Rick’s Picks

Thursday, December 9, 2004

For investors who’d rather be smart than lucky

Inspired by today’s selloff in precious metals, I’ve festooned an office wall with 80 crisp, new ten-dollar bills, a bracing reminder of how much I shelled out a few years back for just one shiny $20 Saint-Gaudens gold piece. The coin, one of the most beautiful I’ve ever owned, sits in a safe deposit box and is probably worth four times what I paid for it – enough to paper the whole office and a bedroom if I were to use dollar bills. Of course, one could fill an office to the ceiling with Federal Reserve Notes and they still wouldn’t be worth what a double eagle is worth intrinsically.  I know, I know. “Intrinsically” in this context is a loaded word, one fraught with legal concerns -- not merely about whether our money is worth anything, but whether, when you get right down to it, the stuff  we carry in our wallets is even lawful.

Years ago, in the early 1970s, the late, great C.V. Myers demonstrated otherwise. At the time, Federal Reserve notes carried the following inscription: “This note is legal tender for all debts, public and private, and is redeemable in lawful money at the United States Treasury, or at any Federal Reserve bank.” Myers made the point, never convincingly refuted by the Treasury Department in my opinion, that if the note was redeemable in lawful money, it could not itself be lawful money. When he tried to redeem two hundred-dollar Federal Reserve notes for lawful money, however, the Treasury sent them back to him with the explanation that the bills were lawful money. Myers was unpersuaded and said so in the strongest terms: “The violation of a solemn understanding [related to a promissory note] proves a mentality of lawlessness” on the part of the U.S. bureaucracy and the executive branch, he wrote in a letter to Treasury.

Ron Paul vs. Alan Greenspan

Rep. Ron Paul, nobody’s fool on the subject of money, has kept Myers’ spirit alive. When he grills Alan Greenspan during congressional hearings, it is like a feisty young stick-and-jab artist working over a tired old heavyweight. Paul seems able to draw blood at will, although, perhaps out of respect for Mr. Greenspan’s office, he rarely throws the haymaker.

If you’re wondering whence the discussion is leading, it is this:  Yesterday’s world-wide dumping of gold in favor of paper dollars was mass insanity – an act that will be repented, and probably soon, rather than recalled with a sigh of relief. If you believe there was anything more to it than unhinged hysteria, I would suggest papering your walls, not with tens or twenties, but with the 440 dollar bills it would take to buy a single Krugerrand. That’s what debasement looks like, poster-size. And if you think the dollar’s worst days are over, I’ve got some land on Mars to sell you.

Hero or Goat?

One investor who will not be repenting gold’s certain recovery is our friend John Mackenzie.  Unspooked by bullion’s steep fall yesterday, and unapologetic about his hyper-bullish forecast, he writes as follows:

“I suppose one could hang enough wallpaper on a condemned house to make structurally sound for awhile. Unfortunately, our house is falling down having been papered over far too often. The United States Dollar, aka Federal Reserve note, has ended its bull market. It has done so convincingly. 82.48 – 82.52 should not be exceeded again for more than a few days at most. The Dollar is Dead on Arrival. The 240-month simple moving average will serve as resistance and a cap on any further Dollar fraud by Global Central Pranksters.

Expect Gold Reversal

“Gold is going to reverse and quickly assault the 50% retracement level of the entire bear market @ $556 - $558. Jim Sinclair’s got it spot-on this time, although, were intervention not part of the gambit, I suspect he would have been proved correct a very long time ago.

“I must apologize for any confusion surrounding my previous missive. Judging by the amount of email received, it was confusing to many. Again, my sincerest apologies and I will certainly do a much better job of effectively communicating my opinions in the future. I have done my best to answer each and every email in the most clear and concise manner my time would allow, again, please accept my apologies for any confusion.

72 Hours Are Up!

“Gold has hit my retracement targets prior to reversal; 424.40 – 433.30 are effectively still open, but not much longer. Tomorrow is Z day and my 72 hours are up! Choose to believe or not, a healthy degree of skepticism is always prudent and healthy.

“We are setting up to run and run very hard, but please do remember to sell the public’s entry into gold and gold shares. I suspect we will begin a dramatic collapse in all equities once this last hurrah has concluded with a frenetic blow-off.

“We are heading up the “Domed House,” and it’s going to be a very long slide back down. It will then be time to sit back, having moved safely aside, and wait for Gold equities to begin a massive sell-off. I project this to be in excess of 90% losses to those holding Gold Shares. Protecting your hard-earned capital will likely require preservation through Hard Assets. Precious Metals would be my choice. Prepare for more volatility in our favor.”

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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2004, Rick Ackerman. All Rights Reserved. www.rickackerman.com