Special Edition #1

Our World Has Changed.
From Stocks to Personal Liberties, It Will be Poorer

by Joseph C. Battaglia
Host of The American Advisor Radio Program

• Investment Trends
• Looking Back...
• Where We Are Headed
• Prepare Now
• Beyond Food & Water
• Gold
• Preparation = Success
• Profiting in the 1970s
• Protect Your Savings

To read two other articles featured in this edition, please click on the following titles: 4 Steps to take now to reduce your taxes Reduce your 2001 taxes with uncle Sam's blessing

The heinous attacks on the World Trade Center and the Pentagon and bio-terrorism have changed the world as we know it forever. Some of those changes are clearly visible to Americans today. They include an enormous loss of human lives, unspeakable human injury, sorrow, despair, and anger. They also include the destruction of major national landmarks, such as the Pentagon and the World Trade Center Towers.

Economically, the attack served as a spark to ignite an economic crisis that has resulted in a dramatic decline in the equity markets which could in time result in a dramatic decline in the economy. All of these dreadful events pale in comparison to the single greatest fundamental threat to our country: the potential loss of personal liberties.

Throughout recorded history, people have voluntarily traded their freedom for security. Perhaps the most notable recent example of this took place in Germany in the 1930s, when the Nazi Party won a free election. The Nazi Party promised it would produce national prosperity. Unfortunately, it was at the expense of freedom. We must be extremely careful not to sacrifice our freedoms for the promise of security.

The Los Angeles Times ran a front-page article on September 21st entitled "The Land of the Free May Become Less So". The sub-headline said, "Security: U.S. could take its cue from other countries for the price of peace is exacted in civil liberties". Our civil liberties and our freedoms are the most prized possessions of our country. They are what make the United States so unique and prosperous. I call upon every American to be vigilant and to oppose any efforts at restricting our freedoms in exchange for security.

Let us examine the consequences of the attack to more clearly understand what I believe lies ahead for our nation and the world. One of the most visible and immediate impacts was on the airline industry, which was shut down for more than a week. Today we have intensive security checks that are significantly delaying both passenger and freight travel. There are two major consequences of these enormous delays:

First, there’s the loss of time and productivity at the airports, where it can take as long as three hours for passengers to check in. Second, there’s the inability of the entire world to function efficiently due to the "just in time" inventory systems that have been put into effect over the past 10 years. These systems depend on reliable and prompt delivery of parts and materials around the world. Because of the delays some companies were forced to shut factories, others have reduced production. This was highly visible in the automotive industry where a number of plants were forced to close for days.

The longer-term consequences will be more damaging to the economy. It will take time before systems are put into effect that will enable air-freight transport to be more efficient. During that time interval the economy may be damaged beyond most people’s expectations.

Moreover, I believe the so-called budget surpluses will very rapidly turn into deficits of immense proportions. From the money to be spent on a direct bailout of the airline industry to the rebuilding of New York and the prosecution of a worldwide war against terrorism, our country appears headed for a period of very grave depreciation in the value of the dollar.

In other words, I see serious inflation occurring at the exact same time as the economy stagnates.

The last time we saw economic conditions such as this was in the 1970s. During that decade the economy struggled, stocks and the dollar fell and gold prices skyrocketed.

The mass psychology of our nation has also changed and perhaps out of this will come some very positive things. As Tom Brokaw said in his best selling book, The Greatest Generation, our country needed something to galvanize us, to bring us together with a common purpose, to unify us as a nation. I believe we now have that unifying cause. I think it will result in a dramatic improvement in our religious and moral values, and will help unite us as a nation, similar to what happened during World War II.

Americans who belong to the "me generation" and who have been concerned only with self-gratification will now have a purpose beyond themselves. There will be a period of reawakening of family values, religious values and social values that will be very positive for America. However, we will also be forced to live in tougher times and to deal with serious issues such as the prosecution of a war and the rebuilding of our economy.

Investment Trends

As our world is profoundly changed it will give birth to totally new investment trends. Investors who prepare for the future will prosper immensely. However, I believe that those who adhere to yesterday’s investment strategies will be wiped out.

My greatest fear is that Americans have been lulled into a false sense of financial security. They have been brainwashed into believing that stocks rise forever and that if they simply hold their stocks or mutual funds long enough they will be rich. The foundation for those ideas has

rapidly eroded. However, most Americans (out of patriotism or for other personal motivations) have failed to heed the warning signs and take action.

More than two years ago, when the Dow Jones Industrial Average was approaching 11,000 and the Nasdaq was nearly 5,000, I warned investors to reduce their exposure to equities. I warned that the stock market would fall dramatically over time and that the Nasdaq might drop as low as 1500. At that time, I am sure most people thought those ideas were ludicrous. They were not based on the potential for a terrorist attack, or the potential for us to go to war. I certainly did not foresee those events.

However, I did foresee the changing of the economic cycle from one of enormous and rapid growth to a recession. I saw a stock market that had exploded on the upside in an era of "irrational exuberance" to reach great overvaluation. Past experience told me it was

certain to reach the opposite extreme before the cycle had been completed. In other words, a period of aggressively declining stocks with the market reaching extreme levels of under-valuation appeared likely to me. As Time magazine said in their September 3rd issue, "One Spark Could Ignite a World Wide Economic Crisis". We now know what that spark was: a terrorist attack on America.

Looking Back...

The era of widespread economic strength and global prosperity may be ending. Policies that worked for us as a nation and an integrated global economy in the 1990s will likely not work in the years ahead. Looking backward, here are a few of the more important trends that have ended or may be in the process of ending...

• economic growth and full employment

• cheap and plentiful crude oil

• a strong dollar

• modest rates of inflation

• a cold peace in the Middle East

• confidence in Wall Street’s easy-to-create paper assets

In hindsight, these trends are over, finished, kaput. The change of the millennium closed the door on that era.

Where We Are Headed

The catastrophic attack on New York and Washington, D.C. is the beginning of a new era. If we step back a few paces we’ll see that the big cycle was changing long before those fateful airplanes left Boston’s Logan Airport. Here are five examples of what I mean...

1. The Nasdaq, a stock exchange loaded with high-flying new technology stocks, lost two-thirds of its value after peaking last year. Investors who owned the "sure-thing" new era stocks of the 1990s have watched in astonishment as some values crashed by more than 90%.

2. Crude oil, which had fallen to below $10 a barrel, turned around and rose past $30. Even at today’s level, expensive energy means a huge increase in raw material and transportation costs around the globe.

3. Japan’s stock market and economy are suffering. Their equivalent of the Dow Jones Industrial Average is down by 70% and their economy is in a prolonged depression.

4. Peace talks in the Middle East approached a settlement, then fell apart. There is a widespread fear of war in the Middle East. War in the Middle East may result in an oil embargo against the U.S.!

5. Public confidence is falling as the cycle turns down. The next serious blow to our national image or our financial well-being could start a global crisis of confidence. Those in power will do almost anything to avoid that crisis.

Please note this important point: "We’re in a primary bear market, and in a bear market stocks go down and for some unknown reason – bad things happen." That’s noted stock analyst Richard Russell speaking.

Prepare Now

The cowardly attack on the Pentagon and World Trade Towers and bio-terrorism will force every American to re-examine their personal readiness. After all, it‘s as true for individuals as it is for the U.S. Army: preparedness is the cornerstone of success!

It’s time to examine our personal preparations. We are told that further terrorist attacks are likely. United Press International, on September 20th said, "An internal memo circulated to federal employees Thursday warned that the government has "credible evidence" more terror attacks are being planned on sensitive targets in the United States." Every American family should be prepared for the unforeseen. Every family should be 100% ready when their daily routine is interrupted by the unexpected. Personal insurance comes in many forms...

How would you cope if problems with your electric company or its power lines struck tonight? Be prepared with battery-powered lights, clocks, telephones, radios, etc. And don‘t forget plenty of extra batteries.

What about food; how will you feed your family (and your pets)? Start building an emergency pantry today. Look for foods like soup, macaroni and cheese, tuna and canned meats that you like and that have a reasonably long shelf life. Be sure most of your stored foods can be eaten as is. Include manual can openers, disposable eating utensils, plastic garbage bags, etc....

How would you cook or stay warm if your home’s gas supply was interrupted? Stockpile plenty of extra cooking supplies and lots of warm clothing and blankets.

How would you and your family deal with a water delivery problem? Be prepared with several gallons of water per person per day. A supply of high-quality backwoods-type of water filters and clean plastic containers would be a good thing too. Consider stockpiling canned fruit juices to help conserve your water.

How would you keep your spirits high under these types of emergency situations? Keep Holy Bibles for every family member with your emergency supplies.

How will you cope with the minor medical situations that will arise? Keep a first-aid kit and Red Cross first aid book handy. And a supply of extra medicines, vitamins and prescription glasses too.

It also makes sense to have a plan for your children and loved ones who may be separated during an emergency. Prepare a list of contacts, with phone numbers and addresses to facilitate contact. Keep your emergency list and some change in a water tight plastic bag. For added peace of mind, pack a family photo with a personal message in your young students’ backpacks.

Beyond Food & Water

Naturally, you’ll want to be prepared with some emergency money. Beyond having lots of change as well as one and five dollar bills, you’ll want some tens and twenties.

And you’ll want to have a good supply of barter coins too. Real silver coins will be gladly accepted when paper money is not. (You’ll want to use small gold coins for larger purchases.) For example, the owner of your local gas stations may sell you gas if you pay with a handful of silver dollars, but claim he’s sold out if you offer paper money.

Don’t think this can’t happen to you. I saw silver coins accepted when paper money was treated with disdain during the so-called "gas crises" of the 1970s.

Two excellent items to include in the cash/barter portion of your emergency rations are circulated silver dollars minted before 1936 and European 20 franc-sized gold coins. They are the correct size for barter and are universally recognized. That makes them instantly useable as barter money. (They’re non-confiscatable under current laws, too!)

Owning gold and silver coins during a major emergency has another potential benefit: you may find that your silver dollars and gold coins have skyrocketed in value as investors flee paper money for the security and liquidity of real gold and silver. It happened here during the 1930s and the 1970s. It could easily happen again.

Gold

It may seem crass to discuss investment opportunities during a period of national stress. However, as our President instructed, we must get back to America’s business. It’s my responsibility to talk with you about precious metal and rare coin opportunities. Indeed, I believe that the changing of the world will cause a dramatic change in investment markets.

I explained some of that to you earlier in this article when I talked about the stock market and the economy. It is important to remember that stocks and other financial assets are on one end of the teeter-totter while precious metal assets are at the other end. When there is a dramatic change causing financial assets to move lower, as we have seen, precious metal assets tend to move higher.

I believe that a new era for gold and silver assets has dawned. I believe that we are embarking upon a multi-year bull market in precious metals that has the potential for enormous upside gains.

It has long been my view that the next bull market in gold will produce price levels far higher than the previous all-time record highs of $850 gold and $50 silver. I did not foresee that the cataclysmic events of September 11th might ignite that bull market. However, based on my study of history, it was clear that in time a new bull market would begin for gold and silver and that it would carry them to new record highs.

In my previous articles, I have referred to analysts from prestigious publications like the The Wall Street Journal and Barron’s, which ran articles forecasting that the next major bull market in gold would carry it to price levels of thousands of dollars per ounce. I believe that such a rising cycle may have been ignited.

If indeed this is the start of a period like the 1970s, we could see gold make a dramatic and sustained move to the upside. Think about it: if gold made the same percentage increase as it did during the 1970s, gold would rise above $4,000 an ounce. Silver could be valued in excess of $200 an ounce.

While those levels may seem unbelievable today, are they any more unbelievable than my prediction that the Nasdaq would fall to 1,500 when it was trading at 5,000? Mind you I am simply arriving at an approximation of the percentage increase of gold and silver during the 1970s and applying that increase to the price of gold at the beginning of the present upmove.

It is no secret that gold and silver are now outperforming equities and other investments. If am correct that this is the beginning of a new major bull market, every investor needs to be properly positioned in gold and silver assets to take advantage of their appreciation. By diversifying 5% to 10% of one’s portfolio into select gold and silver assets, it may be possible to recoup much of the losses that were sustained in an equity portfolio.

At the moment we are seeing extraordinary fresh demand for gold and silver assets of all kinds. Some are even reporting shortages and delayed delivery. Interestingly, the demand for physical gold in a person’s possession has been the primary driver of the market – thus far. This move is powerful, broad-based, and I believe sustainable.

One of the more interesting developments might be to see what occurred with Comex warehouse depositories of gold and silver. Many investors are unaware that a sizable amount of the Comex warehouse inventories of gold and silver are buried beneath the rubble of the Twin Towers. If a short squeeze develops and there is a huge demand for physical gold and silver, it may significantly disrupt deliveries. This could cause prices to rocket upward at rates not seen since the late 1970s when there was a short squeeze on silver.

If you have not yet diversified your investments to include a 5% to 10% allocation for precious metal assets, now is the time to do so.

Preparation = Success

Today, most Americans are aware that something big has changed. They see and hear what our President is saying and what our armed forces are doing. They know how the stock market has reacted to the slowing of the world economy.

There’s not much doubt in my mind: stocks are in a long term bear market! The path of least resistance is lower. Yes, there will be sharp rallies, but I believe the ultimate bottom for stocks is much lower.

What most Americans don’t know is that today’s world is quite different than the world we inhabited last year. The world’s economy is different; it is much weaker. The level of tension is different; it is much higher. And the level of confidence is different; it is wavering on the edge of a steep cliff.

That’s why politicians and central bankers in Washington, D.C. are doing everything possible to re-inflate our economy. They can call it a "stimulus package" or "economic recovery program" or whatever they want. The results are usually the same. After a pause, the economy turns around and inflation moves higher. This response has worked for nearly five decades...

We haven‘t had a single year without inflation since 1954!

This time, I believe Washington’s efforts will be even more successful than they expect. After all, interest rates have been pushed sharply lower, taxes have been slashed and billions upon billions of U.S. dollars have been printed into existence.

I believe the government’s actions will lead to higher inflation, a falling U.S. dollar and a loss of confidence in our stock markets and our currency.

Looking at the larger picture, Europe and Japan are working overtime to "stimulate" their economies too. That means the next inflation cycle could see a return to double digits in all three of the world’s most developed market regions!

And when the dollar crisis intensifies, the world will send back the billions of U.S. dollars it now holds. That process will, in my opinion, lead to a loss of purchasing power of the dollar and propel precious metal values many times higher than the $850 gold and $50 silver reached in 1980.

The profits for today’s investors could be staggering.

But more importantly, by owning some gold and silver coins you‘ll be able to feed, shelter and protect your family. At least some of your savings will survive. And when the crisis ends, you‘ll be in a position to help America rebuild.

Profiting In The 1970s

I remember the 1970s pretty clearly. Demand for gold, and for gold and silver rare coins, rose fairly steadily, with occasional upward leaps. I remember gold rising by 2% to 4% in a week and selected rare coins jumping by 10% to 20% during the same week. Whenever gold and silver bullion rose, rare coins rose too – only faster.

The reason for this relationship is rather simple to understand. There is only a limited number of high-quality Morgan silver dollars or Saint-Gaudens $20 gold coins in existence. By law, no more can ever be minted. So a small increase in demand can quickly create a sizeable rise in value. That’s the leverage created by scarcity.

Additionally, there are no large stockpiles of high-quality rare coins as there are with gold bullion. Governments can’t manipulate the value of rare coins by heavy and ongoing sales – as they sometimes do with gold bullion.

And bullion investors often became coin investors when they learn that 1) gold bullion was confiscated from American citizens in 1933 and 2) collectors of gold coins were specifically exempted by the law.

Collectors of Gold Coins

profited handsomely in 1933 when the government devalued the dollar and increased the official price of gold by nearly 75%. (And they earned sizeable long-term profits after the

government melted millions and millions of the pre-1933 gold coins. That action made the small number of surviving gold coins much rarer and far more desirable!)

The events following the World Trade Towers and Pentagon bombings reminded me of the 1970s. Gold and silver bullion jumped in value, but selected rare gold and silver coins jumped in value by quite a bit more! I believe we will see this trend continued in the years ahead.

THE CERTIFIED COIN DEALER NEWSLETTER had this telling comment about Saint Gaudens $20 gold coins in its September 21st issue: "The demand for No Motto and With Motto Saints is tremendous, we see several large numismatic firms trying to buy these Saints in quantity... Dealers are willing to pay approximately 10-15% more for Wells Fargo Saints... for grades from MS63 through MS65."

Protect Your Savings

To protect your portfolio and your life savings, I believe it is prudent to hold 5% to 10% of your portfolio in real gold and silver coins. For diversification purposes and to position yourself for the potentially sizeable gains I expect in the years ahead, now is an excellent time to acquire your first real gold and silver coins.

If you have already started diversifying your portfolio with real gold and silver coins, congratulations on your foresight. Now, when the market is sending a clear signal, is an excellent time to add to your holdings.

I believe the good times of the 1980s and 1990s for the world’s economy are ending. The future holds more unexpected problems, wars, militant attacks, natural disasters and financial catastrophes. Think of the 1970s, only worse.

My analysis is clear: paper assets like common stocks, mutual funds, etc. have completed their rising cycle and are headed sharply lower. Real assets with superior histories of protecting savings are the wave of the future. Now is the time to build your family’s holdings of real gold and silver coins for protection and for potentially large profits.

I encourage you to call your Goldline Account Executive toll-free at 1-800-827-4653 today. Take this opportunity to discuss how you can add some real gold and silver to your holdings at today’s favorable level.

• 4 Steps to take now to reduce your taxes
• Reduce your 2001 taxes with uncle Sam's blessing