Don Quixote Rides Again

October 27, 1998

I was chatting e-mail talk with Vronsky of the very popular GOLD-EAGLE web site and somehow Don Quixote came up. Maybe because he is fluent in Spanish. Anyway, it stirred memories of my past and, ironically, of my future. My mind went to another zone.

…to dream the impossible dream

We all know that gold should be moving way up in price and unnatural forces are keeping it down. Most of us that have been gold and silver share investors for the past couple of years have watched our equities dwindle in value in the precious metals sector. Ouch is our common feeling and wincing is what happens when we look at our monthly brokerage house statements. Not good to show the Mrs., or Mr., those monthly statements. Especially, if you have been averaging down, after swearing to your significant other that you would buy no more gold and silver shares.

Our dream is that the prices of gold and silver will soar, we will make a killing, and our long suffering thinking process about where the prices of gold and silver should be will be proved correct, n'est-ce-pas? The governments of the world, to save their own hiney, are messing with our dreams and flooding the market with borrowed gold to cover up for their own faux pas, other banking horror shows, and documented hedge fund nightmares. Nevertheless, our dream goes on because the shorts are dealing with a ticking time bomb and it is only a matter of time before the prices of gold and silver explode.

…to fight the unbeatable foe

Is there a bigger foe than our own mighty government who can do anything they want to gold in the very short term? Greg Pickup, Le Metropole "economic dream team" member, quoted Alan Greenspan, in his Wizard of Fed piece," In fact, Alan Greenspan said in testimony to Congress on the issue of CFTC supervision of the derivatives market, "Nor can private counter parties restrict supplies of gold, another commodity whose derivatives are often traded over the counter, where central banks stand ready to lease gold in increasing quantities should the price rise."

…to bear with unbearable sorrow

If you are a gold and silver share investor and believer, this has to hit home. The money that has been made in the general equity market over the past number of years has been exhilarating and we have been left in the dust. Some of our investments have turned to dust too. Mr. Joe Average mutual fund investor has done quite well and we are like "Dicky the Dunces". Tough to take. I will speak for myself on that one, at least. BRUTAL.

…to run where the brave will not go

This one is certainly appropriate. Investing in the gold and silver share sectors takes a leap of faith that few are willing to do. That is why the juniors and exploratory companies' share prices are so low. But therein lies the money making opportunity. There are incredible value plays in this sector. Once in a life time, investment type opportunities. True, not for the faint of heart. They are for those of us looking for 10 baggers and more.

…to right the unrightable wrong

The same Mr.Greenspan who suggests he will not let the price of gold do what it should do in the short term, orchestrates a bail out of a hedge fund, LTCM, supposedly run by geniuses. There is something very wrong about all of this. What is really going on in the financial world that we are not privy too?

Prudential Securities has $64 billion worth of derivative transactions that mature within 3 months. All of a sudden the following quotes appear on company statements and there is nary a peep from the public or members of the press:

"which may impair the counterparties' ability to satisfy their obligations to the company"

"may require the Company to pledge CLIENT SECURITIES as collateral in support of various secured financing sources such as bank loans, securities loaned and….."

"these activities may expose the Company to off-balance sheet risk in the event a client is unable to fulfill its contractual obligations."

There may be some serious wrongs out there and I will do what I can to expose them to the public. It is most likely that a problem will not develop and I certainly hope that will be the case. But what of it does? I am glad I do not have any of my money at Prudential. How about you?

…to love pure and chaste from afar

This one is a stretch in this context, but I am buying more shares of my favorite juniors. I suggest to you, go and buy some more shares, if you can, of your favorite gold and silver companies. They need your support. It is not their fault that the business they chose is being manipulated by unprecedented forces. The management of many of these companies are struggling in this horrendous environment that was created by those forces. This is not charity buying. If your junior is a good one, you will make that money back many times over

…to try when your arms are too weary

I speak with the brethren in the gold industry and gold investing public every day. We do our homework, we observe and we wait, as if watching for the money ship to show up on the horizon. It is a tiresome wait at times, but we go on. We yearn for better days and cry out to the gold market and to our broker:

As expressed to home town boy and friend of my dad (Tom Cruise of Glen Ridge, N.J.), "SHOW ME THE MONEY".

…to reach the unreachable star

It is only unreachable today. 'Tomorrow is a brand new day" and our day is coming. At least that is what Diana Ross in the wonderful, old Broadway hit show, The Wiz, told me.

I am out of the zone now and back to the way it is. But I cannot help but reflect on how the music from Man of La Mancha has effected my life.

The first time I put on my armor it was in the form of football shoulder pads, helmet, etc. Back in '67 I broke all the Ivy League season pass receiving records, so I said to myself why not give the Pros a try. Only had 4 things going against me. I was white, slow, small, and from Cornell. No matter, as I made the team anyway and led the wide receivers in pass catching the last half of the season.

This does remind me of a fun, Don Quixote type football recollection of that time. We were playing the Cincinnati Bengals in Fenway Park and about to go in for a go ahead touchdown in the fourth quarter. We just began using a guard to come in as an end in special short yardage situations. It was 3rd down and four on the seven yard line. I was the split end, as they used to call it in those days.

We broke from the huddle and I went to the left to line up. Jim Whelen, All-Pro tight end and Boston College man, told me to get lost (he had no love for Ivy Leaguers) so, puzzled, I ran over to the right side and saw Charlie Long (guard out of Louisiana State) lined up there. Now I am totally confused, so I turned to the quarterback (Tom Sherman out of Penn State) and shrugged my shoulders while looking at him quixotically. His hands were under the center's rear end as he was about to get the play started. The time clock was ticking down. Instead of calling a time out, he just told me to get down.

So now I am lined up, for the only time in my life as a running back, and as the lead blocking back for Jim Nance ( All-Pro Patriot and Syracuse great ). What is worse, I realize the play calls for Jim to run off right tackle. That meant they were coming my way and my block would be key. But who do I block? That did not take long to figure out. A big windmill, hand waving, giant of a guy came right at me. I do not think he ever saw me as I went right for his knees ( they seemed to me to be about eye level ) and cut him down. Nance slashed off tackle into the end zone and we won the game. On Monday I was the Patriot player featured at the Press Club Luncheon at the Playboy Club in Boston. Hello, Will McDonough.

That was my first impossible dream that came true. I had listened to the Man of La Mancha music over and over again while practicing to make the team.

Little did I know then that I would have to listen to that music a couple of more times. When I first entered the commodities game, I met the smartest man I have ever known, Dan Ritchie. He was my mentor and one of the great traders of all time. Dan taught me how to look for a big picture play. And he distilled in me the necessity of doing one's homework that must done to understand the fundamental reasons for a coming, big commodity move and the dynamics that would develop around it. I remember having dinner with Dan (a top executive at Westinghouse Broadcasting at the time and former number 2 man behind Lew Wasserman at MCA Pictures) when he turned down the job to run D. K. Ludvig's empire. D. K. was about the richest man in the world at the time. Then Dan turned down the top job at Harvard and eventually became the Chancellor of Denver U. as he loves the outdoors.

It was the 70's and Dan saw a big move coming in the meats, especially cattle futures, but hogs too. He was right and I made a million or two as the price of cattle went from 37 cents to around 80 cents. All went well except for one boo boo. The cash hog market was strong and I never thought the farmer shorts would deliver me their swine. They did. 30 contracts! And, on a Thursday in December. That is the worst, as there were no Friday re-deliveries. That meant I had to feed 1,000 pigs for a long weekend. And, I had to pay to clean up their you know what, too. $37,300 later, and on Monday, the farmers took their hogs back. Hog farmers in Peoria, Illinois and St. Paul, Minnesota 1 Bill Murphy 0. I can barely look at a pork chop today.

Well, I thought, after much hard work, I should have some fun, so I took a suite in the Beverly Hills Hotel in California for a year. One thing led to another and my money dwindled after a couple of years. Back to the grind.

In the mid 80's it was apparent to me and some associates of mine that there was a copper shortage developing. Since I was down to $15,000, it was time for Man of La Mancha again. Don Quixote's armor would be copper this time. Of course, no one, and I mean almost no one, thought a big copper move was coming. Fiber optics were going to be the death of copper, but most everyone forgot about big demand to come out of Asia and the copper purchasing mangers had run their copper inventories down to zilch because of popular, just in time inventory buying. It was a year and one quarter before we were proved right. And were we proved right! The price of copper went from 59 cents per pound to $1.46. We bought out of the money options for about $25 and put on low margin bull spreads. Since I had made some money in a silver run up in the spring of '87, I had some bucks again and I bet the ranch on copper.

I should have quit on Jan.1, 1988 when I had $27 million and had miraculously survived the crash of '87 by hours. But no, I thought copper would go to $2 per pound so I stayed with my positions. Just like what happened with silver recently, on its run up to $7.80, the copper scrap came out of the woodwork. I was too big for my own good ( and did not appreciate the magnitude of scrap that was hitting the market place after the first of the year ) and had huge spread positions that I could not get out of. The big copper players new it and ran me in. I survived but gave back a decent amount of the $27 million. Too bad I was not a friend of Alan Greenspan. If he had given me a little time to hold on ( hello Lehman, hello Bankers Trust ), I would have my $27 million as the price of copper went right back up again to $1.46 after my flush out.

Ten years have passed and it is time to play the music again. There is some big money on the table for all of us. And the scenario is the same all over again. An associate of mine went to see a big money manager to do some business. The money manager would talk about Asia, but not gold. If you try to talk to many portfolio mangers about the gold and silver shares, they look at you like you really are Don Quixote. To them, gold is for the anachronistic, lunatic fringe, like Don Quixote. And that is where the opportunity lies.

We will buy now when no one (the big Wall Street money, etc) wants these junior gold and silver companies. They are priced at throw away, bankruptcy levels. And the market cap of the major gold shares in toto is about half that of Coca-Cola. I think the price of gold is headed well north of $600 per oz. When the naysayers come our way, there will be not enough supply of the quality gold and silver companies for them to buy and the share prices will gogaga. The money that we will make will be staggering.

One more thing. For every action, there is a reaction. I would like to see old go up now, but if the 500 pound gorilla Fed continues to sit on the gold market and it does not move up, I will not be too unhappy. That will mean I an buy more and more shares of my favorite junior golds and junior silvers and I will make that much more money. The longer they keep the price down by their action, the bigger price move up will be the reaction. That is just the way it is.

Maybe it is because I am a former jock ( no pain, no gain ). Maybe it is because I had to suffer with copper before it exploded. A price always had to be paid for me to make it big. The coming gold and silver move is no different (my gold and silver armor is on). But if we continue to do our homework and stay with a sound fundamental analysis of the situation, we will know what we are doing, and why, and we will all make a fortune. This time I intend to hold onto my marbles and ride into the sunset.

…Dulcinea, where are you?

To Don Quixote and Le Metropole members From Vronsky at
http://www.gold-eagle.com

"It is not the critic who counts, nor the man who points out how the strong man stumbles of where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena; whose face is marred by dust and sweat and blood; who strives valiantly; who errs and comes up short again and again; who knows great enthusiasms, the devotions, and spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement; and who at worst, if he fails, at least fails while daring greatly so that his place will never be with those cold and timid souls who known either defeat nor victory."

- Theodore Roosevelt

In the Aztec language the name for gold is teocuitlatl which means "excrement of the gods."

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