SILVER SHINES
Feb 22, 2005
MARKET NEWS DIGEST
-> Producer Prices Rise, Consumer Sentiment falls -Bloomberg
-> DOLLAR HEADLINES...(To Get Used To) -IFN
-> Greenspan as upbeat as a central banker can be -MW
-> Gold, silver gyrate on Greenspan, Iran news -Reuters
-> UK fund manager sees golden future -TheAge
-> Buyers of bogus WTC coins can get refunds -Advocate
-> Behind gold rush is a solid silver lining -FT
-> Investors see value in scandal-ridden stocks -USAT
-> Iran Warns U.S. Not to Play with Nuclear 'Fire' -Reuters
COMMENTARY
-> Washington's Legacy -Craig R. Smith
-> U.S. GOLD COMMEMS: Value & Growth -Tom Rodriguez
-> SILVER: Dimes 0n Downside, Dollars on Upside -RA Spohr
-> GREENSPAN'S WHOPPER -Bill Bonner, Daily Reckoning
-> An eighth of every paycheck -Jeff Jacoby, Townhall.com
-> NOT MUCH LEFT -Martin Peretz, New Republic
-> Iran: Heading for the Gospel -FridayFax
Founders' Quote of the Week

"We have abundant reason to rejoice that in this Land the light of truth and reason has triumphed over the power of bigotry and superstition, and that every person may here worship God according to the dictates of his own heart. In this enlightened Age and in this Land of equal liberty it is our boast, that a man's religious tenets will not forfeit the protection of the Laws, nor deprive him of the right of attaining and holding the highest Offices that are known in the United States."

-GEORGE WASHINGTON


MARKET NEWS DIGEST


Producer Prices Rise, Consumer Sentiment Falls -Bloomberg

Feb. 18 (Bloomberg) -- U.S. wholesale prices rose 0.3 percent in January, led by higher costs for cigarettes, vehicles and business equipment, a government report showed. Excluding food and energy, prices rose the most in more than six years.

The increase in the measure of prices paid to factories, farmers and other producers followed a 0.3 percent drop in December, the Labor Department said today in Washington. The core rate, which excludes food and energy, surged 0.8 percent, the biggest rise since December 1998. Treasury securities fell.

Manufacturers and other producers, struggling with rising costs for energy and other raw materials, are attempting to raise prices to maintain profits. Rising demand and less competition from abroad may be allowing some of the price increases to stick. Federal Reserve Chairman Alan Greenspan this week said inflation and expectations remain ``well anchored.''

``There is an inflation risk, not an inflation problem,'' said Ken Mayland, chief economist at ClearView Economics LLC in Pepper Pike, Ohio. Mayland was the best economic forecaster for the year ended in June 2004, according to Bloomberg Magazine rankings. ``There are pressures in the supply chain and some of these are beginning to bubble up.''

Economists forecast a 0.3 percent gain in the January producer price index, based on the median of 74 estimates in a Bloomberg News survey. The core rate was forecast to increase 0.2 percent, matching the previous month's rise.

Core producer prices rose 2.7 percent in January from the same month a year ago, the biggest rise since November 1995.

Sentiment Falls For 2nd Month

U.S. consumer confidence fell for the second straight month in February, a private survey showed, as slow job growth and the debate over changes to the Social Security retirement program eroded sentiment.

The University of Michigan's preliminary index of consumer sentiment dropped to 94.2 today, the lowest since November, from 95.5 in January. The expectations index, based on optimism about the next 1-5 years, fell to 83.4, the lowest since May, from 85.7.

The declines follow a drop in leading indicators reported yesterday by the Conference Board, adding to evidence that the U.S. economy is cooling. Concern about the cost of President George W. Bush's plan to overhaul Social Security and the slow pace of job growth and falling share prices in January is weighing on consumer sentiment, economists including Lynn Reasor said.

``Consumers are concerned about long-term issues, and there's been a lot of discussion about Social Security,'' said Reaser, chief economist at Banc of America Capital Management in St. Louis. ``Confidence is still at a moderately good level that will support consumer spending.''

http://www.bloomberg.com


DOLLAR HEADLINES...(To Get Used To) -IFN
Feb. 17, 2005

Dollar falls against euro despite upbeat US jobs data -AFP
LONDON (AFP) - The dollar fell against the euro despite upbeat US jobs figures, following testimony by US Federal Reserve Chairman Alan Greenspan before a ...

Levi Strauss Loss Tightens on Weak Dollar -Reuters
SAN FRANCISCO (Reuters) - Levi Strauss on Thursday posted a narrower quarterly loss due to lower costs and a weak dollar that boosted overseas sales values as ...

Dollar Drops Versus Euro as Traders Bet Rate Gap Insufficient -Bloomberg
17 (Bloomberg) -- The dollar fell against the euro as some traders bet that a widening interest-rate gap between the US and Europe is insufficient to extend ...

Gold Rises in London as Dollar Slumps Against Euro for 4th Day -Bloomberg
17 (Bloomberg) -- Gold prices rose in London as the dollar fell a fourth day against the euro on expectations that US interest rates won't rise enough this ...

Dollar under pressure from euro amid Greenspan testimony -AFP
LONDON (AFP) - The dollar weakened against the euro ahead of US Federal Reserve chairman Alan Greenspan's second congressional testimony and following his ...

Google.com (search dollar)

Related Stories:
THE IN-CREDIBLE SHRINKING DOLLAR -- 2-2-05 - By Craig R. Smith, SATC


Iran Warns U.S. Not to Play with Nuclear 'Fire' -Reuters
Feb 13, 2005
By Parisa Hafezi

TEHRAN (Reuters) - Iran warned the United States on Sunday not to attack its nuclear facilities and said talks with Europe might produce a deal to defuse the dispute over its alleged covert ambitions to build atomic weapons.

"They know our capabilities. We have clearly told the Europeans to tell the Americans not to play with fire," Iranian spokesman Hamid Reza Asefi told a news briefing in Tehran, referring to Washington's refusal to rule out the use of force.

Germany, however, warned that Iran could be referred to the U.N. Security Council for its nuclear activities -- a toughening of the European line that narrows a rift between Europe and Washington which Iran has tried for months to exploit.

An American newspaper, meanwhile, reported that U.S. military bases had been flying pilotless drone aircraft into Iran to hunt for tell-tale traces of nuclear weapons programs.

Asefi said Iran was determined to continue its nuclear program which it says is solely for peaceful power generation.

But Washington accuses Tehran of secretly pursuing atomic weapons under cover of the civil program and says it does not rule out any option to stop it acquiring them.

France, Britain and Germany have been trying to persuade Iran to scrap potentially weapons-related activities in return for economic incentives.

Iran has said repeatedly it will not give up plans to build a heavy-water reactor, which can be used to make weapons-grade material, in exchange for a light-water reactor offered by the Europeans, which is less useful for a weapons program.

"We will not under any circumstances replace our heavy-water research reactor," Asefi said on Sunday. "We will continue building our heavy-water reactor."

But Asefi said there was a chance of a deal with the Europeans, describing the latest round of Iran-EU talks, which took place in Geneva on Friday, as "deeper and more professional."

FULL STORY

Related Stories:
2-11-05 -- Nuke material astray: Halliburton loses it in Chelsea -AP By Jay Fitzgerald ... A container stuffed with radioactive material was lost in transit from Russia by Halliburton Energy Services and ended up sitting in a Chelsea warehouse for more than a month before anyone realized it was missing. U.S. Rep. Edward Markey (D-Malden) blasted the U.S. Nuclear Regulatory Commission for the mishap, saying the incident shows how lax federal regulations are about sensitive materials entering and crisscrossing the nation. ``In the face of overwhelming evidence that Al Qaeda is trying to obtain nuclear materials, the NRC still hasn't beefed up its rules,'' said Markey, whose office referred to the cargo as ``lost dirty bomb materials.''

'DIRTY WAR' Dramatizes Terror Attack

1-25-05 -- HBO's chilling docu-drama "Dirty War" offers a quick primer on the works of a terrorist organization. "Dirty War" also explores the complexities facing governments. Officials debate how much information should be released to the public before panic ensues. The most chilling scene ... the end: "It is what unites us and divides you."

[Ed. Note: In "Atomic Iran," Jerome Corsi exposes how terrorist regime bought the bomb ... and American politicians. Find out how you can preorder this eye-popping new book!]


Investors see value in scandal-ridden stocks
By Matt Krantz, USA TODAY
Big investors are beginning to take a big interest in scandal-ridden stocks.

Goldman Sachs Group has accumulated 7.2% ownership of Martha Stewart Living Omnimedia (MSO), making the investment firm the largest institutional owner of the company named after the jailed domestic diva, according to a Securities and Exchange Commission filing released Monday. Goldman's stake, measured at the end of the year, is now worth about $50 million.

The news of Goldman's move comes just days after Citigroup announced it has taken a 6.3% position worth about $3.9 billion in Fannie Mae (FNM), a mortgage industry giant that has been riddled with accounting concerns, according to a regulatory filing disclosed Friday. Meanwhile, Capital Research, the massive Los Angeles-based fund manager, disclosed that it raised its stake in Fannie Mae to 11.1%, worth about $6.8 billion.

These megabets by the nation's largest financial institutions show that investors are beginning to see value in the shares of some companies beaten down by various scandals. Some think other brave investors could follow. "In troubled situations where there's fear, uncertainty and doubt, you often get opportunities," says James Gipson, portfolio manager at Clipper fund, which also owns Fannie Mae.

http://www.usatoday.com


Greenspan as upbeat as a central banker can be -MW
By Greg Robb, MarketWatch
February 16, 2005

WASHINGTON (MarketWatch) -- Federal Reserve chairman Alan Greenspan delivered a clear message to financial markets on Wednesday: steady as she goes.

"All told, the economy seems to have entered 2005 expanding at a reasonably good pace, with inflation and inflation expectations well anchored," Greenspan said in remarks prepared for delivery to the Senate Banking Committee.

This is Greenspan's first discussion of the economy in four months. He said nothing to counter the view from Wall Street economists that the Fed would continue to raise interest rates at measured pace.

"The U.S. economic expansion has firmed, overall inflation has subsided and core inflation has remained low," he said.

Greenspan said that the Federal funds rates, when adjusted for inflation, "remains fairly low," despite the fact that the Fed has raised the funds rate to 2.5 percent from 1.0 percent last June.

Greenspan said that the rate of growth of productivity would be the key factor in the inflation outlook going forward.

An extended slowdown in productivity could lead to higher labor costs, he said.

But whether this turned into inflation would depend on how much slack there was in the economy "and how monetary policymakers respond."

The decline in long-term interest rates in the past few months is a "conundrum" that defies easy explanation. After trying on and discarding several possible explanations as incomplete or inadequate, Greenspan concluded: "For the moment, the broadly unanticipated behavior of world bond markets remains a conundrum."

To date, inflation has only increased modestly despite some slow down in productivity, higher energy prices and a decline in the exchange rate of the dollar, he said.

"For our part, the Federal Reserve will pursue its statutory objectives of price stability and maximum sustainable employment," he said.

The Fed chief seemed puzzled by the bond market's reaction to the Fed's recent tightening, calling the drop in long-term rates in U.S. and global bond markets a "conundrum."

He said financial markets in general seem quite optimistic.

"A broad array of financial indicators convey a pervasive sense of confidence among investors," Greenspan said.

This view doesn't seem to be shared by business managers, who so far remain cautious in hiring new workers and are obsessed with cost control.

While not going so far to say that markets should not be so confident, Greenspan did warn that previous episodes of confidence have led to excess.

"History cautions that people experiencing long periods of relative stability are prone to excess," he said.

Greenspan called for action on Social Security and Medicare before 2008, when the first of the Baby Boom generation will begin to retire. "Real progress on these issues will unavoidably entail many difficult choices," he said. "But the demographics are inexorable."

The chairman also repeated his plea for greater national savings, including increased fiscal discipline in Washington.

Greenspan said households have been spending some of the gains they've enjoyed from rising housing values, reducing their national savings, but keeping spending at robust levels.

If household wealth creation were to slow, he said, "households would probably perceive the need to save more out of current income," which would slow consumer spending.

http://www.cbs.marketwatch.com

2-17-05 -- Greenspan Undermines Bush's Social Security Plan -BL...Greenspan's testimony yesterday before the Senate Banking Committee undermined virtually all of the Bush administration's arguments for diverting some Social Security tax payments to fund private retirement accounts.
2-16-05 -- Greenspan calls for action on Social Security by 2008 -MWWASHINGTON (MarketWatch) -- U.S. lawmakers must address Social Security by 2008, and President Bush's general plan to introduce personal savings accounts into the system is a good idea, said Federal Reserve Chairman Alan Greenspan Wednesday.


Gold, silver gyrate on Greenspan, Iran news -Reuters
Feb 16, 2005

NEW YORK, Feb 16 (Reuters) - U.S. gold futures gyrated in the minus column Wednesday morning as markets fluctuated wildly after news of an explosion in Iran, though traders mostly were bracing for testimony from Federal Reserve Chairman Alan Greenspan later this morning.

Trading sources said gold also tracked silver to lower ground as profit-taking finally hit its sister metal after a dramatic four-day rally to two-month highs.

"That pretty much set the tone. Silver took out some stops (stop-loss sell orders) under $7.22-7.23, with some bargain hunting seen at the $7.11 area," said James Quinn, commodities commentator at AG Edwards & Sons.

By 9:31 a.m. EST (1431 GMT), April delivery gold on the New York Mercantile Exchange's COMEX division was down $2.70 at $424.60 an ounce, moving between $427.40 and $424.

A COMEX metals floor trader said gold was mostly following the euro. "There was some really good trade selling, and some locals were covering their short positions," he said.

Gold briefly perked up after the open as the dollar declined on an Iran television report that an unknown aircraft may have fired a missile near the southern port city of Dailam in Bushehr province where a nuclear power plant is being built.

Gold often rises in times of uncertainty as investors flock to assets viewed as safe havens for their money.

Countries in the region as well as in the West, including the United States, said they were checking the report.

Equity markets initially fell on the news, while crude oil, the euro, and the Swiss franc rose. But markets later paused after Iran TV said the blast may have been from a fuel tank falling from an Iranian aircraft.

Investors also were waiting to see if Greenspan would sound optimistic about the massive U.S. current account deficit, which has unnerved markets and pushed the dollar to record lows against the euro in 2004.

http://www.reuters.com

Related Story:
2-16-05 -- Weak dollar hits Reuters revenues -Reuters...Revenues at media group Reuters slipped 11% during 2004, mainly due to the weakness of the dollar, the group said.


Buyers of bogus WTC coins can get refunds -Advocate
By Christiana Sciaudone, Staff Writer
February 16, 2005

Consumers who were victims of false advertising and purchased the "2004 Freedom Tower Silver Dollar" may get their money back.

Last week, New York Attorney General Eliot Spitzer sent 178,000 letters to consumers on how to get a refund or cancel their orders.

In November, New York state Supreme Court Justice Joseph Cannizzaro of Albany County found the National Collector's Mint, based in Port Chester, N.Y., and operated by Avram Freedberg of Stamford, engaged in fraud, false advertising and deceptive business practices in marketing the coins.

The coin is ostensibly designed to commemorate the Sept. 11, 2001, terrorist attacks on the World Trade Center, and allegedly is made of pure silver recovered from the lower Manhattan site.

Cannizzaro ordered National Collector's Mint to stop engaging in the fraudulent and deceptive practices of which it was found guilty.

The company's Web site stated: "We are temporarily prohibited by a court order from accepting any orders for the '2004 Freedom Tower Silver Dollar.'"

National Collector's Mint said in a statement that it "is pleased that the court has resolved the issue of restitution. The court adopted a restitution mechanism that is fair to all parties involved and will make restitution to dissatisfied customers. NCM looks forward to taking proper care of all its customers.

FULL STORY

Related Story:

[Ed. Note: This story reminded me of Craig Smith's warning to the public via AP radio news back in Dec. 2001 about WTC coins ...

MR. SMITH WARNS AP ABOUT 9-11 COIN SCAMS
By David Bradshaw, IdeaFactory News
Dec. 11, 2001

PHOENIX, AZ - (IFN) - Mr. Craig R. Smith offered help to the AP radio audience in understanding why all coins are not created (nor perform) equally, in an interview with AP Radio News anchor Doug Whiteman.

According to Smith, "Some numismatic gold coins offer investors a high-performance asset if investors will take the time to get educated first."

Then Mr. Whiteman discussed the issue of how to avoid modern commemorative coin scams - asking Smith, "Should coins commemorating September 11 be acquired by investors?"

Smith's reply, "No, unless your interest in U.S. coins is purely for hobby, or to help support 911 relief efforts. These coins can be a wonderful keepsake to commemorate an important event or show support for the President. My concern is that investor's do not fall for a variety of investment-grade coin schemes such as;
1) Buying overpriced bullion or foreign coins that claim to be "numismatic" (rare collectibles) but are not.
2) Companies that offer "free storage" of purchased coins by the dealer, instead of swift delivery, which most reputable dealers provide. I've spoken to investors who have been waiting up to 18 months for the shipment of their coins to arrive. The law requires delivery within 30 days, no longer."

Special thanks to AP news for turning to America's most trusted brokerage of investment-grade U.S coins, for the straight story on coins.

Listen to the one-minute AP report
Read Mr. Smith's "BEFORE YOU BUY" 1997 article
Read Mr. Smith's "ALL COINS ARE NOT CREATED EQUAL" article


Behind the gold rush is a solid silver lining -FT
By Kevin Morrison
Feb 11, 2005

Gold may have been the focus of the metal markets this week with debate about whether the International Monetary Fund will sell or revalue its sizeable gold holdings, but silver quietly managed to outshine its fellow precious metal with a sharp move higher this week.

Silver often takes a back seat to gold. It is a smaller market, there are no sizeable official holdings by central banks, and demand for the metal has weakened in the past two years as photographic film companies such as Kodak switch to digital and make less film.

The metal's fortunes, however, closely track gold. Some traders refer to it as a “poor man's gold” as it costs about 2 per cent of the price of gold. Both metals have benefited in the past three years from the decline in the dollar, but Friday's move in silver prices to its highest level since the metal endured a dramatic slide in December looked odd given that gold remained flat as the dollar steadied.

Silver gained 24 cents or 3.5 per cent to $7.17/$7.20 a troy ounce, a gain of about 9 per cent on the week. In comparison, gold gained a little over 1 per cent over the week, ending at near $420 a troy ounce, a level that was seen in the previous week.

“Silver is so far off people's radars that it always comes as a bit of a surprise when we see very sharp moves,” said Andy Smith, commodities analyst at Mitsui Global Precious Metals.

http://www.ft.com

Related Story:
2-11-05 -- *LISTEN*: Michael Savage on Silver :60
4-20-04 -- MORGAN SILVER DOLLAR REPORT
1-1-05 --2004 INVESTMENT SCORECARD


UK fund manager sees golden future -TheAge
February 16, 2005

The outlook for gold in 2005 is brighter than last year with strong demand from investors and jewellers, Merrill Lynch Investment Managers, one of the world's largest managers of gold assets, has said.

The upward trend could last for some years to come, Richard Davis, a UK-based fund manager with Merrill Lynch's natural resources team, which manages more than $US6 billion ($A7.63 billion), said from Sydney.

"We're definitely in a bull market for gold at the moment," Mr Davis said.

"I would be surprised if it fell back below $US400 an ounce - I think it is more likely to retest the $US450 level."

Jewellery demand was strong in the fourth quarter, which surprised sections of the market given gold prices had been quite firm, hitting a 16-year high of $US455 in December.

Investment demand for gold has also picked up over the last couple of years.

"That's a very important source of demand because it's not always price sensitive - investment demand can rise as the gold price goes up because people like to buy things that go up in value," Mr Davis said. AdvertisementAdvertisement

Over the past year there has been a strong inverse correlation between gold prices and the US dollar, so as the dollar has weakened gold has strengthened.

"If you believe the dollar will weaken further, as many people do when they have a look at the big trade and budget deficits in the States, the gold price might do quite well," Mr Davis said.

But he said historically there have been times when that link has been completely broken, so the US currency does not necessarily have to weaken for gold prices to go up.

"Gold is not exclusively linked to the vagaries of US currency markets and, while other factors sometimes fail to make the headlines, they are no less important for the long-term outlook for gold," Mr Davis said.

FULL STORY


COMMENTARY


U.S. GOLD COMMEMORATIVES: Value & Growth -Tom Rodriguez, SATC
Feb 14, 2005

The questions I hear time and time again from most investor’s are “what area of the coin market should I look at now?” “Where is the best value for my money?” “Where can I expect the best possible growth for the long term?” The answer…GOLD COMMEMORATIVES!

How can one keep up with the loss of buying power their current stock and cash portfolios are generating? It’s real simple…DIVERSIFY into an asset that offers an INVERSE relationship to the US dollar holdings.

Yes, NOW is the time to look at one of the most UNDER-VALUED areas in the US rare coin market. Unlike US $20 Double Eagles which continue to be made available by Western Central Banks, Gold Commemorative coins offer both the astute and the neophyte investor the same opportunity. VALUE for their devaluating dollars. This area of the numismatic gold market has been overlooked by just about everyone...EXCEPT our Swiss America clients.

Only a mere thirteen coins make up the ENTIRE gold Commemorative set. It is one of only a couple of sets an individual can assemble prior to 1933 in gold. In the more affordable 11 coin set, we have recently seen price increases in select dates from as little as 2% to as much as 12.5% in the last 45 days! This very completable coin set is on the verge of some major price moves!!! Just look at the appreciation the two big $50 gold pieces (the 1915-S Octagonal and the Round that complete the 13 coin set) have done over the past three years. UP over 60%, and these are $75,000+ coins each!!!

The first souvenir gold coins were authorized by Congress for the Louisiana Purchase Exposition held in St. Louis in 1904. There are two varieties of gold dollars—one with the head of Jefferson who was president when the Louisiana territory was purchased from France; and the other President William McKinley who sanctioned the Exposition. Both are dated 1903.

The Lewis and Clark Centennial Exposition was held in Portland, Oregon in 1905. A souvenir issue of gold dollars was struck to mark the event with the dates 1904 and 1905. The two famous explorers are represented on either side of the coin. A bronze memorial of the Indian guide, Sacagawea, who assisted in the famous expedition, was erected in Portland, Oregon and financed by the sale of these coins. (These are the only “two-headed” coins ever minted by the US government.)

The exposition held in San Francisco in 1915 celebrated the opening of the Panama Canal. The five coins were struck at the San Francisco Mint and consisted of a $1 gold piece, $2.5 gold piece, two $50 gold coins and a silver 50ct half. Very, very popular mini-set within this magnificent set.

The sale of the McKinley dollars aided in paying for a memorial building at Niles, Ohio the martyred president’s birthplace. The obverse shows a profile of McKinley while the reverse shows the memorial building. These were stuck in 1916 and 1917.

Ulysses S. Grant’s centenary birth was commemorated in both silver and gold coins in 1922. The first Grant gold dollar issued contained a “star”; the second issue had “no star”. The obverse shows a bust of Grant, while the reverse shows the frame house in Point Pleasant, Ohio where Grant was born April 27, 1822.

And last but certainly not least, in 1926 a gold coin was authorized to commemorate the Sesquicentennial of American Independence (150th Anniversary). The obverse of this special gold quarter eagle ($2.5) has a standing female figure symbolic of Liberty, holding in one hand a scroll representing the Declaration of Independence and in the other the Torch of Freedom. The reverse bears a representation of Independence Hall in Philadelphia.

These little gems belong in nearly EVERYONE’S portfolio. Whether you want to build towards an 11-coin or complete 13-coin set or just want to include a couple of these into your overall portfolio, call your Swiss America representative. All coins are PCGS or NGC graded and are carefully selected for you by Swiss America. Take advantage of an area of the market that is offering SAVINGS of 60%-75% of their all-time highs (that means you are buying at .25 to .40 cents on the dollar). Act now to exchange your devaluing dollars into an ALREADY devalued asset. This is a win-win situation for you AND your future.

Related Stories:
U.S. GOLD COMMEMS: BUY THE DIPS! -Craig Smith (1/04)
U.S. GOLD COMMEMORATIVES (1903-1925) Research Report (5/01)


SILVER: Dimes To The Downside, Dollars To The Upside (Part 1) -RA Spohr, SATC
Feb 14, 2005

I believe that Silver's intrinsic value is over $15 per oz. right now.

As a value investor I look to buy undervalued assets, then sell them out at what I think they are worth. However, in the case of Silver, I expect to sell my holdings at prices well above the intrinsic value.

Lets take a look at some of the reasons why we may be in the last days of single digit Silver prices in our lifetime.

Unloved, unwanted and unheard of in the investment community. Back in 1999 Silver traded as low as $3.50 per ounce. Now, with Silver hovering around $7.00 some prudent investors are starting to take notice.

One of the most astonishing aspects about silver as a commodity is that demand has outstripped supply for nearly sixteen years, including projected deficits for 2005. Annual silver deficits have run as high as 200 million ounces in boom years and as low as 40-50 million ounces in years of recession. Even in years of economic stress, as in the recession of 1991 or more recently in 2002, demand continues to outstrip supply.

Silver inventories have fallen from around 2.2 billion ounces at the beginning of 1990 to less than 400 million ounces today. The cumulative draw down of inventories came mainly from investors during the 90's who had bought their silver in earlier periods at much higher prices. The great equity bull market of the 90's made many of these investors disenchanted with their returns on silver. As a result, these investors sold heavily throughout this period bringing more supply to the marketplace, which helped to offset silver production deficits.

Another factor weighing in silver's favor is the number of growing uses for silver. The main uses for silver have been primarily for photography, jewelry, silverware, electronics and batteries. Much of this demand is price inelastic. The small amount of silver that is used in applications makes it an insignificant factor. The amount used in the manufacture of a battery, an automobile, a computer, and in jewelry is insignificant when compared to the price of labor and other materials. A doubling in the price of silver would not effect what GM uses in making a car, Energizer in a battery or even silver jewelry. If a highly refined piece of silver jewelry costs several hundred dollars, a $5 dollar jump in its price or a tripling of its price would be insignificant. More important to the price would be its availability.

Today the main use of silver is still photography, jewelry, and silverware. However, new applications are growing each year. Silver is now used as a biocide and as an electrical and thermal conductor. Because silver has unique properties such as malleability, strength and its sensitivity to light and ability to endure extreme temperatures, substitutions are difficult if not impossible.

Silver is used in thousands of industrial applications. In fact, aside from petroleum, silver is used in more applications than any other commodity. Unlike petroleum, the amount of silver used per application, while vital to the finished item, is a tiny percentage of the item's total cost. For this reason, silver is considered to be price-inelastic for much of its industrial demand. This means that industrial users will not readily substitute other materials for silver in a price rise. If the price of silver jumps significantly, they will be more inclined to build inventories than eliminate silver.

When the inevitable silver shortage hits the industrial users, it will be only a matter of time befor some will try to protect themselves from those delays (and price increases). They'll do this the only way they can - by buying extra silver as a buffer. They will build, or attempt to build, inventories of silver that they never held before. This is a logical reaction to silver delays and price increases. After all, you don't risk the shutdown of an assembly line for want of a single, low-cost component.

[Ed. Note: Part II next week. This full story will be posted in the upcoming Real Money Perspectives "Economic Solutions" 36-page issue, due March 1, 2005. Request it now here.


GREENSPAN'S WHOPPER -Bill Bonner, Daily Reckoning
Feb. 11, 2005

"You are wasting your life and your talents writing about Alan Greenspan every day," said an old friend.

For years, we have been working on Greenspan's obituary. As far as we know, the man is still in excellent health. But we do not want to be caught off guard. Maybe we could even rush out a quickie biography, explaining to the masses the meaning of Mr. Greenspan's life and work.

Perhaps our friend is right. But then again, we weren't doing anything special before we started keeping up with the Fed chairman. Besides, we see something in Alan Greenspan's career... his comportment... his betrayal of his old ideas... his pact with the Devil in Washington... and his attempt to hold off nature's revenge at least until he leaves the Fed... that is both entertaining and educational. It smacks of Greek tragedy without the boring monologues or bloody intrigues. Even the language of it is Greek to most people. Though the Fed chairman speaks English, of course, his words often need translation and historical annotation. Rarely does the maestro make a statement that is comprehensible to the ordinary mortal. So much the better, we guess. If the average fellow really knew what he was talking about, he would be alarmed. And we have no illusions. Whoever attempts to explain it to him will get no thanks; he might as well tell his teenage daughter what is in her hotdog.

We persevere anyway, more in mischief than in earnest.

The background: The U.S. economy faced a major recession in 2001 and had a minor one. The necessary slump he held off by a dramatic resort to central planning. The "invisible hand" is fine for lumber and poultry prices. But at the short end of the market in debt, Alan Greenspan's paw presses down, like a butcher's thumb on the meat scale. The Fed quickly cut rates to head off the recession. Indeed, never before had rates been cut so much, so fast. George W. Bush, meanwhile, boosted spending. The resultant shock of renewed, ersatz demand not only postponed the recession; it misled consumers, investors and businessmen to make even more egregious errors. Investors bought stock with low earnings yields. Consumers went further into debt. Government liabilities rose. The trade deficit grew larger. Even on the other side of the globe, foreign businessmen geared up to meet the phony new demand; China enjoyed a capital spending boom as excessive as any the world has ever seen.

What the Greenspan Fed had accomplished was to put off a natural, cyclical correction and transmogrify an entire economy into a monstrous ECONOMIC bubble. A bubble in stock prices may do little real economic damage. Eventually, the bubble pops and the phony money people thought they had disappears like a puff of marijuana smoke. There are winners and losers. But in the end, the economy is about where it began - unharmed and unhelped. The households are still there... and still spending money as they did before... and the companies still in business. Only those that leveraged themselves too highly in the bubble years are in any trouble - and they probably deserve to go out of business.

Even a property bubble may come and go with little effect on the overall economy. House prices have been running up in France, for example, at nearly the same rates as in America. But in France there is very little mortgage refinancing... or "taking out" of equity. The European Central Bank was repeatedly urged to lower rates in line with those in America. It refused to budge. Without falling rates, there was no "refi boom." Nor were European banks offering "home equity lines of credit." Property could run up... and run down... and the only people who cared would be the actual buyers or sellers, who either cursed themselves or felt like geniuses, depending on their luck.

But in Greenspan's bubble economy something remarkably awful happened. Householders were lured to "take out" the equity in their homes. They believed that the bubble in real estate priced created "wealth" that they could spend. Many did not hesitate. Mortgage debt ballooned in the early years of the 21st century - from about $6 trillion in 1999 to nearly $9 trillion at the end of 2004. Three trillion dollars may not seem like much to you, dear reader. But it increased the average household's debt by $30,000. Americans still lived in more or less the same houses. But they owed far more on them.

We had given up all hope of ever getting an honest word out of the Fed chairman on this subject when, in early February, in the year of our Lord 2005, the maestro slipped up. His speech was entitled "Current Account." Jet lagged, his defenses down, the poor man seems to have committed truth.

"The growth of home mortgage debt has been the major contributor to the decline in the personal saving rate in the United States from almost 6 percent in 1993 to its current level of 1 percent," he admitted. Thus, he did bring the up the subject. Then, he began a confession: The rapid growth in home mortgage debt over the past five years has been "driven largely by equity extraction," said the man most responsible for it. By this time, listeners were beginning to put Mr. Greenspan at the scene of the crime. And pretty soon, even the dullest economist in the room was adding 2 and 2. Mr. Greenspan lowered lending rates far below where a free market in credit would have put them. With little to be gained by putting money in savings accounts... and a lot to be gained by borrowing... households did what you would expect; they ceased saving and began borrowing. What did they borrow against? The rising value of their homes - "extracting equity," to use Mr. Greenspan's own jargon. The Fed chairman had misled them into believing that house prices increases were the same as new, disposable wealth.

But the world's most famous and most revered economist didn't stop there. He must have had the audience on the edge of its chairs. He confessed not only to having done the thing... but also to having his wits about him when he did it. This was no accident. No negligence. This was intentional.

"Approximately half of equity extraction shows up in additional household expenditures, reducing savings commensurately and thereby presumably contributing to the current account deficit... . The fall in U.S. interest rates since the early 1980s has supported home price increases," continues America's answer to Adam Smith.

People take money out of their homes. With this source of spending power available to them, they see no reason to save. Instead, they spend - often on foreign-made goods. With no savings available domestically, America must look overseas for credit.

"The obvious and most important point is that rapid growth of U.S. mortgage debt did not come out of thin air," comments Stephen Roach. "It was, of course, a direct outgrowth of the Fed's hyper-accommodation of the post-bubble era - namely, short-term interest rates that have been negative in real terms for longer than at any point since the 1970s."

The crime of which Mr. Greenspan is guilty is fraud. Putting interest rates at an artificially low level, the Fed chairman intentionally misled Americans. Were it not for the Fed's low rates and easy lending policies, Americans wouldn't have thought themselves so rich. Their houses wouldn't have gone up so much; they wouldn't have taken out so much equity, because they wouldn't have had any equity to take out. They would have had to spend less, which would have reduced the U.S. current account deficit and diminished household indebtnedness.

"Lacking in job creation and real wage growth," explains Roach, "private sector real wage and salary disbursements have increased a mere 4% over the first 37 months of this recovery - fully ten percentage points short of the average gains of more than 14% that occurred over the five preceding cyclical upturns. Yet consumers didn't flinch in the face of what in the past would have been a major impediment to spending. Spurred on by home equity extraction and Bush Administration tax cuts, income-short households pushed the consumption share of US GDP up to a record 71.1% in early 2003 (and still 70.7% in 4Q04) - an unprecedented breakout from the 67% norm that had prevailed over the 1975 to 2000 period... At long last, Chairman Greenspan owns up to the central role he and his colleagues at the Federal Reserve have played in fostering these developments."

Our own Fed chairman, guardian of the nation's money... custodian of its economy... night watchman of its wealth...

How could he do such a thing? And yet he has done it. He turned a financial bubble into an economic bubble. Not only were the prices of financial assets ballooned to excess... so were the prices of houses... and so were the debts of the average household.

Where does it lead? The force of a correction is equal to the deception that preceded it. Mr. Greenspan's whopper must be followed by a whopper of a slump.

http://www.dailyreckoning.com

Editor's Note: Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons).


An eighth of every paycheck -Jeff Jacoby, Townhall.com
Feb. 14, 2005

You don't have to be a financial wizard to know that Social Security is a lousy investment. Unlike the money you deposit in a bank or salt away in an IRA, you don't own the money you pay into Social Security. You have no legal right to get those dollars back, and when you die you can't pass them on to your heirs. Nor can you use your Social Security account before you retire -- you can't borrow against it and you can't cash it in. You aren't allowed to put the money into a balanced portfolio. You can't even watch as the interest accumulates, since your Social Security nest egg doesn't earn any interest.

Your nest egg, in fact, doesn't even exist. Because Social Security is financed on a pay-as-you-go system, the dollars withheld from your paycheck today aren't being saved in an account with your name. They are immediately paid out to retirees. The benefits you receive when you retire will be funded by the payroll taxes then being collected. But because the ratio of workers paying in to retirees taking out is steadily shrinking -- it has plummeted from 16 to 1 in 1940 to 3 to 1 today -- Social Security is headed for a crisis.

Within 15 years, the system will be paying out more in benefits than it collects in taxes. Its shortfalls will grow larger and larger. Bankruptcy will loom. To save Social Security, Congress will have no choice but to sharply raise payroll taxes, go even more deeply into debt, or slash the benefits paid to retirees.

This of course is the background to President Bush's campaign to create personal investment accounts, which for the first time would allow workers to own and invest -- really own, really invest -- part of the Social Security tax taken from their paychecks. With personal accounts many of the features that make Social Security such a crummy deal for today's workers would be transformed into a package most of them could support. A social-welfare program created in the age of gramophones and the Model A would be updated for a world of iPods and superhighways.

But to many Democrats, such talk is heresy. Letting Americans own some of their Social Security would be too risky, they argue - another way of saying that Americans are too dumb to be entrusted with their own money. Much better to continue entrusting it to Washington, which has managed Social Security so skillfully that workers younger than 50 know they will never get back in benefits what they are paying into the system now. (Perhaps that explains why 58 percent of Americans under 50 support personal accounts, according to a new poll by Zogby International.)

Social Security wasn't always a sucker's game. As with all Ponzi schemes, players who got in early made out like bandits. For many years, Social Security deductions were minuscule. Until 1949, the combined employer/employee tax rate was only 2 percent, and it was imposed on just the first $3,000 of income, for a maximum payroll tax of just $60 a year. The first Social Security recipient was Ida May Fuller of Ludlow, Vt., who retired in 1940 after having paid a grand total of $44 in payroll taxes. By the time she died in 1975, she had collected $20,933.52 in benefits -- a return on her "investment" of more than 47,000 percent.

It wasn't really an investment, of course. It was a forced transfer of wealth from younger persons to an older one. And as the number of Ida May Fullers grew, and the value of their benefits increased, the amount of wealth that had to be transferred kept climbing. By the time I entered the workforce in 1975, the Social Security withholding rate was 9.9 percent, applied to wages of up to $14,100. Maximum tax bite: $1,395 a year -- more than 23 times the $60 of a generation earlier.

And a generation later? Today Social Security skims off 12.4 percent of the first $90,000 earned - one-eighth of every paycheck. There are no exemptions, no deductions. It kicks in from the very first dollar of income. It is the biggest tax the average American household faces -- 80 percent of us pay more in Social Security taxes than we do in income tax.

One tiny notch at a time, payroll taxes have been ratcheted up to a level that would have been unthinkable in Franklin Delano Roosevelt's day. No wonder Social Security is so unpopular among the young. It provides no security for their retirement, while it impoverishes them in the present. In exchange for an eighth of their earnings today, it guarantees nothing but higher taxes tomorrow. That there are politicians who defend so regressive an arrangement wouldn't have surprised FDR. But how shocked he would be that they call themselves Democrats.

http://www.townhall.com

Related Story:
2-3-05 -- A PLAN TO UNITE AMERICA ON SOCIAL SECURITYBy Craig R. Smith.


NOT MUCH LEFT -Martin Peretz, New Republic
Feb. 17, 2005

I think it was John Kenneth Galbraith, speaking in the early 1960s, the high point of post-New Deal liberalism, who pronounced conservatism dead. Conservatism, he said, was "bookless," a characteristic Galbraithian, which is to say Olympian, verdict. Without books, there are no ideas. And it is true: American conservatism was, at the time, a congeries of cranky prejudices, a closed church with an archaic doctrine proclaimed by spoiled swells. William F. Buckley Jr. comes to mind, and a few others whose names will now resonate with almost nobody. Take as just one instance Russell Kirk, an especially prominent conservative intellectual who, as Clinton Rossiter (himself a moderate conservative) wrote, has "begun to sound like a man born one hundred and fifty years too late and in the wrong country."

At this point in history, it is liberalism upon which such judgments are rendered. And understandably so. It is liberalism that is now bookless and dying. The most penetrating thinker of the old liberalism, the Protestant theologian Reinhold Niebuhr, is virtually unknown in the circles within which he once spoke and listened, perhaps because he held a gloomy view of human nature. However gripping his illuminations, however much they may have been validated by history, liberals have no patience for such pessimism. So who has replaced Niebuhr, the once-commanding tribune to both town and gown? It's as if no one even tries to fill the vacuum. Here and there, of course, a university personage appears to assert a small didactic point and proves it with a vast and intricate academic apparatus. In any case, it is the apparatus that is designed to persuade, not the idea.

Ask yourself: Who is a truly influential liberal mind in our culture? Whose ideas challenge and whose ideals inspire? Whose books and articles are read and passed around? There's no one, really. What's left is the laundry list: the catalogue of programs (some dubious, some not) that Republicans aren't funding, and the blogs, with their daily panic dose about how the Bush administration is ruining the country.

Europe is also making the disenchanting journey from social democracy, but via a different route. Its elites had not foreseen that a virtually unchecked Muslim immigration might hijack the welfare state and poison the postwar culture of relative tolerance that supported its politics. To the contrary, Europe's leftist elites lulled the electorates into a false feeling of security that the new arrivals were simply doing the work that unprecedented low European birth rates were leaving undone. No social or cultural costs were to be incurred. Transaction closed. Well, it was not quite so simple. And, while the workforce still needs more workers, the economies of Europe have been dragged down by social guarantees to large families who do not always have a wage-earner in the house. So, even in the morally self-satisfied Scandinavian and Low Countries, the assuring left-wing bromides are no longer believed.

The conflict between right and left in the United States is different... FULL STORY


Iran: Heading for the Gospel -FridayFax
Feb 11, 2005

"Not only Iranians in western exile, but also Muslims in Iran are coming to faith in Christ in their thousands," reports the aid organisation Open Doors in their February newsletter.

"In the 1980's, we rejoiced over two or three new believers each month. In the 1990's, we were impressed when we heard about a group of new believers. Today, we are just somewhat surprised to discover an entire new underground church," says an Iranian pastor.

Islamic Revolution left a spiritual vacuum

The Islamic Revolution took place in 1979; the Shah was deposed, and Ayatollah Khomeni ruled the nation with an iron grip. Almost all Iranians were at least nominal Muslims. There was a minority of around 250,000 Armenian and Assyrian Christians who were allowed to practise their faith, but not in Farsi, the national language, and were forbidden to evangelise, of course. That caused an exodus of Iranians; half of the Christians emigrated. But after 25 years of the Islamic Revolution and its propaganda promising answers to all life's questions, people are disappointed in Islam and its broken promises.

60% of all Iranians know the Gospel

So the nation set off on the quest for alternative answers, also looking at the repressed Gospel. People are coming to faith in Christ as never before: an Iranian who emigrated to Scandinavia for economic reasons found Christ there. On his first visit to Iran, he was itching to tell his relatives of his new faith. Within one month, 50 of his relatives came to faith. By the time he returned again one year later, the church had grown to over 250 believers. "60% of all Iranians have heard the Gospel. We find these people everywhere!" said one member of the Iranian security services. Children of ministers and Mullahs are also coming to faith. Every day, 50 Iranian youths secretly join a Christian church, according to Shiite leader Hassan Mohammadi of the Iranian Ministry of Education, speaking to a group of students in Tehran. "By saying that, Mohammadi inadvertently admitted that the Iranian Republic has failed as a theocratic regime," the father of one student commented to the Iranian press agency IPS.

The weeping Mullah

One example of the openness to the Gospel: an Iranian Bible courier was on a long bus journey. The bus was very modern, with air conditioning and a video player. The Bible courier went to the driver and gave him a video of the Jesus Film, asking him to play it. The courier was then shocked to discover a Mullah a few seats behind him. How would the Mullah react to the Jesus Film? The man could not keep his eyes off the video, and soon jumped up, shouting with a shaking voice "Please be quiet! This is a film about a holy man, the Prophet Jesus. His life deserves our full attention!" Immediately, the noisy bus fell silent, and the passengers concentrated on the video. At the end of the film, which ends with an evangelistic call, the Mullah sat in his seat, weeping.

Far more than a quarter of a million Christians

These developments are a catastrophe for the Islamic authorities. They have lost control of the church. In September 2004, they arrested 86 Assemblies of God pastors, "an act of desperation," according to Open Doors. Pastor Hamid Pourmand, who is still in prison, could face the death sentence, because he is an ex-Muslim. The other pastors have since been released. Christians meet in independent groups which are springing up like mushrooms - with the exception that they are invisible. In contrast to most Islamic nations, new believers are not immediately expelled from their families. Quite the contrary - the relatives often follow the new believers in their change of faith. There are now far more than a quarter of a million believers in Iran, according to the Iranian authorities - in a naturally conservative estimate.

Source: Open Doors
To subscribe or unsubscribe, please visit www.bufton.net/fridayfax


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ABOUT THE EDITOR

David M. Bradshaw is Editor of Real Money Perspectives, publisher of Rediscovering Gold in the 21st Century: The Complete Guide to the Next Gold Rush (7/01) and has been an economic commentator since 1987, when he produced the World Economic Perspectives radio show. In 1997, he produced a one-hour TV documentary, "Preparing Wisely for the Next Millennium," which was distributed free of charge at Blockbuster Video nationally. In 1999, he produced a one-hour radio special, "The Big Picture: The Shape of Things to Come" discussing geopolitical, economic and spiritual trends in the 21st Century. MORE ... Valentine's Day 2005: First Things Remembered NOTE: Youngest daughter Braida Zoe (age 1) is now WALKING, clapping, waiving, says "bye-bye," her name, "mama" & "dada" to the correct parent -- and is our gift from God!


DISCLAIMER: All of the provided information is believed to be accurate, however errors are possible. The opinions in the Commentary section do not necessarily reflect the opinions of Swiss America. Past performance of any investment is no guarantee of future performance. All investments have risk.

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