The Rude Awakening

Wall Street, New York

Thursday, December 23, 2004


*** Frat boys drain shots of Jager...the Chinese drain
barrels of oil...value drains from the dollar...

*** Selling more Beenie Babies than one
Florida coin dealer earns a crust...!

*** Pre-Soviet Russia...the Battista Regime...Weimar
Republic...Brazilian Cruzeiros...and much more!


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By Eric J. Fry

The most persuasive arguments for buying gold do not reside
in musty old economics textbooks or in the minutes of the
latest FOMC meeting...They reside in Henry Hackel's "box of
money." Henry, as faithful Rude Awakening readers will
recall, is the president of R.F. Lafferty, a broker-dealer
specializing in options trading and resource stocks. In his
26th floor corner office overlooking the Hudson River sits
a non-descript cardboard box a simple shoebox that
contains a powerful message: Buy gold.

"Hey Eric, have you ever seen my box of money?" Henry asked
one day, wearing an impish grin.

"," your editor replied. "I think I would have
remembered that."

"You gotta see this...C'mon, follow me," said Henry, as he
grabbed the box and marched toward the conference room.
After seating ourselves at the conference table, Henry
slung the box across the table like a bartender slinging
draft beers and said, "Take a look."

Your editor peeled back the lid, peered into the box and
saw money lots and lots of money...but all of it
worthless. There were rubles from pre-Soviet Russia, 50
million-mark bills from the Weimar Republic period in
Germany, pesos from the 1950s government of Cuba's Battista
regime, and even a few extinct Brazilian cruzeiros. As your
editor sifted through layer upon layer of worthless
currencies, he imagined himself a kind of archaeologist,
tooth brushing his way through the ruins of civilizations
past - in this case, monetary ruins. The message contained
in this "dig" is very clear: The forces of monetary entropy
fueled by politicians and central bankers continuously
erode the value of paper money.

One of Henry's favorite "ruins" is an elegant, 1928 10-
Franc note. "To think," he says, "at one time, someone held
up this note and said 'It's as good as gold'." But of
course, the 1928 franc note turned out to be somewhat less
good than gold. In fact, not one bill in that box to
borrow a familiar saying is worth the paper it's printed
on. "If the same man who carried around this note in 1928
instead took two and bought a 20-Franc "rooster" gold
piece, it would be worth about $80 today," Henry laments.
By comparison, the two 10-franc notes, post multiple
devaluations, would be worth no more than a few cents

"Your box of money is very impressive, Henry," your editor
remarked. "But I don't need any convincing about the long-
term value of gold...So let's take a shorter time horizon.
How does gold look to you in 2005?"

"Well, I think the bottom is in for gold," he answered,
"but I can't give you any price targets."

"That's fine," your editor replied, "what I really care
about most is the primary trend. Do you see any evidence
that the bullish trend for gold is gathering strength? What
about your coin-dealer buddy in Florida? Is he still
selling more beanie babies than Kruggerands?"

(Three years ago, when gold was still languishing below
$300 an ounce and trying to shake of the stigma of a two-
decade bear market, Henry related the following anecdote
about his coin dealership in Hollywood, Florida: "We
offered some 'retired' Beenie babies for sale a set of
three particularly coveted Beenie Babies for $1,100. We
put the sets one at a time in the window of the
store...people were 'daggering' each other for them. At the
same time, an elderly gentleman comes into the store and
asks: 'How much is a Kruggerand?' '$285,' came the reply.
'Forget it,' the old man said. 'Too expensive.'...Imagine
that. For an ounce of gold you couldn't even buy one Beenie
baby. No interest in gold, but these Beenie Babies were
flying out the door. It was amazing.")

"Yeah, I think so," Henry laughed. "I don't think beanie
babies are the hottest items in the store anymore."

"So let's return to the topic of gold," your editor
continued, mindful of his writing deadline. "Are we heading
to $1,000 an ounce?"

"Who knows?" said Henry, "But that wouldn't be out of line.
That's not a crazy idea at all. But I tell you, the biggest
story for 2005 will be interest rates. They'll be going up
next year. The hike in rates will be a function of many
different influences coming together all at once: the trade
deficit, the budget deficit, and the continuing rallies in
commodity prices."

"So will the rising rates knock the legs out from under the
gold market?"

"Nah, I don't think so," said Henry. "Gold's gonna keep
moving higher. It's easy to buy now. That's a big
difference. Buying gold used to be cumbersome and
difficult. But now you just toss in an order for 2,000
shares of GLD and boom, you're long $100,000 worth of gold.
Buyers now have a liquid market for gold for the very first
time. That could be a big influence on the gold price."

"Yeah, I'm with you on that," your editor replied. "Okay
Henry, since you won't give me a price target for gold,
just tell me this: Are you buying or selling?"

"I'm buying," Henry replied without hesitation. "But I'm
always buying."

[Ed. Note: "It is our assumption," writes the good Doctor,
"that increasingly bad economic news will shake this
overconfidence and speed up the dollar's decline."

The Richebächer Letter has predicted all the major crises
of the last decade, and now the editor, Dr. Kurt
Richebächer, is predicting a crisis right here in the U.S.

His views are explored in this brand new expose:

Structural Dislocation

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