And here’s a note I did for the Daily Reckoning on gold price manipulation at the IMF (scroll down for the note)

Thu, June 08, 2006 01:29:50 PM

From:

The Daily Reckoning

Subject:

Today’s Daily Reckoning
Black Sheep in the Marketplace

The Daily Reckoning

London, England

Thursday, June 08, 2006

———————

*** The worldwide sell-off…Bernanke talks the talk, but he’ll never walk
Volcker’s walk – not even with lifts…

*** GATA is looking saner everyday…being a central bank means never
having to say you’re short…

*** Always helps to have friends in high places…unwinding in Japan…and
more!

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And more thoughts:

*** Daily Reckoning correspondent, Lila Rajiva, finds a scoop…in India:

“After years of being called crackpots in tin – or gold – foil hats, GATA
(the U.S.-based Gold Anti-Trust Action Committee) seems to look saner by
the day, next to the thorough-going loopiness of the financial
establishment. The latest evidence is an IMF report that shows how IMF
rules wink – if they do not actually blow kisses – at central banks that
double-count the gold reserves they’ve lent out for sale in the open
market. Apparently, being a central bank means never having to say you’re
short.

“Aha, says GATA, which has charged all along that the IMF along with the
U.S. Federal Reserve and other central banks have tried to hold down gold
prices. The shady rules suggest that when they lent gold out for cash, the
banks actually got to double their reserves by counting the leased gold as
an asset on their books, as well as the cash. That was pretty sweet both
for the lenders – the central banks, who got a small return for their gold
– and for the borrowers, the bullion banks who got to sell and reinvest
the proceeds for a higher return in what’s called a ‘carry trade.’

“Even the IMF report admits, delicately, that IMF rules have encouraged
‘overstating reserve assets because both the funds received from the gold
swap and the gold are included in reserve assets.’ But except for a lone
article yesterday in The Financial Express in India, (Sangita Shah, Double
counting of gold may have aided the price suppression, June 7, 2006), the
mainstream media has ignored the story.”
So much the better. If people really knew what was going on, the price of
gold would already be over $1,000 an ounce. We tip our hats and bow in
thanks; the manipulators give us an extended opportunity to buy at deep
discount.

*** As reported last week, the Japanese are said to be at the source of
the worldwide sell off in investment markets. After many years of making
cheap money available to hedge funds and Goldman traders, Japan is thought
to be tightening up. If so, the yen carry trade that has brought the world
so much cash and credit, may be coming to an end.

“Carry trading” is not something the average dear reader is likely to run
across in his spare time, so we will expand. What it amounted to was
borrowing yen at low interest rates, converting them to dollars and
re-investing the money at a higher rate of return. Simple enough in
theory, but you need large amounts of money to do it. And it involves a
fair amount of risk; while yen lending rates may be low, a rise in the
value of the yen could wipe you out. It helps when you have friends in
high places, which is why Goldman is happy to have its top man at the U.S.
Treasury department. Goldman’s traders do not have to ask for “inside”
information from Mr. Paulson. They all know exactly what he will do. They
are all insiders now.

As the real cost of money rises in Japan (the Japanese economy is
growing…the Nikkei Dow is up 80% in the last three years), the yen carry
trade stops working. It needs to be “unwound.” In anticipation,
speculators sell their high-yielding investments (that is why the papers
are reporting a world-wide sell off). But the process of unwinding carry
trades does not affect all assets equally.

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Yesterday, Brazil fell 3.5%. Mexico was down 2%. Japan, almost 2%. And
China, down 5.3%.

Even the Dow went down – to under 11,000.

Over in the commodity pits, the action was mixed. But silver is already
down 20%. Copper, too. And gold, yesterday, was selling for about $100
below its peak, set only a few weeks ago.

It’s a “worldwide sell-off” says the International Herald Tribune,
triggered by “disappearing liquidity.”

And now, the papers are blaming poor Ben Bernanke. The new man on the job
at the Fed let it be known that inflation was “unwelcome.” This is widely
described as “tough talk,” though to us, it seems rather gentlemanly. It
is also, of course, a bald-faced lie. What would really be unwelcome is
the absence of the inflation…the lack of increases in consumer
prices…the sudden stiffening of the usually pliant U.S. dollar.

The Japanese lived through such an era for the last 10 years, with Ben
Bernanke watching. Fed chiefs would sooner poke their own eyes out than
have to watch it here in the United States. For they know as well as
anyone, the Japanese could afford it; Americans cannot. Americans are too
deep in debt. They need inflation. It keeps the cash coming to pay
interest, while lightening the debt load, little by little, over time.

No, there’s no real danger of Ben Bernanke suddenly becoming Paul Volcker.
Even with lifts in his shoes, he lacks the stature. And he’s 30 years too
late. Volcker could turn off the money taps in the late ’70s, because
America was still a healthy economy back then. It could take a little dry
weather. Three decades later, his successor, plucked from Princeton’s
towers like a sprig of ivy, will wilt quickly.

That is why the “worldwide sell-off” is likely to have very different
results for the bond, the dollar and stocks on the one hand, and
commodities, selected emerging markets and gold on the other.

As Jim Rogers puts it in Barron’s, “[Ben Bernanke] is an amateur with no
knowledge of markets whose academic work revolved around how nations could
avoid depressions by printing more money.”

Put the new man under a little pressure and the lifts in his shoes will
disappear overnight. Rather than imitate the straight-talking giant,
Volcker, he will hunch over and mumble. Yes, dear reader, Alan “Bubbles”
Greenspan will be back. But, alas, without the old magic. For now all that
liquidity that the maestro pumped into the world market is leaking into
consumer prices (which is why central bankers are so eager to mop it up).
And adding more liquidity now just makes the situation worse or better,
depending on how you look at it. If you are invested in Dow stocks and the
dollar, you will suffer. If you are invested in commodities, gold, oil,
and maybe even a few carefully selected emerging markets…you will
rejoice.

This bull market in commodities is likely to be far bigger than the last
one, claims Jim Rogers:

“Add to that [American consumption] 1.3 billion Chinese and 1.1 Indians –
all walled off from the global economy during the last commodities boom –
joining the global scrum for natural resources…it’s delusional to deny
that competition for commodities will continue to heat up as a result of
China’s pell-mell rush from a peasant economy to economic giant.”

We have a feeling that China, not looking where it is going, is going to
fall on its face. But we don’t dispute his main point: there are a lot
more people bidding for copper, cotton and gold than there were when Paul
Volcker ruled the Fed. And we also agree that a lot of those people are
not particularly keen to protect the dollar, nor the U.S. economy.

This news item came across our desk yesterday:

“President Vladimir Putin, a frequent critic of U.S. dollar hegemony, has
ordered the Russian central bank to raise the gold share of foreign
reserves from 5 per cent to 10 per cent.

“Russia’s reserves have surged to $US237 billion, the world’s fourth
biggest, after rising 61 per cent in 2004 and 40 per cent in 2005. With a
current account surplus of 10 per cent of GDP, it must buy a big chunk of
the world’s gold output just to stop its bullion share of reserves from
falling.”

We recall also last week’s report that China’s top economic advisor urged
the Reds to move more of their money out of the dollar and into gold, oil
and other useful commodities.

Bad news for the dollar, U.S. bonds, U.S. housing…and the Dow.

[Ed. Note: This shift away from the dollar is causing more and more
investors to see how they can make natural resources and commodities work
for them. Our resident commodities guru, Kevin Kerr has certainly found a
way to take advantage of the commodities boom…since January 1, 2006 all
of his picks have been winners – averaging 135% profit over less than
eight weeks. Read his full report here:

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http://www1.youreletters.com/t/372100/12296005/789191/303/

More news from our team at The Rude Awakening:

————–

Dan Denning, reporting from Melbourne, Australia…

“A currency only retains its value if its issuing government is not a
deadbeat borrower. The U.S. government is not exactly a deadbeat
borrower…at least not yet.”

For the rest of this story, and for more market insights, see today’s
issue of The Rude Awakening:

Wheat, and Other Sexy Investments
http://www.the-rude-awakening.com/RAissues/2006/march/RA060806.htmThe Daily Reckoning PRESENTS: If stocks, bonds, and commodities were part
of the same family, commodities would be the sibling who never measured
up, says the Investment Biker in his book, Hot Commodities. Why don’t
commodities get the respect they deserve? Jim Rogers explores…

BLACK SHEEP IN THE MARKETPLACE
by Jim Rogers

Commodities have never gotten the respect they deserve, and it’s been
something of a mystery to me why.

More than three decades ago, as a young investor searching for value
wherever I could find it, I realized that by studying just a commodity or
two one began to see the world anew. Suddenly, you were no longer eating
breakfast but thinking about whether the weather in Brazil would keep
coffee and sugar prices up or down, how Kellogg’s shares would respond to
higher corn prices, and whether demand for bacon (cut from pork bellies)
would go down during the summer months. (Consumers prefer lighter fare for
breakfast.) Those headlines in the newspaper about oil prices or
agricultural subsidies were no longer just the news; you now knew why OPEC
prefers higher oil prices than Washington and why sugar farmers in the
U.S. and Europe have a different opinion about price supports than do
their counterparts in Brazil and elsewhere in the Third World.

But knowing about the commodities markets does much more than make you
interesting at breakfast; it can make you a better investor – not just in
commodities futures but in stocks, bonds, currencies, real estate, and
emerging markets. Once you understand, for example, why the prices of
copper, lead, and other metals have been rising, it is only a baby step
toward the further understanding of why the economies in countries such as
Canada, Australia, Chile, and Peru, all rich in metal resources, are doing
well; why shares in companies with investments in metal producing
countries are worth checking out; why some real-estate prices are likely
to rise; and how you might even be able to make some money investing in
hotel or supermarket chains in countries where consumers suddenly have
more money than usual.

Of course, I’ve made a much bolder claim in this book: that a new
commodity bull market is under way and will continue for years. I have
been convinced of this since August 1, 1998, when I started my fund, and
have been making my case for commodities ever since. I have written about
commodities and given scores of speeches around the world filled with
experienced investors and financial journalists. I have met with bankers
and institutions. I have even been asked to confer with some mining
companies to explain why I think they’re going to do so well. But, as kind
and hospitable as my audiences have been, some seemed no more eager to
invest in commodities when I finished talking.

It was as if the myths about commodities had overtaken the realities. For
most people, when you mention the word commodities, another word
immediately comes to mind: risky. Worse still, when investors who are
curious about commodities raise the subject with their financial advisers,
consultants, or brokers at the big firms, the “experts” are likely to
flinch in horror – as if Frankenstein himself had just stepped into the
room. And then they launch into sermons about the dangers of such “risky”
investments or that colleague who specialized in commodities but “is no
longer with the company.”

It’s weird. From my own experience, I knew that investing in commodities
was no more risky than investing in stocks or bonds – and at certain times
in the business cycle commodities were a much better investment than most
anything around. Some investors made money investing in commodities when
it was virtually impossible to make money in the stock market. Some made
money investing in commodities when the economy was booming and when the
economy was going in reverse. And when I pointed out to people that their
technology stocks had been much more volatile than virtually any commodity
over time, they nodded politely and kept looking for the next new thing in
equities.

One of the main reasons I wanted to write this book was to open the minds
of investors to commodities. I was eager to point out that every 30 years
or so there have been bull markets in commodities; that these cycles have
always occurred as supply-and-demand patterns have shifted. I wanted
people to know that it took no measure of genius on my part to figure out
when supplies and demand were about to go so out of whack that commodity
prices would benefit.

How hard could it be to make the case that during bull markets in stocks
and bear markets in commodities, such as the most recent ones in the 1980s
and 1990s, few investments are made in productive capacity for natural
resources? And further, if no one is investing in commodities or looking
for more resources, no matter how much of a glut there is, how difficult
is it to understand that those supplies are bound to dwindle and higher
prices are likely to follow?

The next step is as clear and logical as anything in economics can be:
that if, in the face of dwindling supplies, demand increases or even just
stays flat or declines slightly in any fundamental way, something
marvelous happens, and it is called a bull market. But even with the
formidable forces of supply and demand on my side, I couldn’t prove beyond
anyone’s doubt that without commodities no portfolio could be called truly
diversified. I could make my arguments, cite examples from my own
experience, point to historical and current trends. Still, I hadn’t done
the heavy lifting, the professorial analysis and detail, to prove
academically, with charts and graphs, how commodities performed vis-à-vis
stocks and bonds. I was an investor, not a professor. But then I got
lucky. As I was deep into the writing of this book, two professors who had
actually done the research and analysis of how commodities investments
performed relative to stocks and bonds reported their results.

And that is why I am of the opinion that the 2004 study from the Yale
School of Management’s Center for International Finance, “Facts and
Fantasies About Commodity Futures,” is a truly revolutionary document.
Professors Gary Gorton, of the University of Pennsylvania’s Wharton School
and the National Bureau of Economic Research, and Professor K. Geert
Rouwenhorst, of the Yale School of Management, have finally done the
research that confirms that:

• Since 1959, commodities futures have produced better annual returns than
stocks and outperformed bonds even more. Commodities have also had less
risk than stocks and bonds, as well as better returns.

• During the 1970s, commodities futures outperformed stocks; during the
1980s the exact opposite was true – evidence of the “negative correlation”
between stocks and commodities that many of us had noticed. Bull markets
in commodities are accompanied by bear markets in stocks, and vice versa.

• The returns on commodities futures in the study were “positively
correlated” with inflation. Higher commodity prices were the leading wave
of high prices in general (i.e., inflation), and that’s why commodity
returns do better in inflationary times, while stocks and bonds perform
poorly.

• The volatility of the returns of commodities futures they examined for a
43-year period was “slightly below” the volatility of the S&P 500 for the
same period.

• While investing in commodities companies is one rational way to play a
commodity bull market, it is not necessarily the best way. The returns of
commodities futures examined in the study were “triple” the returns for
stocks in companies that produced those same commodities.

Therefore commodities are not just a good way to diversify a portfolio of
stocks and bonds; they often offer better returns. And, contrary to the
most persistent fantasy of all about commodities, investing in them can be
less risky than investing in stocks.

This is dramatic news. I call it “revolutionary,” because it will change
in a major way how financial advisers, fund trustees, and brokers treat
commodities. To dismiss investing in commodities out of hand will now be
liable to criticism and reproach – backed up by a reputable academic
study. In the late 1970s, there was an academic study that examined one of
the more controversial financial instruments ever devised, the junk bond,
which bestowed credibility on investing in junk bonds and turned them into
an acceptable asset class. I recall another academic report in the late
1960s, after stocks had been suspect for decades, giving a boost to buying
shares in companies again. It helped reinvigorate the stock market. This
Yale report will do the same for commodities.

Frankenstein is dead.

But please keep this in mind: Even in a bull market, few commodities go
straight up; there are always consolidations along the way. And not all
commodities move higher at the same time. Just because it’s a bull market
doesn’t mean you can throw a dart at a list of things traded on the
futures exchanges around the world and hit a winner. You might, for
example, hit copper, and copper may already have peaked. In the last
long-term bull market, which began in 1968, sugar, as we have seen,
reached its peak in 1974, but the commodity bull market continued for the
rest of the decade. A bull market by itself, no matter how impressive,
cannot keep every commodity on an upward spiral.

Every commodity, as we have seen, is guided by its own supply and- demand
dynamic. Not all commodities in a bull market will reach their peak at the
same time – any more than all stocks do during their own bull market. Some
company shares will soar in one year and others might make their highs a
year or two or three later. That is also true of commodity bull markets.

During the question-and-answer periods after my speeches, someone usually
pipes up to say, “So I invest in commodities, and it is a bull market.
When do I know it’s over?” You will know the end of the bull market when
you see it, and especially once you have educated yourself in the world of
commodities and get some years of experience under your belt. You will
notice increases in production and decreases in demand. Even then, the
markets often rise for a while. Remember that oil production exceeded
demand in 1978, but the price of oil skyrocketed for two more years
because few noticed or cared.

Politicians, analysts, and learned professors were solemnly predicting
$100 oil as late as 1980. Bull markets always end in hysteria. When the
shoeshine guy gives Bernard Baruch a stock tip, that’s high-stage
hysteria, and time to get out of the market. We saw it again in the
dot-com crash. In the first stage of a bull market, hardly anyone even
notices it is under way. By the end, formerly rational people are dropping
out of medical school to become day traders.

Wild hysteria has taken over – and I am shorting by then. I usually lose
money for a while, too, as I never believe how hysterical people can get
at the end of a long bull market. Remember all the giggling and drooling
over dot-coms on CNBC in 1999 and 2000. Of course, no one ever admits that
they never saw it coming. If I had told you in 1982-83 that a bull market
in stocks was under way, you would have laughed at me. Everyone knew back
then stocks were dead – except that over the next seven years the S&P 500
almost tripled. Had I advised you then to put all your money in stocks,
you would have hooted me out of the room: Surely, no rational being would
believe that stocks could continue to rise after already tripling in a few
years. But between 1990 and 2000, the S&P 500 continued upward, almost
quintupling – while the Nasdaq composite rose tenfold.

The commodities version will come in its own form of madness. Instead of
CEOs and VCs in suspenders, you will see rich, smiling farmers and oil
rigs on the covers of Fortune and Business Week. CNBC’s “money honeys”
will be broadcasting from the pork-belly pits in Chicago, and the ladies
down at the supermarket will be talking about how they just made a killing
in soybeans. Small cars will be the norm, homes will be heated five
degrees below today’s preferred room temperature, and there might be a
wind farm on the outside of town as far as the eye can see. When you see
all that, then it’s time to get your money out of commodities. The bull
market will be over.

Regards,

Jim Rogers
for The Daily Reckoning

P.S. Those days, in my opinion, are a decade away, at least. It is now up
to you. Consider this book the beginning of your new expertise as a
commodities investor. Do your homework and keep learning. Luck always
follows the prepared mind.

To learn about the simple system that allows you (and your wallet) to
benefit from commodities, see here:

Resource Trader Alert – 11 for 11 Picks in 2006
http://www1.youreletters.com/t/372100/12296005/789191/303/

Editor’s Note: Jim Rogers helped found the Quantum Fund with George Soros.
He has taught finance at Columbia University’s business school and is a
media commentator worldwide. He is the author of Adventure Capitalist and
Investment Biker. He lives in New York City with his wife, Paige Parker,
and their 18-month-old daughter, who is learning Chinese and owns
commodities but doesn’t own stocks or bonds.

The essay you just read was taken from Jim’s third book, Hot Commodities.
You can order your copy here:

Hot Commodities
http://www.amazon.com/exec/obidos/ASIN/140006337X/dailyreckonin-20/

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