Canada''s National Post joins the questioning about Morgan''s gold exposure

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11:16a CT Friday, November 8, 2002

Dear Friend of GATA and Gold:

The most brilliant analysis of the week may belong to
Michael Kosares of Centennial Precious Metals in
Denver, proprietor of www.USAGold.com, who seems
to have tossed off the commentary below as a casual
aside on his Internet site's forum. If you read only
one thing on the markets this week, read this.

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

* * *

By Michael Kosares
Centennial Precious Metals
http://www.usagold.com

Some time back I pointed out that banks would
have difficulties in a low- to zero-interest-rate
environment in that profits would be squeezed as
interest rate differentials narrowed. For example,
to make enough money to support a bank at a 0.25
percent spread, a bank's loan book would have to
swell beyond any measure of prudence. To survive,
banks will have to charge more for the various
services they offer. That's why you saw the drop
in bank sector stocks yesterday, including J.P.
Morgan.

But what about money market funds that do not have
the luxury of charging for services as banks do?

Today's Financial Times has an article titled, "Fed
rate cut puts squeeze on money market funds." We learn
that the 0.5 percent interest rate plunge threatens
savers like you and me far beyond what we may have
imagined when the cuts were announced. As we open our
future money-market account statements, we are going
to see something that is sure to cause a sinking
feeling -- the rate of return in many cases will
have fallen below 1 percent!

This raises the specter of "breaking the buck" --
that is, asset values falling in money market funds
below $1, causing investors to actually lose money on
their money fund investments.

Forget about "real rate of return." We are now
courting the prospect of not even receiving a
"nominal rate of return" in our savings. The
Financial Times article pooh-poohs the prospect,
then immediately talks of money-market funds merging
to survive. Never in the modern financial structure
have we had an interest rate environment near zero.
This is all new ground, and no one in the banking
industry has a clue where this is going to take us.

According to the FT, Bruce Bent, the founder of
money-market funds, warns investors "to take the
opportunity to look at the quality of their funds
as they struggle to maintain the status quo."

Oh-oh.

I can say one thing for certain: My gold holdings
went up 1 percent just in the past few days. I know
my money market funds are going to come in right
around 1 percent, but more probably lower. These
are the kind of numbers that will cause a radical
shift in capital allocation all over the globe --
and in the United States among millions of savers
who no longer can count on the dollar to provide
a return.

The very dour look of Alan Greenspan as pictured
in today's Financial Times tells the story better
than any words I can put on this page. As a Wall
Street friend said to me yesterday, " Alan doesn't
know how to walk away."

By the way, I see the European Central Bank hold on
interest rates as temporary -- much dissent on the
ECB board, we hear. Much like the Fed before the big
cut. Waiting for the nation-states to demonstrate
fiscal integrity is not going to hold up in the current
Euroland political environment. Gold demand will gather
pace on both sides of the Atlantic as the realization
sets in that no paper is good paper these days.