January 9, 2008

8 The Writing is on the Wall - Read it!
         Peter Schiff, President and Chief Global Strategist

8 Featured Investment Recommendations
         Investing in Global Agriculture, Two Recommendations in Asia

8 All the Trouble in the World
         Doug Casey, Guest Columnist

8 Euro Pacific In The News

8 Previous Editions of Our Newsletter

Despite the fact that all economic road signs continue to point the way towards recession, and likely much worse, most investment professionals continue to blindly cling to their ingrained belief that nothing could possibly derail the U.S. economy or significantly reduce the value of U.S. assets. Unfortunately, it appears that no amount of empirical evidence can intrude on this paradise of self-delusion.

Despite the recent surges in the price of gold, oil and other commodities, they are convinced that there is no inflation. As home equity evaporates, consumer debt hits record levels, and retailers report disappointing sales, they remain confident that the consumer is in great shape. As manufacturing continues to contract, they still expect an export boom to keep recessionary forces at bay. As unemployment grows and job growth stalls, they maintain that rising incomes will offset the combined forces of evaporating home equity, rising food and energy costs, resetting ARM payments and stock market losses. As the credit crunch spreads well beyond subprime, most claim that it will not derail what they believe to be an otherwise sound economy. Few see any threat what-so-ever from the falling dollar or the increasing transference of American assets to foreign government investment funds.

Despite the fact that these trends have played out along the lines that I have repeatedly predicted, most of my fellow media commentators who ridiculed my predictions in years past continue to do so. However, for those who can muster even a hint of objectivity, the question as to whether I have been right or wrong has clearly been answered.

Sure, the entire scenario has yet to play out, but I feel that enough has already happened to validate my entire thesis. I write this not to pat myself on the back, but primarily to persuade those of you who have yet to follow my investment advice to stop procrastinating and take decisive action before it is too late. For those of you who have begun the process of divesting your portfolios of dollar denominated assets, the time has certainly come to complete the procedure.

The situation today is as dire as I have ever seen it. It is clear that more Fed rate cuts are coming soon, so the downward pressure on the dollar will only intensify. In addition, the Bush administration is now considering a "stimulus" package which will include immediate tax cuts/rebates and the Democrats in Congress will likely throw in some new spending for good measure. All this, of course, will mean even more inflation, as the Fed creates additional money to fund larger federal deficits.

At some point this will cause the bubble in the Treasury bond market to burst, causing long term rates to shoot up despite the Fed's efforts to suppress them. At that point the Fed will either be forced to raise short-term rates sharply, regardless of its effects on the economy, or take us down the horrific path toward hyperinflation.

Regardless of which option the Fed chooses, the impact on the purchasing power of the dollar, and on those of us still relying on it, will be substantial. Do not worry about the short-term volatility of foreign stock markets or of particular foreign stocks. Keep thinking of the big picture and the importance of making the shift out of U.S. assets. Regardless of how it plays out, in the end Americans will see substantial reductions in their standards of living and U.S. dollar-based assets will lose considerable value relative to assets denominated in foreign currencies. Those unfortunate enough to be left holding only dollars will clearly suffer, while those astute enough to diversify abroad will fare much better.

P.S. Do not wait for one of my brokers to call you. As more and more investors are coming to their senses, we are getting much busier here at Euro Pacific. I am trying my best to add new brokers to help keep up with the influx, but in the meantime you need to be proactive if you want to make sure your wealth is protected.

While gold and crude oil have been making mutli-year highs, and making us money in the process, a third leg of the commodity market, agriculture has been making impressive gains too.

Wheat prices had reached a high of $6 per contract in 1996 and then clasped to below $2 by 1999. Today wheat is higher ( about $10) than its 1996 prices, or up over 500% since 1999. Soybeans had been in the $10 range in 1996, fell below $5 by 1999, and today trade in the low teens. Other agriculture prices have seen similar results. Remember, gold was around $300 in 1999 and is near $850 today, or an increase of about 180%.

We think commodities will be rising do to the continuing decline of the US dollar, as well as the quality of life upgrade cycle in China and India, and global demand generally. In the last five years China went from exporting oil to becoming the second largest importer in the world. 10 years ago they all biked to work; now, many drive. In the process they have increased their demand for energy and metals exponentially.

In 1900, we Americans were using one barrel of oil per person annually. By 1970, we were using 27 barrels per capita. At the end of World War II, Japan was using 1 barrel per person. By 1970, they were using 17. Today, China uses 1.3 barrels per person annually and India uses .7. The increased demand this similarity infers is staggering.

As this quality-of-life process continues, the Chinese and the Indians will consume more food stuff as well. This means they will eat more chicken, eggs, beef, pork, rice, and wheat. Interestingly, as the price of oil has risen, the demand for alternative energy sources, such as corn ethanol, has increased. Rising corn prices have in turn pushed up feed prices for animals using corn, contributing to, for example, a rise in the price of chicken. As demand increases, those companies producing and selling agriculture natural resources to China and India will have increasing revenues. We want to own these companies.

We have selected two agriculture companies selling into the Asian markets. Besides the two companies profiled below, we have researched additional agricultural companies in other countries that also may interest you.

Company Number 1

The first idea comes from Australia. This company is an agricultural conglomerate in the agribusiness sector, identifying agricultural commodities which are in demand globally, particularly from Asian markets. The Company owns producing agriculture land to generate the commodity products to sell. Think of this company like a real estate investment trust that buys farms instead of office buildings.

Forestry has been the company's core focus. Their hardwood plantations produce woodchips destined for the pulp and paper mills of Japan. Over the past three years, the company has progressively expanded its product range. Wine grapes, organic olives, almond groves, and beef cattle have all been identified as commodities the company feels will in be demand over the long term, and has bought groves, vineyards, and ranch lands to grow these commodities.

The company has more than US$1.7 billion under management, and is part of the S&P/ASX 200 index, the index holding the largest 200 companies in Australia.

US$514 million in market cap, Price to earning ratio near 8. 52 week high/low was A$3.04 in June, 2007, and A$1.74 in December, 2007. Stock trades near its lows. Given its recent drop in price, as well as its approximate 6.5% yield, in strong Australian dollars, we think this company makes an excellent core holding now.

Company Number 2

The second company is New Zealand's largest provider of services to the agricultural sector. They offer products, services, and solutions to farmers, growers and processors.

They have operations in Australia and South America too. Assets and sales each exceed NZ$1 billion dollars (US$750 million). While the current company is a merger formed in 2005, parts of the company have been in business since 1841.

They have New Zealand's largest field force of livestock representatives, managing relationships between farmers, meat processors, livestock exporters, stock breeders and buyers. They provide advice, receipt, storage and shipping facilities for wool growers and processors. In addition, the company provides seeds, training, animal nutrition, farm supplies, insurance, and financing for farmers, growers, and ranchers.

The company's biggest contributor to profits is selling seeds. It researches, develops and produces the seeds themselves. They launched a venture in South America in 2006. This is an independent company that pays licensing fees to the parent. It has already generated about NZ$400 million in revenue (US$310 million).

Yield around 5.4%. US$486 million market cap, and price to earnings ratio 24. 52 week high/low is NZ$2.22 (today), and NZ$1.54 in March, 2007. This is an old, established New Zealand company, that should continue to pay steady dividends for years to come, and that should benefit from the global boom in agricultural demand. Even thought its price is at the high end of its 52 week range, we believe it is a good long term holding, with a very attractive yield, in a strong currency.

Euro Pacific Capital is very familiar with these companies and their officers, and feels confident in making this recommendation for suitable investors. However, Euro Pacific has not independently verified the information supplied by the companies, and cannot make any representations as to its accuracy. While every effort has been made to assure that the accuracy of the material contained in this report is correct, Euro Pacific cannot be held liable for errors, omissions or inaccuracies. This material is for private use of the subscriber; it may not be reprinted without permission.

© Euro Pacific Capital Inc. All rights reserved. 1-800-727-7922
10 Corbin Drive, Darien, CT 06840

If you credit Austrian School economic theory, which I certainly do, you're forced to believe that the Business Cycle exists. The Business Cycle is driven largely by government intervention in the economy, in the form of taxes, regulation and, most importantly, currency inflation. These things give false signals to businesses and investors, which cause distortions in the market, and misallocations of capital. When, inevitably, the errors start to be corrected, the result is an economic downturn. It will be called a "recession" if the government succeeds in preventing widespread bankruptcies and unemployment through one more dose of inflation. Or it will be called a "depression" if things slip out of the government's control. From a financial point of view, a depression is a period when the distortions of an inflationary boom are liquidated - a mass die-off of the economically misbegotten. From an economic point of view, it's a period when the general standard of living decreases significantly. (This is an entirely too brief discussion of a really important subject; I urge you to check the appropriate chapters of any of my three investment books.)

The point is that the more highly taxed, regulated, and inflated an economy is, the more likely that it's eventually going to experience a real depression. Perversely, the more control a government has, the longer it can put off the day of reckoning. But the longer the artificial structure is propped up, the bigger the mess will be when it eventually collapses. From my point of view, what will happen next is almost written in stone. The only real question is: when?

In 1980-82 things almost did go over the edge. But the recession was serious enough, and some subsequent extraneous positive events (the collapse of the USSR, the coming of age of China, and now India) were significant enough to pull things out. But now, more than a generation after the last serious crisis - and four full generations after the Great Depression - I think there are lots of reasons to be afraid. Very afraid.

Am I predicting the Greater Depression may be upon us? Let me preface my response with a disclaimer. I'm not a fortune teller. But my gut feel is: yes. I'm not going to mount all manner of statistics to buttress the assertion. My point here is to draw your attention to the fact that there's a lot that's likely to go wrong besides the central problem of the Business Cycle, a problem that is now evidenced in the collapsing housing sector and all the pain associated with that collapse.

The "other" problems now include the Forever War against Islam, peak oil, increasing political control over virtually all aspects of life, the potential for social unrest (within the U.S. Mexican community, for instance), the historically high level of foreign holdings of U.S. dollars, a rise in nationalism and protectionism, etc. While not always obvious, all of these things are related, so it's likely that when one of them starts running out of control, so will the others.

What will, in fact, happen? Nobody knows, including myself. But I'm quite afraid we're in for truly stormy weather in the next few years. Most people aren't adequately, or even at all, aware of this prospect.

I suggest you stay with the approach we advise in our monthly BIG GOLD advisory. And that approach has a foundation in gold and carefully selected gold stocks.

As I am in for the long haul at this point, selling only reluctantly and when absolutely necessary to keep Caesar mollified or for portfolio rebalancing, I still view any weakness positively.

Making mid-stream adjustments to your portfolio based on these buying opportunities is important. Being bold when others are timid can make a big difference.

In my opinion, gold isn't just going through the roof in the next few years. It's going to the moon. And gold stocks are a leveraged way to capitalize on it.

This Newsletter is a service of Euro Pacific Capital Inc.