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Next month I plan on talking about Israel, the Intifada, and such, having spent some time there recently. And, by the May issue (which you should receive on time, i.e., around the first of that month), I'll have returned from a week in Argentina, which is another country in crisis. Will I be able to tell you about a way to make 1,000% on your money over the next cycle there? We'll see. It's happened before in Argentina.

Junior Gold Review

 This feature on these volatile junior stocks has been appearing semi-annually; I suspect I'll greatly increase its frequency, since the gold market has definitely turned since the beginning of the year. Some companies have moved considerably, but I wouldn't let that worry you; we're still early in the 1st inning, and this will be a long ball game.
I consider all these companies "buys" based on their fundamentals. And not just in relative terms, as has been the case since my sell advice in May 1996, but now in absolute terms. In December 1998 I stated that gold and the mining stocks had bottomed. And I put it in bold caps, so that there’d be no mistake about the call. Gold and the junior gold shares have, however, only started moving in the last couple of months.

Junior gold stocks are the most volatile securities on the planet, with the possible exception of lately minted Internet stocks, and the market is still off about 95% from its previous peak. THIS CONTINUES TO BE THE TIME TO BACK UP THE TRUCK. If I could call your broker for you, I would. What we’re looking at is a rare opportunity, perhaps twice a decade in the resource stocks, to make a real killing. The last time it was this good was Jan 1993.

In fact, now is actually the best time to buy gold stocks (and they're usually terrible things to hold) since 1971, when the dollar was devalued. Gold is now, in real terms, almost as cheap as it was at $35 back then; silver is considerably cheaper than it was at $1.29. But the world economic and financial situations are much more explosive. I think we're going to see a massive panic into the metals, mainly out of fear. And watching money go into the stocks is going to be like watching the contents of Hoover Dam try to squeeze through a garden hose.

As long term subscribers know, I write elements of this feature in a bit of a formulaic manner. It may seem as if I'm repeating myself. The reason is not entirely laziness on my part, but a genuine belief that you've got to keep your eye on certain balls, constantly. Consider it like a "Postit" note stuck to your investment refrigerator, acting as a constant reminder. But now convert the note into a poster, and hang it on your living room wall.
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A Word on Gold The last gold bull market crested in January 1980 at over $800, and it’s been all downhill since then; at the same time, the world’s economy and common stocks have been in a truly historic bull market (recently ended).  That's partially because gold stocks have been in a primary bear market for 22 years now, a full generation; everyone believes it’s going to go on forever. Even gold miners believe it and most of them have been shorting their production years into the future. The problem, however, is that all that gold which has been borrowed from vaults has been made into jewelry and such and is owned by millions of individuals. If the lenders of the gold, the central banks, want it back, the bullion dealers and mining companies aren’t going to be in a position to deliver. What appears to be developing, in other words, is a classic short squeeze, but one of gigantic proportions. The X-factor, however, is that central banks still have maybe 15-20% of all the gold in existence left in their vaults, and if things started getting dicey-say some New York bank getting in trouble because of its bullion dealing- they could sell a lot to keep its price down. But the short position is going to have to be covered at some point. And the fact that the Central Banks have already sold a great deal of their gold holdings, to huge fanfare, is very bullish. They have that much less power in the market. Many will actually start buying it back. In fact, the Chinese central bank has been the big buyer in these official sales. One more sign that the Orient is going to replace the US at the top of the economic heap.

The way to make money investing, as Warren Buffett has demonstrated, is to put your money into great businesses for the long term, not lousy businesses in hope of getting lucky. You cannot, therefore, "invest" in mining stocks; it is only possible to speculate in them. I know this sounds like bottom of the market talk, but it’s just reality; I was saying this at the top of the market as well. Hopefully, when we dump the mining shares again in a few years, we’ll be able to buy into high tech for the kind of value now available in resource issues.

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It's rare that history repeats itself (although, as Marx said, when it does, it's first as tragedy, then as farce), but I think that's about to happen. To my way of thinking, things are as close to an instant replay of things 30 years ago as you're ever likely to see. The US is engaged in a major foreign military adventure costing unbelievable amounts of money, the US is widely perceived as being King of the World, the stock market is coming off a manic high. Most important, the US government is printing up dollars by the carload, and Americans are trading these paper IOU nothings to foreigners for all manner of goodies. At some point, because of some yet unknown catalyst, they're going to start sending them back to the US. When they do, there's going to be a currency crisis that will dwarf anything anybody outside of places like Argentina has ever seen. The dollar will plummet against most currencies (see IS Nov 2000 for a complete discussion of this), but since all the world’s currencies are really no more than floating abstractions, the real action is going to be in gold.

I’m super bullish on gold for lots of reasons detailed here, and in CI90s, that are unrelated to the alleged short position; it’s just one more good reason the metal isn’t just going through the roof, it’s going to the moon. The move has started. I sure wouldn’t want to be short right now.

A Word on Gold Mining Stocks

Gold mining stocks are an extremely leveraged way to play the gold price. But it's not, unfortunately, quite that simple.
As a business, mining is about the worst enterprise in the world. Economic deposits are very hard to find and very expensive to prove up. Then it costs up to a billion dollars to actually build the mine-a huge up-front investment. Even then, you can’t be completely sure the thing will perform as hoped; maybe the metallurgy will turn out to be troublesome, maybe metal prices will collapse, maybe the political system will act up, maybe any of a hundred equally serious things will go wrong. The more I’ve learned about the mining business, the less I want to be in it. It’s a lousy business. Among other things, a good business is one that isn’t overly capital intensive, isn’t fixed to one locale, is not overly subject to commodity price swings, is not regulation intensive, doesn’t have to rely on hourly labor, doesn’t have potential environmental problems and, most importantly, can be grown consistently. The mining business violates all of these things. It’s a 19th century business, intended for a choo-choo train economy, and that kind of economy is on its way to the scrap heap. Entirely apart from that, the long term history of commodity prices has been to fall, and that trend is going to accelerate radically with the development of nanotechnology over the next decade or so.

The way to make money investing, as Warren Buffett has demonstrated, is to put your money into great businesses for the long term, not lousy businesses in hope of getting lucky. You cannot, therefore, "invest" in mining stocks; it is only possible to speculate in them. I know this sounds like bottom of the market talk, but it’s just reality; I was saying this at the top of the market as well. Hopefully, when we dump the mining shares again in a few years, we’ll be able to buy into high tech for the kind of value now available in resource issues.
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Very, very few of even the best mining companies should even be considered as long term holdings. True, the majors sometimes show earnings-but most sell at absurd P/E ratios, making them chronically overpriced even if they were good businesses. But they’re terrible businesses, deserving low P/Es regardless of whether times are fat or lean.   Frankly, I have a lot of misgivings about recommending people own mining stocks because I’m afraid that, for whatever reason, many view gold stocks as heirlooms. They emphatically are not. These things are burning matches or, at best, trading sardines. But the prospect of seeing them run 1,000% every cycle (even within the context of a 22-year bear market)makes them worth following at all times and sometimes owning in size if you’re a speculator.

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The recently ended bull market in New York is actually an excellent underpinning for the building run in gold stocks. That's because there are now scores of millions of people out there who've had their appetites whetted for "hot," volatile sectors of the market. They’ve lost a lot of money in the last couple of years, but they're still players. Most tend to be trend followers, who are anxious to jump on board any sector that's moving, especially if it's got a credible story to go with it. Gold stocks are made to order for these folks. You saw what they did to the Internet stocks, and they'll do it here. Better yet, as hard as promoters will try to meet the demand by forming new companies and printing up new share certificates, I don't think they'll be able to meet the demand. People in the gold stock finance business just aren't used to thinking that big. I think the group will have a wilder ride than the Internets did. I know that sounds outrageous, but there's good reason to believe it. And, at the present moment, the downside has been washed out by a brutal six-year bear market.

Which Companies

 There’s a lot more financial data worth knowing than I have listed in this table - like how many warrants and options are outstanding at what prices and when private placements become free trading. That’s entirely apart from fundamentals, like the nature and size of deposits in question, how much work has been done on them and what it might cost to place them into production. Refer back to earlier articles, which have been done on most of these companies; I urge you to call them for a care package of information; that’s what the telephone numbers in articles on companies are for. Talk to brokers who specialize in them. If you have an account with some "discount broker," you’re almost certainly being hosed on bid/asked spreads, currency conversion and possibly even the actual commissions (since these are mostly Canadian stocks), while you’ll get no information. Surprisingly, a lot of people don’t follow this advice; I have no sympathy for them. And remember the Seven P’s (People, Property, Phinancing, Paper, Promotion, Politics, Price of Gold).

Since this list is supposed to be practical, I’ll endeavor to drop at least one stock for every one added; unless you do the same you’ll wind up with a bunch of cats and dogs you can’t keep track of. You should treat any stock portfolio like a string of horses: you want to always keep upgrading, losing the nags for potential winners. That doesn’t mean a dropped company should (necessarily) be sold, only that the companies remaining on the list have more upside and less risk in my opinion. If you can’t remember the rationale for each of the companies (or make up your mind which you like best), this is a time when you can simply put $5,000 into every third one, randomly, on the list. 

Better yet, try to get to know the management of companies you like. These things burn cash, and are always, necessarily, doing financings. Generally, the financings are priced below the market, and carry warrants to buy more shares. For many reasons, this is the way I prefer to buy them, whenever possible. The only disadvantages are that the dollar amounts can be high (often, but not always, C$100,000 minimum), and almost always with a lock-up period of from four months to a year or more. 

Quality will lead the way into the bull market; this is an excellent time to own the majors. Most juniors fluctuate only indirectly with gold simply because most don’t have any gold, although the companies on the list below are exceptions to that statement. If you have some money to buy juniors with, buy these. They’re the best I know of.

Notwithstanding all these caveats, the market as a whole could easily go up 1,000% in the next couple of years. In fact, if it doesn’t, it will be the first time in history after a 90%+ meltdown.

In the past I’ve put a lot of emphasis on stop losses. The rationale, you’ll recall, is that if you have a 20% loss, you can make it back with a 25% gain on the remaining capital-very quickly doable with stocks this volatile. With an 80% loss, however, you need a 500% gain on the remainder to break even-and that’s not easy. At this point in the market, however, stops are somewhat academic. It’s the bottom. Stops are much more important when you’re dealing with a $5 stock that’s risen from $.50, than a $.50 stock (with $.50 of cash) that’s already fallen from $5. At this point, though, a greater value of stops will be to protect your profits. 

As an aside, it must be said that using stops in a market as dead and illiquid as this one is often problematical; if you try to sell there often just aren't any buyers nearby. Many of these stocks are only trading a few thousand shares a day.

NOTES

It occurred to me how outraged Americans become when a foreign government is shown to be spying (the Chinese have gotten most of the recent press in that regard), but don't bat an eye when revelations like the planting of dozens of ultra hi-tech bugs on President Jiang Zemin's 767 come to light. Since the devices were planted at the factory, I'm sure it's going to do wonders for Boeing's future business in China. If you spy on other people, you have no right to be outraged when they spy back. As incompetent and dangerous as the CIA and NSA are, I'd say there's a better argument to be made for abolishing them than increasing their budgets. But that's not the kind of world we live in.

The Forever War isn't much in the news anymore. But I don't call it the Forever War because it's going away anytime soon. The US can kill thousands of Muslim fighters, but that can't change-- indeed it will exacerbate-- the cultural differences between us and them. Our values center around things like individualism, materialism and success. The Muslim world’s values center on honor and family above all. People react according to their values, and when values differ radically they simply can't understand each other. Bush would be much better advised to have the leaders of some Latino street gangs giving him advice than Condoleeza Rice. These people feel disrespected by the presence of armed foreigners in their country, and as much as I'm sure many don't like the Taliban and Osama, they probably dislike like foreign Christians even more, whether they were Russians in the 80s or Americans today.

Clan and tribe based societies are by their nature xenophobic. If you don't think Bush would get proper advice from the Bloods and the Crips, then he ought to at least look to Appalachia, where even if folks don't like each other, they attend the others funeral. When dealing in places like Afghanistan, Bush and Company, who know nothing about exotic cultures, should memorize this little poem:

Me and my brother
We fight with each other.
But woe betide
The guy from outside.

As a practical matter of realpolitick an example had to be made after the 911 event although, as I discussed before, this wasn't the optimal way to do it. And the root of the problem, which is the US Government sticking its nose into everybody’s business, is still there. Despite the fact al-Qaeda clearly approved of the deed, and apparently knew it was going to occur, I haven't seen any evidence they actually did it. So now there will be US troops in Afghanistan for the indefinite future, just like the Balkans. And now there are 650 Spec Ops troops moving to the Philippines to continue the fight that started with the Muslim separatists in the south after taking the country over from Spain at the end of the 19th century. And it looks like Iraq is on the runway. It's tough to keep track of all these places. I question whether Bush can find them on a globe all by himself.

So it seems Slobo is on trial at The Hague for various crimes against humanity. I have no doubt he's a criminal deserving of severe punishment. Or, more exactly and justly, reparations payable to the individuals whose lives and properties he destroyed. But I don't know that he's guilty from any first hand knowledge; I wasn't in Yugoslavia when the alleged atrocities occurred. I'm just willing to credit press reports and other hearsay evidence because these things are innate to warfare.
But I have serious reservations about the entire process. Why aren't the leaders of  the Albanians, the Kosovars and the Bosnians being tried as well? And why aren't the leaders of NATO being tried for initiating their bombing campaign against the Serbs? If examples are to be made, then let's do it right.

The US Empire is playing with fire doing such a hypocritical thing. Whether you approve or not, it's odd for a government that routinely bombs and invades other countries and always, since Vietnam, the most pitifully poor ones that present no conceivable threat to America itself, to put someone else on trial. I have no doubt that in hundreds of rooms around the world there are unhappy campers, who have absolutely no acquaintance with the oddly missing Mr. Bin Laden, talking about how exquisite it would be to kidnap the US cabinet and try them for war crimes a la Slobo.

As it stands I think (and certainly hope) that the whole thing backfires on NATO's self-righteous leaders. Slobo, who's defending himself without benefit of an attorney, stands an excellent chance of turning the kangaroo court into the sideshow it deserves to be, pointing out that everyone involved should share in the guilt. Pretty much the way Ollie North did when he was (quite justifiably) brought up before a kangaroo court in Congress some years back. I don't wish Slobo well. But I do wish him success in his current endeavor. 

Another trial worth watching is that of John Walker, the American who joined al-Qaeda. I suppose a case can be made that he is guilty of treason. But I question that. Would it still be treason if he'd renounced his citizenship before he joined them? Does the fact you're born in a certain geographical bailiwick obligate you to it for the rest of your life? What about foreigners who fight for America against their native governments, are they guilty of treason? Should Southerners in the War Between the States have all been charged with treason? What about those who were on the wrong side of the American Revolution, for whatever reasons? Shouldn't treason only be a crime for those who take a specific oath to defend a certain society? Is it treason not to buy in to the slogan "My country, right or wrong?”

Individual Americans have a long and honorable history of fighting with and for other people's causes abroad, and that's as it should be. But recent law has made that illegal; now only the government can decide when you can legally put your life on the line. Is America still the land of the free? Actually, I think treason is, at least in most circumstances, a fabricated crime, constructed by and for the benefit of statists. It's an 18th century version of money laundering. To my way of thinking there are only two laws: One, do all that you say you will do. And, two, don't aggress against other persons or their property. End of story. 

In point of fact, although I think Walker's choice of companions and causes was imbecilic, I think he had a perfect right to do so. But my opinion, as usual, differs from that of most Americans, who are caught up in war hysteria, and judging by press reports, want to see him executed. It's all very strange. A country that wants to illegalize guns, but is involved in warfare the world over sings songs about liberty and freedom, but restricts it further every day.

Probably not a good time to be a libertarian, at least not if you value security more than integrity.

Also, unbeknownst to almost any Americans, there are only three crimes that the federal government is authorized to punish, according to the Constitution: treason, counterfeiting and piracy. It's a surprise to most because almost every crime has been federalized. I suppose it's nitpicking to point this out, though, because the Constitution itself is 90% a dead letter.
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Here's a follow-up (along with the End quotes below) of last month’s thoughts on the Meaning of Life. At a minimum, I don't want to disappoint those who think I know the price of everything, but the value of nothing. Late in December a 24-year-old Internet entrepreneur (President of TAMBA Internet) named Kay Hammond from Birmingham, England, auctioned herself on E-Bay as a wife, and says she was shocked that bids reached £10 million, even though the reserve price was only £250,000. Regrettably, Ebay withdrew her advert less than 24 hours after it appeared, saying: "It's a grey area, but there are certain things that aren't considered appropriate, like people selling their virginity or their soul." That impresses me as a pretty humorless response, in addition to being inaccurate. People sell those things, and more, all the time, and for vastly less money. Ms. Hammond says: "I'm not selling my body and I'm not selling sex - I'm selling the whole thing." Why not? Marriage, which is basically a Neolithic institution, has historically always been first and foremost about economics, not love. Love has always been an ideal, or a bonus, or a come-on. But, as even relatively recent institutions like the dowry and the arranged marriage, as well as practices like polygamy and polyandry, would indicate it's not all about love.

Anyway, these are just a few random thoughts. It would be interesting to follow the career path of Ms. Hammond, however. I suspect she's not only smart and fun, but likely riding the wave of the future. 

Be sure to pay attention to the stuffer for Liberty Magazine (I’m an editor), perhaps the best mag out there. Plus, it’s a great bargain. 

End Quotes

Speaking of Slobo and war crimes, I think Gibbon's assessment is correct. And not just of "pastoral nations" like Yugoslavia.

"The laws of war, that restrain the exercise of national rapine and murder, are founded on two principles of substantial interest: the knowledge of the permanent benefits which may be obtained by a moderate use of conquest, and a just apprehension lest the desolation which we inflict on the enemy's country may be retaliated on our own. But these considerations of hope and fear are almost unknown in the pastoral state of nations." Edward Gibbon, Decline and Fall of the Roman Empire, Chapter 34. 

But there's likely another force at work at the trials of Slobo and Walker, besides the publicized ones. Mencken, as always, gets it right. It worked for Rudy Giuliani on his ascension to Mayor of New York.

"The surest way to get on in politics in America is to play the leading part in a prosecution which attracts public notice." 

From Mencken's 97-page preface to The American Credo: A Contribution toward the Interpretation of the National Mind, by George Jean Nathan and H.L. Mencken, p.84. 

Speaking Engagements

Foundation for Economic Education National Convention & 30th Anniversary Gala Celebration of Laissez Faire Books
Bally’s Paris Resort, Las Vegas
May 3-5, 2002
888-565-8779
Contact Tami Holland
tholland@fee.org - 
www.fee.org - 
Speech topic: “My World View According to Gibbon, Mencken and Bakunin." 

International Society for Individual Liberty World Conference
Puerta Vallarta, Mexico
7/28-8/1, 2002
836-B Southampton Rd. #299
Benicia, CA 94510
Phone: 707 746-8796
Fax: 707 746-8797 
www.isil.org -

The Freedom Summit
Phoenix, AZ
10/12-10/13, 2002
www.freedomsummit.com - 
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