develop a modest but lucrative 24,000 ounce 24gpt orebody to generate $1 million profit over the next eight months - not too bad a start. HML has been finding more high-grade shoots below the initial discovery, with intersections including 2m at 98gpt and 4m at 77gpt. Then there is a joint venture with Canada’s Falconbridge exploring Sophie Downs nickel prospect in the Halls Creek area of the Kimberleys not far from the Sally Malay nickel mine. Maybe this is what attracts Timis? With private company Jackson Gold, HML is launching an initial public offering incorporating Northcote and Iron Range gold projects. Interests associated with the Bears Bar hold HML, which, it should be noted, is a highly risky investment. For further info, see hamill.com.au.

Buying Back The Farm

Sumitomo sold its struggling Wambo coal mine in the Hunter Valley for just $1 million a couple of years back to a likely group of lads called Hunter Coal.

We hear that not only did the Japs retain liability for cleaning up the site but also that the new operators are hoping to make $50 million profit this year alone after dramatically changing the way the mine is operated. Good for the workers, the trade unions, and also for the nation. But does anyone know who these lucky new owners are?

Turkey Joins Jihad

A campaign by Turkey police to shut down 18 churches continues, Christians forced to endure aggressive demonstrations by Muslims every Sunday.

According to Barnabas Fund News Service, demonstrators parade placards with slogans like Every Missionary Is A Spy. They accuse Christians of an alliance with Israel against Palestinians. Local authorities levy fines against churches and file claims against church leaders. In Izmit police keep watch at every service and have even followed congregation members home. In Ankara and Istanbul, Christian schools are being shut down. Until recently Christians in Turkey were free to worship without fear of harassment but in November 2001 several television programs and newspaper articles began attacking Christianity and stirring up hatred among the Muslim majority. The media reports prompted Turkey’s government to come down against religious liberty.

Bush Accused Of Conspiracy

With headlines like ‘911: Bush Knew,’ the US media is accusing Washington of having known in advance of a terrorist plane-hijacking and suicide attack and of doing nothing to prevent it.

But is this fair? In 1994 French authorities prevented Algerian terrorists from crashing a plane into the Eiffel Tower. In 1995 terrorists in the Philippines considered crashing trans-Pacific planes into US targets but didn't get beyond planning stage. In July 2001 Kenneth Williams, a counter-terrorism agent in Phoenix, noticed that a large number of suspected Islamic terrorists were taking flying lessons and tried to notify the FBI. On July 3 2001 Ahmed Ressam, a terrorist who was convicted for plotting to bomb LA Airport, testified that Al Qaeda was planning to target US airports. When President Bush became concerned about the number of terrorist threats directed at US targets abroad, he did order National Security Adviser Condoleeza Rice to look more closely at domestic security and received a briefing that detailed Osama bin Laden's exploits. During 2001 the Federal Aviation Administration issued almost a dozen warnings about possible terrorism including hijackings. Now the FBI think an attack is planned on the Statue of Liberty or the Brooklyn Bridge. But anyone who can plumb the mindset of a Third World terrorist and hatred for “Babylon The Great” would know that the key target could not be such impotent symbols. Ground Zero is more likely to be capitalism’s nervous system and world financial centre, the New York Stock Exchange. One person who is making sure lightning does not strike twice in the same place is Defence Secretary Rumsfeld. In his opinion another and worse attack is a “almost certain” - not a case of if but when. He believes it will involve nuclear, biological or chemical. With today’s mini-nuke technology and backpack-size bombs, even an innocent-looking hatbox in a cloakroom could be the instrument of ultimate vengeance. The perpetrators would not be concerned about accuracy, thereabouts would be enough to flatten Manhattan.

WARNING: THE FOLLOWING CONTAINS RELIGIOUS REFERENCES THAT MAY OFFEND SOME READERS. NON-SPIRITUAL TYPES PLEASE STOP READING NOW!

Adam And Steve

When Sydney Archbishop George Pell refused communion to homosexual activists at St Mary’s Cathedral on Pentecost Sunday, he told them, "God created Adam and Eve, not Adam and Steve."

RSM Rainbow Sash Movement is campaigning for recognition of the ‘dignity’ of sodomy. In church they wear coloured sashes, making a strident political statement in loud ‘body language.’ 20 went forward in Sydney, and at St Patrick's Cathedral Melbourne 12. But they were denied communion, although Archbishop Denis Hart offered them his blessing. (‘Ab illo benedicaris…’?) But in New York, Chicago, Minneapolis and Rochester, sashers claim they were given communion. By giving communion to public sinners, that is to the blatantly unrepentant, priests are creating doctrinal confusion. RSM is considering an appeal to Rome. A spokesman said, "Refusal to give communion is the second most serious sanction in church life after excommunication. So it's a very rare and very important sanction that's been imposed on us." But can’t they read? On the subject of sodomy, the Bible is as in your face as can be. See Romans 1 or Leviticus 20 or Genesis 18,19 or Corinthians 5,6,7. For these unhappy souls - not too gay really - the way out of their addiction and obsession is simply to ask. Heaven’s promise is conditional on just this. Ask and you shall receive.