Market Update 06-4
by Edgar J. Steele

May 4, 2006

We all know that silver and gold have been on a tear.  All commodities, in fact.  Fact is, when something like this happens all across the board, it is the measuring device that is being adjusted.  In this case, that device is the dollar...which is crashing.  But, you won't read about it in the newspaper or hear about it on the evening news.  They want you to think that inflation is under control, unemployment is low and everything is just peachy keen.  Oh, and we are winning the War on Terrorism, too.  And everybody thinks that George Bush is doing a splendid job.


It quite simply cannot be stated any more bluntly than by the excerpt from the article I enclose below.  "Policymakers (including everybody who runs the corporate fascist oligarchy that America has become) agree the dollar must fall."

While this article excerpt is right on the money (no pun intended), it says nothing about fiat currencies in general.  Fact is, all fiat currencies are falling, which makes the dollar's decline seem less radical.  Use common sense and pay attention to reality as manifested in the form of prices all around you.

There no longer is any doubt in my mind whatsoever about the wisdom of going into debt today to buy physical silver.  If you have to ask, "Why silver?" you should check my archives.

Because of the possibility of a complete meltdown, I still consider it somewhat risky to do it as I have done - by investing debt proceeds in mining stocks - so be prepared to exit with enough to pay off all debts sometime during the upward silver price hyperbola (I'm thinking maybe when silver's spot hits $80 or so).  When the market crashes, all stocks will crash.  Many mining stocks will come back.  Some won't.

Even in a complete meltdown, lenders will be able to find delinquent borrowers.  Regardless, always keep half to two-thirds of your total investments in the real thing and take delivery.

Remember to have priorities.  A safe and productive place for your family to tough out the coming hard times is first.  Food stores.  Independent water and sewage.  A way to defend what you have.  Always have 6 months' living expenses, including debt service, in cash, even though the dollar is falling like a rock.  These things are more important than any other sort of investment.
Those of us who are "coal-shaft canaries" really must have an American exit plan (think of the Von Trapps trekking over the Alps).  We, in particular, must confront the very real possibility of transporting our families and whatever wealth we have safely out of the country should Orwell's vision of a boot smashing into a face forever come true in America.  First step:  get your passport renewed and made current for the next ten years.  When you figure out where to go, please let me know.

Previously, I have touted North American Palladium's stock (PAL).  They turned in a couple of quarterly reports that were a little ugly.  I have noticed that their stock price always dives just before their public announcements, a clear indicator of insider selling, either directly or through straw men.  Twice I have written and invited them to disabuse me of this notion.  Twice they have ignored me.  In a court of law, I can get a jury instruction that says that a witness who maintains silence in the face of an allegation can be presumed to have assented to its truth.

In the face of PAL's stony silence, coupled with the mystifying stock performance of PAL in the face of a doubled spot price for palladium, which is not explained by their last two quarters' operating and financial reports, I am forced to conclude something is up and must, finally, recommend the liquidation of PAL stock.  I will be selling mine tomorrow, right alongside you, if you decide to do so.  I still believe in palladium vis-a-vis other metals, so a good switch would be to Stillwater (SWC).  Used to be, PAL went up and down $2 for every $1 in SWC movement.  PAL's 6-month performance has been bad enough lately to bring it about equal to SWC, which should pull ahead from here on out.  A better switch would be to physical silver (or palladium, for that matter).  Those who bought PAL on my recommendation should still be showing anywhere from 25-50% appreciation, so it isn't such a bitter pill to swallow.

GoldCorp (GG) continues to be better than gold, of course.  Now at $40, I first touted it at under $5.  Hang on, because it is going to be a wild ride.  Interestingly, GG did respond rather stiffly to my complaints about the outrageous stock options and bonuses recently granted to GoldCorp's officers and directors, which none of them even begin to deserve.  Even so, the stock just keeps going up.  Hard to argue with success, but I do not like companies that are looted like this by the executive suite.  They always end up badly.  Let's hope that GG's end still is far in the future.

Silver stocks?  I dunno.  Coeur d'Alene Mines (CDE) just had its Bolivian property nationalized a day or so ago.  It's getting real close to hunker-down time.  Maybe the new silver ETF (SLV, I think it is) issued by Barclay's would be a reasonable stopover.  Again, physical silver is a sure thing.

Remember, it is not just the dollar that is tanking.  All fiat currencies are in deep trouble and sliding down as a unit.  The dollar simply is leading the slide and gaining speed faster than others.  Think twice before deciding to hedge your dollar-denominated assets by switching some or all into those denominated in a foreign currency.  An ebbing tide lowers all boats.  Mud flats stink.

This Market Update is going to my entire list...what's left of it, that is, after the chaos of finding a new way to send out my newsletters.  Please let others know, because only a fraction of my original list has managed to find its way home and my writings are getting very little play in forums that used to think highly of them.  Odd, since I have been right on the money about the dollar, silver, gold, palladium, George Bush, Iraq and a host of other things.  Too right, apparently.

You can modify preferences after you sign up, to select just these financial discussions, if you prefer (or just the ranting and raving, on the other hand, like A Day Without Meskins).  After another reminder, I think I will be sending these Market Updates just to those who have selected the financial sub list.

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The following excerpts are from an issue of "The View," put out by Global Markets Investment Advisors, LLC, and entitled, "The Coming $ Collapse," written by John Wibbelsman.  For the complete article, go to this URL:  http://www.gold-eagle.com/editorials_05/wibbelsman050206pv.html 

One of the contributing factors in our call for a financial crash is a collapse in the U.S. dollar. Recent pronouncements by world policymakers suggest they are willing to let the dollar fall in an attempt to cure large global imbalances. By asking for a devaluation of the dollar, policymakers are unwittingly sowing the seeds of the forthcoming financial crash.

We now believe the medium-term and long-term direction for the dollar is down. Further dollar weakness from here will cause a continued loss of confidence in the dollar and ultimately dollar-based assets. The spillover effects of the dollar collapse will create upward pressure on interest rates that will cause the U.S. bond market to crash. The final spillover effect will be an extended crash of the U.S. stock market.

Last month's issue of The View detailed how the U.S. government is pressuring China to revalue their currency upwards, which in effect will weaken the U.S. dollar. This month, The View extends our currency analysis to include key pronouncements from world policymakers. Collectively, policymakers now agree the dollar must fall…

U.S. Dollar Index is Near its Lows

...since 1973 when the dollar began to float freely against most major currencies, (w)hile there have been periods of U.S. dollar strength, the long-term direction has been down...the dollar is trading just about 6% above its long-term lows.

The International Monetary Fund (IMF) wants the Dollar to Devalue

The IMF is an organization of 184 countries whose purpose is to work together to promote financial stability, trade, employment, economic growth and a reduction of poverty. Unfortunately, the track record of the IMF has been mixed and the organization has frequently recommended currency devaluation as a solution for struggling countries.

Now the IMF is calling for the U.S. to devalue the dollar...Here is what the IMF recently had to say about the state of the global monetary system in their just-released 2006 World Economic Outlook:

…an orderly resolution of global imbalances will require measures to facilitate…a realignment of exchange rates over the medium term, with the U.S. dollar needing to depreciate significantly from current levels, and currencies in surplus countries--including in parts of Asia and among oil producers-to appreciate."

World Policymakers want the Dollar to Devalue

Policymakers' worry over global imbalances has finally reached a crescendo. At a meeting ten days ago in Washington, D.C. the finance ministers and central bankers from seven large countries (the Group of Seven or G7) hammered out an agreement to "fix" the global imbalances.

Here is an excerpt from the G7 communiqué released after the meeting:

"In emerging Asia, particularly China, greater flexibility in exchange rates is critical to allow necessary appreciations…"

So one of the G7 solutions is to engineer an appreciation of the Chinese currency. Since the Chinese currency is pegged to the U.S. dollar, the G7 is essentially asking for to devalue the U.S. dollar. And who represents the United States at G7 meetings? The Secretary of the U.S. Treasury, John Snow and the Chairman of the U.S. Federal Reserve, Ben Bernanke.

When governments seek to devalue the purchasing power of a currency, every citizen suffers a loss. Historically, emerging countries like Thailand, Argentina and Mexico have struggled mightily after the devaluation of their currencies. Now, the largest developed market in the world, the United States, is asking for its currency to decline.

Following the release of the communiqué last week, the U.S. dollar fell 2.3% against the euro currency and the Japanese yen. We believe this is only the tip of the iceberg. Years from now, when financial commentators look back, we believe the G7's April 21, 2006 communiqué will be regarded as historic. The request for non-dollar appreciations (U.S. dollar weakness) will be seen as unleashing a torrent of market forces that eventually cause the global monetary system to break apart...


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Copyright ©2006, Edgar J. Steele

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