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The money-go-round Warren E. Pollock March 25, 2004 In hindsight its easy to see that money rotates between widely held asset classes. As this rotation occurs investors seam to be accepting less and less return for more and more risk. Its possible (probable) that all widely-held assets could deteriorate concurrently (at the same time). Even though gold has a following it has very little mainstream support, its not widely held. I believe that diversification towards physical gold and liquidity may be the only way to withstand the next mass flight to safety. With the recent stock market decline a rotation has started which also can be identified. Interest rates have been declining and they are effectively negative. I want to draw your attention to the DOW chart here. As illustrated on the chart; In the first wave of capital flight (Flight 1) money flowed into real estate. With rising prices in the housing market, the yields on rental real estate have been in a free fall as a result. Many people are now renting property below the cost that it takes to cover the associated expenses. Reward has decreased, liquidity has become lost, valuations have increased, and risk has increased. Valuations of single family homes are even higher seeing that those homes offer no return. Single family homes provide shelter and a tax base for local government for the service of community debt. This generalized publication seeks to discuss macroeconomics, technical analysis, investing theory, politics, news, and markets. This newsletter does not provide specific advice to any individual. Its our recommendation and opinion that individuals should seek the counsel of a licensed financial ad visor who can design a plan appropriate to specific financial conditions, objectives, and risk tolerance. The publishers of this letter may purchase, hold, and dispose of positions in financial instruments discussed herein at will. The newsletter is published to its subscribers on a regular basis. With the recent decline in the stock market the rate on Treasuries have dropped dramatically. Part of this action can be attributed to Japan buying dollars but some of it represents money trapped in mutual funds and stocks that are going to "cash." Many of these funds are not really going to cash they going indirectly through managed funds into treasury bills, strips, and notes. We are seeing a second flight occur between stocks and bonds. Theoretically the concern arises that, A stock market crash could cause people to rush into bonds thereby lowering yields even further. Should yields then need to reverse upwards tremendous amounts of capital will be lost because the market value of bonds are at inverse to the prevailing interest rate. Imagine retirees losing money in stocks shifting into negative interest rate bonds and then losing not only the yield but also their capital savings. As I have discussed previously the Dow theorists have called a market top and they think the bear market rally has now ended. Even if the DOW theorists are not correct as to timing, eventually a final flight to safety will occur should bonds, stocks, real estate, and purchasing power go down concurrently. In such circumstance, It would be logical to expect that the third and last flight to safety will be to physical gold simply because its the only asset that has no debt attached. The issue and concern is that a rush to gold could be sudden, and that the metal could not accommodate all the capital that would be in search of safety or preservation. March 25, 2004 Warren Pollock The Nation's Stock Brokerage System Must Fortify Itself Against Future Attacks by Warren Pollock. ________________ 321gold Inc