Nov 30, 2006

Gold Spot Price today... comments!


Nov 28, 2006

Codex Alimentarius. Ο "Νέος" Διεθνής Κώδικας Τροφίμων: Πάνε να μας δηλητηριάσουν "με το γάντι";

A Nutricidal Codex

By Shannara Johnson

Ever heard of the Codex Alimentarius? If not, don’t be surprised. It’s one of the best-kept “open secrets” of the U.S. government. It’s scheduled to take effect on December 21, 2009, and it may present the greatest disaster for our food supply—and thus for our health—this country has ever seen.

What is the Codex Alimentarius, and how did it come to pass?

In the Austro-Hungarian Empire between 1897 and 1911, a collection of standards and regulations for a wide variety of foods was developed, called the Codex Alimentarius Austriacus. It wasn’t legally binding but served as a useful reference for the courts to determine standards for specific foods.

The post-World War II rebirth of the Codex Alimentarius (or short, Codex), however, is much more dubious. To understand the full implications, we need to go back to the history of one huge conglomerate: The Interessengemeinschaft Farben, or IG Farben—a powerful cartel that consisted of German chemical and pharmaceutical companies such as BASF, Bayer, and Hoechst.

IG Farben was, you could say, the corporate arm of the Third Reich. Having lucrative contracts with Hitler’s regime, IG Farben produced everything from ammunition to Zyklon B, the nerve gas that was used to kill prisoners in the concentration camps. IG Farben was the single largest donor to Hitler’s election campaign… and later the single largest profiteer of World War II.

“Whenever the German Wehrmacht conquered another country, IG Farben followed, systematically taking over the industries of those countries,” states the website of the Dr. Rath Health Foundation, a non-profit promoter of natural health. “The U.S. government investigation of the factors that led to the Second World War in 1946 came to the conclusion that without IG Farben the Second World War would simply not have been possible.”

Auschwitz, the largest and most infamous German concentration camp, also benefited IG Farben. New, unsafe pharmaceutical drugs and vaccines were liberally tested on Auschwitz prisoners—many of which died during the tests.

Not surprising, the Nuremberg War Crime Tribunal prosecuted 24 IG Farben board members and executives for mass murder, slavery and other crimes against humanity. One of those convicted was Fritz ter Meer, the highest-ranking scientist on the executive board of IG Farben, who was sentenced to seven years in prison (of which he only served four). When asked during trial whether he thought those human experiments had been justified, he answered that “concentration camp prisoners were not subjected to exceptional suffering, because they would have been killed anyway.”

In 1955, ter Meer was reinstated as a member of the supervisory board at Bayer and one year later became its chairman. In 1962, together with other executives of BASF, Bayer and Hoechst, he was one of the main architects of the Codex Alimentarius.

“When he got out of jail, he went to his UN buddies,” said Dr. Rima Laibow, MD, in a passionate speech at the 2005 conference of the National Association of Nutrition Professionals (NANP). “And he said, ‘[…] If we take over food worldwide, we have power worldwide.’”

The result was the creation of a trade commission called the Codex Alimentarius Commission, now funded and run by the UN’s World Health Organization (WHO) and the Food and Agricultural Organization (FAO).

At its foundation in 1994, the World Trade Organization (WTO) accepted the standards of the Codex—and by the end of 2009, all member countries of the WTO will be required to implement the Codex, “to harmonize the standards” for the global trade of foods.

In the U.S. meanwhile, Congress passed the Dietary Supplements Health and Education Act (DSHEA) in 1994, which defined vitamins, minerals and herbs as foods, therefore not to be regulated by pharmaceutical standards. The Codex Alimentarius would reverse all that. It would treat those dietary supplements not as foods, but as toxins.

“How do you protect somebody from a poison?” asks Laibow. “You use toxicology. You use a science called ‘risk assessment.’”

Risk assessment, she explains, works as follows. You take the toxin in question, feed it to lab animals and “determine the dose that kills 50% of them. That’s called the LD 50. And you extrapolate what the LD 50 for a human being might be. Then you go down to the other end of the dosage range and you start feeding [little] bits of it to test animals, and you come up with the largest possible dose—the maximum permissible upper limit—that can be fed to an animal before a discernible impact is shown. […] Then you divide that by 100. […] And now you’ve got a safety margin, so you got 1/100 of the largest dose that can be given with no discernible impact.”

In other words, classified as toxins, vitamins, minerals and herbs would only be allowed to be marketed in doses that have no discernible impact on anyone. Then why bother taking them?

And that’s not all. Where our grocery and health food store shelves are now brimming with supplements, only 18 of them would be on the Codex whitelist. Everything not on the list, such as CoQ10, glucosamine, etc. would be illegal—not as in “prescription-only” illegal, but as in “take it and you go to jail” illegal.

But the mandatory requirements of the Codex will not only concern vitamins and minerals, but all foods. Under Codex rules, nearly all foods must be irradiated. And levels of radiation can be much higher than previously permitted.

While irradiated U.S. foods are currently treated with 1 – 7.5 kiloGray of radiation, the Codex would lift its already high limit of 10kiloGray—the equivalent of ca. 330 million chest X-rays—“when necessary to achieve a legitimate technological purpose,” whatever that may be. Granted, the text says, that the dose of radiation “should not compromise consumer safety or wholesomeness of the food.” Note, however, that it says “should,” not “shall” (an important legal difference, since “should” is not compulsory).

You buy rBST-free milk? Not much longer, because under the Codex all dairy cows will have to be treated with Monsanto’s recombinant bovine growth hormone. All animals used for human consumption will have to be fed antibiotics. Organic standards will be relaxed to include such measures. And did we mention that under the Codex, genetically modified (GM) produce will no longer have to be labeled?

Say good-bye to true organic food, and maybe even food that retains any resemblance of nutritional value.

Moreover, in 2001, twelve hazardous, cancer-causing organic chemicals called POPs (Persistent Organic Pollutants) were unanimously banned by 176 countries, including the United States. Codex Alimentarius will bring back seven of these forbidden substances—such as hexachlorobenzene, dieldrin, and aldrin—to be freely used again. Permitted levels of various chemicals in foods will be upped as well.

What, are they trying to kill us?

Rima Laibow has done the math, she claims, using figures coming directly from the WHO and FAO. And according to those epidemiological projections, she believes that just the Vitamin and Mineral Guideline alone will result in about 3 billion deaths. “1 billion through simple starvation,” she says. “But the next 2 billion, they will die from the preventable diseases of under-nutrition.”

She calls the new Codex standards “food regulations that are in fact the legalization of mandated toxicity and under-nutrition.”

Even if you’re thinking of emigrating to Thailand or Guatemala to escape this nutritional holocaust, forget it. Once implemented, the Codex Alimentarius will set food safety standards, rules and regulations for over 160 countries, or 97% of the world’s population.

The only way is to fight it before it gets implemented, says Laibow, who is working on just that with a team of lawyers. If you want to help, send an email to your Congressman and/or sign the citizens petition on Laibow’s website,


Nov 24, 2006

John Embry: Who's selling? Gold scene rife with intrigue

In his latest commentary for Investor's Digest of Canada, Sprott Asset Management's chief investment strategist, John Embry, describes this fall's blatantly price-manipulating selling of gold and silver on the commodities exchanges.

But he adds that this selling apparently has not come from the usual central bank sources in Europe.

You can find Embry's commentary (in glorious pdf) "Who's Selling? Gold Scene Rife with Intrigue" at the Investor's Digest site... HERE.

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Nov 23, 2006

Russell ruminates on precious metals

Now that's what I call plain and square talk on gold and silver.
The wise and venerable Mr. Richard Russell puts the (..silver?) chips on the table and calls the Treasury and FED's bluff...
..please read on:

" ..I just placed a one dollar bill on my desk, and next to it I placed a hundred dollar bill. What's the difference between the two bills?

Both bills are composed of the same thing -- linen and cotton. So what's the difference. The difference is the writing on the two bills. Both say they are legal tender "for the payment of all debt, public and private." The only real difference between the two items is that the Treasury states that one will pay off a dollar of debt while the other will pay off a hundred dollars of debt.

Thus, this nation's money has been degraded to the point where the writing on a piece of paper tells you what the thing is worth. This is money by government edict or by fiat. Intrinsically, neither bill is worth a damn thing. And ultimately, they'll both end up as bookmarks or museum pieces.

A measure of a nation's wealth, historically, can be gauged by the true value of its money. I've seen our money change drastically and fundamentally during my short 82 years on this earth. When I was seven years old in 1931 my dad could take his dollars and turn them into a bank for real Constitutional money -- gold. The dollar in those days was a call on gold -- the dollar was, in fact, "as good as gold."

After 1933 you could no longer turn in your dollars for gold, although foreign governments could still demand gold for their debts. In 1971 Nixon arbitrarily closed the gold window, because France was continuing to demand gold for settlement of debts. From that day on foreign governments could no longer settle their debts with the US with gold. After 1971 the dollar became a fiat currency, a claim on absolutely nothing.

Today the US government is absurdly split in its attitude towards gold. If gold is just a relic, then why did the US close the gold window and thus prevent foreign governments from calling in any more of our gold? Today, the US hoards its gold. But the US government doesn't want you to believe that gold is as valuable as the free market suggests that it is. How do I know that? I know it because the Treasury still insists that its own gold is only worth 42.22 dollars an ounce.

Yes, believe it or not, $42.22 an ounce is the price the US places on its entire stock of gold. Why not mark our gold to the market? Oh, the government can't do that, because that would mean that the US was conceding that the dollar was being devalued -- in terms of gold. You see, a rising price for gold in terms of dollars is tantamount to a devaluation of the dollar, and the US government doesn't want that, or I should say, it doesn't want that fact to be known. Keep the public dumb and passive, it's the government's way.

Over recent years the US Treasury has removed the silver from of our coinage. All our money is now composed of base metals. Recently, the government has even tried to steer people from paper to base-metal dollar coins. The reason -- metal coins last longer than "paper dollars." First we had the Susan B. Anthony metal dollars. Nobody wanted these undersized junk coins, and the mint is still sitting with millions of these klunkers. Next came the faux-gold Sacagawea dollar coins. The Treasury couldn't give those duds away.

But the geniuses at the Treasury don't give up easily. The latest scheme by these cone-heads is a series of dollar coins featuring a rotation of deceased Presidents. The new Presidential base-metal dollars will be 9.2% larger than our current junk quarters. The first of the new dollar series will feature George Washington. I can't wait to see this latest item -- maybe I'll even buy a few, and become a coin collector.

Speaking of precious metals, it's important to realize that silver is used industrially while this is not the case with gold. All the gold ever mined is probably above ground (except that which has been lost at sea), but silver is actually running at a deficit, meaning more silver is used and used up than is mined annually. The US strategic stock of silver is now gone.

Be that as it may, the ratio of gold to silver has been declining dramatically in waves over the years. The most recent down-wave began in May 2003. At that time an ounce of gold would buy 80.4 ounces of silver. As of yesterday, an ounce of gold would buy 48.04 ounces of silver, a huge drop in the ratio..."

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Nov 20, 2006

Reviewing the systemic case for gold investment

The twin US deficits threaten to undermine the US dollar within the next two-and-a-half years. Not the argument of a deranged gold bug but the former Federal Reserve Chairman Paul Volcker last week. Another Washington big name Robert Rubin also called for higher taxes to rebalance the budget to save the US dollar.

Saudi Arabia: Sunday, November 19 - 2006

However, the point that should not be lost on potential gold investors is that the systemic problems of the US dollar show no signs of going away, and that this structural weakness is already reflected in a rising gold price, and will probably end in a spectacular gold price blow-off in a dollar crisis.

Paul Volcker is the man who steered the US out of high inflation in the early 1980s, although his handling of the US economy did not prevent the 1987 Wall Street Crash. Robert Rubin was behind the Clinton balanced budget of the late 1990s and yet his call for fiscal prudence is likely to fall on deaf ears in Washington.

US dollar crisis?

For the stage is being set for a US dollar crisis of major proportions. The US consumer boom of recent years has been supported domestically by a housing boom and internationally by the willingness of foreign countries to hold US Treasury bonds.

Now the US housing market is crashing, and China has signaled its intention to diversify away from its $1 trillion foreign currency holdings. The risk is that at some point there is a disorderly devaluation of the US dollar.

Indeed, this is probably essential for the US to recover its competitiveness in world markets and to rebound from the economic slowdown or recession into which the world's largest economy is now moving. Devaluation is a quick way to scalp global creditors whose debts will be worth less than before.

Now in such process precious metals are a surefire winner. For gold and silver will take on the role of quasi currencies with a fixed supply of specie, and the US dollar will deflate against precious metals, inflating their value.

No way out?

So far the US has organized an orderly devaluation of the US dollar which has fallen by almost a third in value this century. However, in all market mechanisms there comes a tipping point where a trend becomes a rout - and it has to be said that expecting global creditors to continue to accept falling real debts is not sustainable.

This is why an authority as eminent as Paul Volcker forecasts a dollar crisis within the next two-and-a-half years, and why he is unwilling to extend that timeframe according to recent statements. But surely that also makes investment in gold and silver a one-way bet for this period?

Old hands in the gold trading community like Jim Sinclair are rubbing their hands at this prospect, and his formula predicts a domino effect of economic factors forming a downward spiral that results in surging gold prices, with silver a likely co-beneficiary.

His only worry is that his forecast of $1,650 an ounce gold could prove too conservative!

© 1996-2006 by AME Info FZ LLC / Emap Communications. All rights reserved.
This story was posted by Peter J. Cooper, Editor-in-Chief
Sunday, November 19 - 2006 at 08:11 UAE local time (GMT+4)

Print Date: Monday, November 20 - 2006 - 23:46:29 GMT+4

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Nov 17, 2006

Milton Friedman (1912 - 2006)

Milton Friedman: an Autobiography

Milton FriedmanI was born July 31, 1912, in Brooklyn, N.Y., the fourth and last child and first son of Sarah Ethel (Landau) and Jeno Saul Friedman. My parents were born in Carpatho-Ruthenia (then a province of Austria-Hungary; later, part of inter-war Czechoslovakia, and, currently, of the Soviet Union). They emigrated to the U.S. in their teens, meeting in New York. When I was a year old, my parents moved to Rahway, N.J., a small town about 20 miles from New York City. There, my mother ran a small retail "dry goods" store, while my father engaged in a succession of mostly unsuccessful "jobbing" ventures. The family income was small and highly uncertain; financial crisis was a constant companion. Yet there was always enough to eat, and the family atmosphere was warm and supportive.

Along with my sisters, I attended public elementary and secondary schools, graduating from Rahway High School in 1928, just before my 16th birthday. My father died during my senior year in high school, leaving my mother plus two older sisters to support the family. Nonetheless, it was taken for granted that I would attend college, though, also, that I would have to finance myself.

I was awarded a competitive scholarship to Rutgers University (then a relatively small and predominantly private university receiving limited financial assistance from the State of New Jersey, mostly in the form of such scholarship awards). I was graduated from Rutgers in 1932, financing the rest of my college expenses by the usual mixture of waiting on tables, clerking in a retail store, occasional entrepreneurial ventures, and summer earnings. Initially, I specialized in mathematics, intending to become an actuary, and went so far as to take actuarial examinations, passing several but also failing several. Shortly, however, I became interested in economics, and eventually ended with the equivalent of a major in both fields.

In economics, I had the good fortune to be exposed to two remarkable men: Arthur F. Burns, then teaching at Rutgers while completing his doctoral dissertation for Columbia; and Homer Jones, teaching between spells of graduate work at the University of Chicago. Arthur Burns shaped my understanding of economic research, introduced me to the highest scientific standards, and became a guiding influence on my subsequent career. Homer Jones introduced me to rigorous economic theory, made economics exciting and relevant, and encouraged me to go on to graduate work. On his recommendation, the Chicago Economics Department offered me a tuition scholarship. As it happened, I was also offered a scholarship by Brown University in Applied Mathematics, but, by that time, I had definitely transferred my primary allegiance to economics. Arthur Burns and Homer Jones remain today among my closest and most valued friends.

Though 1932-33, my first year at Chicago, was, financially, my most difficult year; intellectually, it opened new worlds. Jacob Viner, Frank Knight, Henry Schultz, Lloyd Mints, Henry Simons and, equally important, a brilliant group of graduate students from all over the world exposed me to a cosmopolitan and vibrant intellectual atmosphere of a kind that I had never dreamed existed. I have never recovered.

Personally, the most important event of that year was meeting a shy, withdrawn, lovely, and extremely bright fellow economics student, Rose Director. We were married six years later, when our depression fears of where our livelihood would come from had been dissipated, and, in the words of the fairy tale, have lived happily ever after. Rose has been an active partner in all my professional work since that time.

Thanks to Henry Schultz's friendship with Harold Hotelling, I was offered an attractive fellowship at Columbia for the next year. The year at Columbia widened my horizons still further. Harold Hotelling did for mathematical statistics what Jacob Viner had done for economic theory: revealed it to be an integrated logical whole, not a set of cook-book recipes. He also introduced me to rigorous mathematical economics. Wesley C. Mitchell, John M. Clark and others exposed me to an institutional and empirical approach and a view of economic theory that differed sharply from the Chicago view. Here, too, an exceptional group of fellow students were the most effective teachers.

After the year at Columbia, I returned to Chicago, spending a year as research assistant to Henry Schultz who was then completing his classic, The Theory and Measurement of Demand. Equally important, I formed a lifelong friendship with two fellow students, George J. Stigler and W. Allen Wallis.

Allen went first to New Deal Washington. Largely through his efforts, I followed in the summer of 1935, working at the National Resources Committee on the design of a large consumer budget study then under way. This was one of the two principal components of my later Theory of the Consumption Function.

The other came from my next job - at the National Bureau of Economic Research, where I went in the fall of 1937 to assist Simon Kuznets in his studies of professional income. The end result was our jointly published Incomes from Independent Professional Practice, which also served as my doctoral dissertation at Columbia. That book was finished by 1940, but its publication was delayed until after the war because of controversy among some Bureau directors about our conclusion that the medical profession's monopoly powers had raised substantially the incomes of physicians relative to that of dentists. More important, scientifically, that book introduced the concepts of permanent and transitory income.

The catalyst in combining my earlier consumption work with the income analysis in professional incomes into the permanent income hypothesis was a series of fireside conversations at our summer cottage in New Hampshire with my wife and two of our friends, Dorothy S. Brady and Margaret Reid, all of whom were at the time working on consumption.

I spent 1941 to 1943 at the U.S. Treasury Department, working on wartime tax policy, and 1943-45 at Columbia University in a group headed by Harold Hotelling and W. Allen Wallis, working as a mathematical statistician on problems of weapon design, military tactics, and metallurgical experiments. My capacity as a mathematical statistician undoubtedly reached its zenith on V. E. Day, 1945.

In 1945, I joined George Stigler at the University of Minnesota, from which he had been on leave. After one year there, I accepted an offer from the University of Chicago to teach economic theory, a position opened up by Jacob Viner's departure for Princeton. Chicago has been my intellectual home ever since. At about the same time, Arthur Burns, then director of research at the National Bureau, persuaded me to rejoin the Bureau's staff and take responsibility for their study of the role of money in the business cycle.

The combination of Chicago and the Bureau has been highly productive. At Chicago, I established a "Workshop in Money and Banking". which has enabled our monetary studies to be a cumulative body of work to which many have contributed, rather than a one-man project. I have been fortunate in its participants, who include, I am proud to say, a large fraction of all the leading contributors to the revival in monetary studies that has been such a striking development in our science in the past two decades. At the Bureau, I was supported by Anna J. Schwartz, who brought an economic historian's skill, and an incredible capacity for painstaking attention to detail, to supplement my theoretical propensities. Our work on monetary history and statistics has been enriched and supplemented by both the empirical studies and the theoretical developments that have grown out of the Chicago Workshop.

In the fall of 1950, I spent a quarter in Paris as a consultant to the U.S. governmental agency administering the Marshall Plan. My major assignment was to study the Schuman Plan, the precursor of the common market. This was the origin of my interest in floating exchange rates, since I concluded that a common market would inevitably founder without floating exchange rates. My essay, The Case for Flexible Exchange Rates, was one product.

During the academic year 1953-54, I was a Fulbright Visiting Professor at Gonville & Caius College, Cambridge University. Because my liberal policy views were "extreme" by any Cambridge standards, I was acceptable to, and able greatly to profit from, both groups into which Cambridge economics was tragically and very deeply divided: D.H. Robertson and the "anti-Keynesians"; Joan Robinson, Richard Kahn and the Keynesian majority.

Beginning in the early 1960s, I was increasingly drawn into the public arena, serving in 1964 as an economic adviser to Senator Goldwater in his unsuccessful quest for the presidency, and, in 1968, as one of a committee of economic advisers during Richard Nixon's successful quest. In 1966, I began to write a triweekly column on current affairs for Newsweek magazine, alternating with Paul Samuelson and Henry Wallich. However, these public activities have remained a minor avocation - I have consistently refused offers of full-time positions in Washington. My primary interest continues to be my scientific work.

In 1977, I retire from active teaching at the University of Chicago, though retaining a link with the Department and its research activities. Thereafter, I shall continue to spend spring and summer months at our second home in Vermont, where I have ready access to the library at Dartmouth College - and autumn and winter months as a Senior Research Fellow at the Hoover lnstitution of Stanford University.

From Nobel Lectures, Economics 1969-1980, Editor Assar Lindbeck, World Scientific Publishing Co., Singapore, 1992

This autobiography/biography was first published in the book series Les Prix Nobel. It was later edited and republished in Nobel Lectures. To cite this document, always state the source as shown above.

Addendum, May 2005

In 1977, when I reached the age of 65, I retired from teaching at the University of Chicago. At the invitation of Glenn Campbell, Director of the Hoover Institution at Stanford University, I shifted my scholarly work to Hoover where I remain a Senior Research Fellow. We moved to San Francisco, purchasing an apartment in a high-rise apartment building in which we still reside. The transition of my scholarly activities from Chicago to California was greatly eased by the willingness of Gloria Valentine, my assistant at Chicago, to accompany us west. She remains my indispensable assistant.

Hoover has provided excellent facilities for scholarly work. It enabled me to remain productive and an active member of a lively scholarly community.

Initially we continued to spend spring and summer quarters at Capitaf, our second home in Vermont. However, we soon came to appreciate the inconvenience of maintaining homes a continent apart and began to look in California for a replacement for Capitaf. In 1979, we purchased a house on the ocean in Sea Ranch, a lovely community 110 miles north of San Francisco. In 1981, we disposed of Capitaf and began to spend about half the year at Sea Ranch at intervals of a week or so, spread throughout the year, rather than in one solid block. It proved a fine locale for scholarly work. The Internet plus an assistant at Hoover more than made up for the absence of a library near at hand.

After more than two wonderful decades at Sea Ranch, we sold our house to simplify our lives. We now have one home, our apartment in San Francisco.

To return to the 1970s, not long after we arrived in California, Bob Chitester persuaded us to join him in producing a major television program presenting my economic and social philosophy. The resulting effort, spread over three years, proved the most exciting adventure of our lives. The end result was Free to Choose, ten one-hour programs, each consisting of a half-hour documentary and a half-hour discussion. The first of the ten programs appeared on PBS (Public Broadcasting System) in January 1980. Since then, the series has been shown in many foreign countries.

When we agreed to undertake the project, little did Rose and I realize what was involved in producing a major TV series. As a first step, I gave a series of fifteen lectures over a period of nine months at a wide variety of locations. The lectures and question-and-answer sessions were all videotaped to provide the producers with a basis for planning the programs.

The filming began in March 1978 and continued for the next eight months at locations in the United States and around the world, including Hong Kong, Japan, India, Greece, Germany, and the United Kingdom - in the process generating more than six miles of video and audiotape.

Three months after the end of filming, we returned to London to view the documentaries that Michael Latham, our wonderful producer, and his associates had created from that tape and to dub the voice-overs. Another six months passed before we gathered again in Chicago where we filmed the discussion sessions - one of the most stressful weeks I have ever experienced.

One distinguishing feature of the series was that there was no written script. I talked extemporaneously from notes. When we returned to Capitaf from London with the transcripts of the final documentaries, we set to work to convert them to a book to appear simultaneously with the TV program. The book, Free to Choose (Harcourt Brace Jovanovich, 1980) was the bestseller nonfiction book of 1980 and continues to sell well. It has been translated into more than fourteen foreign languages.

As Rose wrote in our memoirs, "As we look back at the events chronicled in this chapter, it all seems like something of a fairy tale. Who would have dreamed that after retiring from teaching, Milton would be able to preach the doctrine of human freedom to many millions of people in countries around the globe through television, millions more through our book based on the television program, and countless others through videocassettes" (p. 503).

Monetary Trends in the United States and the United Kingdom, published in 1982, was the final major product of a collaboration with Anna J. Schwartz under the auspices of the National Bureau of Economic Research that lasted more than three decades. Money Mischief (Harcourt Brace Jovanovich, 1992) collects assorted pieces of monetary history, some of which I had published elsewhere, some of which appear first in this book.

I have continued to be active in public policy since 1977. I continued my tri-weekly column in Newsweek until it was terminated in 1983. Since then, I have published numerous op-eds in major newspapers. I served as an unofficial adviser to Ronald Reagan during his candidacy for the presidency in 1980, and as a member of the President's Economic Policy Advisory Board during his presidency. In 1988, President Reagan awarded me the Presidential Medal of Freedom and in the same year I was awarded the National Medal of Science.

We have traveled extensively since 1977, including a trip through Eastern Europe in 1990, where we filmed a documentary on former Soviet satellites. The documentary was included in a shortened reissue of Free to Choose.

Perhaps the most notable foreign travel consisted of three trips to China: one in 1980 when I gave a series of lectures under the auspices of the Chinese government; one in 1988 when I attended a conference in Shanghai on Chinese economic development and had a fascinating session in Beijing with Zhao Ziyang, at the time, the General Secretary of the Communist Party, deposed a few months later for his unwillingness to approve the use of force on Tiananmen Square; and one in 1993 when I traveled with a group of Chinese friends from Hong Kong throughout the country. The three visits covered a period of revolutionary economic growth and development, the first stage of a shift from an authoritarian, centrally planned economy to a largely free market economy.

Ever since the 1950s, Rose and I have been interested in the promotion of parental choice in schooling through the use of vouchers. Finally, in 1996, when it became clear that our personal involvement would have to be limited, we established a foundation, The Milton and Rose D. Friedman Foundation devoted to promoting parental choice in schooling. We were fortunate in being able to persuade Gordon St. Angelo to serve as president. He has done an outstanding job. Progress toward our objective of universal vouchers has been distressingly slow, but there has been progress. The pace of progress shows every sign of speeding up, and our foundation has made a significant contribution to that progress.

In 1998, the University of Chicago Press published our memoirs, Milton and Rose D. Friedman, Two Lucky People.

Copyright © The Nobel Foundation 1976

Economist Milton Friedman dead at 94

Economist Milton Friedman dead at 94

Silicon Valley/San Jose Business Journal - 10:49 am.PST, Thursday

Leading economist and Nobel prize winner Milton Friedman died Thursday. He was 94.
The Wall Street Journal said Friedman was taken to a hospital near his San Francisco home, where he was pronounced dead of heart failure.

Friedman, who was awarded the 1976 Nobel prize, was a longtime advocate of political and economic freedom and a senior research fellow at Stanford University's Hoover Institution since 1977.

He was awarded both the Presidential Medal of Freedom and the National Medal of Science, and is regarded as the leader of the Chicago School of monetary economics, which focuses on quantity of money as a government policy instrument and a determining factor in business cycles and inflation.

Friedman also wrote extensively on public policy. Often with his wife, Rose D. Friedman, he authored Capitalism and Freedom (University of Chicago Press, 1962); Bright Promises, Dismal Performance (Thomas Horton and Daughters, 1983); Free to Choose (Harcourt Brace Jovanovich, 1980); and Tyranny of the Status Quo (Harcourt Brace Jovanovich, 1984).

His other books included A Theory of the Consumption Function, The Optimum Quantity of Money and Other Essays, and (with A. J. Schwartz) A Monetary History of the United States, Monetary Statistics of the United States, and Monetary Trends in the United States and the United Kingdom.

He was a member of President Ronald Reagan's Economic Policy Advisory Board and served as an adviser to Senator Barry Goldwater and Richard Nixon.

Friedman received a B.A. in 1932 from Rutgers University, an M.A. in 1933 from the University of Chicago, and a Ph.D. in 1946 from Columbia University.



November 13th, 2006 Monty Guild

I am happy to be able to write you just before what I see as a propitious time for action. In our opinion, things are about ready to change a lot for global markets, and this process is just getting underway.


Recent developments in the Mid-East lead us to see the potential for a crisis in that part of the world brought on by al-Queda attacks in Saudi Arabia, Kuwait, UAE and other non- radical oil producing states in the region. These developments, however, have not been in the news in the west. They are developments in the world banking community.

Sources that we respect have been telling us for months about the huge flow of Mid-East cash out of the region into Europe, Britain, Canada and India. It surprises me that money would flow into India, as the money cannot be easily removed by non-Indians. The money is flowing into residential real estate and some into Indian stocks. Is it possible that some Mid-Easterners with money are looking for a new home in case things get uncomfortable in their homeland?

Iran is consuming more and more of their energy production at home as their economy grows. (Deutsche Bank recently wrote a very good report about this for their institutional clients.)

Many have argued that China’s growth would slow down and that a slower U.S. economic growth and high oil prices would create a substitution effect. The effect of these combined events would be to force the price of oil below $40 per barrel. Let us be direct. Those who have argued in this manner have been wrong.

Currently, both China and India have industrial production growth rates in excess of 11%, for the last few months. This is an increase, and will lead to higher than expected GDP growth for both India and China. In summary, China and India are growing faster, not slower. Oil prices reflect this growth — currently trading just below $59 per barrel.

India and China are growing and moving from emerging to industrialized status. This takes a lot of raw materials and it takes a lot of energy. The U.S. economy is more about consumer products and services. Growth in these areas does not consume as much energy.


This is so well known that even Business Week has an article in the November 20th issue entitled, “Can Anyone Steer this Economy?” It states, “Global forces have taken control of the [U.S.] economy. And government regardless of party will have less influence than ever.” This is a point that we have made frequently, for the last several years. The global economy runs the show, and not the U.S. economy.


The dollar is looking weak, and it is not hard to see a number of reasons why it might fall substantially more.

1. The new Congress is of a differing party than the U.S. president. Many observers predict gridlock, political bickering and infighting between the parties. Both parties will be trying to caste blame on the other leading up to the major presidential election in 2008. This type of blaming and bickering will not do much to improve the psychology among current and potential dollar holders. As we all know, the U.S. must sell hundreds of billions of dollars in bonds each year to finance the U.S. budget deficit.

2. The Democrats have not been big on balancing the budget, with the exception of the later part of the Clinton administration. Most democrats want to spend on social programs, and the Democratic leadership has just stated that they do not want to withdraw from Iraq precipitously. This is a prescription for continued and growing budget deficits. For many years, we have been pointing out the cost of the Iraq war and the continuing costs of maintaining the health of those Americans injured in the conflict. These costs are astounding, and they continue to grow.

3. The U.S. balance of trade would be easier to balance in the long run with the dollar about 20 % lower than current levels. If I were the Treasury Secretary, I would like to see the dollar fall in a steady and orderly manner.

4. President Bush has been under attack, and in our opinion, his troubles are just beginning. In a recent memo I referred to the possibility of a cry for impeachment from the Democrats. This is not idle speculation. You will be hearing much more about this as it develops in the coming months and years. Should the Presidents’ political fortunes become bleak, this will create added pressure on the dollar.


They will rise for the most obvious of reasons, simple supply and demand. Many countries are increasing their purchase for base metals as they grow their capital spending. What about all of the news reports about how China is predicting a slow down in their demand for raw materials of many types? That is talk, so let us look at the reality.

Last year, China issued many press releases indicating they would not be buying much at all of iron ore, nickel, zinc and many other commodities. In the end, it was just posturing to try and talk down prices. China ended up buying more than the previous year. China can issue as many press releases as they want jawboning the price of iron ore down. However, if you talk to the companies that mine iron ore as we do, you hear the exact opposite.

There is a simple reason for this. The Chinese infrastructure demand created solely from announced projects, will keep demand for iron ore, nickel, zinc and steel strong for at least a few years and quite possibly much longer. India, Brazil, Russia, and other countries that make money selling commodities will want to increase their capital stock in factories, refineries, chemical plants, buildings and other industrial projects.


The world is growing, people are getting richer, and many people keep at least part of their wealth in gold. As global wealth grows (especially in newly industrialized countries and those with a history of hoarding gold) demand for gold will increase.


We own Indian and Chinese stocks in growing sectors of those economies. We own oil and gas stocks, in North America, Europe, Asia, and we own base metals and precious metals from several parts of the world. In our opinion, things look good for the fast growing economies of the world. They look excellent for foreign currencies and they look good for energy and metals. We have positioned our portfolios accordingly.

Early in the year these groups were very strong. After a decline in these sectors in the May through September period, these areas have begun to rise as they have begun to be re-accumulated by investors. As those in the theatre might say “they are ready for their encore.”


This entry was Published on November 13th, 2006 by Monty Guild

Nov 11, 2006

Socialism can't Calculate...

Economic Calculation In The Socialist Commonwealth
By Ludwig von Misesclick to download
(translated from the German by S. Adler)

Download the monograph in PDF

Ludwig von Mises's seminal essay, originally published in 1920 *, appears here in the 1990 edition published by the Ludwig von Mises Institute. "Economic Calculation in the Socialist Commonwealth" advances a devastating critique against economic calculation in a socialist economy, inspiring a decades-long debate. For more information, sources, and materials concerning the calculation debate, visit The Calculation Debate in the Austrian Study Guide.

*[This article appeared originally under the title "Die Wirtschaftsrechnung im sozialistischen Gemeinwesen" in the Archiv für Sozialwissenschaften, vol. 47 (1920). The present translation was first published in F.A. Hayek, ed.,Collectivist Economic Planning (London: George Routledge & Sons, 1935; reprint, Clifton, N.J.: Augustus M. Kelley, 1975), pp. 87-130. Some annotations appear in this edition and they are set aside in brackets.]

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Nov 3, 2006

Πρώτη Προβολή: America Freedom to Fascism Authorized version

Η ταινία που έκανε πάταγο στις ΗΠΑ. Το ντοκυμαντέρ που όλοι οι υποστηρικτές της αληθινής ελευθερίας του ατόμου και του πολίτη περιμένουν να δούν!

America: from Freedom to Fascism

...σε πρώτη προβολή στην Ελλάδα.

Please visit to purchase the DVD.

This is the "Director's Final Cut" authorized version of Aaron Russo's documentary, America: Freedom To Fascism (AFTF). It is being uploaded to Google Video for the first time during the evening of October 19-20th, 2006. Aaron has listened to everyone's feedback - volunteers, students, lovers of freedom & liberty, young and old alike - and, true to his word, he is putting this up "for free" on Google Video knowing that the hour has come for Americans to either be awakened to restore the Republic or be swept aside by the dark global forces of fascism that seeks to enslave mankind.

AFTF's main focus comes in a statement with six very simple words: SHUT DOWN THE FEDERAL RESERVE SYSTEM!!

After viewing the movie, please be sure to visit where you will soon be able to view a much higher quality "pay per view" Internet version of AFTF, buy the DVD and sign up as an affiliate to sell/distribute DVDs to others.

We also urge everyone to be sure to sign up as volunteer, register for email alerts and tell your family, friends and neighbors about this groundbreaking movie.


Trivial Pursuit?

Tocqueville Asset Management
Trivial Pursuit?
John Hathaway

Investor lust for hard assets has dimmed gold's status as the world's premier non government-issued form of money. Conventional wisdom now holds that gold, oil, and base metals are inextricably linked. For example, on October 18, the Bloomberg headline said "Gold Drops for Second Straight Day After Crude-Oil Prices Slide." Investment strategists have recast gold into a sub species of hard assets that is to be bought or sold only according to its weighting in a commodity index such as the CRB, GSCI, or DJ-AIG. It is a fate for the yellow metal that would make any latter day central banker smile.

Gold's recent sharp correction as well as its earlier sharp run up in the first half of this year is a case of mistaken identity. Perhaps hundreds of billions of new institutional money has flowed into the commodity sector. Proponents have billed it as an "alternative asset class," and imply the returns would somehow be uncorrelated with financial assets. In most cases the mandates have provided for passive adherence to an agreed upon commodity index. This money flow was anticipated and front run by hedge funds and other aggressive managers.

Approximately two months ago, Wall Street fashionistas decreed that "hard assets" were out and "paper assets" were in. In the space of a few weeks, prophesies of insatiable China-driven demand for "stuff" were replaced by scenarios of a goldilocks soft landing, tame inflation, interest rate hikes on hold, and new highs for equities and bonds. The shift caused leveraged bets on commodities to unwind in a short space of time. Gold was caught in the cross fire, and suffered a steep 20% correction from its peak above $720/ounce in early May.

In a world where gold is perceived as a minor hard asset, it is easy to conclude that this relic has been once and for all time written out the script of monetary affairs. At a Sanford Bernstein conference May 31, 2006, even one time gold champion Alan Greenspan recently said in response to a question about the recent strength in the gold price: "There is only a relatively small group of investors who very seriously believe that there is a high level of risk that the (financial) system could break down. You only need a relatively small group to believe this to move the price of gold." In other words, the metal's price behavior reflects the trivial obsessions of a discredited fraction of investment opinion. Or, if one prefers another fair weather explanation for the strength in the metal's price, suitable for CNBC viewers, prosperous Asians just love the stuff. The bull market in gold has become an obscure footnote to the China story.

Though recently retired, Mr. Greenspan's insight on the bull market in gold was very likely formulated while he was Fed Chairman and likely constitutes the official party line of most central bankers on the subject. The fusion of the CNBC mind set with Fed speak on the subject of gold's relevance is nothing less than a triumph of brainwashing and delusion. As Werner Erhardt, founder of the EST movement once stated: "In life, understanding is the booby prize." On the matter of understanding, we prefer Emerson's view: "The years teach much which the days never knew."

Until gold broke above the 350 Euros/oz barrier that had contained it for four years, conventional wisdom held that the currency was a superior way to hedge dollar weakness because it had both yield and liquidity in its favor. In our March, 2005 website article, "Euro Trash," we noted that the relaxation of the stability pact which was supposed to underpin the integrity of the currency was good news for gold. Within two months, gold broke above the supposedly impenetrable threshold, and signaled a new advance of nearly a year in which gold attained new highs against all currencies. Gold's current identity crisis will be resolved when it breaks to new highs against a basket of commodities.

There is plenty of evidence to suggest that much of the hot money pouring into oil spilled over into gold. For example, the September 30, 2006 8-Ks filed by the hedge fund Amaranth show large positions in nearly two dozen gold and base metals stocks. It is likely that most of the Amaranth wannabes had similar exposure. Even if a relationship lacks any sound logic, since when did flawed thinking stand in the way of investment decision making? Can't get out of illiquid positions in energy? Sell whatever you can to meet margin calls, including gold shares. While there may be something to the short term connection between the precious metals and energy, review of the chart below will show that oil and gold can and have traded in widely divergent ratios since the gold price began to float in 1971.

Source: Zeal LLC

Gold's price behavior relative to other commodities is inherently unpredictable precisely because of its monetary nature. The linkage attributed in the current mythology has no historical basis. If the relationship between gold and oil was as deterministic as current commentary implies, gold should revert to the historical ratio of 7.2 ounces per 100 barrels of oil, or $830/ ounce. While the price action of the two commodities can influence each other from time to time, to suggest there is a strict causal relationship is nonsense.

Over the past ten years, gold has been the tortoise in the race against economically sensitive commodities:

Source: Baseline

A long term chart of gold vs. other commodities also shows a great deal of variance:

Source: Lonmin Plc

The hard asset theme rests explicitly on the notion that the rapidly growing Asian economies will consume ever greater quantities of stuff. There is also an implicit monetary rationale: hard assets offer an escape from depreciating currencies. However, this rationale has rarely been voiced during the rush into tangibles. Finally, investors in commodity baskets or indices expect uncorrelated returns.

Hard asset craze or not, an appraisal of the usual gold supply and demand plusses and minuses is decidedly robust. In fact, these factors seem more favorable than seven years ago when gold was less than half its current price. World gold production has declined since 2000 despite a more than 100% increase in the gold price.

Source: World Gold Council

Explanations include heightened political risk in host countries, substantial increases in the time between discovery and permitting, and substantial rises in operating and capital costs. Large mining companies are challenged to maintain current production, much less to achieve gains. What used to be permitted in six months now often takes six years, according to Pierre Lassonde, President of Newmont Mining. Energy is a key cost component, especially in open pit operations, and so margins have been squeezed. Despite the 140% gain in the gold price since 1999, the industry's return on capital has improved by only 75% to 14% from 8%. Capital costs required for a new mine have more than kept pace with the higher gold price. For example, the estimated capital costs of Gold Field's planned major new mine in Peru, Cerro Corona, have increased 18% over the past year, not atypical for the industry. Therefore, a potential glut of gold exists only in the minds of short sellers.

Source: BMO Capital Markets Research

Central bank selling has begun to abate. In the most recent twelve months, the European central banks sold only 393 tonnes against a ceiling of 500 tonnes, the first shortfall since 1999. More important, high profile sales have been offset by unpublicized central bank buying. The dollar's role as an international reserve asset is being subjected to a level of criticism unthinkable a few years ago. Just days after newly minted Treasury Secretary Henry Paulson had returned from his trip to China, The Financial Times reported (Sept 25, 2006) that Wen Jiabao, the Chinese Prime Minister, and Zeng Qinghong, Vice President, confirmed that "the government is considering whether to buy gold, considered a hedge against the potential of a falling US dollar." Russia, with the world's third largest cache of currency reserves must also be considered a potential buyer. Alexei Kudrin, Finance Minister stated on 4/22/06: "We do not understand why the U.S. dollar at the moment is the universal or absolute reserve currency. The international community can hardly be satisfied with this instability."

More powerful than all of the foregoing considerations together is the November 2004 launch and subsequent success of the gold Exchange Traded Fund (ETF) traded on the New York Stock Exchange under the ticker GLD. The World Gold Council notes in its third quarter Gold Investment Digest that there are seven new gold exchange traded funds listed on ten stock exchanges around the world, holding in excess of 500 tonnes, now ten with the secondary listing of GLD on the Singapore Exchange. This gold rests securely in the vaults of HSBC beneath the streets of London. It is gold that has been taken off the market. Demand for ETF gold has averaged 250 tonnes per year or 10% of annual global mine production. The fact that the gold underlying the ETF held steady during the recent 20% correction in the gold price suggests that the investor base is solid. (See chart).

Source: World Gold Council,,, Bloomberg

The gold ETF is a trust instrument in which shares are created or redeemed on a daily basis. A network of dealers, known as "authorized participants," have the right to buy or sell gold in exchange for GLD shares from the trust. If the price of GLD (the ETF) is above the price of physical gold, the dealers will short GLD, buy gold, and deliver it to the trust in exchange for shares to cover the trade. If the price is below, they will short physical and deliver shares of GLD to cover. GLD shares are created only if the dealers deliver gold to the trust in exchange for the shares. Shares are redeemed (and the underlying gold of the GLD trust shrinks) when the dealers have shorted physical and cover by delivering shares back to the trust. Under normal circumstances, there is substantial liquidity in the shares and the process of share creation or redemption doesn't come into play. However, the day to day profits from trading the shares are identical to the same skimpy margins as on any other exchange traded security. The financial incentives for the dealers lie in the arbitrage profits to be gained from share creation or redemption.

While conventional supply and demand factors strongly influence market perceptions, gold is above all a capital market asset. As the chart below depicts, annual supply and demand factors are dwarfed by the amount of above ground gold. For example, a 10% increase in new mine supply, or 250 tonnes, would represent an increase of .00016% to the global stock of +/- 150,000 tonnes.

Source: GFMS Ltd.

For centuries, gold has been all but inaccessible to the investment public. Available alternatives included commodity accounts, coins, bars, and arrangements with bullion banks, none of them mainstream options. To the financial media, COMEX futures represent the principal expression of capital market interest or disinterest in gold. What ignorance! Notoriously volatile, futures markets simply do not have the capacity to transform capital inflows or outflows into a potential $100 billion market capitalization asset. While trading volume on futures contracts is much greater than the ETF, futures contracts are paper bets with underlying gold coverage of only 25%. The current COMEX figures (October 30) indicate warehouse stocks of 7.6 mm oz. against open interest 32 mm oz. In contrast, the gold ETF is 100% backed by gold bullion. While price action in futures contracts makes all the media noise, a clearer picture of investment interest in gold emerges in the details behind the ETF.

The ETF has become the bridge between the capital markets, central banks, and the souks. It has emerged as an omnibus financial vehicle for obtaining protection, reflecting uncertainty, and hedging bets. In our opinion, the market cap of GLD will one day approximate that of the global gold mining share sector or $100 billion. Our reasoning is that GLD taps a different investor base than those attracted to mining shares or commodity futures trading accounts. The core group of GLD investors appears risk averse and focused on the underlying metal's insurance value, not the pyrotechnics of day to day price action. The demand for gold based on risk protection seems potentially far larger and deeper than speculative demand as expressed by gold mining shares or commodity futures.

During shakeouts in the gold market, the gold ETF has demonstrated stability that is not apparent in other gold investment vehicles. Much, and probably most, of ETF gold is in very strong hands such as pension funds, endowments and individuals who are thinking in generational terms. Despite the 20% decline in the gold price since its 2006 high in early May, holdings of the gold ETF have increased from 11.5 mm ounces to 12.4 mm oz. at the end of September. In contrast, the net long position represented by futures contracts declined 36% in the third quarter.

The World Gold Council recently published an academic study titled: "Gold as a Strategic Asset." ( The study was authored by New Frontier Advisors, LLC, an institutional research firm "specializing in the development and application of state of the art investment technology." The study concludes that "gold is not a substitute for other assets but adds diversifying power across much of the risk spectrum." While commodity indices also can provide diversification, the report notes, there is no reason to believe "that they have superior return." We would add that investment in commodity indices are essentially a paper, institutional arrangement, and cannot offer physical commodity backup comparable to the gold ETF. The study goes on to say that gold provides strategic diversification benefits in allocations of 1%-4% in long term institutional portfolios. It is worth noting that a mere 1% allocation to physical gold by a significant percentage of long term institutional portfolios through the ETF could only be accomplished through a gold price that is well into four digit territory. The chart below shows that an allocation of this modest magnitude would require over 38,000 tonnes of gold, or roughly 25% of all the gold that has ever been mined. Note that gold has been correctly positioned by the World Gold Council study as a sober, rational, and conservative instrument to protect capital. It would undoubtedly disappoint Mr. Greenspan to learn that there is no mention of financial Armageddon in the study.

Note: Assumes 1) No price impact and 2) Based on the 12 month average gold price to September 22, 2006 of $569.29/oz.
Source: World Gold Council.

The future direction of the gold price depends less on whether mine production takes an unexpected upturn or nose dive, than on whether capital markets decide to demand greater risk protection. The most important thing an investor needs to know about whether to commit to gold is the answer to this question. Considering a stock market flirting with record highs and a VIX index hovering near record lows, there seems to be ample room for a mood change. Buyer's remorse may lurk just around the corner. Advance knowledge of the precise trigger is impossible to divine, but a casual reading of the pages of the New York Times might prompt a few suggestions. For those with more time, we recommend the Bank for International Settlements web site which contains extensive commentary on the matter of risk and financial markets: "The search for yield can lead to serious distortions, and the potential for future instability, as investors both purchase inherently riskier assets and use increased leverage to do so." We could not have said it better ourselves.

What we can and do know is that, should fear revisit the financial markets, buying power for gold is without precedent. While the gold mining industry struggles to produce 2500 tonnes per year, an amount that would increase the above ground stock of gold by a paltry 1.7%, the financial system continually spews out a blizzard of new financial assets, all of which represent potential claims for liquidity and safety.

In the bleak days of 1935, the market cap of above ground gold equaled 15% of US financial assets. In 1980, when bonds were dubbed "certificates of confiscation" and good quality equities traded at 6x earnings and 6% dividend yields, that same percentage was 29%. In today's carefree world, that percentage is only 3%. The price of gold can double or triple in the absence of catastrophic outcomes simply as more investors attempt to position the ETF.

The chart below shows the above ground stock of gold marked to market in 1935, 1980 and year end 2005 as a percentage of US financial assets. However, in today's world of globalized financial markets, is it enough to use only US financial assets as the denominator for this exercise? According to the BIS, global debt outstanding is $62 trillion as of June 30, 2006. To this one must add some figure for global equity. It does not seem to be a stretch to come up with an estimate approaching $100 trillion.

The foregoing analysis makes the assumption that all above ground gold is available to capital flows. In reality more than half has been consumed for high end jewelry, art, or simply lost. Gold prices at less than $600 are a gift to any investor who can discern the difference between the precious metal and all other commodities. Nobody buys a gold Rolex to stave off doomsday. Therefore, the market cap of above ground gold is not $3 trillion, but most likely half of that. Gold is precious because it is scarce, compact and impossible to dilute through the mischief of government. Its monetary qualities are conferred not by government decree but by the acclamation of history. Governments can write gold out of the script as legal tender but they are powerless to remove the metal's monetary qualities. The defining difference between gold and oil lies in gold's dual role as an alternative to paper money and as a luxury object of conspicuous consumption.

The idea that all "hard" assets provide a safe haven from depreciating currencies is a dangerous one. It might seem valid for a while based upon the power of common belief to generate capital flows, but it will inevitably fall apart during periods of severe economic distortion caused by monetary imbalances. Efforts to trivialize gold's monetary significance are a key to the present day money illusion, that more paper equals more prosperity. It is far more palatable to the political and economic establishment to explain away the strength in the price of gold as a consequence of growing Asian prosperity or the reflection of an extreme fringe of investment thought (as suggested by Greenspan) than to read it as a reflection of flawed economic policies, archaic conventions, and corrupt institutions. A rise in the price of gold is equivalent to a fall in the value of financial assets. The strength in the metal is a sign of distrust in the ability of present day financial instruments, including paper currencies, to preserve capital over time. The global bid for physical gold is potentially immense. It will be generated not by ephemeral and flaky speculative interests seeking instant gratification, but rather by the considered actions of capital interests with a long term perspective driven primarily by the desire to convey present day wealth to future generations.

John Hathaway
© Tocqueville Asset Management L.P.
October 31, 2006

The views expressed by the portfolio manager in this article are current as of the date of this article, and are subject to change at any time based on market and other considerations.

Nov 2, 2006

The Perfect Businness

...words of economic wisdom from the venerable Richard Russell.

AH PERFECTION: Strange, but the most popular, the most widely-requested, and the most widely quoted piece I've ever written was not about the stock market -- it was about business, and specifically about what I call the theoretical "ideal business." I first published this piece in the early-1970s. I repeated it in Letter 881 and then again in Letter 982. I've added a few thoughts in each successive edition. But seldom does a month go by when I don't get requests from subscribers or from some publication or corporation to republish "the ideal business." So here it is again -- with a few added comments.

I once asked a friend, a prominent New York corporate lawyer, "Dave, in all your years of experience, what was the single best business you've ever come across?" Without hesitation, Dave answered, "I have a client whose sole business is manufacturing a chemical that is critical in making synthetic rubber. This chemical is used in very small quantities in rubber manufacturing, but it is absolutely essential and can be used in only super-refined form.

"My client is the only one who manufactures this chemical. He therefore owns a virtual monopoly since this chemical is extremely difficult to manufacture and not enough of it is used to warrant another company competing with him. Furthermore, since the rubber companies need only small quantities of this chemical, they don't particularly care what they pay for it -- as long as it meets their very demanding specifications. My client is a millionaire many times over, and his business is the best I've ever come across." I was fascinated by the lawyer's story, and I never forgot it.

When I was a young man and just out of college my father gave me a few words of advice. Dad had loads of experience; he had been in the paper manufacturing business; he had been assistant to Mr. Sam Bloomingdale (of Bloomingdale's Department store); he had been in construction (he was a civil engineer); and he was also an expert in real estate management.

Here's what my dad told me: "Richard, stay out of the retail business. The hours are too long, and you're dealing with every darn variable under the sun. Stay out of real estate; when hard times arrive real estate comes to a dead stop and then it collapses. Furthermore, real estate is illiquid. When the collapse comes, you can't unload. Get into manufacturing; make something people can use. And make something that you can sell to the world. But Richard, my boy, if you're really serious about making money, get into the money business. It's clean, you can use your brains, you can get rid of your inventory and your mistakes in 30 seconds, and your product, money, never goes out of fashion."

So much for my father's wisdom (which was obviously tainted by the Great Depression). But Dad was a very wise man. For my own part, I've been in a number of businesses -- from textile designing to advertising to book publishing to owning a night club to the investment advisory business.

It's said that every business needs (1) a dreamer, (2) a businessman, and (3) a S.O.B. Well, I don't know about number 3, but most successful businesses do have a number 3 or all too often they seem to have a combined number 2 and number 3.

Bill Gates is known as "America's richest man." Bully for Billy. But do you know what Gates' biggest coup was? When Gates was dealing with IBM, Big Blue needed an operating system for their computer. Gates didn't have one, but he knew where to find one. A little outfit in Seattle had one. Gates bought the system for a mere $50,000 and presented it to IBM. That was the beginning of Microsoft's rise to power. Lesson: It's not enough to have the product, you have to know and understand your market. Gates didn't have the product, but he knew the market -- and he knew where to acquire the product.

Apple had by far the best product in the Mac. But Apple made a monumental mistake. They refused to license ALL PC manufacturers to use the Mac operating system. If they had, Apple today could be Microsoft, and Gates would still be trying to come out with something useful (the fact is Microsoft has been a follower and a great marketer, not an innovator). "Find a need and fill it," runs the old adage. Maybe today they should change that to, "Dream up a need and fill it." That's what has happened in the world of computers. And it will happen again and again.

All right, let's return to that wonderful world of perfection. I spent a lot of time and thought in working up the criteria for what I've termed the IDEAL BUSINESS. Now obviously, the ideal business doesn't exist and probably never will. But if you're about to start a business or join someone else's business or if you want to buy a business, the following list may help you. The more of these criteria that you can apply to your new business or new job, the better off you'll be.

(1) The ideal business sells the world, rather than a single neighborhood or even a single city or state. In other words, it has an unlimited global market (and today this is more important than ever, since world markets have now opened up to an extent unparalleled in my lifetime). By the way, how many times have you seen a retail store that has been doing well for years -- then another bigger and better retail store moves nearby, and it's kaput for the first store.

(2) The ideal business offers a product which enjoys an "inelastic" demand. Inelastic refers to a product that people need or desire -- almost regardless of price.

(3) The ideal business sells a product which cannot be easily substituted or copied. This means that the product is an original or at least it's something that can be copyrighted or patented.

(4) The ideal business has minimal labor requirements (the fewer personnel, the better). Today's example of this is the much-talked about "virtual corporation." The virtual corporation may consist of an office with three executives, where literally all manufacturing and services are farmed out to other companies.

(5) The ideal business enjoys low overhead. It does not need an expensive location; it does not need large amounts of electricity, advertising, legal advice, high-priced employees, large inventory, etc.

(6) The ideal business does not require big cash outlays or major investments in equipment. In other words, it does not tie up your capital (incidentally, one of the major reasons for new-business failure is under-capitalization).

(7) The ideal business enjoys cash billings. In other words, it does not tie up your capital with lengthy or complex credit terms.

(8) The ideal business is relatively free of all kinds of government and industry regulations and strictures (and if you're now in your own business, you most definitely know what I mean with this one).

(9) The ideal business is portable or easily moveable. This means that you can take your business (and yourself) anywhere you want -- Nevada, Florida, Texas, Washington, S. Dakota (none have state income taxes) or hey, maybe even Monte Carlo or Switzerland or the south of France.

(10) Here's a crucial one that's often overlooked; the ideal business satisfies your intellectual (and often emotional) needs. There's nothing like being fascinated with what you're doing. When that happens, you're not working, you're having fun.

(11) The ideal business leaves you with free time. In other words, it doesn't require your labor and attention 12, 16 or 18 hours a day (my lawyer wife, who leaves the house at 6:30 AM and comes home at 6:30 PM and often later, has been well aware of this one).

(12) Super-important: the ideal business is one in which your income is not limited by your personal output (lawyers and doctors have this problem). No, in the ideal business you can sell 10,000 customers as easily as you sell one (publishing is an example).

That's it. If you use this list it may help you cut through a lot of nonsense and hypocrisy and wishes and dreams regarding what you are looking for in life and in your work. None of us own or work at the ideal business. But it's helpful knowing what we're looking for and dealing with. As a buddy of mine once put it, "I can't lay an egg and I can't cook, but I know what a great omelet looks like and tastes like."