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July 01, 2004

FASB May Crack. Sinclair already has
by Brady Willett

More Time For What?

On the topic of expensing, FASB Chairman Robert Herz says that, "We may need more time. We are hearing people say they are stretched to the maximum." Someone has apparently gotten to Herz. After all, it would take any accountant all of 2 minutes to take the stock options data that companies already release in footnotes and plug this data into the income statement.

As for former FASB boss Dennis R. Beresford - the man who headed up FASB during the 1993 stock options battle - he says that "My personal best guess would be it's extremely unlikely the board will be able to finish its deliberations this year anyway. Everybody is really trying to be practical. I don't think this is any kind of backing down." Less than one month ago Mr. Beresford said that he expected a final standard by the end of 2004. Apparently things have changed.

Why do I believe that someone may have gotten to Herz and Beresford? (i.e. back off the options issue or FASB will cease to exist). Because everyone already knows that all of the standards for expensing are horrible. Thus, if FASB now argues that the expensing should be delayed because the standards need to be tweaked what they are really saying is that thy have been defeated.

* No set of rules will ever be able to calculate what stock options are really worth at the time of issuance. However, companies should expense now because it is clear to everyone that some expense exists. 'Expense now, and we will work out better expensing rules in the future!' -- this is the ultimatum FASB should use now, and should have used more than 30-years ago. Instead, they look set to bow to the lobby.

Is Sinclair Sickening?

It appears that Mr. Jim Sinclair has finally flipped his rocker. Some of the highlights from his comments yesterday are as follows:

"Cool your tubes and relax. I am complimented that COT spends so much time on www.jsmineset.com. If you think an all out effort to depress the price of gold on June 29th is coincidence then you believe in fairy tales."

Mr. Sinclair goes on to suggest that he must only offer his daily comments to a smaller crowd:

"If we are smaller and therefore less of a factor in the markets COT will tire of their constant effort to make the one trader who knows gold better than they do a smaller influence. I simply will become smaller but only for the reason of not inviting their charades in the marketplace."

All these many years they were selling to discredit one person?...Silly me, I thought the commercials sold gold short to make money.

Mr. Sinclair goes on to say that more people should hoard gold (smaller isn't better?), producers should withhold production every time the price of gold falls, and that he possesses great insights because his clearing house was involved in the 'skillful' Hunt brother trades. Should someone remind Mr. Sinclair that the Hunt brother story turned out badly for the Hunts? Forget it, the man is on a roll:

"I believe that I know the exact bottom and what gold will do thereafter but clearly if I state that to the many, COT will do everything possible to screw you up. I am here to teach you and not to hurt you. If you have used Trend Lines and Fibonacci those of you who are traders would have nailed COT's intentions almost to the penny."

Mr. Sinclair previously speculated that gold could see $430 in June. Wrong. Mr. Sinclair promised - repeatedly I might add - not to publish his opinions to the public anymore if gold doesn't reach $480 an ounce by August 15, 2004. We will have to wait and see on this one.

Incidentally, I continue to own gold and believe that when the dollar cracks again that $480+ an ounce could be struck. And although part of me hopes that this doesn't happen by August 15, the last thing I would ever do is short gold.

After turning a bit more bullish on precious metals in mid-May, last week I said: "I still think that precious metals are worth owning for the long-term. Nevertheless, the time to safely add to your precious metals positions has quickly come and gone. Next week is all about uncertainty...you should be a little frightened by the fact that 11-weeks ago the commercial shorts were carrying more than double the amount of short contracts they current own."

Although I don't claim to know the COT's intentions to the penny, I do know that gold is hedge against a US dollar decline. With bets being made last week on gold and no decline in the dollar arriving this week, it is unsurprising that the commercials have attacked; it is unsurprising that the commercials wanted to make some money doing what they do best.

The US current account deficit - while clearly not sustainable in the long-term - may, or may not help send the dollar lower by August 15.

Brady Willett
FallStreet.com

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