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June 16, 2004

FedHeads
by John Mackenzie

Over the past several years I have become accustomed to the emotional and suspect diatribes of some in the Gold Advisor Community. Filtering this white noise has done wonders to preserve capital and better helped me to understand the dynamics of the Gold market's gyrations.

I do believe many in the Advisor Community have grossly underestimated the Federal Reserve's will to preserve the status quo through it's reckless and historic endeavors.

Today was a pivotal day for the FED.

We had Chairman Greenspan bullhoring against the incoming tide:

GREENSPAN: NOT CONCERNED WITH LEVEL OF CONSUMER DEBT

GREENSPAN: NO CONCERN FOREIGN BANKS WILL DUMP DOLLARS

GREENSPAN: NOT WORRIED ABOUT U.S. HOUSING MARKET BUBBLE

GREENSPAN: SAYS SURPRISED IF HOME PRICES RISE FURTHER

GREENSPAN: SAYS BOOM IN HOME SALES UNLIKELY TO CONTINUE

GREENSPAN: WAGES LIKELY TO "CATCH UP" TO PRODUCTIVITY

GREENSPAN: LONG-TERM FISCAL OUTLOOK 'DISTURBING'

GREENSPAN: HIGHER TAX REVENUES WILL CAP 2004 DEFICIT

GREENSPAN: ENERGY PRICES NOT FACTOR IN FED POLICY YET

GREENSPAN: HIGH ENERGY PRICES COULD BECOME A PROBLEM

GREENSPAN: CAUTIONS THAT FORECASTS ARE OFTEN MISTAKEN

GREENSPAN: BENIGN INFLATION IS 'GENERAL VIEW' OF FED

GREENSPAN: FED BELIEVES INFLATION IS NOT A PROBLEM

Then, we were served up the Tsunami:

Greenspan: U.S. ECONOMIC RECOVERY NOT SHORT-LIVED

Followed by this Gem:

Greenspan: REPEATS THAT FED MAY HAVE TO BE MORE AGGRESSIVE

My take on this outpouring of missives is simply this:

Chairman Greenspan is deeply concerned about all of the above. And for all of the dismal warnings above... once again, Gold was capped for an under $6 gain.

The Carry Trade has barely begun to unwind and those very large players are growing increasingly concerned about escape. This is precisely why we are seeing the rampant and uncontrolled expansion of OTC Derivatives. No door is too wide and there is clearly not enough room for escape. This has truly become and all or nothing game.

Gold, in light of the above, is underperforming.

I do firmly believe these reckless speculators will make every conceivable attempt at forestalling alternate & honest alternatives. This will fail in short order as I suspect we will see and elephant or two attempt to leave the herd and rush the exit. This will unmask the Fed's only real alternative... Hyperinflation, the likes of which we have yet to see.

When this begins, we will see gold break free of it's paper shackles.

Between now and then, I believe we will see Gold Equities come under pressure as the Dollar and Yields begin to rise concurrently. The trade will then reverse in short order as the Fed begins and "All Out" campaign of rampant expansion of bank credits, monetization and aggregate expansion through intervention.

In the end, it will end badly.

When, I believe sometime in late 2005.

After 2005 Gold will begin to ascend to it's proper monetary role.

Simply put, this is one "honest money" advisor's opinion.

John Mackenzie

John Mackenzie manages private capital - Email: m2jrmfl@bellsouth.net

Copyright © 2004-2005 John Mackenzie

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