World Market Perspective
Published by W.M.P. Enterprises, Inc. • P.O. Box 2289, Winter Park, Florida 32790, U.S.A.
Research m economic science and world markets aimed at discovery and dissemination of significant ideas and information
PRESENTING:
"A LICENSE TO PROSPER"
by Dr. James H. Moore
Editor's Note - We asked Dr. Moore to write an article
on how to predict interest rates. He not only did that, but
he gave us much more. In this article he provides us with
a complete set of techniquesfor accuratelypredicting in
flation, deflation and interest rates — and how to profit
from them by at least 20% per year, compounded. Dr.
Moore calls his predictor system "a license to prosper."
We call it an extremely interesting and thought-provoking
presentation that you will want to read several times and
study in light of your own investment portfolio.
It's inappropriate to label anything as a "license to
steal." However, if you accurately predict inflation,
deflation and interest rates, you certainly own a license
to prosper. Such predictors will:
• Enhance your profits in silver, gold, real estate, and
other types of investments which react HEAVILY to
inflation/deflation.
• Produce larger gains in bonds, utilities stocks, and
other investments which react strongly to interest
rates.
• Help you avoid losses by signaling when you
shouldn't be holding those types of investments.
• Function as personal life-planning tools by identify
ing the "best" times (cheapest) to borrow money for
a mortgage, new car, business loan, etc.
I doubt that I'm overstating my case much when I say
this could be one of the most valuable articles you'll ever
read. Save it, because if you ever again average less than
20 % per year — compounded — over any six-year span,
you need to reread it. (And I'm including IRAs!)
The model portfolio in my own newsletter YOUR WIN
DOW INTO THE FUTURE has leaned heavily on these
techniques during the last four years. It's only made 10
recommendations during that period, but those have
averaged better than 30% per year, compounded. That's
a four-year average, of course, but we're improving our
predictive abilities. Thus, a compounded 20% per year,
over six-year spans, is entirely feasible. You, too, need to
"reset" your attitude.
Now, 20% per year more than doubles your money
every 4 years. You'll find plenty of experts and advisors
who'll assure you that such long-term returns aren't possi
© 1987 WMP Enterprises, Inc., a whollyownedsubsidiaryof StrategicCommunications, Ltd.
ble. (That's because they don't have these predictors.) Yet,
Hulbert Financial Digest does list two who have beaten
20% per year, long term. The majority of the rest can't
even beat the Dow Jones Industrial A verage. But you can
enter that "magic 20%" circle if:
1. You learn to track and interpret these predictors,
perpetually, and
2. You learn how to apply the predictors to investments
sensitive to inflation, deflation and interest rates.
In this article, I'm going to show you how to do both.
Accurately Predicting Inflation
I suspect many of you are more interested in predicting
interest rates than inflation, inasmuch as the bond
market is the largest one out there. As a bonus, I have
to give you BOTH, because the inflation-predictor system
is ONE of the TWO /?re-determiners for forecasting in
terest rates accurately. The inflation-predictor, by itself,
is a valuable instrument because that factor strongly in
fluences many investments . . . especially precious metals.
So, with this inflation-predictor AND the interest rate-
predictor, you're getting a double-barreled value.
Oh, I know, everybody says it's impossible to predict
inflation accurately. The President's advisors don't do
it; Milton Friedman and other economists don't; most
financial advisors don't; most newsletter editors don't.
But we do . . . and we have been, every month in print,
for the last FOUR YEARS. Furthermore, that monthly
accuracy rate has been 95°7o. We merely don't advertise.
I chose to give you the SIX-MONTH predictor because
(1) It's the simplest, (2) It's very accurate by itself,
although we cross-corroborate it with seven others, (3)
It's sufficient for the interest-rate input we'll need later
in this article, and (4) It nicely depicts the future DIREC
TION of the inflation mainline curve. Note I said
"DIRECTION." That's good enough here, and valuable
in itself. For close estimates of future percentages, a
book-explanation is required.
IF gold-buffs had possessed this single predictor, they
certainly would not have participated in at least three
widespread — but erroneous — buy/sell signals which
most gold gurus urged during the last two years. And
those turned out to be losers.
 CHART #1
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tion rate, unless all gold buyers are about two-months
psychic.) CPI-t/ stands for "CONSUMER PRICE
INDEX - ALL t/RBAN CONSUMERS." Don't confuse
it with the CPI-^ . . . "CONSUMER PRICE INDEX
— URBAN WAGE AND CLERICAL." Note that both
have the word "urban" in their titles. Of course, if you
wish to track the CPI-W also (the basis for most labor-
contract cost-of-living-allowances — COLA), you can use
this same procedure. However, the CPI-U is the widely
quoted "inflation rate" used by the media, and it's the
rate to which investors react.
You can pester your librarian for a list of past and con
temporary CPI-U indexes. But libraries receive their data
horribly late. I like to update my "future view" on, or
close to, the index release date. Inasmuch as these figures
are released by the U.S. Department of Labor, your local
branch will have them. But, for a 50e phone call, you can
obtain them from these telephone numbers: Chicago Of
fice: (312) 353-1880. Minneapolis Office: (612) 725-7865.
At the end of these taped messages, the date of the next
release will be identified.
From these monthly CPI-U indexes, you merely have
to perform two simple calculations.
1. Divide the current index by the index for the same
month, 12 months ago. Here's an example: JAN '86 In
dex, (328.4) + JAN '85 Index, (316.1) = 1.0389. You
"cross out" the whole number "1" and are left with .0389
~ which translates to 3.89%. That was the ANNUAL in
flation rate (12-Month Percentage Growth) as of January,
1986. The Labor Department rounds it to its nearest tenth
— 3.9%. We calculate it and chart it EXACTLY. When
we get to charting, this Moving 12-Month Growth Rate
becomes the Inflation Mainline. It's the figure popular
ly quoted, and the one we want to predict. So, next...
2. Use the same current index, but this time, divide by
the index of the month SIX months ago (don't count the
current month). Example: JAN '86 Index, (328.4) + JU
LY '85 Index, (322.8) = 1.0173. Again cross out that
whole number "1," and we have .0173, or 1.73%. That's
the growth rate over the most recent six months. These
monthly percents become the plotpoints for our
PREDICTOR chartline. Chart #1 depicts both the
Mainline and its Predictor plotted for the last three years.
Interpreting the Predictor
The PITS and PEAKS of the SIX-MONTH PRE
DICTOR will tell you where the MAINLINE will
PIT and PEAK . . . six months later (give or take one
month). It's that simple! One caution should be exercis
ed: Sidewaysmovements of the Predictor are unreliable.
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However, you always have six months of those laid out
previous to any Mainline point, so you can ignore those
sideways "stutters," and search for the interim pits and
peaks. We're seeking to forecast the reversals. Those are
usually the best investment opportunities for inflation-
sensitive investments . . . short or long.
This single chart exemplifies all our various predictors,
so study it carefully. I've added some symbols to the chart
to walk you through some examples. The triangle on the
PREDICTOR forecasted the triangle on the MAINLINE,
four months in advance (slightly aberrant). By the time
that triangle pit-point "arrived" in the Mainline (7/83),
the Predictor was already foretelling of a steep, imminent
Mainline uptick. Thus, 7/83, on the Mainline, was the
"BUY" point for certain inflation-hedges. (But not for
gold. At that time, it was then reacting to other distort-
ive factors, and was already overpriced.)
Sure enough, the Mainline then mimicked the Predict
or and rose steeply. However, by 2/84, as the Mainline
was in upswing, we could note the Predictor had already
peaked back at 9/83 (circle). This meant that about six
months later, the MAINLINE was going to peak — about
3/84. It DID (circle). Of course, most investors, at that
3/84 point, thought it was going to continue going up.
(They don't have a Predictor.). However, our Predictor-
pattern, from its 9/83 circle, says "No. SELL inflation
hedges at 3/84." Sure enough, look at the subsequent
Mainline — DOWN!
Let's return again to the Predictor. By MID-'85, we
could look back and see it had pitted (square) in 3/85.
So, we could expect the Mainline to "bottom" six months
later — about 9/85. Sure enough, there it came in the
Mainline (square), right at 9/85. Of course, you can't
know that until after it reverses, but one begins to have
confidence in the Predictor's reliability, eh?
By the time the Mainline did pit in 9/85, our Predic
tor already revealed a three-monih uptick coming, then
a reversal (circle). Another point here; we have SEVEN
OTHER Predictors, and ALL of those forecasted a four-
month uptick . . . labeling the six-month Predictor as
one-month deviant at this point. (You can see how similar
its next month was.) So, we fell back on our other Pre
dictors to "overrule" this one. We accepted the four-
month uptick projection — with an interim peak due in
January of '86. Data beyond that point isn't available
as I write this, but I'm confident enough to accept 1/86
as a Mainline interim peak with at least four to six months
of decline following. That decline means that inflation-
hedges will have to uptick from factors other than their
inflation fundamental if they're to move upward at all.
Thus, from these examples, we can "extract" this
premise: THE PATTERN OF THE RECENT SIX
MONTHS OF THE PREDICTOR, WILL BECOME
THE PA TTERN OF THE NEXT SIX MONTHS OF
THE MAINLINE.
In other words, we can literally "lift" the configura
tion of the last six months of the Predictor, and "tack
it owfo"the Mainline, as its future. However, that pat
tern will be "dampened" and less severe, vertically, when
it appears in the Mainline. The Mainline has 12 months
of data dampening it, instead of the Predictor's more
volatile six.
This tool, alone, is going to keep you from dancing
to the inflation-alarmists' tune until the timing is right.
You seldom see it publicized, but . . .
Prematureness Is a Form of Loss
A t the least, you could be "parked" at interest; at
best, you could be into something even more pro
fitable. This Predictor helps you avoid prematureness.
With an allowance of one month, either way, the ac
curacy of this Six-Month Predictor — in forecasting pits
and peaks of the Mainline — is about 90%. When cor
related with our other Predictors, that accuracy climbs
to almost 97%. It would be difficult to find any other
"authority" with that type of predictive accuracy.
The major "spoiler" of this predictiveness is the situa
tion whereby the Mainline is nicely conforming to the
Predictors, then a CURRENT PRICE ABERRATION
occurs in the marketplace — distorting the current index.
For example, the Predictor may indicate that six months
from now. the Mainline is going to PIT. But as that
"predicted point" nears, a current blight strikes crops
. . . driving food prices (and the CPI) upward, abnor
mally, for three more months. Thus the Mainline pit
doesn't appear precisely where it was predicted.
The reverse is also true. Originally, I predicted the in
terim Mainline peak of 1/86 would hit 4.0%. But in
January, an abnormal oil-price decline was reflected in
the price of fuels — depressing the price-indexes slight
ly. Thus, the 1/86 peak "only" hit 3.9% rather than my
original 4.0%. I can live with being 1/ 10th of one per
cent "off on a forecast. However, if you keep an eye
peeled for CURRENT price distortions, you can spot
such "spoilers" as they develop, and "redo" the
projection.
You may not have noticed, but I've used a different
method here than is normally used to predict inflation.
Most gurus consult other indicators to forecast inflation.
These can include commodity indexes, wage increases,
producer prices, wholesale prices, and other "forerun
ners" which are supposed to later show up in inflation.
That's because the business schools teach that a manufac
turer's costs will be passed along to consumers. (I know,
I've sat in those theory classes.) However, that's academic
nonsense. A manufacturer's or a retailer's costs are not
the major factors which determine retail prices. The
ultimate factor is "what consumers are willing to pay."
And nuts to the manufacturer's costs.
In a sense, that's what my predictors measure, because
they deal with actual prices. My innovation has been to
predict future inflation in terms of its current self. I've
consulted no "outside" indicators. You see, the Predict
or is a "Son of the Father, " the MAINLINE. BOTH
have the same "genes" (index data). The "son" (Pre
dictor) just has fewer of them. Therefore, his physical
shape will be a bit different, but it will still resemble
father's. Thus, the Predictor cannot be far wrong, ex
cept when father (the Mainline) sustains a physical
"injury" (those marketplace distortions) which his son
didn't incur earlier. Simple, isn't it? Yet it took us TWO
YEARS to develop this concept and work the "glitches"
out of it with our 35-factor system. But believe me, it
was worth it. This system can function as the ULTI
MATE BACKUP INDICATOR for all other types of
timing tools: such as moving averages, chart configura
tions, etc. It will either confirm those, or detect them as
erroneous!
Applying Foreknowledge
I promised you one nitty-gritty profit application for
this inflation predictiveness. This isn't an article on
gold, but because bullion and mutual fund gold shares
are my specialty, it's a logical example. Gold's monthly-
average price declined from $384 in January of 1982, to
$346 in January of 1986 (going as low as monthly-average
$299). Yet, in that four-year decline, we've profited more
than 200% in gold. How? By using these Predictors as
"partners" with some of the other "sensors" we've
developed for gold. The Predictors have been especially
helpful in:
• Timing gold buy/sell signals to capitalize on future
inflation trends.
• Forcing us to identify other causes for gold's
movements when it moves counter to inflation. This
has sharpened our assessment capabilities regarding
the duration and magnitude of wow-inflationary
price-determiners.
• Identifying when moving-average momentum lines
(including our own) send false or valid buy/sell
signals. Anyone who follows these, should have the
Predictor for a "back-up confirmer. "
To set up my example, let me first assert that gold has
six fundamental price-determiners. In turn, some of these
six divide further into sub-factors. The most powerful
long-term fundamental is inflation. Yet, some of the other
five factors occasionally "activate" to move gold con
trary to inflation. On any chart containing both curves,
you find numerous examples over any five-year span.
However, counter-moves are always temporary. The
duration of that temporariness varies, depending upon
which factor(s) are active. Estimating the duration of this
temporariness is one-third science, one-third art and one-
third intuition. But at least we know counter-moves to
inflation are temporary! (They may sustain, until infla
tion "catches up," before they wane.) So, remember that
premise:
Gold Movements Counter to
Inflation Are Temporary
You'll also need to remember, as you peruse Chart
#2, that, because of your new Predictor, YOU'LL
ALWAYS KNOW THE DIRECTION OF INFLATION
SIX MONTHS IN ADVANCE.
The dots on the gold chartline represent periods when
1 moved subscribers into mutual fund gold funds (more
profitable than bullion). Let's examine how I knew
WHEN to do this, because TIMING is the biggest fac-
 CHART #2 "PUTS" because we "see" the spring inflation decline.
These are already nicely profitable.) However, that
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January uptick again broke the gurus' momentum lines,
_ MONTHLY-AVERAGE GOLD
AND CPI-U INFLATION
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and once more they sent erroneous "buy" signals.
- - -
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400 You gold-buffs out there can probably relate to this
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"whipsawed" by the "false" signals of early '84, mid-'85,
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or 1/86 (a la Ruff, et al.). But now you shouldn't get
stung by those so often, eh?
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flation — and the one application. Now that you're arm
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tools you'll need for the next section — predicting interest

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inflation . . . which you'll now know half a year in
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5 advance. As climbing inflation erodes the buying power
.6 290
of dollars, investors expect higher interest rates as "com
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pensation." Conversely, as deflation strengthens a
-

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However, it's important to understand that INTEREST-
3.0 260 RATE CHANGES USUALLY LAG INFLATION-
JFHAMJJASOND JFKAMJJASOND RATE CHANGES! That's logical; investors wait to see
1984 1985
whether an inflation reversal is "lasting" or just a brief
"hiccup."
tor in profits. Yet, interest rates parallel inflation only in a freely
1. The Predictors told me, well ahead of time, that in operating marketplace. There are exceptions, and those
flation would pull gold upward until about 3/84. can cost you BIG bucks if you can't predict the excep
(However, other factors had gold overpriced until 1/84.) tions, too. For a long time, we tried predicting interest
So, we grabbed a quick one-month profit of 77% (dots) rates with traditional academic methods — consulting
and bailed out. We saw the inflation decline coming! other "forerunners" such as bank reserves, price indexes,
Ironically, this January/March gold uptick caused up economic forecasts, etc. Our results were just as poor as
ward momentum line breakthroughs in most gurus' those of Henry Kaufman, et al. Hence, we shied away
technical charts — ours, too. Thus, THEY were sending from investments which were especially sensitive to in
BUY signals, just as we were IGNORING those signals terest rates (bonds, utilities, etc.). Don't invest in anything
and SELLING. (Their subscribers rode the '84 decline you don't understand thoroughly!
for losses.) Note, in '84, the very "tight" directional rela Then, we began to evolve a concept which proceeded
tionship between gold and inflation. through research and development to culminate in what
2. Next, we come to March of '85. On the 19th, gold I'm sharing with you here: a forecasting system with high
soared from $303 to $339. This huge uptick was again accuracy. Again, complex conventional methods had
responsible for upward breakthroughs in most gurus' disguised a simpler two-key solution. You now have the
momentum lines — ours, too. By April (arrow), just first key — the inflation-predictor. Let's develop the
about every gold advisory in the country had sent a BUY second.
signal.
However, our inflation-predictor told us inflation Anticipating "Causal" Rate
would continue to decline to a pit in September. So, this There is oneprimary interest rate to which all others
uptick had to be temporary. We told subscribers to stay react, and from which all others domino. Nope, it's
"parked" in T-Bills and draw interest. During the next not the discount rate! (That's next in line.) It's the
nine months, there were seven "temporary anxieties" FEDERAL FUNDS RATE. This is the interest rate which
which "hiccupped" gold counter to inflation, keeping it the privately-owned "Federal" Reserve (Fed) charges
in a sideways pattern. We leave sideways, non-profit pat banks for overnight loans in order to cover their reserve
terns to somebody else. We earned 6% in interest, shortages and other indiscretions. The Discount Rate is
instead. for longer-term borrowing and is more time-stable. The
3. I signalled on December 17 to again move into the Federal Funds Rate (FFR) is jockeyed weekly by the Fed.
goldshares, to capitalize on the end of the current infla Of course, a sustained trend-change in the FFR will trig
tion uptick. Also, by this time, inflation had "caught up" ger a change in the Discount Rate, also.
to gold, lending it support, as the anxiety premiums Inasmuch as these two rates are a part of a bank's ex
melted off. Gold was about back to "equilibrium." penses, the bank "adjusts" its CD rates, Prime Rate and
Our inflation-predictor tells us that when the February others, to "pass it along to the consumer." Therefore,
index is released in March, the uptick is over. We sold the bottom line is this: If we want to accurately forecast
out on January 31, just to be sure, for 33% profit in just interest rates, we need to know future inflation and what
about six weeks. The market hasn't looked very good, the Fed might do to the FFR. ("Insiders" who know the
since. Our goldshares sold for $4.71 on 1/31/86 and were latter, do have a "license to steal.") Often, the Fed will
$4.39 on 2/4/86. (In February we bought gold option simply adjust the FFR to accommodate the "free mar-
ketplace" pressures. But there are two exceptions when
they'll intervene to bring the free marketplace trend to
a screeching halt. We need to predict these, too.
When the Fed Intervenes
O n e condition for Fed interference occurs whenever
Ml isn't behaving as they wish it to. Ml is the term
for the aggregate money supply which comprises the most
spendable forms of money. This is currency (about 28%
of Ml) and checking accounts (about 72% of Ml). This
money is "poised" to be spent and ready to influence
the economy. There are also other money aggregates
labeled M2, M3, etc., which begin to include less liquid
(spendable) funds. These include mutual funds, bank
CDs, etc.
The Fed does not print money; only the Treasury can
do that. However, it can strongly influence checking ac
counts (where borrowed funds are first deposited), by
promoting or discouraging credit, via interest rates. The
Fed only contributes directly to Ml by issuing additional
checks of its own to buy federal debt-paper (Treasury
notes, bonds and T-Bills). This is called "monetizing"
the debt. However, this Fed monetization only accounts
for about 30% of Ml. The other 70% results mostly from
new loans extended by commercial banks to consumers
and corporations. This is an important point to
remember. Ml is mostly due to consumer/corporation
behavior, not Fed monetization.
Normally, the Fed doesn't like to see Ml soar, because
that sometimes stimulates future inflation; at least, peo
ple think it does. Nor does the Fed usually like to see Ml
plunge! Contractions are often perceived as inducing
future recessions. However, under certain conditions, the
soars and plunges of Ml are harmless because other fac
tors in the marketplace "neutralize" them. (Most analysts
haven't recognized this.)
For example, there was a huge M1 pump reaching a
13.8% peak in 1983. Another pump hit about 11.8% in
1985. Neither of these have much inflationary effect. That
"extra spending power" won*t pressure prices very much
for the simple reason that there's a surplus of goods to
spend it on. Imports can "soak it up." Also, U.S. fac
tories have plenty of ability to easily provide more goods
if needed (they're only operating at about 80% capacity).
When the Fed fears the economy might slide into a re
cession, they'll let stimulative Ml soar. This encourages
consumers to borrow and buy, buy, buy. (It has also
raised consumer debt levels to alarming proportions.)
Conversely, when the Fed thinks Ml should be checked,
they will shut it down by choking off credit via higher
interest rates. Therefore, it's useful to also chart Mi's
Moving 12-Month Growth Rate, similar to the inflation
Mainline. Moreover, it's worthwhile to keep an ear and
eye open to hints about how the Fed might feel about
current Ml trends.
A second objective of the Fed is to peddle the
Congressionally-induced national (taxpayer's) debt. As
Congress continues to overspend, new federal debt-paper
must be sold. Expiring bonds must be "rolled over." This
debt paper is "non-redeemable, "except for another debt
paper. The Fed is eager to sell these T-bonds, notes and
bills at auction, BECAUSE IT DOESN'T WANT TO
BUY THEM ITSELF! Few analysts have done their
homework on the following point, but consider it
carefully:
PERCENT OF NATIONAL DEBT HELD BY WHOM
Govt. Agencies Federal U.S.
& Trusts Reserve Citizens Foreigners
1973 27.4% 16.8% 43.5% 12.0%
1985 16.9% 9.27 65.0% 11.8%
As you can note, foreigners are not massively snap
ping up the U.S. debt paper, as propaganda might have
you believe. And percentage-wise, the "smart money"
is reducing its exposure. Any analyst who thinks the Fed
is going to massively monetize — for any reason — is
ignoring reality. The Fed doesn't want to monetize; it's
dumping the "old maid" onto U.S. investors, it will
employ every strategy possible to avoid monetizing! And
to keep T-Bills attractive to investors, they must "pro
tect" those interest rates. Forget about all the
"economic" forces acting to lower interest rates. When
T-Bill rates become "jeopardized," the interest rate drop
is ended!
Over time, we've noted a hidden pattern about T-Bills.
Whenever they drop below a certain REAL rate —
nominal rate ("face"), minus the inflation rate — the Fed
steps in quickly to boost the FFR and pull T-Bills back
up. This rate must be the "point" when the Fed begins
to encounter investor-resistance. Currently that "point"
— which we call the "safety margin" or "danger line"
— translates to this: THE MINIMUM ACCEPTABLE
NOMINAL RATE ON THREE-MONTH T-BILLS
SEEMS TO BE THE INFLA TION RA TE, PLUS 3.5%
EXTRA.
Of course, investor-expectations of a 3.5% real rate
could change — depending on folks' comfort or alarm
with a current inflation trend, and depending upon what
they can earn elsewhere. Therefore, the SECOND KEY
I mentioned previously, is to second-guess the Fed
regarding:
• Its concern with the current Ml pattern.
• T-Bill real-rates approaching jeopardy.
These should be charted for a visual aid. The simplest
source for all the needed data — Ml, FFR, and nominal
T-Bills — is a FREE weekly booklet entitled U.S.
FINANCIAL DATA. Using letterhead stationery, order
a subscription from: The Federal Reserve Bank of Saint
Louis, P.O. Box 442, St. Louis, MO 63166.
From that booklet, I've averaged the weekly rates into
monthly rates in order to plot the next chart, #3. The
upper portion charts the nominal rates of the FFR and
Three-Month T-Bills. The center chart is derived by sub
tracting the current inflation rate from the T-Bill nominal
rate, above. The lower chartline is our old friend, the in
flation Mainline, which we'll need as a point of reference
as I walk you through the PREDICTION TECHNIQUE.
Remember that you now "see" this inflation Mainline
six months in advance — through your Predictor.
Once you have these factors charted (and Ml also), you
can begin the process of predicting the interest rate.
Follow along with me.
In early '84, the Fed was not concerned with Ml. It
was nicely declining to neutralize the '83 high. Thus, the
FFR was generally following the rising interest trend of
the free marketplace. Economic recovery was underway
and consumers were borrowing like crazy, thereby push
ing up interest rates. Note that inflation reversed in 4/84,
but interest rates continued upward in a LAG.
By 8/84, the Fed saw inflation had declined for five
months. It also perceived the economy might stall by
1985. At 8/84, Ml had dropped to 5.6% and still had
 CHART #3 Back to our scenario: Through the fall of '84, the Fed
x 111111111111111111 chopped the FFR and it "dominoed" to all other rates.
- FEDERAL FUNDS INTEREST RATES AND ~ But Lo! In December the Fed seemed to get nervous —
12.00 NOMINAL 3-MO. T-BILL INTEREST RATES"
X 1
probably because T-Bill real-rates had lost 2% in four
.50 f \k| months and were racing toward the danger line. Investors
11 nn ' \*%. were probably getting cautious. Therefore, the Fed shut
off the interest rate decline in 1/86. All interest rates
T Yl$
* x "* s ll^~ reversed.
/ *' iA ^ False alarm; stable inflation continued to "rescue" T-
io.oo y-j^* -T\yi% Bill real-rates. (These knee-jerk overkills lead me to
tn V/l/L ^ i\l ^ ""• " "
believe the Fed, itself, does not have accurate inflation-
•50 4_ -VA-&
900:j'I_
9 .00 ^ VA--*-
"3 ' 1
56 ♦! i
predictors — in spite of all their high-priced talent.) With
r1<\ 1^- T-Bills rescued, the Fed resumed its FFR decline in 4/85.
Wham! The T-Bill real rate breaks below the danger
•50 V»w5Sfc
C" * i ♦* \^ j^^"
> line in 6/85. The Fed immediately hikes the FFR, evident
8.00 ~"v> \* . \ >v-^
\T\r ly not knowing real rates are about to be rescued by an
.50 .A imminent inflation decline. With this 7/85 FFR hike,
S - 1"*^ nominal rates stabilize. (All during the latter half of '85,
7'00 1 111 III gurus were insisting that interest rates were about to drop
l l l 1 1 1 1 1 1 1 1! 1 1 1 further. Now^ow understand why they didn't.) By 9/85,
7-00 3-MONTH T-BILLS REAL RATE' you know a four-month inflation uptick is coming.
(NOMINAL RATE MINUS INFLATION) '
.50 • ' l_ Evidently the Fed didn't; real rates broke below the
, «- / \\ danger line again in 12/85, and the Fed again immediately
6,00 ~2jr " "~ "' ~ ' knee-jerked with a FFR hike. As the real rate declined
f \ further in 1/86, the FFR was hiked again. So, where does
-A \ the Fed go from there?
¥ \
5.00 \'~" t ™~ " A ••*•-
This rather encapsulates the dilemma of the Fed. And
.50
\r
T
i\ #f \\ it rather shoots down any hopes for much more drop in
\ interest rates — unless investor-expectations decline re
A.00 "" \ ^^^K.
garding real rates. The Fed must peddle the old maid.
\ -J iV. Next, let's go make a bundle of profits with this new in
....DANGER LINE- — *^ • • —- -^V- •
-> njx 1 1 1 I- 1 • 1 terest rate-prediction skill of yours.
i.uu MIM
5 00
5.00
1 11 111111
CPX.U INFLATION
Profiting From Predictions
.XTS.
Actually, I'm going to combine the application of
r ^^ interest-rate predictions with the previous example
Til r*"s. i on inflation-prediction in order to illustrate how you can
° 1 iS. /I work them both into a single, veryprofitable system. I'm
.n ^o^vc ^^-^^H^Su / going to use mutual funds as my "vehicle," because —
^"^J \y
i nn "'" CRoLfT»
3.00 iT"^^ " after gold — that's my other specialty. However, if you're
en - 1j
a stock-advocate, you could purchase individual stocks,
.50 instead of using the specialized mutual fund portfolios.
1
2.00 -j- I like mutual funds because I prefer low time-demand,
JFMAMJJASONDIJFMAMJJASONDIJ
minimum fees, high liquidity, safety, low downside risk,
198/« ' 1985 ' simple mechanics, modest expertise, self-management and
high profits. A good mutual fund switch-system provides
all of these. I doubt that I'll ever utilize a stock broker
the inertia of a further decline. They decided to stimulate again.
Ml (mostly credit) by engineering cheaper interest rates. To work our profit-producing predicting timing, we'll
Additionally, declining inflation would add a natural want to find some mutual fund portfolios which are en
downward pressure to interest rates. As usual, the Fed tirely specialized in:
"over-killed" and executed an overly severe FFR drop. • Gold mining shares — so we can capitalize on our
T-Bills, CDs, Prime and Discount rates all plunged inflation-production system.
dramatically from 9/84 through 1/85. • Utilities stocks (or a bond fund as second choice) —
Consider for a moment, if you will, this interest rate to profit on our interest rate predictions. These two
peak of 8/84. Many analysts were advising that the rise items move inversely to interest rates, rising as rates
would continue. But you would have known better. You fall.
already saw five months of inflation decline behind you, • A money-market fund to "park" in when both of
and your inflation Predictor at that point reveals six more the above are moving sideways or are in a decline.
months of inflation decline ahead of you. Interest rates We want a mutual fund with internal switch-privileges
have got to break downward; you're just waiting for the between portfolios. These funds with "families" of
lag to die. Knowing this, wouldn't you have delayed switchable sub-portfolios are called "Sector Funds,"
taking any new mortgage for a few months longer, con because each portfolio specializes in a different sector.
fident that a decline in the mortgage rate was going to To maximize profits, you'd want to know which com
save you thousands of dollars? (This is one of those life- pany had the best-performing portfolios in each of the
planning applications.) categories above. Then you'd bounce between companies,
as well as portfolios, when the timing was right. For
example, the goldshares portfolio of Fidelity — but
Fidelity has a utilities portfolio, and United Services
doesn't. However, to eliminate the extra procedures of
transferring between companies, I'll use the easier exam
ple of just playing the portfolios of the same company.
(Nevertheless, remember that we could have profited fur
ther if we had elected to be a bit more active and transfer
between companies.)
Fidelity's family of switch-portfolios is called Fidelity
Select Portfolios. In that family are about 23 specialized
portfolios ranging from defense companies to retailing
companies (and including portfolios for computers,
health care, life insurance, and airlines). However, we're
only interested in the three: precious metals, utilities, and
Never be an earlybird into the
marketplace. Always be a latebird! Wait
for the "Reversal Break."
money market fund. We open our account on January
1 of 1984. Or, rather, we open two accounts — one for
"regular" investment funds and the other for our IRA.
Fidelity charges us 2% of our funds as a sales commis
sion for joining the company. It will charge us another
1% "exit commission" if we ever leave it. However, there
will be no commissions charged to switch internally be
tween their 23 Select Portfolios. It's like having a
commission-free broker.
In Chart #4, I've plotted the essentials for tracking our
profit-switches according to the two new predictive
abilities you've just acquired for inflation and interest
rates. For interest rates, I've plotted the 90-day bank CD
rate. As a time-deposit, the CD rate is higher than any
wisdom" about always being an earlybird, and buying
when "blood is running in the streets." Well, let me tell
you; if you do that, one day some of that blood is going
to be your own as the investment continues to move
against you.
The "reversal penalties" are generally small compared
to prematureness penalties. In this case, if you had gone
directly from goldshares into utilities, you'd have spun
your wheels for five months and lost interest. Remember,
these percents compound upon each other.
Nevertheless, at this point, we're getting antsy. Our
inflation-predictor sustains in a "healthy decline." Then
BANG! In 8/84, we get our reversal-break in the interest
rates. We pick up the phone and instruct Fidelity to shift
our accounts into the utilities portfolio (downward ar
row). Don't forget, our IRA is tagging along, too; only
none of these profits is going to be currently taxed in that
fund.
The utilities have already started upward with the in
terest decline. As rates decline further, the utilities will
soar — although they "stutter" when the Fed hikes its
FFR in 1/85. (Refer to Chart #3.) Utilities continue up
ward, then suffer a reversal-break in 7/85. A Chart #3
analysis tells us the FFR was hiked again, and the real
rate on T-Bills is about as low as the Fed dares to let it
go. THE INTEREST RATE DECLINE IS OVER! Obey
the utilities reversal-break and bail out back to the money-
market fund (downward arrow). Our profit on the
11-month utilities ride: 26.0%.
CHART #4
~~F I 1 1 1 1 "I 1T 1 1 1 1 1 1
90-UAY BANK CD INTEREST PERCENTS X
12.0
- -

SELECT UTILITIES SHARE-VALUE (S)

MOVING
— - -

.6
- -

lZ-MONTH INFLATION PERCENTS

mutual fund's daily money-market fund. However, I 1 1 II | l II ll
.6

prefer to chart the CD rate because (1) As a "public" 23 kl— A

rate, it's more sensitive to the "marketplace," and, (2)

"// £/ »_
• = INVESTMENT MOVES
— /
t _
.2
11.0
—

£ i
These weekly rates are also conveniently included in the 22 .8

M t
- - - - - -
- -

- -
.6
U.S. Financial Data booklet. At the end of our exam .4
l
-

ple, though, I'll use Fidelity's actual rates in computing 21

. £ IL .2
$
10.0
our profits. /? / -
/ .8
The dots along that CD line represent the toll-free 20
/ \ .6
{
/Vl .4
phone calls we're going to make in order to switch be -

4d \ t'
f
- "

w .2
tween our 3 portfolios during the following 25 months. 19
i
f 9.0
V"
-

Notice they total six. I doubt that three phone calls a year .8
-•
-V // .6
is going to place much strain on anyone's time-demands. 16
V' .4
As our scenario opens, we're poised in Fidelity's •C
- .2

4'4
i _
8.0
money-market fund — drawing interest and awaiting a
- - - - -
-
- -

17 -
t .6
f*»
goldshares "buy" signal which should accompany the ris i *• /
.6
.4
ing inflation rate our Predictor already has charted for 16 -
.2
us. My newsletter preselected the dates of 1/18/84 for -
-
-

. & JL
7.0
.8
"buy" and 2/16/84 for "sell" (dots). Phone calls move .N>..f } .6
15
tf\/
-

you in, then out and back to the money-market fund. -> —

.4
1 /
Profit for the 30 days in Fidelity Select Precious Metals? V \ y
.2
14 6.0
14.2%. - -
.8

At that point, we "see" a six-month inflation decline. - - - — .6

13 .4
That will be bad news for precious metals, but it should .2
pull those high interest rates down once the "lag" runs 5.0
.8
its course. We're enjoying a bit of that interest rate up -

.6
-

'/ - -

tick as we sit parked in the money-market fund. Should .4

we move into the utilities now? The answer is "NO!" -

bUi^Mr .2
s L i r . f l•RCfJiZ 4.0
We can't know how long the interest rate lag will sus \ .8

tain. We could be far too premature. Here's a rule of -

.6
.It
thumb for that: NEVER BE AN EARLYBIRD INTO _

- - .2
r»
THE MARKETPLA CE. ALWAYS BE A LA TEBIRD! t 3.0

WAIT FOR THE "REVERSAL BREAK." JFMAMJJASOND JFMAMJJASOND j

1984 1985
I know that runs counter to the "conventional
 At this point, 7/85, our inflation-predictor reveals a
four-month uptick coming soon. Thus, we "coast" in the
money-market fund waiting for it. Gold stays overpric
ed by some crises during much of that inflation uptick,
but you'd know enough to take advantage of at least the
tail end of it. Because my newsletter sent pre-selected
dates of December 17 for "buy," and January 31 for
"sell," you figure those dates are as good as any. You
phone in to switch over to Select Precious Metals — then
out again later to retreat once more to the money-market
fund (dots). Profit in 1 Vi months: 22.7%.
Parked again in the money-market fund, there don't
seem to be any imminent switch-opportunities. T-Bill real-
rates indicate that general interest rates aren't going to
move much lower, and that takes the allure out of
utilities. The imminent deflation trend for the next half
year or so is bad news for gold. The stock market has
gone wild, but the steam might be going out of it. Pa
tiently parking in the money-market fund is the safest bet.
(However, if you're willing to learn about Comex gold
options, you might buy some 7-month "PUT" options
and bet on gold to decline with inflation. We did.)
You might have noticed that utilities "double-crossed"
us, resuming their rise. But they're moving counter to
their normal interest rate pattern. Part of this is due to
a general stockmarket rise (which usually lifts all stocks),
but the major impetus has been a continual barrage in
the media about how interest rates must drop further.
Those haven't, of course, and you know why — FFR pro
tection of T-Bill real-rates. Thus, utilities are speculatively
overpriced, unless the imminent inflation decline rescues
T-Bills enough to lower FFR interest rates a bit more.
We don't begrudge "lucky" moves like that. We're con
fident of sticking to our Predictor-System. Besides, we
more than made up for that "utilities luck" with our
January goldshares move.
By the way, how did we do during these 25 months?
Without deducting the one-time fee of 2% to enter Fideli
ty, the moves themselves accumulated a profit of 91.6%
— almost doubling money. Was that a "good" profit?
Well, to appreciate it, you need to assess three factors:
1. You'd only have made six phone calls to produce it.
2. You'd have spent 11'A months of that time, parked
in a modest-return money-market fund.
3. How did the professionals do over the same span?
Hulbert Financial Digest tracked the profits of 49
newsletter gurus during those 25 months. Only two
would have outperformed you; most didn't do even
half as well. Keep in mind that these are expensive,
prestigious gurus armed with staffs, computers, in
side information and sophisticated techniques. Yet,
you would have outprofited 95% of them - most
by a wide margin. By exceeding the equivalent of
35% per year, compounded, you'd deserve a
pedestal!
And remember, you could have done even better if you
had moved between mutual fund companies. As a final
note, you also could have limited "downside risk" to any
level you wish - 10%, 15%, 20%. If shares drop to your
"safety limit," you simply phone-in and switch back to
the money-market fund. Share values are published dai
ly in the papers.
With this much profit accumulated, you could "sit
out" the next three years in an 8.5% bank CD ~ and still
attain the target of an average 20% per year, compound
ed, over time. However, we'll surely have other similar
switch-opportunities during the next three years. You'd
never drop to the 20% per year level.
To this system of predicting inflation/deflation and in
terest rates, you can "attach" other techniques as profit-
enhancers, such as:
1. Researching what types of porfolios profit well when
interest rates rise.
2. Researching which types of portfolios do best when
the DOW rises.
3. Learning how to predict which gold funds will pro
fit most on the next uptick. (We've already perfected
this one.)
What I hope I've given you here, is the "bones" upon
which to build a lifetime prosperity system.
HOW TO BE YOUR OWN GURU ON PRECIOUS METALS
EDITOR'S NOTE — Dr. Moore has done it again. This
time he has invented another nitty-gritty investor tech
nique: the TRI-METAL RATIO INDEX. In his article,
Dr. Moore analyzes why gold has violated all its fun
damentals to move upward. But more than that, he has
supplied a valuable, practical visibility tool that enables
the investor to immediately ascertain daily shiftings in the
metals market — with simply two quick calculations that
take only 20 seconds. Who could ask for anything Moore
from this fascinating man who is erudite and also ex
tremely interesting.
I f you invest periodically in precious metals, here's
another analytical tool to add to your arsenal of
decision-information. For a simple technique, it packs
a lot of punch. It can:
• Spotlight which metal is currently dominant . . .
"leader of the pack." This is the metal most likely
to experience the greatest profit percentage in an up-
cycle, and the greatest loss percentage on the
downcycle.
• Help assess to what degree each metal is influencing
the others.
• Focus price-cause analysis where it belongs — on the
dominant metal.
• Anticipate the likely effects when an uptrend reverses.
• Identify the points when metals should be exchanged.
Pressured to explain why silver, gold or platinum prices
are rising or falling, analysts and advisors sometimes get
trapped into assuming, misinterpreting, mistaking or im
agining supply/demand factors which supposedly account
for pricemovements. However, the metals can also move,
not on their own merits particularly, but because they're
hitch-hiking — upward or downward — on one of the
other metals.
Therefore, examination of price movement alone —
and those pretty charts it creates — often provides an in
complete picture of precious metals analysis. Also need
ed is a careful study of relative strength . . . comparative
dominance of each metal at any point in time (or price).
Of course, we could do this in terms of relative price com
parison, continuously calculating how each metal is ris
ing or falling in terms of percentage of price-change. But
I prefer simpler, "quick 'n dirty" tools which give me
the same nitty-gritty information. That's why we de
veloped the TRI-METAL RATIO INDEX (TRI). The
TRI is easy to master, quick to derive, easy to track, and
will help you become your own guru regarding precious
metals. Moreover, it will put the lie to a good deal of con
ventional and contrarian "wisdom" as to why precious
metals move as they do.
Basic Demand Factors
T o become your own precious metals guru, you
naturally need to understand the different demand
factors underlying each of the three metals. These can
shift and change. I'll oversimplify them and label silver's
as industrial / monetary / ornamental; gold's I'll lump
as monetary / ornamental; platinum I'll categorize as in
dustrial / ornamental. Using these terms helps you spot
some similarities and differences between the three
metals.
Thus, you can conceptualize that a rash of bank
failures would send folks scurrying to buy gold and silver
(monetary), but not platinum. Industry-related factors
(different industries) might pressure the prices of either
silver or platinum — but seldom gold. High jewelry
demand could affect all three.
Additionally, however, we need to evaluate another
factor which very seldom receives much publicity. Let me
coin a term and call this the Hitchhiker Syndrome. It is
a "sympathy premium" which each metal lends to the
others as a "gift." To understand this syndrome, we need
to examine the relationships between silver, gold and
platinum.
Understanding Relationships
Ilike to regard the three metals as "the classic Love
Triangle." Silver and gold are in love with each other,
and they interrelate very strongly. Gold and platinum also
have a "heavy" thing going, whereby platinum is com
peting for gold's affection. Platinum and silver, however,
usually have very little to do with each other . . . except
as they "translate" distantly, through gold as the
middleman.
Some of this lovers'-triangle relationship is due to
similar or different demand factors; some is due to similar
or different supply factors. At any rate, we get a "con
nection" like this:
SILVER GOLD PLATINUM
Identifying Dominant Metal
In most relationships, partners take turns being
dominant at different times, in different activities, or
in different situations. The same holds true within the
tri-metals complex. Of course, we can't establish what
constitutes dominance, or out-of-balance, until we can
first identify or define "equilibrium." This is a "new
age," socially, spiritually, geophysically and economical
ly. Therefore, "historical" equilibriums — ratios — be
tween the three metals, aren't worth the paper they're
recorded on.
Relative scarcity is no guide either. More than 90 per
cent of all gold ever mined, still exists in someone's
possession. Yet, it would all stack only three feet high
on a single football field. On the other hand, all the
platinum ever mined would only fill two average-sized
bedrooms. But much of that has vanished. . . consumed
in auto mufflers, chemical reactions, etc. Yet, the two
metals are often priced the same. So much for relative
scarcity or rarity.
We can, however, establish a contemporary
equilibrium or norm. I'll introduce that later. First, I
think it's instructive to examine the actual shifting pat
tern between the metals, on a progressive basis.
Constructing the Index
The "anchor man" in this index is gold; specifi
cally, the spot price of one ounce of gold. Now, for
our ratio purposes, we're not concerned whether that
price is falling or rising. We only need to know what the
price is. For the same period (daily close, weekly average,
monthly average), we need to also know the per-ounce
spot price of both silver and platinum. Then, both silver
and platinum prices are divided into the gold price. This
ascertains how many ounces of silver or platinum could
be bought for the price of a gold-ounce (minus dealer
fees). Thus, the TRI ratios are in terms of "equivalent
ounces." Because the gold-price is always our "bench
mark," its ratio factor is always 1.00.
Most metals advocates are already familiar with this
procedure, to derive the popular silver/gold ratio. The
same procedure is simply extended to platinum. Ideally,
the ratios would be calculated by using the closing spot
prices for each metal on each Wednesday. (Mid-week
benchmarks neutralize the Monday/Friday anxieties
which sometimes occur in the marketplace.(Such a week
ly sampling would "fine-tune" the timing of certain in
vestment moves.
In the table which follows, however, I've used a
modified method of recording ratios. The silver-to-gold
ratio is derived from the monthly-average price of both
metals. Those monthly-averages, of course, are con
structed from the closing spot prices on every day of the
month. Thus, the table's silver/gold ratio is rather
precise. For us, it was merely convenient because we
already construct this figure for other purposes.
The platinum-to-gold ratio is much less precise. The
figure used, simply compares the closing spot prices of
the two metals on a single day of the month . . . usually
the final Thursday or Friday. Nevertheless, this
"rougher" ratio is sufficient for trend-tracking. In the
table, I've segregated the January benchmarks for the 7
Pinpointing Leader
A t the "panic peak" of l/'80, gold and platinum
were almost 1-to-l, platinum having become
gradually cheaper relative to gold (which would buy more
of it). Silver, however, was at an historic "overvalue."
A gold-ounce price would only buy 17.7 ounces of silver.
These ratios make it visibly evident that silver is highly
dominant among the three metals.
During the following four Januarys, platinum becomes
even cheaper, relative to gold, while silver falls back, with
a slight surge in l/*83. By l/'85, gold is where the action
is; both silver and platinum have become relatively
cheaper. A gold-ounce will buy more of both. This trend
continues until 8/'85 when, suddenly, platinum drops
from 1.17-to-l, to even-steven. After stuttering a bit to
assimilate this change, platinum becomes "boss" in
11/'85, while silver continues to erode in relative strength.
At the final point in the table, platinum has become the
most expensive, relatively, since 1978. Platinum is king!
Looking for a Norm
mentioned earlier that we establish a contemporary
norm, or equilibrium, to answer the question, "When
is a metal out-of-balance" or over/undervalued?" For
this norm, we calculate — from the monthly TRI figures
— a Moving 24-Month Average. Then that is compared
to current ratios. Here's how 8/'86 compared with its
two-year average:
SILVER GOLD
PLATINUM

years of '78-'84. From there, I've proceeded with month Moving 24-Month Average 55.2 1.00 .99
ly ratio progressions. Current (8/'86) 72.2 1.00 .63

Compared to the 24-Month Average, silver is a big

TRI-METAL RATIO INDEX
bargain, and platinum is much too expensive. Of course,
(Equivalent Ounces For The Gold-Ounce Price) they may stay that way, or get even more so. Ratios,
DATE SILVER GOLD PLATINUM alone, do not justify buy/sell decisions. But such visible
1/78 35.1 1.00 .86 distortions do focus us toward investigating the correct
1/79 36.3 1.00 .76 causes for such deviations.
1/80 17.7 1.00 .97
1/81 37.8 1.00 1.05 Interpreting Causes
1/82 47.8 1.00 1.03
First, let's go back to l/'80. Inflation was 13.9 per
1/83 38.7 1.00 1.04
cent. Many gold analysts still mistakenly attribute
1/84 45.7 1.00 1.00
gold's $850 price then, to inflation. (The January monthly
average was only $676.) There were, however, six price-
1/85 49.7 1.00 1.10
determiners pressuring gold at that time.
2/85 49.3 1.00 1.15
3/85 50.6 1.00 1.16 1. Inflation
4/85 50.3 1.00 1.15 2. Iran taking U.S. hostages.
5/85 51.0 1.00 1.19 3. Oil-price escalations.
6/85 51.4 1.00 1.17 4. The Soviet Afghanistan invasion.
7/85 52.1 1.00 1.17 5. Gold compensating for an old $35.
8/85 52.8 1.00 1.00 6. Bunker Hunt speculating in silver.
9/85 53.4 1.00 1.05
10/85 52.7 1.00 1.00 Of these, inflation was minor; the Hunt silver specula
11/85 53.0 1.00 .94 tion was the most important. (Remember the silver/gold
12/85 54.7 1.00 .98 "lovers" relationship. Silver, at that historically unusually
low ratio of 17.7, pulled gold along with it! Although
1/86 57.1 1.00 .95 gold did have some of its own merits contributing to its
2/86 57.8 1.00 .87 price rise, probably about $200 of its price was due to
3/86 61.2 1.00 .82 the hitchhiker syndrome, a sympathetic reaction to
4/86 65.2 1.00 .83 silver's meteoric rise. For analysis purposes, we might tag
5/86 66.9 1.00 .83 that $200 as a "false premium."
6/86 66.5 1.00 .79 Those analysts and chartists who profess that another
7/86 69.3 1.00 .78 13.9 percent inflation rate will again create $850 gold,
8/86 72.2 1.00 .63 are in error. We'd need five other factors — with
10
 magnitudes similar to 1980 — to go along with inflation.
Such a combination of events may be non-repeatable.
At any rate, noting how unusually dominant silver
was in l/'80, competent analysts should know that gold
carried a hefty, sympathetic silver premium. Platinum,
gold's lover on the other side, also benefited slightly with
a premium effect from gold. When silver collapsed, it was
destined to drag down the other two metals — no matter
how good their own fundamentals were. And that's
exactly what happened. Silver folded before the other fac
tors. And even though some of those factors — like infla
tion — actually worsened, gold and platinum plunged
along with silver. In that plunge, the dominance factors
adjusted within the lovers' triangle, and by l/'84 we had
a new equilibrium which varied little for the rest of that
year. So, gold hit $850 in l/'80 because of silver.
Now, let's jump ahead to the current scenario, at the
point of 8/'86 in the tables. With platinum dominant,
and also rising in price, it's pulling its lover, gold, along
with it, (although not to the same percentage). In fact,
gold is following platinum upward contrary to its own
fundamentals — severe declines in inflation and oil prices.
(Now you know why gold "doublecrossed" all its
negative fundamentals.) Really, gold is not in its own bull
market; it is caught in a platinum bull market.
Gold has, in turn, lent at least some support to its other
lover, silver... at least enough to keep it from crashing
back to $4.50 which it really deserves on its own fun
damentals. Analysts are scrambling to justify gold's rise
in terms of new coinage demands, jewelry-use increases,
etc. The truth of the matter is that gold is wearing a
platinum premium of significant magnitude. Ironically,
the market is now in exactly the opposite mode it ex
perienced in 1980 (which few analysts understood then,
either). Below are the ratios for l/'80 and 8/'86, each
accompanied by their ratios one year earlier.
SILVER GOLD PLATINUM
1/79 36.3 1.00 .76
1/80 17.7 1.00 .97
8/85 52.8 1.00 1.00
8/86 72.2 1.00 .66
From '79 to '80, silver grew more expensive and platinum
grew cheaper. From '85 to '86, the reverse occurred.
Premises to be Drawn
With the TRI to tip you off as to when one of
the metals is really out of whack — compared to
its 24-month average — you can rely on the following
two ground rules:
1. Always be in the dominant metal during an upcycle.
It will gain by the greatest percentage.
2. When a dominant metal declines, the other two
metals will decline with it — due to their sym
pathetic premiums — unless they suddenly develop
stronger fundamentals of their own.
From 8/'86 on, platinum could go even higher, and
exert its dominance more. It has alreadyrisen higher than
projected usage increases justify. The current speculation
11
is riding on fears of supply threats. And most of that issue
is political m nature and very "iffy." The current market
is a crapshoot.
A Side Bonus — Swaps
This is only a strategy for those longer-term holdings
of precious metals, but it's highly profitable. When
the ratios reveal one of the metals is really taking a
beating, you should convert your holdings into that
weakest metal. Then, as the ratios shift over time, you
swap into the metal which next becomes weakest. In the
following example, I've illustrated some advantageous ex
change points. Rather than using the best daily ratios,
I used monthly averages. Nor did I capitalize on all the
possibilities. I also assumed you added no money during
this process, giving the dealer, instead, 8 percent of your
metals as his exchange commission.
Let's suppose that in l/'78 you decide to purchase a
permanent security position of silver (which was $5.00
at the time). On a per-ounce basis, the ratio was 35.1,
to gold. During l/'80, when gold gets much weaker, you
decide to swap into gold. And from that point on, you
exchange occasionally as one of the metals periodically
takes its licks.
1/78 Purchase 35.1 ounces of silver
1/80 Trade 35.1 oz. silver, minus 8% dealer fee = 32.3 oz.
Swap into gold at 17.1-to-l = 1.82 oz. of gold.
6/82 Trade 1.82 oz. of gold, minus 8% dealer fee = 1.67 oz.
Swap into silver at 56.5-to-l = 94.3 oz. of silver.
5/83 Trade 94.3 oz. of silver, minus dealer fee of 8% = 86.7 oz.
Swap into gold at 33.8-to-l = 2.56 oz. of gold.
8/86 Trade 2.56 oz. of gold, minus 8% dealer fee = 2.35 oz.
Swap into silver at 72.2-to-l = 169.6 oz. of silver.
Unfortunately, in 8/'86, silver is 5////at $5.00. So what
did you gain?
l/'78 Start with 35.1 oz. of silver at $5.00 =$175.50
8/'86 Own 169.9 oz of silver at $5.00 =848.00
Remember, 1) You added no money, 2) The price per
ounce did not improve. Yet, you show a profit of +
383% over eight years and eight months. That's 16.7per
cent compounded annually. What else did you invest in,
which almost quadrupled during that span? And
remember, that current evaluation is with silverin itspits.
These metals are bound to shift ratios forever, inasmuch
as each has different fundamentals. There may be few
long-term investments more profitable than merelylazi
ly metal-swapping.
Wrapping It Up
I hope I've demonstrated the value of assessing
ratios as wellas prices — for analyzing relationship
premiums, establishing ratio swap-points, evaluating
casual fundamentals, and identifying the most profitable
metal. My own newsletter, Your Window Into theFuture,
updates the TRI monthly, along with its two-year
average. Additionally, we incorporate considerable other
data, forecasts and commentary pertinent to precious
metals, mutual funds, inflation and interest rates.
 HOW TO MAKE MORE MONEY WITH GOLD FUNDS
EDITOR'S NOTE — Dr. Moore is back again — this
time with another article that is destined to become a
classic. The following article, as far as we know, con
tains more information on more gold funds than has
previously ever appeared in one place. Even more impor
tantly, Dr. Moore fs article reveals a classic method ofpre
selecting the funds which will be the most profitable on
the next economic advance. Read this article, study it —
and then prosper from it.
W h y invest in mutual fund gold funds? High pro
fitability, that's why! When these gold funds do
move, they leave the stock market in the dust.
During the four years of 7/82 through 6/86, my news
letter recommended five specific moves in and out of a
single mutual fund gold fund. Those moves produced a
profit of +200%. That equates to an annual gain of 50%,
simple, or an average of 31.3% per year compounded. . .
which I think is a fairer method of stating profits. Put
another way, we tripled out money in four years. You'll
look long and hard to find a stock advisor who made that
kind of a gain during those four years. Additionally, our
IRAs shared in that 31% annually compounded yield.
Liquidity is the only defense against
volatility. Being able to get *'out'' quickly
is the ultimate protection against surprise.
Was this a rising tide? No! The share-value of that
mutual fund was the same at the end of that four years
as it was at the beginning. This demonstrates that the
"buy and hold" philosophy would have been a waste.
Indeed, this decade and the next (at least) have acquired
four distinct "personality traits": UNCERTAINTY,
SURPRISE, VOLATILITY and FEDERAL INTER
FERENCE. Aberrant, volatile cycles are now the norm.
There are, in my opinion, no more stable, long-term in
vestments. (There may not even be a long-term economy.)
Why buy and hold, ride a nice profit cycle upward,
and then find yourself locked in to lose it all by riding
the subsequent downcycle? All investments now have
three priority criteria: liquidity, liquidity, liquidity.
Anyone trying to interest me in an investment for the
"long haul," is going to experience a very short conver
sation. Liquidity is the only defense against volatility. Be
ing able to get "out" quickly is the ultimate protection
against surprise.
The mutual fund gold funds possess liquidity as well
as profitability; money can be wired directly back into
your checking account within 48 hours. The two "keys"
for profiting in the gold funds are:
1. An accurate timing system for predicting when upcycles
will occur. In investments, timing is 90% of the game,
if profits are expected.
2. An analytical technique for reliably predicting which
of several similar types of investments will be the most
profitable on the next upcycle.
Our timing-system is too expansive to detail in anything
smaller than manual-size. But I can quickly show you how
12
to predict the next most profitable mutual fund gold
funds.
Technique Will Transfer
Moreover, I'm reasonably certain that this profita
bility-predictive technique will transfer for applica
tion to some other types of mutual funds or individual
stocks, particularly those which possess some kind of
"leverage" (Beta) against a commodity or product. You
analytical types might want to explore this possibility rele
vant to the kinds of investments in which you choose to
specialize. I'd certainly be delighted to hear from you if
you discover other applications.
The first element of assessing the gold funds' future
profitabilities is a quick process of "elimination." With
a few questions to a fund's representative (or by review
ing a prospectus), you can quickly identify some funds
as future "also-rans" without even bothering to conduct
a price-history analysis. The principles behind these ques
tions evolved from our years of specializing in and analyz
ing gold funds. I simply label these as "neopremises."
These will guide you to a quick elimination of mediocre
funds and the analytical identification of superior funds.
NEOPREMISE HI:Never invest in a goldfund which
holds bullion in its portfolio. Bullion holdings act as a
drag on both the profits and the losses of a gold fund.
You're not interested in minimizing the losses during a
decline because you shouldn't be in the funds during
declines. But you do want to maximize profits during the
upcycles. Bullion serves as a deterrent. Frequently
(although not always) gold mining stocks are "leverag
ed" against their product — bullion. Therefore, we want
to select a gold fund which is completely invested in gold-
oriented stocks. (All of them do keep a small portion in
liquid bonds, for redemptions.)
Some conservative gold funds — such as Bull and
Bear's Golconda — insist in holding a sizable chunk of
bullion. While they seldom lose as much as the others
during a downtick, they areperpetually among the poorer
performers during upcycles. You can note this in the
tahles to follow.
NEOPREMISE #2: A void goldfunds which are heavily
invested in North American gold mines. There are
relatively few good mines in the U.S. and Canada.
However, mutual funds must, by regulations, diversify.
Thus, when they hold shares of 30 or 40 North American
mines, they diversify into mediocrity. This, too, will
become evident in our tables as a profit-deterrent. The
most desirable funds are those which invest heavily in
South African mines. I realize there is a great deal of
negative propaganda being circulated about South Africa
at this time. But don't be particularly alarmed. The South
Africans deserve investment because:
1. Those mines, as a grouping, are the most profitable
in the world.
2. The overwhelming majority of black South Africans,
themselves, want the U.S. to invest in South Africa,
despite the sanction-efforts of our liberal-left socialists
who are determined to impose their outside viewpoints.
Blacks moved into South Africa (the whites were there
first) because of the jobs created. South Africa never had
slavery. The blacks are free to return to their homelands
any time that discontents exceed the desire for jobs. Apar-
 theid is an important question, but it is being used as a
screen for the major problem — attempted overthrow of
the South African government by the radical black marx-
ists. However, the blacks have seen what has happened
in the homelands that have been taken over by the black
marxists. There is neither equality nor freedom.
Most of the blacks killed in South Africa are killed by
other blacks terrorizing the majority who would rather
work for peaceful solutions and resist a revolution.
Because the blacks want us to help them keep their jobs,
I see no moral validity in insisting we know what's bet
ter for them than they do.
3. The South African government is not naive. It
recognizes the major threat — though it doesn't under
stand why our politicians and media seem obsessed by
the secondary issue only. Because South Africa's gold ex
ports are their bread and butter, the mines represent a
national asset. Thus, these will receive all the security they
need in order to maintain operations beyond a few brief
"holidays." These are the best mining stocks to own...
when the timing is right.
NEOPREMISE #3:Forgetabout evaluating goldfunds
on any calendar basis, such as one, two, three or four-
year histories. That type of conventional measurement
creates distortions. Calendar periods often "catch" a
fund in the middle of an uptick or decline. Moreover,
a fund may have very recently changed its stock-mix for
better or for worse. Thus, calendar-spans can become
suddenly irrelevant.
NEOPREMISE#4; Continuallyisolate the goldfunds'
performances into upcycleand downcyclesegments. This
is the major neopremise. Almost all the gold funds will
peak and pit within a few days of each other. For pro
fits, you want to invest in upcycles only. Let somebody
elsehave the sideways movements and declines, while you
go park at interest or switch into something more pro
fitable. During our four-year performance which I
previously mentioned, we were "in" the gold fund cycles
only 40% of the time . . . and parked at modest interest
during 60% of that span. All of the funds I'll mention
offer a money market fund to switch into when timing
dictates you should get out of the gold funds.
Our up/downcycle analysis is also a tip-off as to how
well a fund manager is manipulating his stock-mix. If he's
weeding out the "dogs" and selecting good placements,
that fund's "ranking" against his competitors will im
prove. Again, the tables will illustrate this.
NEOPREMISE #5: The goldfunds which lose the most
on the current downtick, willprofit most on the next up
tick. This is the golden nugget, the major indicator. Yes,
I know it seems illogical. But if this were a logical world,
we wouldn't be invested in T-Bills which finance the very
federal overspendingwe claim we deplore. This up/down
paradox exists because mining shares are usually leverag
ed against bullion. Therefore, the heaviest winners in the
upcycle also become the biggest losers in the following
downcycle, and vice versa. Five years of analyzing many
cycles has revealed this to be consistently true — with one
exception.
Very occasionally, a fund will massively alter its stock
mix very near the end of one of these cycles, when the
performance for that cycle is almost complete. Then, in
the following cycle, its performance is not proportional.
The notable instance of this was when several mutual
funds yielded to the apartheid/divest propaganda and
sold off their South African stocks in favor of North
American replacements. This move absolutely slaughtered
13
their profit performance on the next uptick. I'll pinpoint
that, later.
Examine the Tables
Ihope, by now, you're eager to get a view of these
tables. Let's start with the General Information Table
on 15 mutual fund gold funds. Because of the comprehen
sive information it contains, you may wish to save it for
future reference to phone numbers, loads, sizes, etc. This
data constantly evolves and changes, but this table is an
excellent benchmark.
The status of "unacceptable" which I have applied to
some of the funds is purely a matter of my personal
preferences. I "disqualify" a fund if it possesses any one
of the following characteristics:
1. Holds any bullion in the fund. (There's no telling
when they might want to increase that amount.)
2. Requires that I place my buy/sell orders through a
third party broker, rather than permitting me to call the
fund personally. (I find time-lags and dependencies
objectionable.)
3. Its performance is perpetually poor or mediocre.
(This generally denotes flawed fund-regulations or profit-
restrictive philosophies.)
I am not concerned about "loads" (fees) if the fund
is very profitable and the upcycle looks like it will en
dure long enough to amortize those fees, with bonus pro
fits left over. Strategic Investments would be an exam
ple of this. However, when our predictive-tools indicate
a very short uptick, I prefer to stick with the no-load
funds.
Note the asset sizes. We are not talking about a penny-
ante market here, particularly when these funds hold but
a fraction of the mining stocks outstanding worldwide.
And these assets exist when astute investors shouldn't be
in the funds (in a decline already four months old). As
a last point, you'll note that this list represents a mixture
of "old timers" and "new kids on the block."
Table #2 proves the points I previously stressed.
Because many gold funds are relatively new, they have
no history to rank in some of the early columns. In those
instances, I've merely inserted a NOS (Not On Stream).
I've not bothered to add dividends to these percentages;
they're derived from share-values only. (Inclusion of
dividends would favor the South Africans further, but
also enrich all the profit percentages shown).
First, let's take a quick glance across the columns of
this table in support of my neopremises.
1. The funds which have continuously "pledged their
allegiance" to South African shares (United Services Gold
Shares, and Strategic Investors) provide the one-two
punch all the way across the table.
2. Most funds decline proportional to the steepness
with which they rose.
Next, let's zero in on only the two upcycles.
1. Gold funds typically profit more than bullion in the
same uptick. All the funds did better than bullion, par
ticularly when some have no commissions and bullion
does.
2. Most of the funds with bullion holdings (Lexington,
Keystone, Bull and Bear and Oppenheimer) rank lower
in profits on the upticks.
A further point to note, is how the changes in upcycle
or downcycle percentages can tip off some shifts in stock-
mix within a single portfolio. In column #3, we see that
Financial Programs, USAA, Vanguard and Lexington
demonstrated good potential. By column #4, Financial
Programs, Lexington and Vanguard begin to drop in the
rankings. And in Table #4 we'll see that USAA follows.
All four of these funds "deteriorate" as they divest
themselves of their South African shares.
As an interesting sidelight, let's examine how a
calendar-year rating (which I warned about) would have
looked for 1985, as compared to the real nitty-gritty, the
profit uptick in column #3 of Table #2.
This calendar-year ranking puts the mediocre funds on
top, and the more profitable funds on the bottom. But
you won't be lured by those kinds of calendar-claims
again, will you?
Table #4 represents contemporary status. The four
"comers" previously cited (Financial Programs, USAA,
Vanguard and Lexington) have decidedly "fallen out of
bed," profitwise. Note their rankings on the early '86 up
tick! They continue to sustain low rankings on the follow
TABLE 1: GENERAL INFORMATION
ing downtick. (If Franklin would only permit direct
telephone switching, they'd be a hot contender.)
One abnormality should be noted. Most of the gold
funds decline significantly, while bullion doesn't, even
the funds holding only North American shares. You may
not see this deviation again in your lifetime.
The "newest" data, of course, is the current downtick.
Based on the 2-1-4 ranking of the top three, those would
be our choices for the next uptick. Based on similar data
in the final downtick of column #4, Table #2, we selected
United Services Gold Shares for the short uptick shown
here. We captured 33.4% of that brief uptick — in 46
days — and bailed out January 31 to avoid the 40%
downtick which our predictors forecasted. That's what
a combination of timing and proper fund selection can
do. The rising DOW was left in the dust.
Ironically, many advisory newsletters were sending
"buy" signals just as we sold; they were just in time to
ride the downcycle. Moreover, they were recommending

PERSNL
ASSETS-7/86 TEL BULLION START
MUTUAL FUND MILLIONS LOAD* SWITCH? IN FUND? DATE
ACCEPTABLE:
United Services Gold Shares $199.2 None Yes No 1974
1-800-531-5777
Strategic Investments 70.0 FE:8%7. Yes No 1975
1-800-527-5027 BE: 07.
Fidelity Select Metals 104.4 FE:27. Yes No 1981
1-800-225-6190 BE:1%
Van Eck Intrntnl Invstrs 674.6 FE:8%7. Yes No 1956
1-800-221-2220 BE: 07.
Financial Programs Gld 2.2 None Yes No 1984
1-800-525-9831
USAA Gold 18.9 None Yes No 1984
1-800-531-8181

UNACCEPTABLE:
Franklin Gold 91.3 FE:47. No No 1984
1-800-632-2350 BE: 07.
Lexington Goldfund 15.4 None Yes Yes 1979
1-800-526-4791
Vanguard VSP Gold 29.9 FE:07. Yes Yes 1984
1-800-662-7447 BE: 0-17.
Keystone Precious Metals 56.0 FE:07. Yes Yes 1974
1-800-225-2618 BE: 1-47. 1984
Bull & Bear Golconda 22.8 None Yes Yes 1957
1-800-431-6060
Oppenheimer Gold 30.0 FE:8%7. No Yes 1983
1-800-221-9839
Fidelity American Gold 15.5 FE:27. Yes Yes 1986
1-800-225-6190 BE: 17.
United Svcs Old Prospector** 61.4 FE:07. Yes No 1983
1-800-531-5777 BE: 27.
United Svcs New Prospector** 28.7 FE:07. Yes No 1985
1-800-531-5777 BE: 27.

* FE - Front End Entry Commission; BE » Back End Exit Commission. These fees are
sometimes a one-time charge and sometimes repetitive,
** Permit personal switches and are bullion free...but perpetually low-profit.

14
 TABLE 2: UPCYCLE/DOWNCYCLE

12-MONTH UPTICK 6-MONTH DOWNCYCLE 2-MONTH UPTICK 8-MONTH DOWNCYCLE

MUTUAL FUND 6/82-6/83 RANK 8/84-2/85 RANK 2/85-4/85 RANK 4/85-12/85 RANK
ACCEPTABLE:
Untd Svcs Gold Shares + 183.07. 1 - 30.61 2 + 46.0% 2 - 47.2% 2
Strategic Investments + 178.67. 2 - 32.2% 1 + 50.3% 1 - 49.8% 1
Fidelity Select Mtls + 175.37. 3 - 22.7% 7 + 36.4% 5 - 32.5% 4
Van Eck Intratl Invstrs + 128.67. 5 - 21.3% 10 + 32.0% 7 - 24.0% 7
Financial Programs Gold NOS -
- 27.7% 3 + 41.6% 3 - 27.5% 6
USAA Gold NOS -
- 24.1% 5 + 31.6% 8 - 34.9% 3
UNACCEPTABLE:
Franklin Gold + 135.2% 4 - 22.2% 9 + 29.6% 10 - 30.6% 4
Lexington Gold Fund + 116.27. 6 - 22.3% 8 + 33.6% 6 - 8.5% 12
Vanguard VSP Gold NOS - - 24.8% 4 + 40.2% 4 - 23.0% 8
Keystone Precious Mtls + 115.27. 7 NOS - + 30.1% 9 - 29.6% 5
Bull & Bear Golconda + 55.4% 8 - 17.1% 11 + 28.0% 11 - 15.0% 11
Oppenheimer Gold NOS - - 14.7% 12 + 24.3% 13 - 18.7% 9
Fidelity American Gold NOS - NOS - NOS - NOS -

Untd Svcs Old Prospector NOS - - 22.9% 6 + 25.0% 12 - 15.6% 10

Untd Svcs New Prospector NOS - NOS - NOS - NOS -

Gold Bullion + 38.2% - 17.9% + 16.9% - 0.8%

DJIA + 54.7% + 4.9% - 0.9% + 22.1%

such funds as Vanguard, Fidelity and Bull and Bear, TABLE 3: CALENDAR PERFORMANCE
definitely second-class funds on this uptick. VS UPTICK PROFIT
Perhaps you haven't noticed, but this selection system
does not waste any time examining the fundamentals of CALENDAR YEAR 2/85 - 4/85
individual gold mines, nor does it demand more than a 1985 UPTICK
quick perusal of any prospectus (to check for South FUND PROFIT RANK PROFIT RANK

African dominance and bullion's absence). What it Lexington Gold + 9.5% 1 +33.3% 6
measures is simply the bottom line, the fund managers' U.S. Prospector + 3.8% 2 +25.07. 12
performances. Bull and Bear - 0.8% 3 +28.0% 11
All you need to do is pull the share-prices of the funds Oppenheimer - 8.5% 4 +24.3% 13
Financial Prog. -10.3% 5 +41.6% 3
you like from the paper each day and construct a scratch Interntnl Invst -11.2% 6 +32.0% 7
sheet. When obvious pits and peaks occur — giving you Franklin Gold -17.1% 7 +29.6% 10
cycles of two months or more — calculate and compare Fidelity Sel Mtls -17.7% 8 +36.4% 5
the funds' percentages and rank them. Thenj>ow can pick Keystone -17.8% 9 +30.1% 9
USAA Gold -22.9% 10 +31.6% 8
the future most profitable mutual fund gold funds.
U.S. Gold -36.1% 11 +46.0% 2
In my monthly newsletter, Your Window Into The Strategic Invst -39.1% 12 +50.3% 1
Future, we continuously track this type of analysis on the Vanguard -58.4% 13 +40.2% 4
old funds, as well as chart our timing indicators which
signbal wait/buy/hold/sell. Additionally we update price
data, calculate momentum averages and include commen
tary concerning projections.

15
 TABLE 4: 1986 PERFORMANCE

2-MONTH UPCYCLE 5-MONTH DOWNCYCLE

MUTUAL FUND 12/26/85-2/25/86 RANK 2/25/86-7/17/86 RANK
ACCEPTABLE:
Untd Svcs Gold Shares + 47.0% 1 - 40.1% 2
Strategic Investments + 46.0% 2 - 42.5% 1
Fidelity Select Mtls + 31.8% 3 - 26.8% 4
Van Eck Intrntl Invstrs + 24.2% 7 - 20.5% 6
Financial Programs Gold + 19.8% 9 - 18.8% 8
USSA Gold + 9.9% 12 - 6.4% 14
UNACCEPTABLE:
Franklin Gold + 31.3% 4 - 29.6% 3
Lexington Gold Fund + 16.2% 11 - 12.9% 10
Vanguard VSP Gold + 22.6% 8 - 18.7% 9
Keystone Precious Mtls + 25.5% 6 - 20.9% 5
Bull & Bear Golconda + 17.8% 10 - 12.2% 11
Oppenheimer Gold + 29.4% 5 - 20.4% 7
Fidelity American Gold NOS - - 3.5% 15
Untd Svcs Old Prospector + 7.4% 14 - 12.1% 12
Untd Svcs New Prospector + 9.5% 13 - 9.6% 13

Gold Bullion + 7.0% - 0.1%

DJIA + 10.9% + 5.3%

Dr. Moore is President ofMoneypower, editor ofseveral

investment newsletters and author ofnumerous "how to "
manuals devoted to investment-timing techniques.

Dr. James Moore, President

MONEYPOWER
P.O. Box 22644
Minneapolis, MN 55422

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