Tick, Tock, Tick, Tock! Do you hear it? Time is running out and the clock is ticking down! Mike Hoy May 20, 2005 There are warning signs everywhere and they are signaling change. There is no excuse for investors to make the major mistakes that they are about to make or have already made. We have had complete reversals in many of the most important policies and beliefs which have shaped our lives and our investment philosophies for the last two decades. I have never seen as many red flags being raised at one time as what I see right now. There are a whole new set of investment rules being drawn up and the old rules are about to be as obsolete as the stubborn investors who refuse to recognize that "the winds of change are howling!" I would like to say that I feel sorry for these people but I find it very hard to come up with the words and feelings, at this point in time. I have no doubt, if my thinking turns out to be correct, that in the end, I will have all kinds of sympathy for those who are about to be slaughtered. When it is all said and done they will have gotten exactly what they asked for and no amount of wasted effort on our part will change their minds. They made the same mistakes in the late 1990's with the tech stocks; no amount of cautionary words could sway these people from their "well deserved path of destruction." I can remember a friend of mine calling me "stupid" in March of 2000 for not having any money invested in tech funds; it was at this exact time that the NASDAQ peaked above 5000. The people I do feel sorry for are the seniors who must invest their nest egg to give them a return that they can live on. These are the people who have been forced to make decisions, with their investments, based on the absolute need for income rather than as a result of greed, choice and just plain stubbornness. Their road is the most difficult road to successfully travel. When I talk about warning signs; it does not take a rocket scientist to figure out that interest rates have bottomed and they have now begun their long awaited ascent to levels that only time will define. Personally I believe that with the budget deficits, trade deficits, world wide debt and the US debt, that we may be facing an extension of the 1970's and 1980's. If this is the case then investments in long term bonds is suicide and the investors who own these bonds must realize that they are in for a very long ride. Likewise the traditional blue chip stocks being bought for the dividend will also get hit as a result of the common stock yield being forced to compete with the rising returns on short term Treasury Bills. Seniors investing for yield, or who have invested for yield, may unknowingly, be making the most tragic investment decisions of their life by attempting to garner the highest return the current market has to bare. If I were in your position I would invest my money in Treasury Bills and wait for interest rates to rise. The tough part is surviving on the small short term returns while rates are rising to a level where the income from your T-Bills will be sufficient to get you a return that you can live on for the rest of your life. If I am correct then you will easily understand the wisdom of sacrifice today for the rewards of being able to invest, in long term bonds, at much higher rates down the road. I do not know the necessary time frame but I do remember the US Government bond with a 15% rate of return back in 1981. If I am correct, about the future being an extension of the 1970's and the early 1980's then you will be very happy for showing discipline and sacrifice today for the much better rates of return in the future. GM and Ford just recently had their bonds down graded to "Junk Status." This should not be of any surprise as I believe both these companies will probably find themselves on the bankruptcy list in the next few years. Between the sky high legacy costs, the fact that their most profitable centers have evolved around vehicles that are totally energy inefficient and the huge amount of debt that is carried on their balance sheets, just waiting to blow up on them; I can see only the hope of a bail-out. But then again Gm's debt would rank them as a top 10 government. This is not the 1980's when Chrysler was bailed out and I believe that there are players who feel that GM will be granted the same help when the time comes; sorry Kirk but you may have made a mistake this time. This is not the point that I want to make about the "Junk Debt!" The point I want to make is the fact that the Hedge funds are loaded up on paper just like GM's and they are taking a beating. These brilliant "whiz kids" have made the greatest mistakes that one can make in times of interest rates on their absolute bottoms. They have borrowed trillions of dollars, at very low interest rates, and invested these dollars in the highest yielding long term investments that they could find, hoping to make a killing on the spread. The addiction that these people have to greed and action has put them in a position that will challenge the very nature of our country's financial system. With interest rates rising, the interest charges that these "whiz kids" are paying is rising and at the same time the value of their long term investments are falling; in essence they are being squeezed two ways and then when the junk bonds they own get downgraded they get hit again. The most ironic part of this is when those people who have been on the right side of a trade, and have made good profits, try to collect from a bankrupt entity; forget it! Again people, this is not rocket science and the handwriting is on the wall. There are rumors all over the place about major banks and hedge funds being in a "pickle" as a result of their "carry trade" speculations! Open up your eyes and ears, take notice of these things because when the bomb goes off it will be too late to put your gold positions back on or get out of the interest rate sensitive investments. With interest rates rising the biggest joke is the real estate and housing markets. The introduction of "adjustable rate mortgages" and "interest only mortgages" will, in the end, single-handedly destroy these markets. When the end comes to the real estate market it could happen overnight. All offers to buy could simply disappear like fog when the sun comes out. If ever there was a market epitomized by the "greater fool theory" this is the market; at least until the third wave of the gold bull market sets in, when these same people will get creamed all over again. To understand that the vast majority of real estate purchases made today are made with no money down and an interest only loan. Why? Because this is all that is left to continue the "spin." These new purchases incorporate the interest only concept to make a home affordable for the buyer. The sad part to this is that the financial institutions who are loaning the money do not care about anything after the first year of payments. They could care less if the buyer has no margin for error in the event of any kind of financial hardship. We must also understand that the "arm and interest only loans" were devised to prolong the refi game. Once rates stopped going down the "powers that be" were forced to come up with a new gimmick to prolong the worst financial joke and crisis to be dumped on a debt junkie society of all time. The "powers that be" totally destroyed the concept of savings and financial responsibility for the preservation of the illusion of recovery and growth. "The Greatest Financial Hoax of All Time," perpetrated by none other than "Mr. Magoo" himself. This hoax was created by simply giving the masses what they wanted; everything their hearts desired at an unbelievable low interest rate! I find it mind boggling to go back one year and read how Greenspan was a total fan of derivatives and how he stated that they served a very useful purpose in today's world. Now, one year later we are hearing the man come out with warnings about the derivative markets and how entities like Fannie and Freddie need to be more closely scrutinized." Do you hear it? It is loud and clear if you listen! Tick Tock Tick Tock! You bet the timer has been tripped. The only question I have is how long before the explosion? I think that Greenspan is trying to tell us something. Actually, he is now trying to save his legacy; a legacy that never existed in the first place, he is paddling up the Mississippi in a canoe with nothing but holes and a broken oar. In short he is sunk! About the only thing that gives me a bigger laugh is our brilliant elected gentlemen who believe that the fault lies with the individual who has piled on the debt. They believe that the bankruptcy laws need to be stiffened to shaft the borrower. I believe the borrower is no different than a drug addict and once the binge begins he is not responsible for what he has done and has no choice in the final outcome. I believe the financial institutions have broken every golden rule that ever existed when it comes to loaning "other people's money" and the financial affordability of those they are loaning that money too. In short they have made no effort to insure their depositors that the people borrowing the money have a chance of being able to pay it off. I belief the fault lies with the financial institutions because they should know that most of these people carry big time borrowing risk. It is the responsibility of the financial institution to only loan their depositors money to those who can truly afford to pay it back! In short; the fundamentals associated with precious metals investments have never been better. As you reinforce your long term investment philosophies then you will be able to understand that the "blood in the streets" is not yours if you do not make the mistakes of the novice investor and sell. If you have no buying power then sit back and relax. Turn the computer off and take a break. What is going on is no different from what happened at this time last year and look at the profits made as stocks rebounded. If you have buying power then, in my opinion, now is the time to be putting bids in and hoping that there is someone willing to fill your order. I have never been more excited about the positions I own. I am pleased with the way they have held up over the last couple of months. For those of you on my e-mail list you should have received an e-mail on two new companies this week, that I have added to my portfolios. If you did not receive the e-mail or for any of you people who would like to get on my e-mail list just notify me at the e-mail address below. If you would like a phone call from me include your phone number and I will get back to as many of you as I can. If I am correct and the precious metals are in a long term bull market; then the weakness that we are now experiencing is your friend not your enemy. Pullbacks and corrections are a cleansing phase of the market; this phase takes stock out of weak hands and places it into strong hands. Six months from now you will look back, with a smile on your face and say "I wish I would have bought more!" Let the "blood in the streets" be that of the sellers; if you add to positions you will be the one "Making a Killing!" -Mike Mike Hoy email: mhoy@neb.rr.com tel: 402-483-4484 Call between 8:00AM and 10:00 PM Central Time. 321gold Inc