'Worth Less' or 'Worthless'
Mike Hoy
October 16, 2004
I believe the time is rapidly approaching when the foreign powers,
who truly possess the "weapons of mass destruction"
are about to unleash their, as of yet, unknown fury on our country
in a manner that will leave us searching for an enemy that we
created and cannot destroy. These weapons of mass destruction
are not the traditional weapons of mass destruction that we have
been so accustomed to hearing about in the Bush era. No these
weapons of mass destruction are worse and they leave us in a
wide open position that is almost indefensible. I am not talking
about bombs, I am talking about the frivolous printing of paper
that our country has been so enamored with for the past decades.
The reckless spending sprees of the past are about to come back
to haunt America in a way, whose outcomes, are impossible to
predict at this point in time.
How many of you have ever taken the time to really think about
the word "worthless?" We all use it many times throughout
the course of the day; mostly when we talk about a brother-in-law
or a son-in-law. Seriously though, this word usually starts with
a different spelling "worth less." Get my point! Now
think of the once almighty dollar; do you see how "worth
less" can turn into "worthless?"
For months our dollar has shown increasing signs of weakness.
Wanda and I took a cruise last February and I was amazed at the
knowledge of our head waiter. The crew of the ship was paid in
dollars, something that they had no problem with in the past;
all that has changed as he told me of the need to convert those
dollars into an asset that has not fallen 30% in value over the
last year. I was quite stunned to see how an employee on a cruise
ship was fully aware of the need to get out of dollars as quickly
as he could so as not to have a cut in pay. This is a perfect
example of the words "worth less." The definition of
the word "worthless" will be perfectly clear when the
time arrives that the crew will not accept dollars as payment
for their labor. This is a very small glimpse of the future and
I believe it is a glimpse of a future that very few analysts
can see at this point in time.
Most analysts seem to believe that if the economy begins to slide
into the tank, again, that the "boyz" will just lower
the interest rates and the game will be the same as in the past.
I think that this pattern of investing and borrowing will be
very destructive to the holdings of investors looking for yield
and corporations looking for the least inexpensive form of debt
financing available to them. The lowering of interest rates is
a game that the U.S. has been playing for several years without
being able to create a "magical recovery." These intelligent
leaders just don't seem to understand that this is not the problem
and lowering interest rates is definitely not the solution to
the perceived problems in the economy. It is impossible to sustain
a long lasting recovery, if your recovery is based on recovering
to a bubble and this is the point that Greenspan and company
will not address. These gentlemen are trying to recover to a
period in time when the growth from the creation of the internet
and the growth from corporations spending billions to protect
themselves from the possible devastation of Y2K was the major
stimulus for growth in the economy at that period of time. The
"boyz" have never recognized that this growth was not
normal and after January 1 2000 there was absolutely no reason
for a corporation to update their computer systems for fear of
Y2K, as the risk associated with Y2K no longer existed.
Corporations and consumers will update their computer systems
as age and obsolescence sets in, making it necessary to update
their computers. If these people would have recognized this;
then I believe they would have understood that the weakness and
ensuing recession was a natural and necessary correction of business
and life after such a prosperous period of time. The problem
was that Greenspan chose not to address "irrational exuberance"
and instead changed teams and chose to promote the absolute worst
thing for the economy; the enhancement of debt and the financial
markets. I believe the economy should have been allowed to fall
to what would have been its normal level; cleaning the excesses
of the past on the way to true normalcy.
I believe that mammoth mistakes have been made and are currently
being made with tremendous amounts of money in today's markets.
The pain and loss from these mistakes will be felt for decades.
I find it impossible to comprehend how an investor or a foreign
country can purchase a 10 year U.S. Government Bond with a 4%
rate of return. Anyone can figure out that rising oil prices
and very heavily increased government spending can only make
for a totally opposite scenario down the road; and I believe
down the road may be around the next turn. Rising oil prices
and increased government spending can only result in much higher
levels of debt and that can only equate into higher interest
rates. As foreign owners of the dollar realize that the necessity
to support the dollar is not worth the loss associated with a
perpetually declining dollar, then I feel they will adopt a new
attitude and that attitude will make the dollar "expendable."
Currently our dollar is "worth less" than it used to
be; the next turn will put it on a road to becoming "worthless."
This is a very critical point in time; investors need to understand
that this is a major event that will shape their lives for years
to come.
Japan, Russia, China and the Opec Countries have amassed hundreds
of billions of dollars that will and are becoming "expendable"
in the new investment world that is beginning to take shape.
The need for these countries to continue to acquire dollars has
changed with China stepping into the 21st century. China's most
pressing problem facing them will be the solvency of their financial
system when things fall apart in the United States. Can they
survive? In my opinion they will survive if they keep the Chinese
people from having easy access to credit cards and abusing the
credit system. If they can maintain their financial system I
believe that a true behemoth with an insatiable need for natural
resources has been awakened that will create a demand for the
world's dwindling supply of natural resources that has yet to
be defined. This worldwide competition for the dwindling supply
of natural resources will eventually turn very ugly as the price
of these natural resources soar and the U.S. is then thrown into
a position to compete for the supply of those dwindling natural
resources. The U.S. citizen has never been in a position where
he has had to stand in line and wait for his turn to receive
an asset, whose ownership he has always taken for granted as
belonging to him. China and India's entrance into the 21st century
will establish a whole new set of rules and I am sure the U.S.
consumer will not be happy in sharing what they originally thought
they owned. The gas lines of the past are nothing compared to
what may happen in the future.
Now go back to "worth less" and "worthless."
With the billions of dollars that these powers have accumulated;
what do you think they will do as they begin to understand that
the U.S. is not the consumer of last resort? If China can keep
their financial system in order, I believe that China will replace
the U.S. as the most favored place to do business. There are
a terrific amount of questions that we do not have the answers
to at this point in time. If China is able to adapt to the 21st
century then I am afraid that there are a whole lot more unpleasant
surprises coming our way; surprises that resemble an addict having
his fix taken away.
With the U.S. consumer now in a position where he may be at the
end of the road as far as refinancing and pulling equity out
of an asset that has been abused for many years; while using
the proceeds to spend on luxury items that he will no longer
be able to afford. I believe that the owners of all those dollars
will now come to realize that they are trying to keep the "Titanic"
afloat knowing that they are fighting a losing battle. In other
words they realize that they no longer need to support the dollar
and that they must now focus on how to unload those "worth
less" dollars in a manner to minimize their losses and maximize
their future positions. I believe that the Chinese have taken
the first step in showing what their future plans shall look
like.
Noranda is the first victim of what should be the first of many
buyouts by the Chinese seeking to guarantee their future supply
of natural resources whose future availability could come into
question. The Chinese have a couple hundred billion dollars;
they are spending roughly $5 billion to buy the largest mining
company in Canada. Just imagine the U.S. assets that can be bought
out by these foreigners who own hundreds of billions of dollars.
It is possible our best corporations could become foreign owned
and they would still have money left over to buy anything else
they fancy. Do you begin to see why ever increasing levels of
debt are a really bad thing? The U.S. could become U.THEM.
I also believe the Chinese understand the necessity of backing
their currency with gold and that a future target will be gold
bullion and quite possibly gold companies. I believe in the fickleness
of the U.S. population; I believe that ownership of gold by that
same fickle population may become the "patriotic" thing
to own as we move forward in time.
We live in some dramatically changing and very exciting times
and I believe that we are on the precipice of some terrific opportunities.
I get real excited when I view the opportunities that we have
now; but I also get dejected when I recognize the increasing
cost associated with these new opportunities.
I have stated before that I believe the possibility exists that
the U.S. will go into a severe recession, on a best case basis,
but the possibility exists that the rest of the world may chug
along with positive growth. India and China are the keys to the
rest of the world and I believe that they are now in a position,
as a result of outsourcing, to supply their own needs internally.
All they need to guarantee this growth is a functioning financial
system and access to the natural resources they currently do
not have. Where do you think those "expendable" dollars
will wind up? Where will that leave the U.S. in its quest to
satisfy its own insatiable demand for natural resources? Seems
to me our competitors are very well armed and with our weapons,
excuse me I mean our "worth less" or "worthless
dollars!"
I could care less about short term volatility in the price of
gold and the other natural resources. My belief in the long term
is the only event that I want to focus on. I view weakness as
an opportunity to go back and take advantage of an opportunity
I missed or did not take seriously enough the first time around;
I think you should too!
My first e-mail article should go out within the week to all
who have signed up. There is still time to get on board. Email
me.
Mike Hoy
email: mhoy@neb.rr.com
321gold Inc
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