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Welcome aboard the USS "Depression"

Bob Moriarty
March 5, 2003

It's here and it's now.

I first wrote and called this a "Depression" in December of 2000 when we owned a computer company. Now the "Depression" is obvious to enough people to actually make the front page of the business section of the Miami Herald. That makes it official as far as I'm concerned.

And if you read yesterday's report on Warren Buffett you can see what the trigger is going to be.

How bad is it going to get? Well, I have believed for years that the banks in the US and probably world wide are doomed. For exactly the same reasons Mr Buffett discusses. Banks worldwide have $128 trillion dollars in derivatives and the quality of those derivatives makes used toilet paper look as good as gold.

Mr Buffett has merely pointed out what should be obvious to anyone for the last couple of years. Derivatives are a runaway train spinning wildly out of control. One day soon some small event such as a waterfall decline in the Dow (It's coming within the next six months) or a bond market crash (It's due anytime at all now) will bring down the whole edifice. Or it could be the housing bubble which is popping as you read.

It could get as bad as civil unrest and martial law. Just imagine what would happen if the banks closed for two weeks. Consider yourself warned, I have been pretty mild in my recommendations but the handwriting is on the wall. It's going to be serious.

It would be worth having some spare cash and liquid gold/silver (1/10th ounce gold coins or bags of 'junk' silver). The dollar has been in the crapper for years and only now is the rest of the world figuring it out. Our esteemed rulers in Washington, DC seem hell bent on convincing the rest of the world that the United States is run by a bunch of 5-year-old children whose idea of fun is rolling around a live hand grenade. Take my word, the rest of the world thinks this country is run by a bunch of fools and crooks. (Gee, I wonder how they figured that out?).

I remain convinced the small gold shares represent extraordinary opportunity. I can't for the life of me see any solution to our economic problems other than gold. There isn't a government or central bank in the world who wants gold but once world trade stops for a week or two, all sorts of interesting alternatives are going to be considered. Gold happens to be the only alternative which will work. They'll get it after awhile.

Gold is in a bull market. Investors got over optimistic in December and January and we have had a nice, normal correction. Many of our stocks continue to make new highs week after week, (Lakota (YLA), up 350% in five months) others such as Queenstake (QRL) have announced blockbuster deals. Queenstake announced an $18 million dollar purchase of a 300,000 ounce per year gold mine in Nevada which will pole vault Queenstake into the major leagues along with core companies such as Apollo Gold (APG). I was a buyer of Queenstake again yesterday at US$.26. I suspect the market just doesn't realize how good a deal they just cut.

Cardero (CDU) and Ascot (AOT) remain my silver stocks of preference, Northern Orion (NNO) is a simple choice as "copper mine extraordinary." I will do a follow up in a few days but the number of really attractive gold and silver stocks is very high. Many stocks such as American Bonanza (BZA) have come down 35% from their highs and are once again exceptionally attractive.

You didn't cause the depression and neither did I. Preparing yourself mentally and financially are only the actions of a reasonable and prudent person. The depression will do no more than correct the excesses created in the previous boom.

It will be serious.

But every cloud has a silver lining. We will soon realize we cannot afford anywhere near the level of Federal and State goverment that we have been getting. It will be a relief to have less government involvment in every aspect of our lives.

Bob Moriarty
March 5, 2003

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