Special Edition #2

It's Time For Financial Preparedness

• Alan Greenspan & The Fed
• A financial earthquake has started
• Rising Demand For Gold
• Million Dollar Evidence
• Conclusion
• Three Quick Asides About Our Nation's Big Bank
• A First Class Proof of Inflation

Destabilizing forces — financial and military, domestic and international — are growing in strength. Despite the immense power and influence at their command, the people and institutions that direct our nation are confronted with menacing trends.

During the past two decades it has become popular to declare war on any number of social and political issues. As examples, consider the war on poverty, the war on drugs, etc. Each of these so-called wars has been enormously expensive and wholly unsuccessful. Now we’re engaged in a war on terrorism. I think there is a high probability that this will turn into another enormously costly undertaking with little prospect of short-term success.

The October 2002 issue of the Cleveland Federal Reserve’s Economic Trends publication said: “Everyone recognizes that future economic growth would be compromised by a war with Iraq, renewed terrorist attacks or both.” It seems that this is a Catch-22 situation. If we go to war with Iraq, the terrorists will retaliate. If we do not, the terrorists will see this as a sign of weakness. This will embolden them to attack to expand their power and seek their evil ends. Either course of action could deal a crippling blow to the stock market and the economy.

Our newest war has helped turn our national budget from a modest surplus to a huge deficit. Financial leaders from Wall Street and Washington, D.C. advise foreign nations to eliminate their deficit spending or face the risk of ruining their currency. Still our country spends hundreds of billions more than it takes in. These deficits are causing the national debt to grow at a frightening rate. Based on my research, I’m sure we’re headed for a falling dollar.

I’m not the only person who sees trouble ahead for our currency. George Soros, the successful investor and commodities trader, expects the dollar to lose between 30% and 40% of its value in the years ahead. And establishment analyst Stephen Roach of Wall Street’s Morgan Stanley also expects the dollar’s value to tumble by 15% to 20%.

When the dollar last tumbled, a trend that lasted from the 1960s into the 1980s, everything made overseas became more expensive. Prices for imported goods like cars, gasoline, lumber and clothing jumped higher across the board. Interest rates rose as our government was forced to borrow huge sums of money. We called this event stagflation at times and inflation at times. also distinctly remember one more important fact.

The last time the dollar tumbled in value gold and desirable gold assets like historic rare coins rose sharply and repeatedly as wave after wave of new investors entered the marketplace. Investors who knew how to protect themselves from the dollar’s ongoing tumble bought gold and silver and benefited from skyrocketing prices. Many analysts believe we are headed for a replay of that experience. We have seen analysts forecasts of $1,000 per ounce gold reported on CBS Market Watch and in several financial publications.

The dollar is already showing signs of weakness, stocks have been shaky and gold has been rising. This could be the earliest stage of a decade-long fall of the dollar and a rising market cycle for all gold coins – especially those that have a proven track record of rising during similar economic periods.

Alan Greenspan & The Fed

Alan Greenspan and the Federal Reserve engineered the Roaring Nineties with the rapid creation of unbacked paper dollars along with falling interest rates. Now they’re worried that our nation’s economy will follow Japan’s lead. Here’s what I mean…

Japan is the world’s second largest economy. Their stock market topped-out at 39,000 in 1989 and has been falling ever since. It has lost more than 75% of its value during a 13-year bear market. The once sky-high values of commercial real estate and housing have plummeted. The Japanese government has pushed interest rates down to almost zero and pumped-up the money supply. Despite these efforts, the Japanese economy has been mired in a series of serious recessions with no recovery in sight.

During this 13-year period Japanese investors have lost confidence in stocks and real estate. They’ve lost confidence in brokerage firms and banks. And they’re losing confidence in their government’s ability to end their most serious financial crisis in 50 years. (Does this sound similar to what is currently happening in the U.S.?

Most importantly, the Japanese now know that they are in a battle for economic survival. China is out-producing nearly every country in the world – they’re the new low cost, high quality manufacturing giant. China’s progress and growth may keep Japan in the doldrums for years. That is another reason why demand for gold assets skyrocketed in Japan. People want the safety of a proven asset, not another empty promise from a politician. I was shocked to learn that factory employment in the U.S. has plunged to the lowest level since 1961. This is strong evidence that we may soon face the same problems as Japan.

Alan Greenspan and the Federal Reserve are keenly aware of exactly what has happened in our economy and in Japan. They don’t want the Japanese economic virus to spread to the United States. That’s why the Fed has been stimulating our economy for the last few years. They’ve pushed interest rates to the lowest level since the Eisenhower era. And they’ve added billions of dollars to our nation’s money supply. In fact, in the 12 months between Dec. 2001 and Dec. 2002, the Fed has created and added $472 billion to the U.S. economy.

The Fed created this new money out of thin air… pieces of paper that have value only because people here and overseas have confidence in our government, our economy and our currency. But history proves that all paper currencies “revert to their intrinsic value.” That’s a fancy way of saying: in time all paper currencies become worthless!

Unlike paper currencies, gold has withstood every test of time for 5,000 years!

The Fed does not want to see our stock market fall. A falling stock market makes investors lose confidence in our nation’s financial marketplace. A falling stock market creates doubt among investors and money managers about the future of our economy. And a falling stock market prevents young companies from raising new capital and growing into successful, job-creating firms. With a rosy future looking more doubtful, the public’s confidence in Wall Street, the Federal Reserve and our paper currency becomes even shakier.

Despite the Fed’s public and behind-the-scenes manipulations, the stock market remains dangerous, banks are wobbling, high-paying factory jobs are hard to find and the economy is shaky at best. Despite the lowest interest rates in decades. Despite the billions of dollars added to our nation’s money supply. Despite every financial manipulation at its disposal, the Fed hasn’t been able to restore the public’s confidence in common stocks, mutual funds or the nation’s banks.

As part of its program to stimulate the economy, the Fed has pushed interest rates to record low levels. This series of actions has made the market value of existing government and corporate bonds rise. Because banks own significant numbers of bonds, rising bond values quickly get translated into more loans.

If – and perhaps I should say when — interest rates start rising, the market value of bonds will start falling. Rising interest rates and falling bond values will produce massive problems for our nation’s banks. Banks will suffer two ways: first, their holdings of bonds will fall in value. Second, falling bond portfolios mean the banks can’t loan as much money. The outlook is worsening for banks and for the economy.

Now imagine what our future might be like with a falling stock market AND rising interest rates. Wall Street and the nation’s banking industry will see the value of their investment holdings drop sharply in value. No wonder the common stocks of big name national banks have fallen precipitously.

Forward-looking stock market analysts are suggesting the worst is yet to come for the nation’s banks and stocks in general. And that’s without calculating what will happen if depositors start withdrawing their savings due to fears of bank runs or bankruptcies.One thing becomes clear when

I look at our huge national debt and budget deficits, the terrible shape of Japan and numerous other world economies and the inability of our leaders to turn around our nation and our markets…

A financial earthquake has started

Confidence in our nation’s already shaking financial system has the potential to crumble. History has taught us that as confidence in a nation’s monetary system falls, institutions and individuals turn to tangible assets like real gold. Gold coins provide a higher level of stability and help protect savings from further financial problems.

Raising Demand For Gold

I’ve learned a great deal from personal experience and from my ongoing research. History shows that when the rising cycle for financial assets (stocks, mutual funds and bonds) ends, investors often turn their attention to tangible assets like gold and silver. That’s exactly what’s happening now, both here and abroad.

Demand for gold has risen sharply in the United States during the last few years. Before and after the stock market began falling, some investors diversified their holdings with undervalued gold and silver assets. With the stock market’s recent gyrations, a growing number of investors have already benefited from their diversification into gold. Most gold investors agree that it’s still a good time to diversify into gold and silver. The upside potential is strong.

Looking overseas, China represents two major new sources of demand for gold. The government is buying an extraordinary amount of gold to expand its official holdings. There is some talk that they envision a day when their money is backed by gold and becomes a major international currency.

The Chinese government is now allowing its private citizens to legally own gold for the first time since 1949. It is unheard of for a communist dictatorship to encourage and facilitate gold ownership because gold buys freedom! The removal of their 50+ year-old gold-owning prohibition will release the pent-up demand of 1.3 billion people with a lengthy history of owning gold.

As China’s economy expands, the amount of gold purchased by their government and their people could send the gold market sharply higher. And there are other international sources of growing demand worth mentioning at this time…

Demand from the Middle East has always been powerful. Now the problems in and around the Holy Land, coupled with America’s war on terrorism have stimulated aggressive demand. The region’s long-held distrust of paper money has been powerfully reinforced as the Turkish currency crumbled.

Demand for gold has also expanded from an unusual source: gold mining companies. Many of them have been covering their forward sales by purchasing gold in the open markets. The process that sent gold down in the 1990’s is being reversed and the result is higher demand, which should lead to higher prices.

Those are five significant reasons that demand for gold is rising. Now let me say two important words about supplies of the yellow metal: they’re falling. Supplies of newly-mined gold are actually shrinking. During the past 20 years there have been very few new mines opened due to low gold prices. And it takes a long time and millions of dollars to bring a new gold discovery to production.

When the price of gold is low – as it has been during the last two decades – the entire process grinds to a halt. In fact, worldwide gold production is falling because mines with high costs stop producing. Numerous gold mines around the world have been closed and it takes quite an effort to revive production.

Million Dollar Evidence

Here’s the most powerful piece of evidence that informed investors are moving a portion of their portfolios into scarce and desirable gold assets: On July 30, 2002, a last year of issue 1933 Saint-Gaudens $20 gold coin was sold at auction. This beautiful coin, featuring a design created by Augustus Saint-Gaudens, President Teddy Roosevelt’s personal friend, contains nearly one ounce of pure gold. But its real value is based on its great rarity and desirability…

… it’s the one and only 1933 $20 gold coin available to today’s millions of active collectors and investors! Although more than 445,000 1933-dated $20 gold coins were struck, nearly all were officially melted in the 1930s.

Bidding the 1933 Double Eagle quickly rose through $2 million, then $3 million. Numerous participants anxious to own this rarity sent the auctioneer’s call past $4 million and $5 million. When the auctioneer finally said “sold!” the ultra-rare and highly-desirable Double Eagle cost its new owner $7.59 million – nearly twice the previous all-time record for any coin!

I wasn’t surprised that the 1933 Double Eagle set a new all-time record high for a coin. Gold coins are always desirable and in demand, and that goes triple for great rarities in the most prestigious series of coins ever issued by our government. But I must admit that I was impressed with the sizeable number of bidders who really wanted this supreme rarity. With paper assets performing so poorly and demand for gold coins at Goldline rising at virtually all levels, it seems that history is again repeating. Paper assets like stocks and bonds are headed lower, while the rising cycle for historic gold coins has a long way to go.

Conclusion

Despite the government’s reports that inflation is only 1% to 2%, I know it’s really much higher for daily consumer necessities. Higher inflation is most obvious when my wife or I shop for food or gasoline, or pay for our home insurance and health care. My radio listeners also reinforce reports in The Wall Street Journal and other major publications that the cost of insurance, food, housing and personal services of all kinds are moving sharply higher.

On the other hand, there is a growing whiff of deflation in our economy. Falling prices are most obvious in common stocks, mutual funds and the cost of new computing power. Now some analysts suggest real estate may be the next candidate for falling prices. Although it seems contradictory to have both inflation and deflation, our nation has previously experienced these opposite forces at the same time, notably during the 1920s, 1960s and 1970s.

I don’t know whether the Federal Reserve’s public and private actions will result in inflation, deflation or some middle path. But I do know that a rising tide of investors is adding real gold coins to their holdings. Some are afraid of falling stock or bond values, others want to diversify their portfolios. Some are worried about the banking system, others want to take advantage of potentially profitable historic trends. Some investors just want to own a time-tested asset that is insulated from today’s corporate scandals, accounting nightmares and banking miscues.

I do know this for sure: the future is uncertain and any one of the negative trends I’ve mentioned could lead to a serious financial disaster. That’s an important reason why I own gold coins and I recommend them to you. Owning gold coins helps me sleep better at night.

If you recognize the importance of these growing threats and are interested in diversifying your family’s holdings, call your Goldline Account Executive toll free at 1-800-827-4653. Call today and join the millions of investors who sleep better knowing they own some real gold.

Three Quick Asides About Our Nation's Big Bank

One of my pet peeves relates to today's low interest rates on savings accounts and Certificates of Deposit. Banks are currently paying between 1% and 2% per year on our passbook accounts and CD's. Yet they're charging 18% to 24% on our credit card balances. Do they really think that's fair? Are they ripping off consumers to pay for bad loans they made to giant energy and telecom firms?

Second, our savings continue to lose purchasing power through inflation -- even at the unrealistically low inflation rate the government keeps reporting.

Third, despite the big banks' massive credit card profits, they're losing tons of money. Why? Bad loans to now-bankrupt dotcoms and telecoms. They made big loans to newly-created companies that expected the good times of the Roaring Nineties to last forever. And they made big loans to foreign governments with long records of defaults. The once all-powerful banks are starting to get what they deserve.

A First Class Proof of Inflation

A First Class postage stamp cost three cents from the Depression of the 1930s until 1960, when Goldline was founded. The following list shows how the cost of a First Class stamp has risen by over 800%. It’s real-world proof that the value of the U.S. dollar has fallen decade after decade!

• Why I Expect Large Gains For Selected 19th and 20th Century 20 Franc Gold Coins