Presidential Turnover File

January 13, 2001

Bill Clinton inherited a strong nation with a growing economy, a bull market in stocks and few threats from overseas. Over the past 8 years, he has undone all that. America is now vulnerable to several foreign threats, the NASDAQ just turned in its worst year in history and the economy is in for hard landing. Investors must prepare themselves for what awaits President George W. Bush.

It is customary in business and elsewhere for an officer of a company to maintain a record of the duties of his job to present to an eventual replacement. That record is referred to as a "turnover file."

George W. Bush's turnover file is going to be thick. Since the liberal news media will be doing all they can do to paint a picture of a Clinton 'legacy' through rose-colored glasses individual investors may be misled into believing that everything is just fine in America. Investors need to wake up just as quickly as George W. Bush if they are to emerge after the next 4 years with their portfolios intact!

In fact the scenario that appears to be unfolding today is not unlike that which existed during much of the 1970s when America was racked by stagflation, one oil crisis after another, miles of wasteful government "red tape," and a deteriorating international situation. Because that decade saw two truly nasty bear markets in stocks and gold prices rising from under $100 per ounce to over $800 per ounce, investors today should closely examine the conditions that George W. Bush is inheriting from Bill Clinton.

The Road Ahead

George W. Bush will become heir to a nation with a faltering economy, a severe ongoing bear market in stocks, a huge tax burden, a bloated federal government (complete with 29,000 pages of new rules and regulations), an out-of-control trade deficit, a growing number of citizens falling deeper into a pit of debt, ongoing Social Security and Medicare reform problems, and a weakened, demoralized military faced with an increasing array of dangerous threats from abroad. For individual investors, the lesson here is that historically, it has been very difficult for financial assets to thrive in such conditions.


"President-elect Bush will enter office hamstrung at home with questions over the legitimacy of his election, a divided Congress and a downturn in the economy. These difficulties for the world's dominant power will accelerate global realignment and spark increased tension and the potential for conflict."

The Next U.S. President and the Law of Unintended Consequences
Strafor.com Global Forecast for 2001


"The chances are good that (George W. Bush) will be one of the most feeble American leaders the world has seen in more than a century—a leader who will be residing over a deeply divided public, an equally divided Congress, and a political environment that has been horribly poisoned by post-election shenanigans."

Mark Mitchell
Either Way, A Bad Precedent
Far Eastern Economic Review


"Clinton and Gore will bequeath to Bush a multitude of significant domestic and foreign problems and a disturbingly polarized nation. Only purely partisan Democrats could relish the irony of Clinton luxuriating for eight years in a robust economy and military he inherited from Reagan-Bush and then squandering both just in time for a hapless Republican to take the fall for them.

Clinton is retiring with a nation convinced that budget surpluses will abound in the foreseeable future. Yet, these surpluses depend on economic growth, and signs are pointing toward a major slowdown.

Tensions are on the rise throughout the globe: between China and Taiwan…in the Middle East…Iraq, aided by the absence of U.N. weapons inspectors, continues its development of weapons of mass destruction…and Russia warns that we are an arrogant superpower.

As a parting shot, Clinton and Gore…have fostered the illusion that Bush was the culprit, adding further fuel to the divisive embers that threaten the fabric of our society. In short, Clinton and Gore are leaving Bush and Cheney with a monumental mess on a multitude of matters."

David Limbaugh
Bush's Daunting Challenges


The Return of Stagflation

During the 1992 election, Bill Clinton was catapulted into office with the battle cry, "It's the economy stupid!" He was fortunate enough to inherit the U.S. economy at a perfect time in the economic cycle: just after America had fully recovered from a recession. Unfortunately for Bush, he may be inheriting the U.S. economy just as the proverbial "perfect storm" is forming. As Clinton makes his exit, he will take with him the growth and prosperity that he was able to ride for the past decade.

The new administration will soon find itself having to revive a suffering U.S. economy.

Stock prices have reflected the economic downturn for the past several months. An oil/gas price shock is intensifying and accelerating the slowdown.

All year long, the Fed was worried about inflation. Now, almost suddenly, on the heels of the worst year for the NASDAQ in its history, the Fed is worried about a slowdown in the economy. The only problem is that oil prices are unlikely to decline again any time soon, and they could still climb significantly higher, especially in the event of a crisis in the Middle East. Expensive energy has hit the U.S. economy and financial markets like a double-whammy: raising the cost of living (inflation) and acting just like a tax increase on the economy. In one word: stagflation. Moreover, the engine that was thought to be keeping inflation in check, productivity, is starting to disappoint, just as Alan Greenspan warned it eventually would. Because the tech sector has been so hard hit, the catalyst for all that productivity growth over the last several years, technology, will be hard pressed to come up with similar results in the years ahead. That's bad news on the inflation front.

Rising energy prices and the bear market in stocks have taken a toll on business and wealth creation in America. What many Americans are really worried about is the slowdown in the stock market and the Fed will come under increasing pressure to lower interest rates in 2001 to jump-start the long-dead bull market. However, if the Fed were to cut rates with the stock market in mind, they run the risk of igniting inflation—and inflation is like toothpaste, once it is out, it is awfully hard to get it back into the tube!

Clearly, the Fed is playing a guessing game about economic conditions. This is nothing new; it is the natural result of stagflation. In the 1970s, when the Fed was faced with a similar set of circumstances, they guessed wrong and threw gasoline on the inflation fire. Make no mistake: the same thing is in danger of happening today.

Experts agree that the economic conditions that Clinton is bequeathing to Bush are anything but positive:

"The fuel that propelled the boom is running out and the excesses of recent years are going to be exposed as the economy weakens and the tech bubble deflates. Investors should not assume that things would unfold in an orderly fashion."

Bank Credit Analyst


"I know of no time in the last 50 years in which the well-being of the American economy and that of the rest of the world have been so dependent on the strength of the U.S. equity market."

Henry Kaufman
The Kaufman Fund
Interview in Barron's


"The economy was a good friend to the Clinton administration and it is just not going to be as friendly to the next administration."

Mark Zandi
Chief Economist
Economy.com


"But economic indicators do not inspire confidence. The stock market is swooning, private debt exceeds the country's GDP, and energy prices are at their highest level since the Persian Gulf War. The economy is more vulnerable than ever to external—or internal—shocks."

Global Economic Outlook Neither Merry nor Bright
Stratfor.com


A Bear Market in Stocks

Most investors have come to realize that the steep decline in the NASDAQ stock market is more than a short-term correction. The fact is, since it posted record levels back in March 2000, the "bull" market has morphed into a "bear." The year 2000 will go down as the worst year in the NASDAQ ever. But the NASDAQ was not alone. The Dow-Jones Industrial Average and the S&P 500 were also down for the year. Most importantly for President Bush and individual investors (though for different reasons perhaps), the bear market in the NASDAQ may be far from over and it may just be getting started in the other indices.

In order to get an idea of what to expect in the future, it is useful to take a look at what caused the carnage in the first place:

Obviously, a series of rate hikes by the Fed played a major role in the downfall of the NASDAQ, but interest rates obviously don't tell the whole story because the NASDAQ fell nearly 50% from its highs while the Dow and S&P 500 fell much less.

Earnings reports played the major role in the NASDAQ fall. Companies like Pets.com and Furniture.com, once the darlings of on-line traders, ceased to exist. Even so-called "blue chip" internet firms like Yahoo took huge hits as investors began to realize that the air was escaping from the bubble. The lack of earnings was nothing new, but investors were playing a grown-up game of musical chairs and, all of a sudden, everyone was afraid they wouldn't have a chair when the music stopped. So, they sat down. Lots of folks didn't have a chair. Investors had ignored the basic lessons of investing: invest in long-term investments for the long-term, diversify, invest in companies that have a fundamental reason to increase in value, diversify, and diversify. Did we mention diversify? Many on-line traders borrowed on margin to ride the roller coaster of internet and tech stocks and tied up all of their disposable income—and then some—in a very few stocks that virtually collapsed. They had no cash reserve, no hedge, no diversity. All of their eggs were in one tiny basket full of risk.

The price of oil skyrocketed to well over $30 per barrel. Natural gas prices skyrocketed also. Despite assurances that oil no longer mattered and Labor Department manipulation of inflation gauges to hide the effects of oil prices from voters, the high oil prices did hit American consumers and investors—hard. The steep increases in energy prices hit the U.S. economy in much the same way that a large tax increase would. Suddenly, we all had less money to spend and invest because the amount of money we paid out at the local gasoline station was so much higher and our utility bills were climbing. The impact of inflation on real economic growth was clearly illustrated once again for the first time in more than 20 years. Inflation, mainly due to higher oil prices, was robbing us of our wealth once again. The result was a slowing economy, lower earnings for retailers in the holiday season, and a stagnant stock market.

Investors were rudely re-introduced to the impact of international tensions on the financial markets when the crisis in the Middle East bubbled over and the USS Cole was bombed by terrorists in the Persian Gulf. The renewed violence in Israel and the re-emergence of terrorism as a threat to the United States racked the financial.

Finally, the added anxiety created by the legal challenges that followed the outcome of the presidential election played a major role in shutting down the bulls on Wall Street.

Now that we've looked back on the recent past, we should take a look forward to see what the prospects for the stock market could be in 2001:

Interest rates are about the only factor that may help the stock markets in 2001. Wall Street is widely anticipating that the Fed will continue to ease throughout the year. Of course, nothing is ever certain and, should the Fed not meet Wall Street's expectations, the effects could be ugly. If employment costs, energy prices, or productivity worry Chairman Greenspan, the Fed may not lower rates more, or they may not lower them as much as Wall Street is hoping.

Earnings are likely to continue to disappoint on the NASDAQ as there is nothing happening in the economy to indicate that the already dismal earnings picture will improve. Worse yet, the earnings flu is beginning to spread beyond the internet and tech sectors. Virtually every industry is reporting disappointing. Both the Japanese and European economies are softening, so exports are unlikely to improve, and high energy prices and slow Christmas sales will take their toll on near-term earnings reports.

We can only hope that the price of oil stays under control in 2001. Unfortunately, there is a great deal of uncertainty surrounding the future of the oil market. U.S. consumption is likely to be very high as this winter is turning into a severe one, so there is little hope on the demand side for lower prices near term. On the supply side, OPEC is due to meet soon and the talk is of production cuts not increases.


"It is tempting to dismiss the global impacts of an oil shock. Yet the record of history argues very much to the contrary. Each of the previous three oil shocks--1973, 1979, and 1990--actually triggered global recessions. History does not look kindly on the view that an oil shock is a non-event for the global economy. My greatest concern for world financial markets is that an oil shock is inherently stagflationary--it both cuts output and increases inflation. Many of today's investors were still in diapers during the great stagflation of the 1970s. Those who weren't will never forget the darkest period in modern financial market history."

Stephen Roach
Morgan Stanley Dean Witter


Of course, the wild card in the oil market is the Middle East situation and the Arab-Israeli conflict. For the first time in a very long time, there is open talk on both sides of a wider Arab-Israeli War, something that would send oil prices into orbit.

The presidential election is over, but its effects most certainly are not and the controversy will likely haunt the Bush administration for some time to come. This will create internal political conflict and uncertainty, two things the stock market hates.

Noted experts agree that the outlook for stocks is anything but bullish and the flu that the NASDAQ suffered from is likely to spread to the Dow in 2001. The most disturbing statement came from one of the most respected newsletter writers on Wall Street, Richard Russell, who predicts that "the Dow-Jones Industrial is headed from its current levels over 10,000 to as low as 3,000 to 4,000." In other words, he sees a fall of 75% from its peak. Russell goes on to say that "we're already seeing clear signs that the U.S. economy is turning down. The dollar also is topping out. With so many dollars held abroad, a flight from greenbacks could be very bad for U.S. financial assets. My instincts tell me that we could be in another eight-year bear cycle, with the final low not seen until 2005, and the waterfall decline still two, three, or four years ahead."

To sum things up, the factors that contributed to the bear market debacle in the NASDAQ during 2000 all remain in place as we enter 2001. The only difference is that there is a different man in the Oval Office to deal with--and get blamed for--them!

Investors should beware. All of these factors are creating a classic financial crisis scenario. Our advice: diversify. Don't just diversify across different kinds of stocks. You must diversify across asset class. And remember: there is a positive correlation between stocks and bonds, so bonds are not the optimal diversifier for a stock portfolio. Investors need to include several asset classes in their portfolio mix, to include stocks, bonds (of varying maturities and ratings), cash, real estate, and, of course, gold. Gold is the ultimate portfolio diversifier because it is the most negatively correlated asset to U.S. stocks. It is also negatively correlated to U.S. bonds. In fact, the price of gold has historically tended to rise in response to the very negative events that drive down the stock and bond markets. Gold is your hedge against a bear market in stocks, high inflation, a falling dollar, political and economic uncertainty and international crisis. Gold is your financial insurance policy.

The Return of Big Government and a Huge Tax Burden Early in his administration, Bill Clinton promised to"reinvent government." As a result, over the past 8 years, government has grown and grown--and the nation's tax burden has grown right along with it.

Clinton claims that he eliminated 300,000 federal jobs. What he doesn't want you to know is that 75% of those jobs were in the Department of Defense! Since 1993, the federal government's monthly payroll has gone from $5.9 billion to $7.4 billion. Overall federal outlays have reached an astounding $1.8 trillion—20% of our GDP and an increase of 50% over 1990 levels! Keep in mind that during this same period, defense spending fell 49% to just 16% of total federal spending.

As you might expect, federal regulation of our economy, our businesses and our daily lives has also increased as the government has grown. In 2000, 54 federal agencies with more than 130,000 employees spent $18.7 billion writing and enforcing federal regulations. All of this regulation has a cost. The Competitive Enterprise Institute estimates that the total federal regulatory burden costs Americans $700 billion, or about $7,500 per year for every typical American family. The General Accounting Office acknowledges that the Code of Federal Regulations increased by 29,000 pages under Clinton. Unfortunately, it is much easier to enact government regulations than it is rescind them, so big government will be like a weight tied to George W. Bush's efforts at stimulating the stagnating economy.

Another cost of big government is our mushrooming tax burden. For the average American household, taxes exceed the costs of food, clothing shelter, and transportation—combined. Since Clinton took office, the amount of money the federal government collected each year from its citizens has grew by $100 billion. In fact, government tax collections outpaced the rate of inflation by a whopping 250%. According to the National Center for Policy Analysis (NCPA), today federal taxes consume 25.9% of the average American family's income and state and local taxes abscond with another 13.1%, yet taxes are not included in the Consumer Price Index. The Bureau of Labor Statistics quit issuing reports on taxes several years ago. Fittingly, they cited the high cost of compiling the statistics as the reason for their demise.

But the most telling statistic that illustrates the growing tax burden and size of government is this: The federal government's take from personal income taxes is at an all-time high—9.6% of Gross Domestic Product (GDP). The previous record was 9.4% of GDP—in 1944 at the height of World War II.

That's right, the federal government's share of money taken out of our economy today is higher under Clinton-Gore than it was when America was creating the "arsenal of democracy" to save the world from fascism and aggression in the greatest conflict in the history of mankind! And, remember, defense spending is down 49% since Clinton got in office.

Big government, high taxes, heavy regulation—they all have a huge cost for our economy, a cost that hasn't been felt yet, but will under the new Bush administration. Just like the Nixon administration suffered under the aftermath of the Johnson administration's excesses, President Bush is inheriting a mess:

"Most economists now agree President Lyndon Johnson's exorbitantly expensive Great Society initiatives paved the way for eventual stagflation under President Jimmy Carter. Big government undermines economic growth. And a sluggish economy results in poorly performing equities markets.

· After the Dow Jones Industrial Average increased 10-fold during the period 1942-1966, President Johnson launched his Great Society—halting progress and bringing stock gains to a standstill for 17 years.

· After peaking at nearly 1000 in early 1966, the Dow suddenly shifted into idle—or, on an inflation-adjusted basis, fell 70 percent between 1966 and 1982.

· While government spending bloomed…unemployment rose,…inflation shot up from 1 percent to 13 percent, interest rates soared and the economy was in recession one out of every four years.

In addition, taxes and regulation exploded.

It was not until President Ronald Reagan rolled back the Great Society experiment and cut taxes substantially that the stock market and the economy took off once again."

Brian S. Wesbury
Caveat Investor: Surplus Politics Is Bad News for
Stock Market Investor's Business Daily, 26 September, 2000


During the decade of the 1970s in which the economy and stock market suffered under the weight of Washington, D.C.'s impact, the price of gold increased from $66 per ounce to just over $800 an ounce in January of 1980.

The Trade Deficit

Bill Clinton is leaving the United States the largest trade deficit we have ever seen. More economists are coming to the realization that this "forgotten" deficit is neither desirable nor sustainable.

Since Clinton took office in 1993, the deficit has significantly increased every year. In 1992 it stood at $39 billion. In 2000, it was at $360 billion—an increase of nearly 1,000%.

The United States is essentially living on borrowed money and borrowed time:

"This cannot go on forever. In the long run you cannot borrow $400 billion a year from abroad. It may not be a problem for the next two years, but it is probably a problem in the next five years. We're basically selling off the country to foreigners."

David Wyss
Chief Economist
Standard & Poors


The reason that we have been able to sustain the trade deficit as long as we have is because foreigners, who have made a lot of money selling goods to Americans, have then invested much of that money into U.S. stocks and Treasury securities. But the bear market in stocks and approaching "hard landing" may change all that as foreigners become less attracted to our sluggish markets. This will only exacerbate the bear market in stocks.

Worse yet, large foreign holdings of our Treasury securities put our entire financial system at risk. Among the foreign holders of Treasuries are foreign governments and central banks, including Red China. The Red Chinese consider America an enemy and they are the 3rd largest holder of our Treasury securities in the world with over $100 billion in holdings. This leaves our financial system vulnerable in the event of a dispute:


"Foreign governments increased official dollar holdings from $432 billion in 1989 to about one trillion in 1999. At some future point, large dollar holders, such as Japan and China, could threaten to sell dollars, or shift them into euros and other currencies, as bargaining leverage against the United States related to trade or national security issues. One Japanese prime minister has publicly spoken of the temptation to sell dollars, and Chinese military strategists have published studies about integrated warfare with the United States, including financial markets."

Dr. Ernest H. Preeg
The Hudson Institute
The Trade Deficit, the Dollar and the U.S. National Interest


"Mr. Speaker, America's trade deficit for September hit $35 billion for one month, $35 billion. America is heading for a $420 billion, 1-year trade deficit. Unbelievable. If this continues, America will have a crash that will make 1929 look like a fender-bender. What is even worse, China is now taking $100 billion of cash out of our economy, buying missiles, and pointing them at us. Beam us up, all of us. We must be stupid. Ronald Reagan almost destroyed Communism, and the Clinton administration has reinvented it, is now subsidizing it, and is now stabilizing it."

Representative James A. Traficant (D) Ohio
Speaking before the House of Representatives
December 5, 2000


Should foreigners stop buying U.S. stocks or, worse yet, start selling them off, the bear market in stocks will be longer and more intense than otherwise. If foreigners sell off U.S. Treasuries, the impact would be even worse. The dumping of Treasuries would result in a steep rise in interest rates, a collapse in the bond market, a dive in stocks, a rapidly sinking dollar and monetary inflation. In other words a financial crisis. Investors need to be prepared. Gold is the most negatively correlated asset to the U.S. dollar, therefore, the investment risks posed by the trade deficit are best mitigated by a suitable position in gold.

The Debt Bubble

During the past decade, most investors made a lot of in the stock market. However, many new investors lacked the knowledge to successfully navigate the stock market for the long-term. Exuberant over short-term gains, many became greedy. Borrowing against everything from their homes to their 401(k) accounts, they began setting themselves up for major losses.

The national savings rate dwindled to record lows while private debt soared to record highs.

Many Americans will not be able to repay their debt or pay their bills because their equity portfolios have dried up and they have no savings. Consumer debt, which includes credit card debt and margin debt, is currently at an all-time high and personal bankruptcies have set new records in both of the past two years. Meanwhile, the only thing that will bring margin debt down to historical averages will be a fall in the stock market.


"(Margin debt) still represents a huge debt load overhanging the market. Historically speaking, we should expect at least half of it to be unwound in the next bear market. If this is the bear market, we have a long way to go."

James Stack
InvesTech Market Analyst


Even observers from the left of the political spectrum seem to be wary of Bill Clinton's economic legacy:

"But a stratospheric rise in stock prices and a debt-financed consumption spree make a mortgaged legacy. Clinton will hand over to his successor the most precarious financial pyramid of the postwar period."

Robert Pollin
The New Left Review


The probability of a further decline in stocks would not seem as dangerous if more investors had diversified. Instead they piled up more and more debt:

Ø About 35% of all U.S. 401(k) accounts have loans out against them.

Ø Despite the fact that millions of more Americans bought homes for the first time over the past several years (home ownership has set records), home equity has actually decreased steadily as Americans began borrowing against their homes to pump air into a stock market bubble. As a result, a bear market in the Dow or S&P 500 could submerge millions of Americans who are deep in debt.

Ø There were 1.26 million personal bankruptcy filings in 2000--a new record. That number is expected to increase by 15% in 2001 by some estimates. If the bear market in stocks gets worse, personal bankruptcies could climb even higher than that.

This mountain of debt poses a serious threat to the U.S. economy and it poses an equally serious threat to individual investors, who will have to attempt to protect themselves from the possible fallout.

What should investors do?

First of all, if you are deeply in debt, start paying it off--yesterday! Quit using credit cards if that is a major part of your debt problem. Try to refinance your debt at lower interest rates if you can. If you have been investing on margin, now is the time to stop. It would be a shame to threaten your financial future with an effort that was originally meant to provide for it.

Secondly, if you are not properly diversified, diversify now. Your exact mix of assets obviously depends somewhat on your\ age, risk tolerance and goals, but everyone needs to diversify. That means, in addition to stocks and bonds, you should consider building up a cash reserve and establishing a foundation for your entire investment portfolio with the financial insurance of gold investments. The cash reserve will provide needed liquidity in the even of unforeseen events and, since gold has historically moved in the opposite direction of stocks and bonds, it will serve to lower the overall volatility of your portfolio and balance its risks. Moreover, since gold tends to move up in response to factors that erode the value of paper investments, like high inflation, a fall in the dollar, or international tensions, gold investments provide the potential for needed capital appreciation during difficult times.

Social Security and Medicare

Bill Clinton entered office in 1993 pledging to "save Social Security and Medicare." Instead, he simply kicked these problems down the road for the next administration. In fact, by failing to act on Social Security and Medicare, Bill Clinton may have made any possible solution more painful.

In the not-too-distant future, the work force contributing to these programs will be about 1/3 the size of the retired population drawing benefits. Because of that, these two programs in their present form are simply unsustainable.

Medicare's problems are especially acute. Medicare's Health Insurance Trust Fund is already paying out more in benefits than it is collecting in taxes. Some analysts predict that Medicare will become insolvent in 2008 if something is not done to fix it.

Meanwhile, Bill Clinton has triumphantly declared victory over the nation's federal budget deficit when he knows that federal receipts have been augmented by money from the so-called Social Security Trust Fund--a fund that was supposed to be set aside for the future of the program, but which is instead full of IOUs from the federal government as it pays current expenses with Trust Fund money.

While the problems with Social Security and Medicare may seem years away, the solutions cannot be. Those solutions need to be arrived at soon and they will certainly not be painless. Some combination of tax increases and benefit rollbacks are likely, something most economists and public policy makers have not entered into their forecasting calculus. The impact is uncertain.

A Dangerous World

While national security issues have faded into the background, the failings of the Clinton administration almost guarantee that they will come to the fore once again. Bill Clinton squandered America's superpower status. The United States is neither as strong nor secure today as it was 8 years ago. Bill Clinton will hand over to George W. Bush a laundry list of unresolved crises and issues.


"When George Bush handed the presidency to Bill Clinton, what did he get? A world so pacified that for the first year or more of his administration, Clinton didn't even have to pay attention to world affairs. Saddam was bottled up, Russia was on its knees. Yugoslavia was restive, but so far, not disturbing the peace of the world…China was weak and shamed by its Tianamen Square slaughter in front of the world's media. The military operation against Iraq showed the world that American firepower could subdue a regional power with relatively little sacrifice on our part. Now look around us…Thanks to Clinton/Gore, by the time children now in school come to adulthood, the world will be far closer to its complexion before Reagan. Eight years…has served to make the world a much more dangerous place. Is there a single potential enemy to U.S. interests that is not many times stronger and more confident now than they were before 1992?"

The Clinton Legacy: A World in Flames
The Jewish World Review


"A survey of the world scene spotlights U.S. policy failures in almost every corner of the globe…The world bequeathed to (George W. Bush) by Bill Clinton is one made more dangerous because of opportunities missed since George W.'s father relinquished the presidency in 1993."

George Melloan
Clinton's Foreign Policy Blunders Need Correction
The Wall Street Journal, Nov. 28, 2000.


"(Our military) has been neglected by the Clinton-Gore administration to the point it cannot respond adequately to a two-front war. No longer is the United States militarily invulnerable. It is now enticing invitation for attack. And there are determined enemies out there just nuts enough to give it a try."

John L. Perry
Lost Out There in the Chads


Ø The Arab-Israeli Conflict. When Bill Clinton entered office, the Arabs and Israelis were closer to reaching a lasting peace than ever before, mainly due to U.S. clout and credibility built up during and after the Gulf War. Today, for the first time in a generation, the two sides once again speak openly of going to war against each other.

Ø Rogue Nations. Over the past 8 years, hostile nations, such as North Korea, Libya and Iran have built up arsenals of ballistic missiles and weapons of mass destruction. As a result, in the very near future, both Iran and North Korea could deploy Intercontinental Ballistic Missiles capable of reaching America from their shores. Libya is believed to be near to deployment of ballistic missiles capable of striking all of our allies in Western Europe.

Ø Red China. While Bill Clinton befriended the Chinese, they stole our nuclear secrets, declared us enemy number 1, repeatedly threatened to invade Taiwan, and embarked upon a huge conventional and nuclear arms build-up.

Ø Russia. Despite the fact that Russia has repeatedly defaulted on foreign debt payments, they have managed to scrape together enough money to modernize their military. Perhaps they did so with cash from arms sales to nations like Iran an Red China.

Ø Latin America. As Bill Clinton leaves office, a Chinese shipping company is in control of port facilities at both ends of the Panama Canal, Cuba has just signed a defense agreement with Red China and Marxist rebels and drug lords are close to gaining complete control over Colombia in a bloody civil war.

Ø Terrorism. The recent attack on the USS Cole and the attacks on two American embassies in Africa in July 1998 drove home the point that America still faces brutal enemies who are opposed to our way of life and will stop at nothing to attack our citizens.

The fact that these issues exist is alarming enough, but even more alarming is our inability to deal with them, thanks to Bill Clinton. Take a look at the list below of personnel and weaponry disposed of during the Clinton years. Our ability to deal with the growing threats has been severely degraded.

700,000 Active Duty Military Personnel

290,000 Reserve Personnel

8 Army Divisions

2000 Tactical Combat Aircraft

232 Strategic Bombers

13 Ballistic Missile Submarines

232 Sea Launched Ballistic Missiles

500 Intercontinental Ballistic Missiles

4 Aircraft Carriers

121 Surface Combatants and Fast Attack Submarines


"The Clinton Administration's propensity for cutting defense spending could jeopardize America's ability to meet its security commitments if a crisis were to develop, for example, in both the Persian Gulf and Asia."

The Heritage Foundation


What does this have to do with your investment portfolio?

Take a look at each of the 9 bear markets in the Dow Jones Industrial Average since 1956: Each and every one of them—without exception—coincided with a major world crisis of some sort, from the Soviet invasion of Hungary and Suez Crisis of 1956 to the Gulf War in 1990.

Now take a look at the performance of gold during periods of international tension: in every major crisis since 1973, the price of gold rose, often while stocks were falling. (before this era the price of gold was fixed)

America should be prepared for the years to come and so should individual investors. The next 8 years will likely be quite different from the past 8 years.

Preserve Your Wealth

When President and Mrs. Bush move into the White House on January 20, 2001, they may find that the closets are filled with ignored problems and brewing crises. The new president will enjoy no "honeymoon." The deck is already stacked against him and time is not his friend.

While George W. Bush will have his hands full from the very beginning, investors will also need to take appropriate action to ensure that these future problems do not erode their hard-earned wealth. All of the issues cited in the "Presidential Turnover File" threaten the health of the U.S. economy, the near-term future of our stock market, and your investment portfolio.

Ask yourself: "Is my portfolio prepared for the aftermath of 8 long years of Bill Clinton's rule? Are my investments properly diversified?"

Historically, there has been an effective method of protecting wealth from wealth-destroying threats such as these, and that is to own gold.

Gold: Financial Insurance

The purpose and value of gold is to provide an investor's portfolio with an insurance policy against negative market events. For decades gold has served as a safe haven during periods of political and economic crisis. Because gold is the ultimate form of money—a currency without a country—it is not subject to the debilitating effects of economic and financial crises. And, most importantly, because gold is not dependent on anyone's promise to repay, it is the truest hedge.

In short, gold is your financial insurance, the portfolio diversifier that protects your wealth when paper assets are suffering. The factors that make the price of gold rise are often the very same factors that throw the financial markets into turmoil. The fact that gold is counter-cyclical to financial assets—that, over the long-term, it almost invariably moves in the opposite direction of stocks, bonds and the U.S. dollar—is precisely the reason why gold serves so well as financial insurance.

Now is a great time to add gold to your portfolio, not only for capital preservation, but also for capital appreciation. Since gold is currently trading just above 20-year lows, by adding it to your investment mix now, you a better chance of benefiting from a potential upside price move touched off by Bill Clinton's legacy.

Nevada accounts for 75% of U.S. gold production.