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Asian currency
markets explode!
a Special Report.
page

3
Longtime subscrib-

ers have seen S&F

ISSUE 4 – VOLUME 3 – APRIL 22, 2001 buck the trend and

Commodities Watch still stay ahead of

We reconsider porkbellies due to the the very respectable

confusion about foot and mouth and the
Dow Jones Average
rising expectations of US involvement.
Call the Commodities Hotline if you are a page
over the last 10
subscriber.
3 years. Now, follow-
Gold & Silver Futures
ing the tried and true
For the first time in over eight years we
are suggesting moving toward and hard money / stock &
precious metals hoarding approach.
page Trading today may mean giving up
bond ratio formula

3 tomorrows boon. we've developed, we

Hedge Dos and Dont's are surging ahead of
We are no longer the crying unheard in a deflating Dow and
THE WEALTH
OF NATIONS the desert. Recent stock plunges have
Adam Smith renewed interest in hedging as an inte- neurotic Nasdaq.
Book Four gral part of an strategy. page
Stay the course and
page
5
4 we'll be sailing into

new ports with our

holds full of profit.

PM706121.PMD © 2001 QualityLogic, Inc. Page 1 of 12

 The Hard Money Trader is a
bimonthly publication of
Street & Finley Investment
Brokers. No promise or
guarantee of factuality,
reliability, timeliness, or
accuracy is expressed or
implied. Tax ramifications
should be discussed with
tax accountants. Investment
strategies with your own
Investment broker. Street &
Finley's Investment service
may differ in practice from
observations made in HMT.
Read our new White
Paper "Diamonds,
Dollars & the
Drought" by Dr. Angus
MacDonald; on-line at
http:/www.sandf.com/
am/ddd.htm.
PM706121.PMD
Short Takes
Buffett Principals
Melvin Finleys take
Warren Buffett held his no technology
stock preference despite record returns.
Now he seems prescient but it was only
common sense. The price of stock or any
other service or commodity should be
based on present and lasting Value not
pie in the sky. Casinos indeed.
Is there still time
Altered States left to invest in
Samual Street precious metals?
DotCom-One-Day-Wonders have created
incredible opportunities for scavengers
One day, long
with cash. Prices of antique furniture,
ago, a young
objects d'art, classic autos and jumbo +
Englishman, who
real estate are reaching bargain base-
had just inherited
ment cash-out-now prices. Good hunting!
£ 5,000, asked
the great banker
Exercised Options
Rothschilde how
Susan Lowscringe he could be
A recent dissertation paper given at certain of still
Columbia B-School suggest the cost to have his capital
recipients of recent dotcom disaster on the day he
stock options exceeded most yearly died. Rothschilde
salaries for those same paper million- offered him a
aires. Monopoly anyone? revolver. The
moral, of course,
Consequences of Greed is that there is no
Indidgo Joe such thing as a
Available capital for many standard, sure thing at any
hedged, mutual funds now exceeds SEC time in any
limits. The emperor's new clothes nine- investment
ties seem to be at an end at last. High- climate. That
risk tech futures have reached the bad- said, the value of
smell stage with pension fund managers. gold has been one
Where have they been keeping their of the few
noses? constants in
man's history.
© 2001 QualityLogic, Inc. Page 2 of 12
 Commodities Watch Metals
Gold
Asquith and Axmin, joint venture partners,
have discovered four new gold-in-soil anoma-
lies on the Ao prospect of their Roandi
property in the Central African Republic. A
threshold value of 50 ppb gold was used to
Ni Cu Zn
plot anomalies, and internal values commonly
exceeded 100 ppb gold, rising to over 1000 Asian Currency
ppb gold. A reconnaissance drill program is Explosion
Pd Ag scheduled for the third quarter of 2001.
The Asian currency
Platinum crisis is causing havoc
with currency markets
The recent spot market platinum and its
Pt Au sister metal palladium have dominated
and foreign investment
schemes. The emerging
market attention for the past two weeks. The consensus is that short
term loans coupled with
metals showed why they have held an
unsound investment
Metals attraction for investors still dabbling in strategies, along with
Pb metals and mining stock closing up over certain crony systems,
$150 over the last two weeks. has created a funda-
mental instability in the
region's currencies. The
poor investments are
Silver
largely the consequence
Silver Standard Resources, Inc. has released of financial middlemen
high-grade silver in drill results for two new with implicit governmen-
zones on its Manatial Espejo silver-gold tal guarantees on their
personal liabilities and a
project in Argentina. The rise in Silver resulting moral hazard
Standard's share price and an overall 6% problem. Typically the
increase in silver spot prices suggest careful risk of personal failure in
grossly risky endeavors
watching.
was removed by
Livestock governmental guaran-
tee, the risk essentially
Porkbellies
is transferred to the
Livestock futures have not seen so much country's currency, it's
movement since Hillary's cattle futures economic health is
compromised.
bonanza. Foot and mouth is bending Euro-
The great fear, of course
Livestock pean livestock markets to the breaking point. is fear itself, which
Take a long look at long term porkbelly causes contagion
contracts. Money to be made. effects with financial
markets getting all the
Agriculture symptoms without any
of the underlying
Grain Futures
causes. Expect to see
Expect a huge drop in feed grain futures and local spot markets for
a concurrent rise in soybean and wheat hard currency, gold,
silver and precious
futures. People gotta eat something.
gems to skyrocket.

PM706121.PMD © 2001 QualityLogic, Inc. Page 3 of 12

 The Wealth of Nations
Adam Smith – 1776 –

BOOK FOUR
OF SYSTEMS
OF POLITICAL ECONOMY

INTRODUCTION

P OLITICAL economy, considered as a

branch of the science of a statesman or
legislator, proposes two distinct objects:
first, to provide a plentiful revenue or subsis-
Value
in Use vs.
tence for the people, or more properly to Value in
enable them to provide such a revenue or
subsistence for themselves; and secondly, to Exchange
supply the state or commonwealth with a
revenue sufficient for the public services. It
proposes to enrich both the people and the
sovereign.
The different progress of opulence in differ-
ent ages and nations has given occasion to
two different systems of political economy
with regard to enriching the people. The one
may be called the system of commerce, the
other that of agriculture. I shall endeavour to
explain both as fully and distinctly as I can,
and shall begin with the system of com-
merce. It is the modern system, and is best
understood in our own country and in our
own times.

CHAPTER I
Of the Principle of the
Commercial, or Mercantile System

T HAT wealth consists in money, or and

silver, is a popular notion which
naturally arises from the double
function of money, as the instrument of
commerce and as the measure of value. In
consequence of its being the instrument of
If you don't already commerce, when we have money
have an account we can more readily obtain
open with S&F, whatever else we have occasion
now is a good time for than by means of any other
commodity. The great affair, we
to take advantage always find, is to get money. When
of our help in that is obtained, there is no
setting up tax difficulty in making any subse-
shelters and de-
ferred compensa-
tion plans.

PM706121.PMD © 2001 QualityLogic, Inc. Page 4 of 12

 "I help
THE WEALTH OF NATIONS continued
people
invest their
quent purchase. In consequence of its being
the measure of value, we estimate that of all
money until
other commodities by the quantity of money
which they will exchange for. We say of a rich
it's all
Hedge Dos and Dont's man that he is worth a great deal, and of a gone."
poor man that he is worth very little money.
A primary futures hedger A frugal man, or a man eager to be rich, is
concern is whether the
hedge can be expected to
said to love money; and a careless, a gener- Woody Allen
ous, or a profuse man, is said to be indiffer- As an investment
reduce their risk. The ent about it. To grow rich is to get money;
baseline hedging effec- broker in A Midsummer
tiveness (defined as the and wealth and money, in short, are, in
Night's Sex Comedy
percentage risk reduced common language, considered as in every
by the hedge) forecast is respect synonymous.
typically assumed to be A rich country, in the same manner as a rich
what it would have been man, is supposed to be a country abounding
over a recent period. in money; and to heap up gold and saver in
any country is supposed to be the readiest
Along with the expected hedging
way to enrich it. For some time after the
effectiveness, the hedge ratio
discovery of America, the first inquiry of the
must be determined. The
Spaniards, when they arrived upon an
regression method is the most
unknown coast, used to be, if
popular for determining hedge
there was any gold or silver to be
ratios. As discussed in main-
found in the neighbourhood. By
stream corporate finance texts
the information which they re-
(e.g., Brealey and Myers, 1996).
ceived, they judged whether it was
Hedge profits and regression
worth while to make a settlement
approach hedge ratios should be
there, or if the country was worth
calculated using cost-of-carry-
the conquering. Plano Carpino, a
adjusted price changes. This
monk, sent ambassador from the
Modified Regression Method for
King of France to one of the sons
determining hedge ratios is
of the famous Genghis Khan, says
denoted by MRM. Error-
that the Tartars used frequently to
Correction Modeling should be
ask him if there was plenty of
applied (denoted by ECM), and
sheep and oxen in the kingdom of
related to each MRM. Estimated
France. Their inquiry had the same
MRM and ECM hedge ratios are
object with that of the Spaniards. They
similar,
wanted to know if the
though
country was rich enough to
MRM
be worth the conquering.
hedge
Among the Tartars, as
ratios tend
among all other nations of
to be
shepherds, who are gener-
slightly
ally ignorant of the use of
smaller and
money, cattle are the
more
instruments of commerce
variable.
and the measures of value.
The two
Wealth, therefore, accord-
ap-
ing to them, consisted in
proaches’
cattle, as according to the
hedging
Spaniards it consisted in gold and silver. Of
performances do not appear to be
the two, the Tartar notion, perhaps, was the
economically, nor statistically,
nearest to the truth.
significantly different. Data
Mr. Locke remarks a distinction between
errors can account for the MRM
hedge ratios being smaller and
more variable.

PM706121.PMD © 2001 QualityLogic, Inc. Page 5 of 12

 THE WEALTH OF NATIONS continued

money and other movable goods. All other

movable goods, he says, are of so consum-
able a nature that the wealth which consists
in them cannot be much depended on, and a
nation which abounds in them one year may,
without any exportation, but
merely their own waste and
extravagance, be in great want
To which party is the of them the next. Money, on the
well negotiated con- contrary, is a steady friend,
tract more valuable?
which, though it may travel
about from hand to hand, yet if
it can be kept from going out of
the country, is not very liable to
be wasted and consumed. Gold
and silver, therefore, are,
according to him, the most solid
and substantial part of the
movable wealth of a nation, and
to multiply those metals ought,
he thinks, upon that account, to be the great Even a cursory
survey of na-
object of its political economy.
tions and their
Others admit that if a nation could be comparative
separated from all the world, it would be of wealth will
no consequence how much, or how little demonstrate
money circulated in it. The consumable that natural
goods which were circulated by means of this resources are no
money would only be exchanged for a replacement for
greater or a smaller number of pieces; but industry and
ingenuity.
the real wealth or poverty of the country,
they allow, would depend altogether upon
the abundance or scarcity of those consum-
able goods. But it is otherwise, they think,
with countries which have connections with
foreign nations, and which are obliged to
carry on foreign wars, and to maintain fleets
and armies in distant countries. This, they
say, cannot be done but by sending abroad
In the transfer of goods money to pay them with; and a nation cannot
from one country in send much money abroad unless it has a
exchange for gold, good deal at home. Every such nation,
which country be- therefore, must endeavour in time of peace
comes the more
to accumulate gold and silver that, when
wealthy?
occasion requires, it may have wherewithal to
carry on foreign wars.
In consequence of these popular notions, all
the different nations of Europe have studied,
though to little purpose, every possible
means of accumulating gold and silver in
their respective countries. Spain and Portu-

PM706121.PMD © 2001 QualityLogic, Inc. Page 6 of 12

 Be sure to watch
THE WEALTH OF NATIONS continued
Street
gal, the proprietors of the principal mines of Wall Street
which supply Europe with those metals, have A BIOGRAPHY OF
either prohibited their exportation under the WILLIAM M. STREET
severest penalties, or subjected it to a
considerable duty. The like prohibition seems
On your local PBS
anciently to have made a part of the policy of affiliate – April 28
most other European nations. It is even
to be found, where we should least of
all expect to find it, in some old Scotch
acts of Parliament, which forbid under
heavy penalties the carrying gold or
silver forth of the kingdom. The like
policy anciently took place both in
France and England.
When those countries became commer-
cial, the merchants found this prohibi-
tion, upon many occasions, extremely
inconvenient. They could frequently buy
more advantageously with gold and
silver than with any other commodity
the foreign goods which they wanted, either
to import into their own, or to carry to some
other foreign country. They remonstrated,
“If w
wee onl
onlyy behold,” sa ys
says therefore, against this prohibition as hurtful
he, “the actions of the to trade.
They represented, first, that the exportation
husbandman in the seed- of gold and silver in order to purchase
time, w hen he casteth
when foreign goods, did not always diminish the
away muc
muchh ggood
ood cor
cornn quantity of those metals in the kingdom.
That, on the contrary, it might
into the ggrround, w wee shall frequently increase that quantity;
account him rather a because, if the consumption of
madman than a husband- foreign goods was not thereby
increased in the country, those
man. But w hen w
when wee goods might be re-exported to
consider his labours in foreign countries, and, being
the har
harvvest, w hic
hichh is the
whic there sold for a large profit,
might bring back much more
end of his endea
endeavvours, wwee treasure than was originally sent
shall ffind
ind the w or
wor th and
orth out to purchase them. Mr. Mun
plentiful incr ease of his
increase compares this operation of
foreign trade to the seed-time
action.
action.”” and harvest of agriculture. “If we
only behold,” says he, “the
actions of the husbandman in
the seed-time, when he casteth away much
good corn into the ground, we shall account
him rather a madman than a husbandman.
But when we consider his labours in the
harvest, which is the end of his endeavours,
we shall find the worth and plentiful increase
of his action.”
They represented, secondly, that this prohibi-

PM706121.PMD © 2001 QualityLogic, Inc. Page 7 of 12

 THE WEALTH OF NATIONS continued

If you find The tion could not hinder the exportation of gold
Hard Money and silver, which, on account of the small-
Trader a profit- ness of their bulk in proportion to their
value, could easily be smuggled abroad. That
able read and this exportation could only be prevented by a
you own one or proper attention to, what they called, the
more small balance of trade. That when the country
businesses, The exported to a greater value than it imported,
a balance became due to it from foreign
Small Business nations, which was necessarily paid to it in
Trader should gold and silver, and thereby increased the
be on your quantity of those metals in the kingdom. But
that when it imported to a greater value than
monthly reading it exported, a contrary balance became due
list. to foreign nations, which was necessarily
paid to them in the same manner, and
thereby diminished that quantity. That in this
For YOUR free case to prohibit the exportation of those
copy call metals could not prevent it, but only, by DO NOT
making it more dangerous, render it more ASK
1-800-555-1555 expensive. That the exchange was thereby
turned more against the country which owed
FOR
the balance than it otherwise might have WHOM
been; the merchant who purchased a bill THE
upon the foreign country being obliged to TARIFF
pay the banker who sold it, not only
for the natural risk, trouble, and TOLLS,
expense of sending the money thither, IT
but for the extraordinary risk arising TOLLS
from the prohibition. But that the more
the exchange was against any country,
FOR
the more the balance of trade became THEE!
necessarily against it; the money of
that country becoming necessarily of
so much less value in comparison with
that of the country to which the
balance was due. That if the exchange
between England and Holland, for
example, was five per cent against England, it
would require a hundred and five ounces of
silver in England to purchase a bill for a
hundred ounces of silver in Holland: that a
hundred and five ounces of silver in England,
therefore, would be worth only a hundred
ounces of silver in Holland, and would
purchase only a proportionable quantity of
Dutch goods; but that a hundred ounces of
silver in Holland, on the contrary, would be
worth a hundred and five ounces in England,
and would purchase a proportionable quan-

PM706121.PMD © 2001 QualityLogic, Inc. Page 8 of 12

 Electrical
THE WEALTH OF NATIONS continued power, like
gold, may
tity of English goods: that the English goods have vari-
which were sold to Holland would be sold so able value
much cheaper; and the Dutch goods which
were sold to England so much dearer by the
in various
difference of the exchange; that the one locations.
would draw so much less Dutch money to
England, and the other so much more English
money to Holland, as this difference
amounted to: and that the balance of trade,
therefore, would necessarily be so much
more against England, and would require a
greater balance of gold and silver to be
exported to Holland.
Those arguments were partly solid and
partly sophistical. They were solid so far as
they asserted that the exportation of gold
and silver in trade might frequently be
advantageous to the country. They were
solid, too, in asserting that no prohibition
could prevent their exportation when private
people found any advantage in exporting
them. But they were sophistical in supposing
that either to preserve or to augment the
quantity of those metals required more the
attention of government than to preserve or
to augment the quantity of any other useful
commodities, which the freedom of trade,
without any such attention, never fails to
supply in the proper quantity. They were
sophistical too, perhaps, in asserting that
the high price of exchange necessarily
increased what they called the unfavourable
balance of trade, or occasioned the exporta-
tion of a greater quantity of gold and
silver. That high price, indeed, was
extremely disadvantageous to the
merchants who had any money to pay in
foreign countries. They paid so much
dearer for the bills which their bankers
granted them upon those countries. But
though the risk arising from the prohibi-
tion might occasion some extraordinary
expense to the bankers, it would not
necessarily carry any more money out of
the country. This expense would gener-
ally be all laid out in the country, in
smuggling the money out of it, and could
seldom occasion the exportation of a
single sixpence beyond the precise sum
drawn for. The high price of exchange
too would naturally dispose the mer-
chants to endeavour to make their
exports nearly balance their imports, in

PM706121.PMD © 2001 QualityLogic, Inc. Page 9 of 12

 THE WEALTH OF NATIONS continued

The Hard Money order that they might have this high ex-
Trader and The change to pay upon as small a sum as
possible. The high price of exchange, be-
Small Business sides, must necessarily have operated as a
Trader are now tax, in raising the price of foreign goods, and
available in PDF thereby diminishing their consumption. It
would tend, therefore, not to increase but to
format for sub- diminish what they called the unfavourable
scribers. balance of trade, and consequently the
exportation of gold and silver.
For YOUR free Such as they were, however, those arguments
convinced the people to whom they were
copy call addressed. They were addressed by mer-
chants to parliaments and to the councils of
1-800-555-1555 princes, to nobles and to country gentlemen,
by those who were supposed to understand
trade to those who were conscious to them-
selves that they knew nothing about the
matter. That foreign trade enriched the
country, experience demonstrated to the
nobles and country gentlemen as well as to
the merchants; but how, or in what manner,
none of them well knew. The merchants
knew perfectly in what manner it enriched
themselves. It was their business to know it.
But to know in what manner it enriched the
country was no part of their business. This
subject never came into their consideration
but when they had occasion to apply to their
country for some change in the laws relating
to foreign trade. It then became necessary to
say something about the
beneficial effects of foreign
trade, and the manner in which
those effects were obstructed
by the laws as they then stood.
To the judges who were to
decide the business it appeared
a most satisfactory account of
the matter, when they were
told that foreign trade brought
money into the country, but
that the laws in question
hindered it from bringing so
much as it otherwise would do.
Those arguments therefore
produced the wished-for effect.
The prohibition of exporting gold and silver
was in France and England confined to the
coin of those respective countries. The

PM706121.PMD © 2001 QualityLogic, Inc. Page 10 of 12

 Contact your
THE WEALTH OF NATIONS continued
personal
broker today
exportation of foreign coin and of bullion and ask
was made free. In Holland, and in some other
places, this liberty was extended even to the
about our
coin of the country. The attention of govern- Real-Time-
ment was turned away from guarding against Trading
the exportation of gold and silver to watch option!
over the balance of trade as the only cause
which could occasion any augmentation or
diminution of those metals. From one
fruitless care it was turned away to another
care much more intricate, much more embar-
rassing, and just equally fruitless. The title of
Mun’s book, England’s Treasure in Foreign
Trade, became a fundamental maxim in the
political economy, not of England only, but of
all other commercial countries. The inland or
home trade, the most important of all, the
trade in which an equal capital affords the
A COUNTR
COUNTRYY THA
THAT T greatest revenue, and creates the greatest
HAS THE WHERE- employment to the people of the country,
WITHAL TO B UY
BUY was considered as subsidiary only to foreign
trade. It neither brought money into the
WINE WILL AL
ALW WAYS country, it was said, nor carried any out of it.
GET WINE . . . The country, therefore, could never become
either richer or poorer by means of it, except
so far as its prosperity or decay might
indirectly influence the state of foreign trade.
A country that has no mines of its own must
undoubtedly draw its gold and silver from
foreign countries in the same manner as one
that has no vineyards of its own must draw
its wines. It does not seem necessary,
however, that the attention of
government should be more
turned towards the one than
towards the other object. A
country that has wherewithal to
buy wine will always get the wine
which it has occasion for; and a
country that has wherewithal to
buy gold and silver will never be
in want of those metals. They are
to be bought for a certain price
like all other commodities, and as
they are the price of all other
commodities, so all other com-
modities are the price of those
metals. We trust with perfect
security that the freedom of
trade, without any attention of
government, will always supply us
with the wine which we have occasion for:
and we may trust with equal security that it

THE WEALTH OF NATIONS continued in next issue.

PM706121.PMD © 2001 QualityLogic, Inc. Page 11 of 12

 In the Next Issue
Summer Seasonals
From planting to harvest, electrical
supply to gold futures, season have
meaning.

Reconnecting
Allan Greenspoon Gives Good Advice
An interview not to be missed!

We are looking

for war stories Adam Smith

Still valid after all these years
from the DotCom A statistical reexamination of the 17th
century Scott. Hoot man kin it be troo!
front. If you have

a tale from the

front, share it Danville Parker Returns

Does the Bard still sing?
with us and if we
More rhymes from the Master of the
use it you'll get Universe.

some prime

exposure and a
Demographers Unite!
free tip or two. Steve Marshall
Steve and Dave show us how a good set
Call Alicia and of statistical inferences can just ruin your
day – and portfolio!
give her the

details

1-800-555-1111.

PM706121.PMD © 2001 QualityLogic, Inc. Page 12 of 12