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To: Bill/WA who wrote (227460)	3/12/2003 11:09:35 AM
From: Win-Lose-Draw	Read Replies (1) \| Respond to of 436258

something for the gold bugs that appeared in my inbox... Thanks for the Gold vs S&P graphs from the 1987 crash. This confirms my experience in the last year and a previous comment to Gary Santos via private email, that I question the ability to gold STOCKS to hold value during a hard crash. My interpretation of the 1987 graph is that in the emotion of a panic, the gold stocks get destroyed along with all the other toilet tissue. Looking at history, only after it becomes apparent that there is a floor and that, in fact, THE PANIC IS IRRATIONAL (no change in recent economic facts), do the operators jump back in to the stocks leading the sheep back in. If the panic turned out to be rational or prolonged, I expect gold stocks would fall all the way down with the other toilet tissue and probably not recover. Probably even worse than real solid, dividend paying blue chip stocks from the Dow. Physical gold would do much better in the longer run, although in the short term it would likely drop as people who were just speculators sold it to pay their bills. In my experience and opinion, as a holder of probably too many gold stocks, the average gold company is much more sleazy than the average tech company. Just notice how how they keep issuing dilutive shares, selling proforma instead of actual operating profits, and -- most of all -- notice the outrageous use of stock options to insiders. If there ever are operating profits, most of these insiders have NO intention of sharing any of it; many of them couldn't be ramped up to profitable production in less than 5 years, anyway, so can't make operating profit from any short term run-up in the gold spot price. All gold stocks I am aware of are valued primarily on "greater fool" theory (HMY may be an exception for the instant; it pays a great dividend vs. price -- which says something about management intention going forward). Aside from the brutal facts of how gold stocks have performed under financial stress to date (poorly under panic conditions), their high sleeze factor, the fact that everyone wants to partipate in a speculative stock run-up but relatively nobody actually wants physical possession of gold, and the whole question of whether debt deflation or currency inflation is likely to be the bigger wave, I have another, more basic, concern with gold stocks as "insurance". The correction is about correcting debt and speculation. It seems to me on a visceral level that allowing people to escape "correction" by more of the same category of behaviors which produced the current mess to begin with -- pure speculation vs. investment/saving/hard-work -- would violate some sort of "justice" principle in the universe. Buying gold stocks seems too . . . obvious. Many Joe-6-Packs are already aboard. In a bad enough crash you might not even be able to get your stockbroker to dislodge your share certificates in time. Think about it. Much of the "smart money" is already betting heavily on gold and, particularly in my opinion, speculative gold stocks. If gold was the answer, it would mean that a large number of the speculators would come out of any hard crash in better relative shape than they went in to it. Their behaviors would be reinforced instead of extinguished. This may be a laughable call for "higher" justice, but my intuition hints that it would be getting off too easy for those who most need a good lesson. Gold stocks should do very well in an orderly currency debasement (currency inflation). In any other scenario I think trusting in them is badly mistaken and even physical gold might not turn the trick.