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Vicious Circles & the USDollar Jim Willie CB May 22, 2003 Two weeks ago, an insightful article concerning our unregulated Structured Finance credit system came across my path. My reaction was as much intrigue as fright. The author was Edmund M. McCarthy, who described the Govt Sponsored Enterprises built atop Fanny Mae and Freddy Mac as a "credit centrifuge" which spins out mortgage finance capital in a manner totally out of control. Click here for the article. He provides a frightening image of a system whose current design will continue to grow like a cancer and will not stop until it inflicts maximum damage on the mortgage industry and the economy. Few see anything as having gone awry, so why address a remedy in reform? And it struck me! The entire US economic, financial, and monetary system was designed to promote growth by means of clever leverage, ample governmental funding, and free-flowing investment capital. American ingenuity has been amazingly effective during the expansion cycles to produce stable multi-layered growth, envied throughout the world. But during its supercycle corrective contraction, those same dynamics will witness numerous vicious circles and momentum-driven processions toward crises. The entire system has entered reverse in destroying wealth, and will not turn off. The entire US Economy shows clear signs of heading toward the same dead-end alley as Japan, the inevitable conclusion of Keynesian Monetarism, which succumbs to the limitations of human management. Soviet Communism failed for many reasons, not the least of which was lack of incentive and nonexistent flow of capital. Conversely and tragically, our system seems to have entered a dead end from an excess of both incentive and credit. Numerous feedback loops are evident, several based on the ailing USDollar, but a few others based on gold, corporate credit, and mortgage finance. No doubt exists among the enlightened that the liquidity trap is tightening, while low interest rates slow the economy, not stimulate it, as inept economists, central bankers, brokerage analysts, and politicians insist. In an expanding economic climate, low rates stimulate by encouraging pentup demand to be released. In a contracting climate, low rates propel the economy deeper into the clutches of the liquidity trap. We have learned nothing from Japan's recent history. The declining product price trend is a structural phenomenon. No monetary medicine can successfully treat it. Monetary inflation cannot remedy price deflation caused by structural problems. Japan proves that vividly. International tension is leading Islamics to respond to our overwhelming advantage on the battlefield with an assault on the USDollar. Above the mundane marketplace of commerce, where state diplomacy strains, where world religions clash, where security is breached, where militaries lob missiles and bombs, a titanic battle is being waged with the USDollar, the EU's euro, crude oil, and gold. A climactic loop is materializing that centers on our military expeditions and terrorism, urged by national need. Peaceful resolution is unlikely in this battle, neither politically nor financially. The level of risk has risen, compounded by extreme interference with financial systems seeking equilibrium. A careening currency has historically been coupled with higher interest rates. That is precisely how an inflationary recession of a deep variety can occur in the USA. Soon feces might hit the fan, a lot of feces, and a mighty big fan. ENGINES OF GROWTH TURN DESTRUCTIVE: The feedback loops have considerable inertia from successful decades of spinning like flywheels, powering a growing economy. They are not designed to be shut down, or curtailed, or limited in their function. They continue to churn, driving down our currency and extending to insane levels the credit to sustain a residential housing bubble. One should expect all of these vicious circles to continue and persist until widespread fractures and ruptures occur. The macro system wants to correct itself. Our leaders attempt to defy nature. A sense of desperation now prevails, to keep credit flowing, as though that was the error in 1930. In reality, the inherent problem was hatched in the 1990 decade, namely - too much credit. Almost 50% of the entire debt load in our nation was underwritten since 1990, an astonishing and scary figure. Sadly, our growth systems will continue until the damage is at a maximum and the greatest number of people and corporations are harmed. Expect a socialist-style equitable distribution of the pain. We are in the midst of a rugged culling and cleansing process that will not come to conclusion until each credit sector is tested to the core. And credit sectors we have in spades, each with magnitudes of gigantic proportions! Unaware of the imminent danger, our financially illiterate population has begun to sense something is awry, but clings to hope while economic recovery is elusive. The deep-seated confidence often heard seems based on patriotism, our long track record, our freer version of capitalism, and our Federal Reserve activism. Rarely spoken is an opinion giving any credence whatsoever to the extreme brutality of the supercycle assault on debt. Little importance is attached to the diametrically different nature of this recession, based upon excess production, falling asset prices, and debt default, as compared to past recessions since 1960. A great many financial systems, intended to amplify the growth in times of expansion, have begun to turn on us. In the last year, they unfortunately have hyper-extended credit, without much beneficial result, as Austrians have warned in dire terms. Our greatest vulnerabilities are now debt distress and misguided leadership. Political forces are positioned in parallel with household and investor demand for yet lower interest rates, without any concern spoken for the mindless advance toward the zero-rate Liquidity Trap economic graveyard. Job losses are accelerating. We just might refinance our mortgages right down below 1%, at which time property values might fall off a cliff when the income necessary to service even the principal is at high risk. Clearly the dominant player in this symphony is the USDollar, which acts as both the sinister conductor and afflicted victim within several vicious circles. A dollar correction is reversing the unbridled and mania-based positive trend witnessed in the 1990 decade. With the fall of the former Soviet Union came a huge debt load incurred by Germany as they absorbed not only East Germany in a direct sense in 1991, but also to some custodial degree Poland, Hungary, and Czechoslovakia. Their Deutschemark became demoted to a second-class currency, shunned for years following the assimilation, and remained untrusted in its coalesced form as the new euro currency years later. During this same time period, the Japanese economy entered a gloomy twilight zone after its 1989 stock bust, the ensuing real estate bust, and rapid ensnarement into a stubborn Liquidity Trap. An estimated $600-800 billion immigrated from a hopeless Japan to our financial shores after our interest rates peaked in 1994. So we had - the DMark and the yen in the proverbial doghouse, and the USDollar pushed far to excess in relative valuation as the lone fair damsel at the FOREX dance. It rose to an insane level, far beyond reasonable economic justification, displacing our manufacturing base and other engines of wealth by insidious debts. Now the trend has reversed, with our world reserve currency recently surpassing the 20% mark since its cascading decline began in mid-2001. In my initial article "25 Reasons Why Gold Will Rise" of November 2002, the vicious circle centering upon the USDollar Decline was generally articulated. Its dire multi-faceted nature not only is still with us, but has grown in its destructive power. Is the United States Military picking up in enforcing national hegemony where the USDollar left off? Methinks yes, clearly yes, and dangerously yes! The center stage has our clownbuck under the spotlight, but several other circus rings feature different harmful feedback loops acting upon the US Economy. This article discusses many such vicious circles, numerous across our landscape. None is as destructive as the dollar decline. Our unaware press & media have been quick to report the benefit to American multinational corporations in the currency translation of their foreign operations. This benefit is certain, but stopping there in reporting currency consequences would represent only one-tenth of the full story, the only good portion of the story! The many down sides are slowly getting some exposure, only after they overcome strong denial. Attention must be focused upon foreign investment, imported inflation, rising commodity and energy costs, and a no-show of the oft-heralded economic recovery. Pundits have yet to take the dollar decline to the next level, which will eventually result in rising longterm interest rates, shrinking corporate profits, reduced consumer spending, the long slow leak in housing prices, and an enduring economic recession. USDOLLAR DECLINE & THE ECONOMY: The US Economy and US credit system have no industrial mechanism and no monetary mechanism in place to stem the USDollar decline well underway. With much of the nation's manufacturing base having been dispatched to Asia since 1980, and a considerable amount of assembly conducted in Mexico since NAFTA's 1995 passage, we have no industrial response capability. The press & media frequently cite our improved export competitiveness, but I ask: "What products are they referring to?" Twenty years of a strong and stronger dollar, together with higher labor costs and a heavy corporate tax burden, have resulted in a near gutting of our mfg base. Our mfg base is evolving in its military concentration. We have effectively forfeited our industrial currency mechanism. With our Federal Reserve's panic-stricken reaction to Act I of the New Paradigm Recession in 2001, shortterm interest rates are clearly going to remain much lower than other nations. The Fed has announced intentions to keep rates low until the destructive effects of any liquidity trap are averted. Note the Canadian divergence in govt-led rates, and the recent 10% rise in the C$ versus US$ since last December. With the Fed's constant intrusive intervention attitude and behavior, longterm interest rates will remain lower than in other nations. A clear disconnect exists, wherein federal deficits are growing, commodity prices are rising, and vast unprecedented monetary expansion has continued unabated since Jan2001, all while longterm rates are forcibly kept low. We have removed the monetary currency mechanism, by our own insistent will, and at great risk. In my opinion, the consequence of the absent industrial mechanism and the removed monetary mechanism will almost certainly lead to a worldwide monetary crisis, with the USDollar at the epicenter, and GOLD as its barometer. The vicious circles can be defused only by institution of a gold cover clause, thereby rendering the USDollar partially gold convertible. A vicious circle is working in feedback loops so that each quantum decline in the USDollar virtually guarantees yet another dollar decline. We see rising commodity prices, which force higher production costs on corporations. Poor pricing power leads their earnings to suffer, and their stock share prices to trend lower. Job layoffs and other private sector cutbacks such as capex curtailment result in falloffs in consumption, aggravated by higher utility and transportation costs. Some industries have been granted the false security that comes with trade tariff protection. History shows that tariffs enable inefficiencies and higher costs structures to prevail, only to inflict harm over time. So far the flagging labor market and high debt loads have put a damper on consumer spending. The only absent piece to the integrated circle is higher interest rates, which should come later in order to reflect the rising systemic risks in the economy. When rates turn higher, the economy will slam into a brick wall. Real estate, long the wellspring supplying ready cash for maintaining baseline spending, has begun to stall. Major problems will arrive when its correction shows up. With our lost mfg base, the vicious circle proceeds unencumbered by a significant rise in American imports. Our leading export is debt, which will create an imbalance until the vicious circle breaks the system.   USDOLLAR DECLINE & FINANCIAL MARKETS: A distinction can be made for the dynamics within the economy and those within the financial markets, although both are certainly intertwined. In fact, the connection is often missed by economists. They overlook the link between the initial public offering drought and capital equipment investment, and to some extent between stock market declines and consumer spending. A second USDollar vicious circle can be identified, rooted in the financial markets. We see losses in foreign-held investments, leading to sales of stocks & bonds denominated in dollars. Momentum changes ensure a foreign flight of capital toward greener pastures in other economies such as Europe, as well as Canada and China. The migration is well along. American leadership has been lost. Foreign central banks have diversified away from the USTBond in central bank reserve holdings. See China, Russia, and even Mexico lately for overt examples. How many other central bank reserves are quietly diversifying in Asia among avid exporters? The more illiquid environment aggravates the stressed corporate credit market, producing more debt defaults and bankruptcies. The only unrealized piece to the integrated circle is higher interest rates, which should come later in order to attract foreign capital again. Govt credit markets still see brisk trading, owing to their guarantees. But as our currency picks up downhill momentum, this can and will change. With our constant intervention to prevent higher rates, the vicious circle proceeds uninterrupted until a crisis unfolds. The economy is stalling, and is vulnerable to any number of shocks. Meanwhile the trade gap widens dangerously. Higher rates will not be permitted, the historical mechanism to stem a currency decline. Real rates are negative. Low interest rates cannot continue in the current environment. They slow the economy, when credit stress undermines the economy. Twice as much interest income is earned, compared to interest expense paid out. Just as Japan's economy became a bizarre pariah, so will the US Economy from the present liquidity trap at work. Low rates have delivered a massive curveball to the stock market, which is stuck with the belief that a 2nd Half Recovery will come. The vicious circle continues until our corporate profitability and creditworthiness lose all appeal to foreign investors.   USDOLLAR DECLINE & CENTRAL BANKING: In addition to economic and financial forces, central banking and govt ministries create yet another USDollar vicious circle. The trademark defensive measure, executed probably as often to bolster a weakening dollar since 2001 as to continue reinforcing a strong dollar in the 1990 decade, is to dump treasury gold on the spot market. Typical accomplices were Manhattan bullion bankers and gold miners, who were able to conceal their unethical actions under the guise of legitimate forward contract sales of future production. But the forward sales were in all manner out of proportion to economic and business needs. Total short positions still exceed in magnitude at least two year's worth of production. Foreign central banks, in turn, assist in the process to debase their own currencies (by printing their own money on tree shaving parchment since real metallic money is not available) and instantly sell the end product for USTBonds, thus lifting the dollar value overnight. Since the Washington Accord defied the Americans in 1999, it is widely believed that European Central Banks sell far less gold than they did in the previous decade, and might even lease gold from Fort Knox in order to participate in the global counterfeit operation. The Federal Reserve gold dumping raises large sums of cash, which is then used to purchase USTBonds (legal) or S&P futures contracts (not legal). As rallies ensue, other funds are attracted to dollar-based securities. Voila! The dollar decline is arrested. The US Economy's financial health contains two major fundamentals (public and private deficit spending) which have direct feedback bearing on the national stock issuance, the USDollar. Moving contrary to expectations held by bungling economists and inept pundits alike, the US trade gap has grown even as the dollar has lost considerable value in the last year. Perhaps we do not as a nation build much of anything anymore? With the weak economy, the federal govt has taken in far less payroll tax revenue. With the bear market in stocks, it has taken in far less in capital gain taxes. Housing capital gains continue to stream in though, for now. The press & media refer to these as Twin Tower debts (trade & federal). Amplifying the ominous tone on these debts is the burgeoning acceleration in MZM money supply, spun off by our reckless Federal Reserve, not to be outdone by the Weimar desperados. These signals all ring loud to FOREX traders, who unload the dollar in favor of other major currencies. In recent months, almost every single major and minor currency on the planet has risen against the dollar, including the Mexican peso and other legal tender farces from South America. Even the lowly Iraqi dinar is staging a run on the troubled USDollar. Such is the risk when the entire world is awash in reserve dollars, after two decades of unrestrained trade imbalances. To date, reduced gold collateral has been hidden from both the American citizens and the US Congress, which is legally required and entrusted (according to our Constitution) to account for its vaulted inventory. But for "national security" reasons, the Dept of Treasury and Federal Reserve stonewall Congress and fail to disclose our supplies, reminiscent of Richard Nixon's clandestine criminal activity. Suspicion abounds, owing to recorded futures contract trading open interest, and simple math. Collateral for our national debt is gradually disappearing with each passing year. Unlike business entities dragging a debt ball & chain, but with uncertain cash flow from which to finance the load, our USGovt harbors over one hundred million toiling serfs who are bound to pay taxes at any rate dictated by an increasingly dictatorial and oppressive govt. The govt is granted time as it distracts global currency traders from the quickly vanishing gold collateral, which must be replaced by confidence in those govt's leaders and their economy's vitality. It is only a matter of time before eventual repayment and guaranteed collateral become an issue for our currency, backed by towering and rising debt. When confidence erodes beyond a critical unknown level, the banking crisis will wreak havoc in a potential USDollar freefall.   USDOLLAR DECLINE & CRUDE OIL: The war's aftermath has seen a substantial 8% decline in the USDollar, a clear indication that our reluctant Islamic converts to democratic ieology now resort to financial counter-measures. Their relinquishment of dollar-based securities in favor of the euro and gold will be a continuing trend, culminating in a gold-backed Islamic dinar currency in the next two years, to be used by a billion Muslims in several countries. A new alliance is slowly forming among the Middle East oil producing nations, rising Asian economies, and Europe. The Islamic, Chinese, and Russian banking entities are clearly aligning behind gold with their emerging currencies. Europe will have to suffer some economic hardship, but nevertheless, the European Union is poised to avoid a currency crisis. The EU holds a more substantive collateral in gold (in loose association with the young euro currency) and has a slight balance of trade surplus, in stark contrast to the USA. Islamic oil producers will soon honor their threat to enforce purchase & sale of crude oil in the euro currency. US pundits and so-called experts dismiss and minimize the harmful effects of such an historic shift in policy. The movement coincides with a strong transition from USTBonds into EuroBonds, which offer higher yields to investors across the entire maturity curve. This is a huge development, one sanctioned so far by Indonesia, and under consideration by Iran. How John Mauldin of Millennium Wave can dismiss the importance of such a shift is beyond me. But then again, he misread the USDollar's vulnerability in the spring 2002, despite his less than candid claims to the contrary in his free weekly emails. He also accepted as true CNBC-affiliated Art Cashin's denial of the existence and practical evidence of the Exchange Stabilization Fund (aka Plunge Protection Team) in stock index rescues. Perhaps he would accept a Robert Rubin denial of the gold carry trade? Any change in mega-commerce international settlements involving multiple continents that requires billions in euro currency instead of USDollars, on a daily basis, is of huge importance. What starts with crude oil supply shipments, next easily extends to international trade generally across the globe. Reserve holdings would have to rise enormously. Imagine having to change the cash denomination held in retail checkout line registers across our entire economy. Now escalate the magnitude worldwide where transactions are not in the $20 and $100 level, but rather in the millions and billions of dollars or euros. This is significant, historically establishing a new milestone in modern economic history. At the margin, new savings by OPEC and other oil producers will pursue EuroBonds, not USTBonds. Commerce will see international trade contracts favoring European suppliers (e.g. AirBus over Boeing, German construction over American) when all else is nearly equal. Prevailing US interest rates are being kept artificially low now, by govt action. As the trend moves toward investment of European Union debt, our rates will necessarily rise. Supply & Demand dynamics are difficult to override by sheer force.   THE FEDERAL RESERVE & CHINA: A pernicious vicious circle operates beneath the Chinese financial world, one powered ironically by the US Federal Reserve and the unceasing willingness of Americans to incur more debt. Bernanke and Greenspan voice confident views on the power of the modern day central bank machinations. But they overlook the tendency for each action to invite an equal and opposite reaction. Since mid-2002, the increment to the US money supply approximately equals the rise in household debt, which just coincidentally is the same magnitude as the Chinese trade surplus increase bilaterally with the USA. This phenomenon is not likely to dissolve either, not with their yuan pegged to the dollar, which is in clear violation of the World Trade Organization treaty. As our currency falls in value, Chinese imports do not change in price, due to this pegging, evidence of another removed mechanism to protect the USDollar. China has recently earned political points in its mediation in the North Korean dispute. The integration of Hong Kong is well along. If China should lust for annexation of the more advanced Taiwan republic, the US would surely resist. In time, one should expect such an ambition to surface. A more immediate concern will be the hemorrhaging trade gap with the USA. China owns not only the largest bilateral piece of our trade gap, but also its fastest growing component. In time, the US political leaders might be urged by our financial leaders to influence China to revalue upward their currency in order to alleviate the trade flow stress. The price to pay is in higher prices of finished goods imported to the USA, a harsh and painful consequence indeed. Many regard this effect as the long overdue reversal of American exported inflation all through the 1980 and 1990 decades. When China revalues the yuan, all Asian currencies will revalue in lockstep. They follow the lead of China. Imports from all of Asia will rise in price. GOLD will go ballistic when this occurs, entering the next phase of its bull market. When the Chinese yuan trades freely in the FOREX, many changes will follow. A stated course of accumulating gold in state reserves indicates a potential plan to eventually institute their currency as gold-convertible. As gold rises in its new longterm bull trend, the Chinese central bank will be free to distribute new money into their growing economy without violation of Austrian School edicts. Furthermore, usage of fractional bank system credit rules would enable China to accelerate their money supply expansion in a far more stable fashion than the US has executed since 1971. I believe these significant growth steps in China will result in a new powerful China in the upcoming decade, to be seen on the world geopolitical stage and military arenas. They can soon finance a new navy, and even employ Americans, Taiwanese, or Koreans to build ships.   PRECIOUS METALS & HEDGED FORWARD SALES: The hedge phenomenon among gold & silver mining firms continues to work in the favor of precious metal investors, since inelasticity in both supply and demand is clear. Silver demand inelasticity is now more evident, as demand rises. Silver is usually a small part of product prices. New legislation replaces the arsenic oxide in pressure treatment of lumber with a silver process, yet another new silver application. Slackening jewelry demand is in the news again, which is paradoxically very positive for precious metals. No investment bull market has ever occurred without a falloff in jewelry demand. The press & media are quick to cite the slackening, and as usual, misinterpret its meaning. This is still a favorite tool in the disinformation of the public. Corrosive hedgebooks must be supplied fresh cash in buybacks to reduce the size and destructive effect of these insane forward contracts, thus diverting scarce capital from real production of the metals. Thus increased supply is inhibited, by working down the hedgebooks. In the process, a firmer floor on metal prices is ensured upon each correction. The summer 2002 gold breakout line of #330 was not violated during the painful winter 2003 swoon just experienced. Criminal bullion bankers are gradually covering their forward contracts, freeing themselves from the balance sheet corrosion that threatens them. This gradual unshackling will allow the metal to advance with less restraint on successive uplegs. Investment interest will rise almost simultaneously with the arrival of incipient price inflation within the economy. We saw a glimpse with energy prices last winter, although relaxed somewhat in recent weeks, after the liberating occupation of Iraq and its oil fields. The victory could be regarded as more impressive, except the enemy had no air force, outdated equipment, no communications, haphazard leadership, and forced conscription.   IMPORTED PRICE INFLATION: Price inflation is obvious to anyone who lives and breathes in our country. Just check gasoline bills, electric bills, heating bills, the cost of college tuition, food, insurance, movies, restaurants, sports events, and rents. Many types of taxes have risen, as states and locals are seeing red in capital letters. City and town service costs are also on the rise, for water, sewer, and other usage. Professional services cost more, for dentists, doctors, attorneys, accountants, plumbers, electricians, and lawn care. The Consumer Price Index does not fool anyone any longer. It is designed to minimize Cost of Living Adjustments in federal pensions, no more, no less, and subject to intense gamesmanship. Our banking leaders have been pumping up the monetary volume for over two years now, adding to the money supply at a rate that can be compared only to the German Weimar Republic of the 1920 and 1930 decades. Seeds of price inflation are being planted. When they germinate is uncertain. I believe in a matter of several months, when Asian currencies are revalued upward, led by the Chinese, who now peg their yuan against the dollar, our economy will see a torrent of price inflation hitting our shores. It will arrive from a reversal of 20 years of price inflation exportation to Asia, the backbone of our trade imbalance. We are unlike Japan in major ways. Click here for a previous article on the subject. A threshold exists, unknown precisely at what level, whereby a weak economy and falling USDollar will require higher interest rates offered to foreigners, indicated by our enormous and growing trade gap and federal deficits. The Japanese Liquidity Trap well describes the early stage of debt default and product liquidation, weighing down an economy unresponsive to lower interest rates. But the US is an importing nation owing large sums of debt to foreign bondholders. Amplifying the ongoing stress on a monthly basis is a badly overvalued currency. For these reasons we cannot follow the Japanese path much longer. Eventually, foreigners will vomit our debt onto our laps! Our interest rates must rise in order to reflect the added risk, not only to foreigners holding our federal debt, but to domestic banks underwriting loans. PERFECT STORM CLOUDS GATHER: Something is wrong with America, which refuses to deal properly with debt. Our ingenuity has concocted numerous systems, efficient by design in times of economic expansion, which are now turning on us and accelerating the implosion of debt. Numerous systems are now working as vicious circles, and may not end in their destructive feedback loops until maximum damage is incurred. Until they break, their futility and failure can be denied. We still rely on more liquidity to solve economic ailments that are founded on excessive credit. Liquidity is a political euphemism for credit, intended to keep the public fooled. Our economic advisors and observers are befuddled by inflation, embarrassed by their inability to distinguish among inflation, deflation, disinflation, declining asset values, liquidity, credit, and money supply. They insist on thinking in aggregate terms, when we now see price deflation and price inflation simultaneously in separate sectors. Jim Puplava's Perfect Storm is unfolding, characterized by an economic recession, a bear market in stocks, and a USDollar decline. It is being powered by the dollar decline and desperate acceleration in monetary expansion. To expect that new money (credit) creation might compensate for debt default is utter insanity, since they come and go in different places. New money creation is really extension to credit, and will succeed only in powering the storm vortex differential. Imbalances will only worsen. The USDollar will be the meter for that insanity, in a FOREX market impossible to manipulate along with stocks, bonds, and gold. THE FED CAUGHT IN A BOX: The USDollar is our national Achilles Heel; imported price inflation is the gaping hole in the recovery platform argued by economists. In fact, imported price inflation will kick our economy out of the liquidity trap, by forcing the Federal Reserve's hand. As prices rise in the cash-based half of our economy, the active monetization game must either accelerate beyond all reason, or capitulate to higher interest rates. If the money supply accelerates into a higher gear, then the USDollar will enter a freefall, which will unleash more imported price inflation, and affect our Treasury credit market ultimately. Foreigners hold almost half our federal debt, and might soon sell out as they observe heightened risk. If higher rates are consented, then the real estate sector will suffer a decline, consumers will rein in spending, corporate earnings will worsen, and stock prices will resume their decline. The economy will go into recession, which will continue to undermine the USDollar. We are in for a very rough ride, and precious metals are the only refuge. I expect many miner stocks to rise like the DotComs of the 1990's. I believe the best way to play the Perfect Storm is with Canadian Junior miners, and my favorite is still Cardero Resource Corp (CDU.V). Rising silver deposits through discovery, rising silver metal prices, and rising Canadian Dollar currency will produce a HAT TRICK. Cardero may soon announce a massive silver deposit, at a time of silver supply shortage. ### Jim Willie CB May 2003 Jim Willie CB is a pseudonym used since 1998 on Silicon Investor. JW works as a statistical analyst for a private consulting firm engaged in marketing research. He holds a Ph.D. in Statistics, with a career stretching over 22 years. He aspires to one day join the financial editor world. Visit his free website to find articles from topflight authors at www.GoldenJackass.com. 321gold Inc Miami USA