Part - II

How Fiat Money is Destroying America

I am a registered Republican. I tend to vote Libertarian on economic issues and Right to Life on social issues. However, I began to become alarmed with a growing pro-corporate environment that I sensed was taking place during the Bush Presidency. Alarmed by what I believed was an evolvingfascist economic environment, I voted for Clinton against Bush in 1992. I had no idea that President Clinton would turn out to be the most ruthless pro corporate, anti labor President in my lifetime (I'm 52). Why would this saxophone playing, hillbilly shirt wearing impeached President, who caters to the lowest common denominator on social issues, turn out the be the best friend Wall Street has ever known? Why would this supposedly populist President turn his back on labor and on average Americans in general?

Some Answers from Lawrence M. Parks, Ph.D

I recently had the pleasure of meeting and lunching with Dr. Lawrence Parks near his New York City office. Dr. Parks is the Executive Director of the Foundation for the Advancement of Monetary Education (FAME). He explained to me that the reason Clinton has turned his back on average Americans is very simple. It's all about money.

Compared to corporations, organized labor no longer has much money to spend on elections. According to the Center for Responsive Politics (http://www.crp.org), during the 1996 election campaigns, $2.4 billion dollars was spent for Presidential, Senatorial and Congressional elections. Of this total, labor unions contributed about $40 million in cash and another $60 million in "in-kind" contributions, e.g. phone banks, getting out the vote, etc. And this is just the legal contrigutions that are reported to the Federal Election Commission. What about the bribes and the quasi-legal contributions? Is it any wonder that Clinton is willing to effectively use the American printing press to back NAFTA (at the expense of the American worker) when the large corporations and wealthy foreigners who contributed to his campaign are the chief beneficiaries? If you think President Clinton or any other President could take enormous amounts of money from one group of Americans, then provide a balanced policy mix for all Americans, I have a bridge in New York City that is for sale.

I believe Dr. Larry Parks best summed up the filth and corruption that has evolved from our fiat money system when he made the following remark before a House subcommittee on March 3, 1999. "At the end of the day, a Malaysian worker has lost his life savings so that a Wall Street bond trader can buy a $1,000 bottle of wine in an expensive restaurant in East Hampton." Who gets bailed out are the rich and super rich who now control our political process. And with 1% of Americans owning more than 50% of the stock market, the longer this binge lasts, the greater will be their power to dominate our political process. I had always thought the Democrats could be counted on to maintain balance between the corporate interests represented by the Republican party and the interests of the working class and common folks who once were represented by Democrats. Now there is no one to represent the common man. Democracy is in fact quickly fading from reality whether the masses of folks understand that or not!

Understanding this threat to America, Dr. Parks summed up his remarks to Congress as follows: "More imperative than the injustice of the wealth transfer is the fact that this malevolent system has brought us all to the precipice of a complete monetary collapse. The warnings are coming in ever-increasing frequency from those who ought to know, including Treasury Secretary Rubin, Federal Reserve Chairman Greenspan and President Clinton. In foreign lands, fiat monetary systems - which are very much like our own-have wiped out tens of millions of jobs along with the savings and pensions of two generations. The danger is that our jobs, savings and pensions may be wiped out as well. It's time to reexamine the evidence supporting fiat money and to reevaluate the resumption of a fair and honest monetary regime and a system of honest monetary weights and measures: the gold standard."

In your editor's view, an abrupt end to a continued pretense of democracy may come when the financial market bubble finally bursts. The government officials and bankers who's counterfeiting activities inflated the stock market bubble, will no doubt walk away unscathed from the carnage. That die has already been cast given the ownership of politicians enjoyed by our wealthy corporate elite. No doubt these "smart money" interests are already moving a major portion of their money out of stocks, even as they proclaim the myth that "you can't lose with stocks". But when air is finally left out of the stock market bubble, causing millions of Americans to lose their retirement funds, you can expect the elite to suggest that the masses are simply too stupid to participate in the democracy of the market place or the polls. Perhaps more tactfully, they and their think tanks will simply argue that "the free markets are flawed" thus ensuring more repressive laws are passed against the individual. Of course, they will most likely never mention the fact that the markets were never free but in fact corrupted by their own counterfeiting and influence peddling schemes.

This, my friends, is the economic model of Fascism. It is now in place and growing rapidly. Sometime, we will wake up to the fact that we have been stripped of our democratic lives, perhaps as suddenly as the Johnstown flood stripped the citizens of that town of life. We may suddenly wake up to the fact that "Corporate Big Brother" is in complete control of our every movement. In my view, this is a most likely outcome unless honest monetary weights and measures is quickly re-introduced into American life.

Is it possible fiat (counterfeit) money can be replaced with honest money (gold). Only God knows the answer to that question. But one person, who is doing all he can to turn things around in this regard is Larry Parks. Dr. Parks knows the system and how it works. He is devoting his life to bring this story to the attention of the people who are being hurt most by the actions of our evolving fascist economic policy. I hope to talk more about FAME in future issues of this letter. For now, let me encourage you to visit the FAME website at www.fame.org and support this organization as you are willing and capable. You can also call/write to FAME, 211 East 43rd Street, Suite 2202, New York, N.Y. 10017-4707. E-Mail: lparks@fame.org.

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                  Our Model Portfolio

So far this year, our Model Portfolio is up 8.32%. The biggest boost to date has come from our own "Moon Shots" for which we have allocated 10% of our overall portfolio. From January 1, 1999 through April 30, 1999 our Moon Shots gained 49.2%. Four stocks, Haber Inc. (+160%), Itronics (+176%), PolyMet Mining (+116%) and Raytec Capital Corporation (+157%) were most responsible for this strong performance. Finally, our Speculative Mining Stocks allocation of 10% is also contributing to overall portfolio gains with gold shares turning up toward the end of April 1999.

Why 66% in 1-Year U.S. Zero Coupon Bonds?

Last month we pointed out how, if you had invested in bonds rather than stocks, even during the greatest bull market in stock market history, you would have beaten the pants off of a portfolio comprised solely of the Dow Jones Industrials. For example, $1,000 invested strictly in the DJIA in 1971 would have resulted in a value of $10,324 by December 31, 1998. However, if one had used a very logical valuation approach to switch between stocks and bonds during that same time frame, a $1,000 investment would have turned into an astounding $374,831 by December 31, 1998!

The logical approach we speak of, and the one we are using as a guide for portfolio allocation, is outlined by Michael B. O'Higgins, in his latest book titled, "Beating the Dow with Bonds." The O'Higgins approach uses a very logical, value orientated method for determining whether an investor should have his money in stocks or bonds. The basic idea behind our policy is that we want to buy an asset category when our investment buys us the greatest return. Since over the long run stocks must be valued on the basis of the earnings yield they produce (i.e., total earnings including dividends), we watch very closely the earnings yield of the S&P 500. From last week's Barron's we can quickly learn that this large universe of stocks is now generating earnings of 3.54% or $35.40 for every one thousand dollars invested in this group of stocks. By contrast, ten year U.S. Government Treasuries are yielding 5.54% or $55.40 for every $1,000 invested. If you wish to take a slightly higher risk by purchasing AAA Corporate bonds, you can now gain an annual return of 5.79% or $57.90 for a $1,000 investment. If you believe as I do that in the long run, stocks must be priced in accordance with the value they are generating (i.e. earnings), then you must conclude that high quality debt instruments like U.S. Treasuries or AAA Corporate bonds are fundamentally a better deal than stocks. This is the logic behind the O'Higgins model and it works!

Once you have concluded that bonds are a better buy than stocks (as I have) then the question is whether you want to be in long term or short term bonds. O'Higgins has answered that question for us by looking to the price of gold at the beginning of the current year compared to the price of gold at the start of last year. If the price of gold at the beginning of the current year is higher than the price of gold on the first day of the prior year, we select short term bonds. Otherwise, you buy the highest yielding long term U.S. Government bond you can find. In most instances that means buying the 30 year U.S. Zero Coupon bond.

On the first business day of the current year gold was approximately $0.70/oz. higher than at the same time last year. Accordingly, we have selected one-year zero coupon bonds for 1999. This method may seem too simple to be valid. But the fact is that it has worked amazingly well. In 28 out of 29 years, it has provided the correct answer to the "long term" or "short term" question. In fact there is a very logical explanation as to why gold indicates whether we should invest in short term or long term bonds. Given a rising gold price, we might expect markets to anticipate more inflation and hence begin to price interest rates higher. And, when interest rates rise, the value of bonds, especially long term bonds, decreases significantly. The converse is of course also true. When interest rates fall, the value of long term bonds rise dramatically. A major reason why the O'Higgins model performed so well since 1971 stems from his owning long term bonds during a period of significant declines in inflation and interest rates.

The value orientated approach we are following in this letter may not be nearly as exciting as the 100% gains day traders frequently realize. But we want to keep in mind the fact that successful investing is determined by how much value an investor retains longer term and not how much paper profit he may have been able to brag about at any moment in time. Remember the tortoise not the hare won the race.

Of course, the question that will be raised even more frequently by non gold bugs is "how in the world can you allocate 10% or more of your portfolio to gold and silver mining stocks?" Haven't these assets been among the worst performing assets in the world for the past 18 years?" We answered that question over the past two months when we demonstrated that a portfolio allocation to gold mining shares has not only saved investors from catastrophic financial events, but it has, during most of the 20th century, resulted in a far superior portfolio performance. Specifically, investors who owned Homestake Mining during the Great Depression and those who owned the International Investors Gold fund during the 1970's avoided catastrophic losses suffered by most all other investors. Since gold has survived every other money every created by man, it represents an insurance policy against the eventual meltdown of our fiat (fraudulent) paper money system.

Jay Taylor
Gold Resource & Environmental Stocks
JTaylo5203@aol.com

2 July 1999