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To: JoanP who wrote (64527)	2/3/2001 5:30:44 PM
From: yard_man	Read Replies (1) of 436258

Gold and gold shares are not perfectly inverse to stocks, but there is a pretty good divergence you can look at over a number of large periods of history. Does it make sense to own equities and gold and gold shares? Historically, I don't think so --- But what I think is really a misnomer in what you printed is that falling rates and a rising monetary base are sufficient to propel equities higher -- certainly this has been true in recent history -- a rapidly growing monetary base and lower interest rates have propelled the market higher for some time. Lower interest rates theoretically do a couple of things to make stocks generally more attractive -- 1) make owning bonds less attractive as an alternative and 2) decrease borrowing costs which should help earnings maybe there's a third 3) reduces the cost of borrowing to purchase stocks? Generally these are bullish, except as you can read on any of the popular sites quotes. 1) As a percentage of assets held by individuals -- stock ownership is at an all-time high, while the balance sheets for individuals are at historically their most leveraged. I.E. stock ownership at such high levels has been supported by taking on larger and larger debt as a percentage of current income. 2) For the corporate sector, corporations are more highly leveraged than they have been in some time -- borrowing is always meant for "general corporate" purposes -- but share buybacks have continued at a very high pace -- u can't ferret out what was borrowed for investment in new equip and what went to buyback stocks unless you want to do some math, but the incentive for those at the top is clear. Highly leveraged companies debt service costs are reduced by lower rates but you also have to look at what the debt is being used for. Reducing borrowing costs alone will probably not improve the profitability of companies if demand for their products is falling and we are entering period of falling demand in many areas ... Increasing monetary base -- I think there are lots of others that can speak to this better than I can -- but the monetary base has been expanding at a rapid rate recently and for a long period of time at a rate much higher than (even as inflated as it is in govmnt reports) GDP growth ... what has changed recently is that financial assets as a whole have not been going up -- at some point purchasing power has to go down as the supply expands Depends on how u look at it but some would say there has been a fortuitous set of circumstances that has masked the loss of our purchasing power (at least in the gvmnt statistics) -- that fortuitous set of circumstances has been the washout in Asia and the willingness of foreigners to hold dollar denominated assets because it was the only "game in town" while consumers here were willing to spend like there's no tommorrow -- because they believe in the Bull and AG. Now when the expanding monetary base does not continue to fuel rapid advances in stocks -- real returns earned by foreigners don't appear assured (i.e. the dollar doesn't remain strong, fixed interest lower, & stocks not going up) -- there can be a virtuous cycle in the other direction -- i.e. foreigners repatriate funds while consumers here no longer spend all their income expecting their future is assured by the stock market and we get reinforced selling ... Dollar may have already turned -- sure looks like it -- this can only increase the worth of gold and the shares of gold miners located outside the US. Keep in mind that the Gold Futures market is bigger than the physical market by a few orders of magnitude and that CBs do have an interest in forestalling any flight to alternatives to their currencies -- expect a fight, but be patient. They can only unload so much ...

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