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Rodney C. Cook

Rodney C. Cook

Currently Rod is the founder and manager of Bull Trout Capital, a boutique investment company, and author of the FishWrapper, a private investment newsletter.

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The T-Shirt Kid

I had a very enjoyable day at the fair with my family this weekend. It is a wondrous tradition for so many, and a great way to observe society in a microcosm. We began our day in the education building, watching my young son's friends in a stellar singing and dancing performance. Afterwards, we searched out those victuals special to fairs everywhere. As we enjoyed the food and the wonderful weather, I commented to my wife how it was so pleasantly uncrowded and unhurried. After a tasty meal, we wandered over to the 4-H exhibits. It was heartening to the soul to see the products of youthful comradery. The spirit of youthful song, dance and honest work had renewed my faith in the future as we proceeded to the midway.

There were huge lines at the big yellow central ticket booth. Literally hundreds dutifully lined up at the multiple windows to buy tickets for the rides. Standing daunted, I looked around at the crowd and had to chuckle. I see stupid people' was written boldly across the T-shirt of a young man of considerable stature. He certainly had the vantage point to see clearly, and he was not in line. Then I noticed a small gray booth to the side. There was no line. It was clearly visible to those in the crowded line, so I was amazed to find that it was selling the same tickets. I see stupid people too. Judging by the relative size of the crowds, it seems that the stewards of our future are in distinct minority.

My son's and his friend's first choice was the Ferris wheel. They dutifully took their place in line and my wife and I stepped back enjoying the day, vicariously sharing in my son's first boy-girl Ferris wheel ride and reflecting on life in general. Riding on the Ferris wheel somehow seemed a bit frivolous. After all it only returns you to where you began. But the ride, like life itself is a joy to be shared with a companion. Much like a home, I thought, with the house merely a fixed asset.

After a short time my shutterbug wife started working the angles for a good photo. Ah, the stuff of life. Not being shy, she looks for the most strategic and sometimes unconventional point of view. So as she hustles up the exit ramp and hey, this is another entrance, identical to the other, with virtually no one in line. And right on cue, here comes that guy with the T-shirt.

So the T-shirt kid steps into the long line with a family group. His gaze quickly rose over the crowd to the empty line, and he ushered his elderly companions to the easy access. Well, at least he didn't look at me. My faith in future generations ratcheted back up a notch or two. I guess we all get in the wrong line, from time to time. Like economic rent, the time spent in line takes away from the time enjoying the stuff of life. My native anger towards excess usury began to swell, but was quickly suppressed by the happy faces gazing out at the panorama of the fair. On a ride that was far too short.

Sometimes I wonder, how many truly dumb people are there? Can they be saved from the coming financial debacle? My wife answered that question for me by showing the other entrance to an apparently organizationally challenged group. They discounted her altruistic overture, as they were still waiting for someone back in the ticket line. The longest of the several lines, I'm sure. Most will never listen to advice and only follow the crowd. I reminded myself that they are also prone shoot the messenger. We trust that the readers of Obscene Prophets are the exception, and that you will be successful in your efforts to guide your family, friends and maybe even a few strangers to the hidden entrance because our worse case scenario appears to be coming true. The imbalances and likely outcomes highlighted last Fall (Dirt Poor, 12/31/02), and laid out in greater detail last June (Housing Cover Clause, 6/2/03) are coming to pass.

There has been a very recent proposal by the Bush Administration to put the GSEs, Freddie and Fannie in particular, under the authority of the Fed. Prior to that were 'accounting irregularities' at Freddie, and management was 're-aligned.' To those cued and clueless at the big yellow ticket booth these are just footnotes in the financial press and they never read the fine print. Whether they are at the refinancing window, the second mortgage window, the home equity loan window or the first mortgage window it does not appear that any of them will get to spend much time on the Ferris wheel. The comfort of the crowd and the prominence of the ticket booth have lulled them into complacency. To them the bright yellow color is as good as gold. Fool's gold, I'm afraid.

This recent proposal is but another harbinger of drastic action in the future. The Fed and the Administration are not as ignorant as many believe. The derivatives position of the GSEs is untenable, despite Greenspan's soothing commentary on its efficacy. If this monetary weapon of mass destruction detonates it will damage the bond market beyond comprehension. Therefore, drastic measures will be taken that will likely mitigate the effect on government bonds, but most likely at the expense of the dollar: By placing the GSEs under the Fed, they believe that the derivatives position can be 'netted out' through additional legislative reform. Netted out of your personal net worth, that is.

How will the debacle unfold? I do not know, but it seems clear that the seminal event will begin with our nation's largest source of liquidity, the GSEs. So I agree with many astute Austrian economists that the housing market bubble will implode. As will the bubble in Yankee bonds. As will the bubble in the dollar. There are indications that the bond will hold up better than the dollar. For example, George Soros recently commented that interest rates were about to soar, and he always talks down his book. And, once again, Bernanke has started talking about unconventional methods, the most likely of which is the purchase of long bonds with fiat dollars. So where does that leave the masses? Standing in line, I expect. So, take a lesson from the T-shirt kid and gently guide your friends and family to the alternate entrance.

That alternate entrance is precious metals. You must take seriously the necessity of an inter-generational gold and silver program. Physical gold and silver even in the smallest of quantities will serve as insurance, should the Feds fail in their attempt to contain the derivatives implosion. And if they are successful, you will find that your savings in dollars will not buy much time on the Ferris wheel. So saving a portion of your wealth in gold and silver can serve you, your dependents and your heirs well as portable real estate. And one day soon you may be able to say, 'Been there, done that, got the T-shirt' as you gaze down from you perch atop the Ferris wheel at a truly horrendous tangle of lines.

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