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Special Silver Fraud Alert

A special alert to readers tonight to a story starting to bubble over all across the 'net.  Seems that someone on Le Metropole Cafe (where the gold realists hang out) posted a fairly well-documented note that a large portion of what is sold as Sterling 92.5 fine jewelry in major retail stores throughout the U.S. are selling junk that is attracted by magnets.  A check with the think tank confirms that "oh sure, this has been going on for a while ' and not only has this been going on for some time, but that so far, none of the silver-coated junk has been found in coins.

So here's their tip.  Don't use a cheap refrigerator magnet, run out and get a good one at Radio Shack, or in the toy sections of some better stores.  They actually suggested a magnet from a hard drive, but most of us aren't in a position to be able to rip apart a hard drive just because we need a $5 magnet in a hurry.  Think tanks reports some gold has been discovered the same - plated with 4-5 mils of gold over a base metal. Not as prevalent in gold though and again, none found in any coins. 

According to the 'tank, there are apparently 4-5 major manufacturers, mostly in South Asia (yes that would include India) where some of this was reportedly centered.

Please check all your recent silver purchases with a magnet and email us the results by clicking here george@ure.net . We will post your results as they come in.

More on point, the major U.S. retail chains (pun intended, for this crowd is not exactly gems in our book) are not especially worried about what shapes up as a billion dollar rip off.  Want to make some fast cash?  Be the first in your federal district court to file a class action lawsuit against the major stores that are involved.  Just buy a heavy looking piece, keep the receipt, and see if it's attracted to a magnet.  Sterling silver is made with copper - and last time with check our 40 year old copy of "Hildebrand's Inorganic Chemistry", the amount of magnetism in silver and copper was about the same as you'd find in piece of typing paper. 

What you buy at the shopping mall should be inspected with a very high degree of skepticism - especially if it is marked 92.5 and looks heavy.  Even thick chain should be tested, as the think tank reports all but the smallest stuff has been "stuffed" with cheap steel.

So now we may know one answer to the previous metals paradox:  How can worldwide demand be met with insufficient physical metal?  Repeat after me: The reason metal prices have not gone skyward - especially silver - is what could be pervasive worldwide fraud of a level rivaling the South Sea Bubble. 

Watch Japan and overnight metals prices for clues before trading in the stock market in the morning. Nikkei is down more than 150 as I write - closing in on 9,000 - and I sense blood in the street tomorrow after the 4% melt and absence of buyers in the U.S. markets today. Don't be surprised if we sink under 8,000 tomorrow in the U.S. markets.

Developing hard...   When I get some time to download off my work laptop, a great street level economics update from Phoenix from reader Allan  "Counting the cars for Sale" Sleuth.. but this silver fraud - if widespread - has the potential to wreck markets.  Think of the lawsuits against retails!  It's a monster...

10 Years After:

The Economic Case for War

I received another confirmation this morning from a friend in the military who I had asked about the odd movements of National Guard Artillery Unit which was activated for "home land defense".   I specifically was wondering what role this unit's arms, namely 5-mile field artillery would be good for.  It seemed that using such weapons to protect an airport might verge on, well, overkill.

A few questions, a few more emails, and it seems there has been tremendous pressure put on Regular Army personnel to extend their time with National Guard service.  On a more personal level, one of Elaine's sons, just back from 9-months active in Egypt is readying to head out again. this time who knows where?  Another shirt tail relative, Air Force, has been called to active duty. 

As big as Vietnam?  Maybe not yet, but there is one huge call-up of military people going on, and with less than what I'd expect in the way of publicity.  As you know from last week's column, the Administration talking heads have been arguing the case on the press talk-show circuit that the President doesn't really need to get permission from Congress to go kick some Middle Eastern butt, because, goes their logic, this is just a continuation of what the old man, Bush I, didn't finish up back in 1991.

Of course, Bush Senior thought he had the power without asking, thanks to what was reputed to be a staged Gulf of Tonkin incident, but because public pressure probably meant a bit more back when the Home Land wasn't under virtual lock down, Bush 1 went to Congress and got permission.  It's not certain that Congress will be asked, not that they would do anything but nod in agreement.  If I were a gambler, I would surmise that if it looks like a bunch of Republicans will lose in the elections in November, the war will be well under way by then.  Doesn't make sense to ask permission if a bunch of those unruly Democrats get elected, right?  They might not go along with the Bush plan for Gulf War 2 in a docile manner.

If you are a "sit at home, go along to get along" kind of voter, this probably makes sense.  But what I expect is really going on is revealed if you look at history and FTM: Follow the Money.

I put a little chart together that shows a nasty tendency for something ugly to happen to our U.S. economy about 10-years after a major war.  Check it out:

The specific mechanism is that war causes a huge production increase, which when turned to production of civilian goods, eliminates pricing power.  Things end up being sold for at or less than their true cost of production at about the same time that large markets saturate. I can describe for each of these events, some major purchasing that occurred...and 10-years later, in just about all cases, we paid the price with a major economic dislocation.

In the first instance, that of the War of 1812, not only was the country spending money on a long war, but we also made the Louisiana Purchase.  The Civil War was a spendy deal, and about 8 years after that, we entered into a short-lived depression.  After WWI?  Well, the economy peaked in 1928 and crashed from 1929 to 1937.

Now check out what happened after World War Two:  Instead of rolling into a major depression, and I've heard from literally dozens of WWII vets that I have talked with, that a second depression after WWII was almost a given.  Fortunately, if you can call the Korean War fortunate, we had a war that cost a lot of money and used up a lot of materiel that was originally built for WWII.

We would have expected, based on the spending involved in Korea, that a good-sized economic slow-down, if not outright depression, would be likely in 1963 or so.  Instead, what we got was Vietnam.  But after Vietnam, and in large part due to the antiwar sentiment that was whipped up, we didn't get a war 10-years after.  Instead, we got the mini-crash of 1987.

That relationship was partly obscured by the fact that a second war - the Cold War - was ending in 1987-1989 - centered on 1988.  Did we get a depression or major slow down in 1998?  Oh sure, but again, the public mind was kept off focus by the then new War in the Balkans.  Still, the Asia Contagion was there and we paid off a portion of the Cold War, but not much.  The rest?  The debt has been recycled, refinanced, and with lowering interest rates in this part of the Long Wave, it made a certain amount of sense.

So if there's a fundamental cause of today's economic decline, it might be theorized by we're in the decline today because of the last Gulf War, and the fact that we have never really paid for the end of the Cold War.

We could speculate that the Balkans War will set up a minor recession in 2008, or so.  And we can predict with something approaching precision that 10-years from now, we will either have a "mother of all panics" as the Baby Boomers retire, or a grandparent of all wars to kick the economy into gear.

There's just one small footnote.  That's all provided the unspoken horror doesn't take place.

Not that I don't think that war is horrible, mind you.  Sure, it is.  No question about it.  But war on a small scale is a fact of life.  It lives on the continuum from the rude person in the grocery line, or the road rage driver to the shooting wars going on today in dozens of locations you don't read much about in our "free" (and entirely narcissistic) press.  What could be worse than war?

The Second Crusade?

Let me quote from the first issue of "Inside Report" that was published October 19th of last year:

"So, the first point I’d make is to suggest that we might be seeing in Islam today, is something parallel.  A church breaking from political control and coming out from under the auspices of various tribal and royal governments to establish its own power base.

 

Next is a possible parallel to the Crusades. The way these got started in 1095 was simple: Emperor Alexis Comnenus asked for Church help in battling Seljuk Turks, and Pope Urban II gave this blessing, in a speech at Clermont, France in November of 1095.  These earliest Crusades that followed led to the rise of Orders, such as the Franciscan’s Dominicans as military-religious orders.  More Crusades followed and in 1204 Christian Crusaders breached Constantinople.

 

Consider this: Christian Crusaders, who were knights of various orders, were active as late as 1396 in opposing the Ottoman Turks in the Balkans.  We see a range of rough 1100 to 1400 years after the founding of Christianity that Crusades occurred.  Is it possible that Islam is in a similar phase today?  Is the War on Terror the opening round of resistance to Islamic Crusades?

 

Look where Islam is:  2001 is 1,369 years after its founding date, marked by the death of the Prophet Mohamed in 632. Today Islam may be facing similar internal developments.  Another parallel is that in both cases, an underlying socio-economic revolution was underway and a re-ordering of the secular world in the religion’s sphere of world influence. 

 

Also of note are the relative growth rates of these religions 1300 years after their founding. Christianity experienced high growth rates from 1100 – 1600 A.D. as the world’s fastest growing religion - thanks in part to the Crusades.  The great cathedrals of Europe were built to house the growing Christian congregations and stand as evidence of rapid growth in that period.  I’d suggest the high growth rate of Islam today is akin to the Christian growth in the 11^th through 16^th centuries.

 

A focus on religious purification that could be called “fundamentalism” seems to occur in both faiths at around the same time. We learn from the MS Encarta 2000 that “The Inquisition properly so called did not come into existence until 1231, with the constitution Excommunicamus of Pope Gregory IX.”

 

Hold the phone.  If we apply a little arithmetic here, adding 1231 (A.D.) to the date of the passing of the Prophet Mohamed, we get 1862.  So, if there was anything like the Christian Inquisition beginning in Islam, it should be evident by 1862.  Was it?  Well, a web site with a good quick overview on the history of Islamic Jihad suggests this about the Wahabi sect of Islam: “This sect, founded by Abd al-Wahab (1730-1791), preaches the doctrine of 'back to the Quraan' as interpreted by al-Wahab. The publisher summarizes the burden of the article thus :"Jihad is regarded as the best thing one can offer voluntarily. It is superior to prayer, fasting, zakat, umra and hajj (the five pillars of Islam as mentioned in Quraan”.

 

The same site notes that there are presently several lesser jihads underway in the Islamic world, not the least of which is “The proxy jihad being waged between the Sunni (Wahabi) Saudi Arabia and Shiite Iran to capture the leadership of the Muslim nations.”  This is an important point to note as you read news articles that are not well informed on the political situation within the Islamic religion.  What this implies is that in the future development of conflict, we should look not so much to Shiite Iran as to the Wahabiites in Saudi Arabia and Iraq."

And, here we are 10-months later, and we are shaping up to go after who?  Iraq, but also with a weather-eye toward Saudi Arabia where bin Laden's wealth springs from.  Bin Laden's funding is, in a round about way, from our own hungry consumption of oil, which makes our Western culture.  It also gives rise to envy  among countries that seem intent to use our expertise against us.

Let's look at the playing field, shall we?

Because Islam is the fastest growing religion in the world, Islam enjoys what a football enthusiast would call "great field position".  Islamic countries control just over half the oil resources.  And although the number of Muslims is smaller than the number of Christians in the world, by (depending on whose figures) about 250-million or so, Islam is growing faster than Christianity.  Not only that, but the growth of Christianity of late has been largely outside of Europe and the U.S.

So IF what we are seeing in the beginning of a Second Crusade, a counter crusade if you will, and not what Robert Kaplan describes as the Coming Anarchy, then we should be seeing signs running parallel this notion periodically.  Perhaps, in think tank terms, this will be a tipping point below the perception threshold for quite a while.  But, if you fit the pieces together, you could make a case for the idea that something much longer than a short burst of terrorism is afoot.  The picture of a Second Crusade that will last longer than even the Cold War is just a hazy concept today.  But if we can get a sense of where it will be in a few years, that might help guide our investment decisions between now and then.

On Monday morning, we awoke to two new facts that tend to support this idea of a second crusade, call it the counter crusade.  The first datum is the report that Syrian President Assad is urging a united Arab front against the U.S.:

"Iran's official IRNA news agency said Assad reiterated Syria's opposition to any US military strike on Baghdad and called for "deeper unity and solidarity among Arab and Muslim countries in the face of American threats against the region."  See: www.sky.com/skynews/article/0,,30000-1062920,00.html

The Islamic world seems to be treating al Qaida not as a pariah, but more like a respectable branch of their religion, with as much standing the same way that Baptists have good standing within the general Christian community.  Iran has some skin in the game, because they're trying to rebuild political and economic ties with Iran.  And yes, Russia is building a reactor in Iran.  Still, Assad's comments may be read as part of the dangerous trend toward polarizing the Islamic world and Judeo-Christian world into polar opposites.

The wild card?  China. What's clear, at least if you read books like "Red Dragon Rising", is that China, faced with a lot social pressures at home, might find war, or the prospect of more international exchange, in their interest.  Meantime, depending on who you choose to believe, there are perhaps as many at 35-million Muslims in China. See: http://users.erols.com/ameen/islchina.htm  Christianity may be lagging in China, where perhaps 30-million people call themselves Christians.  See: http://www.yutopian.com/religion/

More important, China is likely to come into any India-Pakistan war on the side of Pakistan, further enhancing the relationships between China and the Islamic world.

Meantime, more or less as predicted on this page last week, we may have seen an anniversary terrorism attempt with the arrest of the Islamic fellow in Sweden, at a plane with a gun, on the Saturday - which as we've pointed out - was the Islamic calendar anniversary of 9/11:

Intelligence sources said the suspect was planning to hijack a plane and crash it into a U.S. embassy in Europe, but this was denied by a top security police official.

You know what "no comment" or an outright denial means to old newscasters, like me, right?

See: http://www.reuters.com/news_article.jhtml;jsessionid=5NE5O3IHLXNPQCRBAE0CFFA?type=topnews&StoryID=1396874

Is war Iraq inevitable?  Sure.  Is a "counter Crusade" underway against the West?  Maybe.  Perhaps -- and maybe even probably.

While the idea of a Second Crusade would have sounded a quite crazy prior to 9/11, it starts to come into focus as a genuine possibility as the international players choose up sides. 

I recently bought a 1981 book by Rene Noorbergen titled "Invitation to a Holocaust: Nostradamus Forecasts W.W.III".  Although the timing predictions in that book are off (as one would expect when dealing with Nostradamus' forecasts, couched as they are in verse) the general notion of the U.S. and Russia, the "polar brothers" allied against an Islamic-Chinese Axis looks vastly more credible now that it did when Noorbergen wrote the book in '81. 

Regardless of your view of Nostradamus, predicting a U.S.-Russian alliance and an Islamic move against Turkey and then on to Greece and Rome, may yet turn out not to have been a bad call for something written about 450-years ago.

The one thing that seems a sure bet is this:  With price to earnings ratios still at twice their historical norms even today, the cloudy geopolitical climate seems unlikely to support large market gains, while the present long wave downtrend appears to be fully in force.

The Gartner Group, probably the leading consultancy in the world to high tech companies, makes use of something called the "Magic Quadrant" analysis.  It's used to help company leadership understand where the challenges are coming from.  Each competitor may be placed somewhere in the "Magic Quadrant".  This same notion can be used to schematically represent the world unfolding before us today.  It might look something like this:

You can take almost any news event and scale it in terms of moving toward or away from conflict.  Oh yes, one more item to think about while pondering this quadrant analysis:

When Quadrant 3 collides with Quadrant 4, we call this War.  When Quadrant 1 collides with Quadrant 2, the result is revolution.  To the extent that the "people quadrants" can be kept focused on the issues of Global Order, the underlying Social Order issues, rooted in the inequality of wealth distribution, will be overlooked.  The leadership of Quadrant 1 will maintain power, and the exploitation of the working class will continue.

I think it's quite clear that our national attention is being deliberately averted from social issues such as the increasing concentration of wealth in the hands of the elitists to global issues of secondary importance on this Labor Day 2002. 

When all is said and done, the global issues are only the tangible results of values in people's hearts.

On to the Charts!

Write when you get rich...

George Ure

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All contents (c) 1998-2001 by George A. Ure, MBA, except authors as linked or noted