Even Greenspan''s getting queasy over Morgan''s derivatives business

4:53p ET Thursday, May 8, 2003

Dear Friend of GATA and Gold:

Centennial Precious Metals' proprietor, our friend
Mike Kosares, has more brilliant commentary at
his Internet site, www.USAGold.com, which I will
take the liberty of appending in the hope that it
will prompt people to check out that indispensable
venue and its products.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

From www.USAGold.com

quot;Big Twoquot; Taking Turns Adds Up
to Major Turning Point for Gold

By Michael J. Kosares
Centennial Precious Metals, Denver
Thursday, May 8, 2003
a href=http://www.usagold.com/AMK/MK-gold.htmlhttp://www.usagold.com/AMK/MK-gol...

Gold is rising sharply in international markets this
morning following the European Central Bank's decision
not to raise interest rates. That decision, though it
is sure to have a dramatic effect in the short term, is
more important to gold investors for what it reveals
about the long term.

If you go back and look at the drama that was the 1970s,
you will note a phenomena that has both historical
import and practical application today.

Gold did not rise alone.

The yen, deutschmark, and a half-dozen other key
currencies rose with it -- and rose dramatically over
a number of years. What they had in common with
gold was that they were rising against the dollar.

The ECB's accomplishment -- and I use that word
deliberately -- comes at a time of increasing, not
decreasing, tensions across the board in the
transatlantic relationship including rising trade
sanctions, a fracturing political framework, and
tightly drawn tensions over a unipolar (that is,
U.S.-dominated) as opposed to multipolar
(U.S./EU-dominated) approach to the Third
World.

So why did the ECB do it? Why did they seem to
come down on the side of a weaker dollar and
send gold catapulting through the $345 glass
ceiling, when one would have guessed that they
would be more accomodative?

They did it because it is their turn.

It is the yen's turn as well.

They also did it to send a message -- one the gold
market read instinctively as very bullish.

As the world has become more universal (at least in
a trade sense),and as we have moved from the
auto-functioning that various manifestations of the
gold standard afforded us, the nations of the world
have had to learn to cooperate on some level as a
matter of mutual survival. Thus the nations of the
world have taken turns at the plate in the interest
of ebb and flow -- cyclicality, if you will.

In other words, as the socialist economies of the
world -- and the United States is one of them (despite
the protests to the contrary likely to emanate from a
conservative administration like the current one) --
have discovered that though they would like to
substitute the onslaught of nature through government
planning, they cannot do it economically without creating
a semblance of it, if not by outright agreement, then by
a wink and a nod -- an quot;artificialquot; policy meant to mimic
what Nature would have done given the opportunity.

All this variously falls under the G8's rubric of quot;policy
coordination.quot;

Whether this was done intellectually or intuitively, by
policy or accident, matters not. It is being done, and
quot;itquot; is what we need to react to. The quote from Horace
prominent at the left speaks to the same issue wisely
and concisely: quot;You may drive out Nature with a
pitchfork, yet she still will hurry back.quot;

Above, I use the word quot;accomplishmentquot; with reference
to the ECB action. It is an accomplishment because the
ECB left rates when they were despite heavy pressure
from exporting manufacturers.

In other words for the sake of the international economy
in the long run, exporters like Volkswagen (which today
blamed the strong euro for the blow delivered its bottom
line) will suffer for a while, just as American auto
manufacturers took suffered during most of the 1990s
(despite heavy protests logged with administrations of
both political parties.)

In so many words, the ECB told Volkswagen and others:
quot;Live with it.quot;

In this morning's Financial Times, an article under the
heading quot;Fed's Change of Focus Shifts Onus on to the
Eurozone,quot; the paper's astute U.S.-based reporter Alan
Beattie framed the scene this way:

quot;The Fed's new orientation could have implications
beyond the U.S. economy. If it helps to undercut an
already soggy dollar, its actions will shift the onus on
to the euro-zone to become the global consumer of
last resort. And while many economists have been
hoping for a rebalancing of the world economy for
years, a question remains whether the eurozone is
ready for the role the currency markets are inviting
it to take up.quot;

In that regard, the ECB's rate decision is a step in
the right direction. Ebb and flow. Your turn. My turn.

What cannot be accomplished by Bush, Blair, Chirac,
Shroeder, et al. will like be accomplished by Alan
Greenspan and Wim Duisenberg -- two ivory-tower
econo-banker types who would run from the word
quot;politicsquot; the way you or I would flee a disturbed
hornet's nest.

I recall the book written years ago titled quot;Everything
I Need to Know I Learned in Kindergarten.quot; If I recall
correctly, quot;taking turnsquot; was one of its admonitions.
So it is now the United States' turn to rebuild its
productive sector. And Europe and Japan's turn to
become consumer.

If it doesn't happen, we do not hold out much hope
for the world economy. And this perhaps at the end of
the day is what Greenspan and Duisenberg can
accomplish that the squabbling political sector cannot.

Without the unspoken co-operation, we could get the
collapse that seems to be the center of so-many
concerns both in and out of government, and a concern
certainly prominent these days in the financial hierarchy.

If the policy is not quot;enlightenedquot; (as some will argue in
the weeks ahead as this all sinks in), it is at least
pragmatic -- and from that it will derive its staying
power. What this fait accompli does for gold and gold
owners can be seen in the rear-view mirror -- about 30
years ago -- in a faraway time and place called the 1970s.

The chart shown below certainly hints at something in the
air, and a market building toward what could be a major
breakout. Today could very well be the opening volley
signalling a major move to the upside.