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Gold/Mining/Energy : Mongolia Gold Resources -- Ignore unavailable to you. Want to Upgrade?

To: Dave R. Webb who wrote (2940)	12/15/1998 4:54:00 AM
From: d:oug	Read Replies (1) \| Respond to of 4066

Dave, thanks for the good reading. I shortened. ( Part 1 of 3 ) Be sure to read Eugene Ionesco's fabulous play RHINOCEROS, and decide if this doesn't exactly describe the current state of the U.S. stock market. GOLD MINING TAKEOVERS IN THE NEWS: Placer Dome on December 13, 1998 announced its intention of buying Getchell Gold. Barrick Gold on December 9, 1998 made a hostile takeover bid for Argentina Gold. Homestake Mining on December 10, 1998 completed its purchase of Prime Resources. Many smaller names have also been involved in mergers and acquisitions. BY THE BOOK: Nearly all of the classic textbook elements are in place for a rise in precious metals prices and a sharp decline in the stock market: 1) historically extreme price-earnings ratios, indicating extraordinary public clamor for shares without regard to fundamentals; 2) a deteriorating worldwide economic picture; 3) fear of missing out on a market rally exceeding fear of a market decline; 4) extreme bearish sentiment for precious metals and their shares as an investment class; 5) a recent increase in volatility in most financial assets, which almost always precedes a major change in trend; 6) the recent hypercharged internet sector, signaling the most overextended specific manifestation of the general mania; 7) politicians and others in charge of financial decision-making around the world being far more concerned with preventing recession than in fighting inflation; 8) fewer and fewer equities increasing in value during each successive rally attempt, indicating a sharp narrowing of the viable base of high-performing stocks (as happened dramatically in the late 1920s, and again for the " Nifty Fifty" in the early 1970s); 9) a classic head-and-shoulder bottom in the implied volatilities of index options, as epitomized by the chart behavior of VIX; and 10) stocks are able to rally only at the expense of bonds, and vice versa, indicating that there is little cash available which has not already been committed. The current outlook for gold mining shares is SIGNIFICANTLY BULLISH due to the following factors, in order of importance: 1) the volatility in the U.S. financial markets, including several in what will surely be a long series of hedge fund failures, which will spur a small but critical and inevitably growing mass of investors to seek out alternative places to put their money; 2) the successful retesting and recapture of the long-term triple bottom in the XAU, demonstrating that skeptical or non-committed investors finally decided to bail out at the bottom in late August 1998; 3) an accelerating worldwide trend toward cutting short-term interest rates to prevent a severe recession, thus lowering the carrying cost of gold as a competitive investment and stimulating the economy without regard to its potentially inflationary implications; 4) bullish traders' commitments for gold; 5) generally bearish forecasts for precious metals and their shares by major brokerages, as is typical of the early stages of any major bull market following a long-term bear market; 6) traders' commitments in other commodities and financial instruments that correlate positively with gold and which are showing powerful commercial accumulation, including especially cotton, the Swiss franc, the British pound sterling, cocoa, unleaded gas, rough rice, copper, crude oil, lean hogs, pork bellies, and short-selling T-bonds; and 7) significant insider buying by corporate executives of gold mining companies. There is a strong correlation between commodity indices and the price of gold, which makes sense since gold is a proxy for all commodities. It is often said that the price of a good quality men's suit has always been equal to the price of one troy ounce of gold. A quick check at Barney's showed their executive suits averaging about $600, so this is bullish for gold. Due to the sustained surge in insider buying by gold mining corporate executives, this indicator is SIGNIFICANTLY BULLISH. GOLD FORECAST: Gold will establish a clear primary bull market. In the year 2000 it will make a brief euphoric peak just above $500 per ounce, then as the flood of latecomers enter the market, it will punish them by strongly retreating to about $377. This will be followed by typical commodity bull market behavior, including corrections after each period of investor overoptimism, until the final euphoria late in the next decade carries gold to a level between $1000 and $2000 per ounce. Currently there is no incentive for the government to prop up the stock and bond markets or to depress the prices of precious metals. In fact, the U.S. government would like the financial markets to perform poorly now, so that they can rally just before the election in the year 2000. There is also a significant political risk to allowing the stock market to become even more substantially overvalued, since investors who would buy near the top would thereby suffer even more substantial percentage losses by the next bear market bottom, depressing the nationwide creation of wealth and creating undesirable economic discontent. A drop of "merely" eighty percent will cause enough problems as it is.

To: Dave R. Webb who wrote (2940)	12/15/1998 5:07:00 AM
From: d:oug	Respond to of 4066

Dave, thanks for the good reading. I shortened. ( Part 2 of 3 ) ROBERT RUBIN REDUX: There have been so many tributes to Robert Rubin's performance as Secretary of the Treasury that it is necessary to submit an opposing view, if only for balance. Consider what would have happened had Mr. Rubin decided to stay at Goldman Sachs: 1) MR. RUBIN WOULD HAVE BEEN BETTER OFF According to the New York Times, Robert Rubin as a 5% owner of Goldman Sachs would have seen his stake in that company worth about $1.5 billion dollars. Even if his stake had been reduced to 3%, this would mean $900 million dollars, which when added to his current net worth of $100 million would make him a billionaire, or ten times as wealthy as he is now. 2) THE ADMINISTRATION WOULD HAVE BEEN BETTER OFF Mr. Rubin jump-starting the U.S. economy, and prolonging its expansion, Clinton has felt that he can say or do almost anything and still receive strong public approval, thus encouraging him to go down various paths which he is now beginning to regret. Had the economy not performed as strongly, the President surely would have been forced to devote more time and attention to properly managing world affairs. 3) INVESTORS IN U.S. STOCKS WOULD HAVE BEEN MUCH BETTER OFF If the Dow Jones Industrial Average had only gone as high as, say, 4000 instead of 9400, there would not be the current army of uninformed investors in U.S. stocks who are about to lose 80% or more of their wealth in the bear market, since the drop from top to bottom would be only half as much in percentage terms, and more importantly, far fewer people would have decided to take the fatal plunge. The ensuing recession(s) in the first decade of the next century would also have been much less severe, since most households would have still had enough money in safe investments to cushion the bear market's negative wealth impact. Call it the "family and friends" indicator--how many people do you know who put their money in the stock market just since 1997 after years or even decades of indifference and/or insistence upon safe investments? More to the point, do you know anyone who is NOT invested in U.S. equities! Who will be left to buy? Even more to the point, how often are these people recommending stocks for you to buy, and being right, at least in the short run! J. P. Morgan said he knew it was time to get out of the stock market when his shoeshine boy was giving him stock tips. THE BULL MARKET HAS ENDED The technical deterioration of the U.S. stock market is now complete, with the divergence between small stocks and their large-cap brethren showing their greatest disparity since the "Nifty Fifty" behavior of 1973, just before the worst bear market since the Depression. The number of new highs vs. new lows, as well as the advance/decline line, demonstrate a sharp narrowing of the number of issues which are continuing to increase in value, along with an irrational ballooning of these issues' P/E ratios as was the case in 1973. Essentially investors are crowding into the fewer and fewer stocks which continue to rise, thus bloating their values well beyond what is justified by these companies' profits. One interesting parallel between 1973 and 1998 is that in both instances there are virtually the same tiny number of stocks which are continuing to show technical strength. One notable difference is that today's "Nifty Fifty" are showing an average P/E ratio which is 50% higher than at the inflated 1973 peak, suggesting that these large-cap beloved brand names are almost certain to lose about 90% of their value over the next decade after adjusting for inflation. With a current dividend yield not even competitive with a decent checking account, the market will find it difficult to remain flat for any extended period of time, as recent events have demonstrated. Although there have been a number of sharp rally days in the Dow over the past several weeks, they have been strictly limited to fewer and fewer stock groups, as well as fewer and fewer stocks. The famous rotation patterns of the mid-1990s have disappeared as no stock groups have been able to undertake the leadership role typical of a healthy bull market. There will continue to be large-cap rally days throughout the ensuing stages of the bear market, as a small core of investors find it difficult to break a 16-year pattern of equity inflow and are reluctant to conclude that the bull market has ended, and assume that as long as they are in the right stocks, they will still enjoy solid positive

To: Dave R. Webb who wrote (2940)	12/15/1998 5:08:00 AM
From: d:oug	Respond to of 4066

Dave, thanks for the good reading. I shortened. ( Part 3 of 3 ) ALL OVER AGAIN In the 1929-1932 stock market collapse, one of the primary reasons for the extended plunge was that investors bought shares on only 10% or 20% margin, so that a moderate decline wiped out their entire investment, and triggered a chain of margin calls that continued to depress the market until stocks were trading at nearly a 60% discount to historic mean value (equivalent to about 1200 for today's Dow Jones Industrial Average). In 1998 investors are required to put up 50% margin, and most open-end mutual fund participants have bought their shares with 100% cash. However, this requirement only applies to individuals; hedge funds, brokerage houses, banks, and other professional traders are still able to buy shares on 10% margin or even less, depending upon the risk tolerance of their clearing houses. Since such a large percentage of the money managed today fits into this category, the triggering of margin calls is already causing a similar effect. Many hedge funds and brokerage trading departments are teetering close to amassing serious red ink, or outright bankruptcy, and must use every rally in the market to sell in the hope of salvaging their business. This is analogous to a large crowd of people trying to exit a room where there is only one door and the smoke is spreading rapidly. The number of respected brokerages which are suffering enormous trading losses is growing daily, and this only reflects those which are honest enough to admit their red ink. It is virtually certain that several respected names on the Street are not going to survive the bear market. As these brokerages go belly up, whoever assumes their remaining assets will be forced to liquidate them, further depressing the market, as most mutual funds are fully invested and in a period of net redemptions cannot afford to purchase shares even if their fund managers believe they represent good value. At a critical point the average investor will have a net loss on his or her stock holdings, which historically is the point at which individuals will exit the market en masse, as in 1931 and 1974. Although I had thought that this would take nearly a decade, I have since revised my time projection by half. A long-term double bottom is historically the most likely scenario. Because of the cascading sell order pressure, I have reduced my official Dow bottom target from 2000 to 1500. The greatest point drop should occur in 1999 and early 2000 as stocks initially regress to the mean for a resting period and probably an election-year bounce in the second half of the year 2000 before resuming their decline. The largest percentage loss is most likely to happen as the bottom is approached in a final selling climax as the Dow goes from 3000 to 1500 (or less). Look for the Dow to first hit 3000 in the year 2000. Of course, there will be sharp short-term rallies now and then, such as when interest rates are lowered or pessimism becomes temporarily extreme (the strongest short-term rallies in U.S. history were during the darkest Depression days), but the cascade of sell orders heavily hitting these upward moves will prove decisive. My simple question to anyone who is invested in the stock market: Why? The only reason before this year was "because it's going up". Now even that statement is no longer true. The primary difference between a gambler in a casino and an investor in mutual funds is that the gambler knows there is a possibility of losing money. We have seen the Goldilocks economy, but the full title of the story is " Goldilocks and the Three Bears". Just as in the children's tale, the next character to appear is Baby Bear; i.e., a Dow drop of about 25% from the peak to some level below 7000. Wake up, slumbering baby boomers--Baby Bear is here, and Mama Bear is waiting in the wings for her grand entrance.