Mr. Volker is so quoted in Peter G. Peterson’s book “Running on Empty”, published July 2004. Mr. Peterson, a Republican who is Chairman of Wall Street’s powerful investment firm the Blackstone Group (over $ 50 billion in assets), has written a damning indictment of this potential crisis facing the US

His basic premise: Record federal deficits and national debt, future obligations of Social Security and Medicare as the Baby Boomer generation begins to retire in another 4 years and record debt loads within the economy, will lead to a massive deterioration in standards of living in the US.

In recent testimony to Congress, Mr. Greenspan, the current Chairman of the Federal Reserve, conceded that the US economy had hit an unexpected “soft patch”.

This is the gentleman who presided over the biggest stock market bubble in world history, during the late 1990s. Asked by Congress after the crash on why he did not do more to intervene, Greenspan’s reply was that it is very difficult to tell that you are in the midst of a bubble as it is happening!

According to Bill Fleckenstein ("The 'recovery' is living on borrowed time", MSN Money, Sept 13), another example of his inability to predict comes from early January 1973 -- just before the nasty 1973-74 recession -- when Greenspan was running his less-than-stellar economic consulting firm, Townsend Greenspan. Greenspan told the New York Times, "It is rare that you can be as unqualifiedly bullish as you can be now."

Mr. Greenspan was concerned about the scale of the Federal deficits but was optimistic about future economic growth.

However, the Globe and Mail (Canada’s leading national newspaper) reports (“Global growth in question” September 7, 2004) that Goldman Sachs has issued a report warning that worldwide economic growth could slow more than the market expected. Its leading index signaled evidence of weakening in the global industrial cycle, with business confidence having fallen in the US, Europe and Britain, industrial growth having slowed in Japan and export momentum appearing to lose some steam in Asia

I have previously quoted noted economists such as Stephen Roach at Morgan Stanley, Dr. Kurt Richebacher and Dr. Marc Faber, who perceive multiple bubbles existing in the US (real estate, stock market, debt loads) and who anticipate the possibility of a major financial crisis in the US, and therefore, globally.

Let’s turn to Dr. Gary Shilling: He has a Ph.D. in economics from Stanford University, was Chief Economist at Merrill Lynch and runs his own consulting firm. Polls by Institutional Investor magazine ranked him Wall Street’s top economist twice.

Writing in Forbes magazine in an article titled “Wall Street in Dreamland” (September 2004), Dr. Shilling says that “Financial markets and the U.S. economy parted company in the late 1990s as Wall Street lost touch with economic reality. That great disconnect still exists.”

Further, he says: “Almost no one wants the financial sphere to reunite with the economic world, since the coming down to earth of speculative prices would be a financial shock that would cause a lot of real damage.”

Here’s what a disconnect sounds like in everyday language: “I'm not going to buy my kids an encyclopedia. Let them walk to school like I did.” Yes, it's Yogi Berra again.

Here’s another example of a disconnect: The Chicago Board Options Exchange's VIX index. This is an index that measure implied volatility, or uncertainty among investors in the US markets. The VIX effectively measures the level of fear among investors: the lower it is, the less the fear.

In a report in The Economist magazine titled “Volatility: An Eerie Calm” (July 27, 2004), the magazine notes that despite Middle East tensions, record US trade and federal deficits, potential for terrorist strikes in the US homeland and the record oil prices (note: all three major post-WWII US recessions have been preceded by oil price shocks), investors have a high degree of complacency about downside risk for US equity prices in the future.

This is, of course, a major contrarian indicator.

Note how low the VIX was in March 2000 when the bubble began to burst. After the initial plunge of NASDQ from 5200 to 3000, the spike of fear settled down as everyone expected the markets to recover. Further declines caused the VIX to jump as NASDAQ fell to 1250, before recovering to 1850.

It is noteworthy that the VIX is at its lowest point in the last decade.

Major prolonged calamities happen when the vast majority of public opinion least expects them. Among innumerable examples:

• The US Civil War was expected to be a one-day affair, at the Battle of Bull Run (the war lasted 4 years, with over 550,000 casualties).
• The assassination of Archduke Ferdinand in Sarajevo sparked World War I, to general disbelief, and eventually 21.5 million military and civilian deaths.
• On Jan 1, 1929 the New York Times said "It has been twelve months of unprecedented advance, of wonderful prosperity. If there is any way of judging the future by the past, this new year will be one of felicitation and hopefulness." The stock market collapsed on October 24, 1929 and this was followed by the Great Depression, which lasted until the US entered World War II in 1941.

The point is that everything seems alright to Joe Six-Pack (as the typical beer-guzzling American is referred to disparagingly in the media) at this time, which supports Dr. Shillings view about the disconnect and should cause investors in US equities to be concerned.

During 1996-2003, the US and China accounted for (on a purchasing power parity basis) 49% of world GDP growth, according to Morgan Stanley. If indirect benefits from trade linkages are taken into account, the figure is estimated to be between 60-70%, with the US driving demand and China supply.

What happens if US demand dries up, due to an economic slowdown? Depending on the severity of the downturn, a potential scenario that may unfold is: most of the global economy is likely to follow the US into a recession as a major source of global consumer demand declines, there would likely be a worldwide decline in equities and real estate values, the US dollar would decline and perhaps lose its reserve currency status and default rates would soar. To finance its deficits, the US would still need to attract capital and would have to raise interest rates sharply, sparking inflation and ravaging bond prices.

Will this happen and, if so, when? No one can predict this with certainty or the likely timing. What can be done is to assess the probability of this happening in the light of known information, and to plan for your financial well being if you believe that there is a reasonable possibility of this happening.

Gold, of course, is the direct beneficiary of such a calamitous eventuality. It has a high negative correlation to the US dollar, and acts as a hedge against high inflation and deflation. The last period of high inflation occurred in the US in the 1970s. There had been a run on the US$ in the late 1960s, and to stop the hemorrhaging, Nixon de-linked the US $ from gold.

The chart below combines performance of gold prices during the 1970s (the blue line, with prices on the left vertical index) and its price since 2001 (in red, prices on the right vertical axis), matching its movement between the corresponding periods.

The writer, Adam Hamilton, believes that gold is about to enter stage two, when it moves beyond a direct relationship with the US dollar and rises against all currencies. In the 1970s, the first phase led to gold prices rising 66%.

As its price rises, more and more investors are driven into the market, creating further investment demand in stage two. In the seventies, this phase led gold prices to rise another 134%.

Please note: as gold prices rise in such significant moves, the prices of publicly listed gold mining companies rise in hundreds and thousands of percentage terms, due to their inherent leverage.

This is why I consistently say that this may be an opportunity to make (or enhance) fortunes.

In the final stage, when there is intense public mania, the price jumps to stratospheric levels (to over $ 800 in 1980) and investors who are in early and have made their fortunes, are exiting by selling to the general public who come, herd-like, late to the party.

I cannot tell you for certain that this will happen, or if it does, in what time frame. But I can say that the risks in conventional asset classes are high, in my opinion and that of renowned economists that I bring to your attention. You should consider investing 5-10 percentage of your liquid assets in Canadian equities, both as insurance against such an eventuality and as a US $ hedge.

The two largest Canadian gold mining companies are described below. Of the two, I believe that Placer Dome represents better value on a fundamental basis. As there is a lot of research available on these companies (compared to the smaller companies I will cover in Acamar’s Exploration Profiles), I will keep the coverage short and let you explore their websites and other sources for further information, if they are of interest.

BARRICK GOLD CORPORATION

www.barrick.com

(Symbol: ABX on the Toronto and New York Stock Exchantes and BGD on the London Stock Exchange)

Barrick Gold is the largest Canadian gold mining company and one of the largest in the world. It operates in the US, Canada, Australia, Peru, Chile, Argentina and Tanzania.

• Barrick had annual revenues of over US$ 2 billion and net profits of US $200 million in 2003. It produced over 5.5 million ounces of gold in 2003 (at a cash cost of US$ 189) and has Proven and Probable Reserves of 86 million ounces.
• Capital Expenditure budgeted for 2004 is $ 767 million, with another $ 110 million slated for exploration and development.
• Income for the six months ended June 30, 2004 was US$ 60 million, versus US$ 88 million in the previous year. Underperformance is attributable to higher operating costs and lower grade ore processed.
• Production for the year is expected to be between 4.5 and 5 million ounces of gold, compared to 5.5 million in 2003.

Barrick made a key move in 2003 when it adopted a no-hedge policy. Hedging is the selling of future production at current prices. This was done extensively by gold producing companies in the 1990s as gold prices were expected to decline. Such selling actually contributes to depressing gold prices as excess supply is offered to the market.

However, Barrick and other gold producers have been aggressively reducing their hedge book in anticipation of higher gold prices in future years. Barrick has reduced its hedge position by 36% in the last two years, with only 14% of future production hedged.

PLACER DOME INC.

www.placerdome.com

(Symbol: PDG on the Toronto and New York Stock Exchanges)

Placer Dome is a diversified gold mining company, headquartered in Vancouver. It has 18 mines and extensive land positions in known gold belts in Nevada, Eastern Canada and Western Australia, which along with Papua New Guinea, will account for 85% of 2004 revenues.

• Placer Dome had annual revenues of over US$ 1.76 billion and net profits of US $229 million in 2003. It had record gold production of 3.86 million ounces of gold in 2003 (at a cash cost of US$ 218) and has Proven and Probable Reserves of 60.5 million ounces.
• Capital Expenditure budgeted for 2004 is $ 295 million, with another $ 75 million slated for exploration and development.
• Income for the six months ended June 30, 2004 was US$ 97 million, versus US$ 121 million in the previous year. Underperformance is attributable to a non-cash FX charge of $ 34 million in Q2 2004 and one time gains and tax benefits of $56 million in 2003.
• Production for the year is expected to be 3.6 million ounces of gold and 400 million pounds of copper.
• Placer Dome grew reserves in 2003 by 15%.