But if you have even a sliver of doubt in the ever-dwindling value of fiat currency…if you fear the ravages of inflation…or if you’re interested in some non-paper based capital protection and possible appreciation…please read on. You might find a compelling, unique opportunity today.

Now: Trade Your Dollars for Actual Gold and Silver

(I’ll give you a hint - it’s a new, simple way to trade your dollars for actual physical silver and gold. It’s a way for you to personally return to the cherished and forgotten gold standard. It’s one way you can personally return to sound and honest money - even if the government doesn’t.

It’s not a stock, ETF, option or futures contract. The possible profits from those investments are real. And, although those profits would derive from special metals - they take value from the market value of a piece of paper. And when you get right down to it, paper make a poor substitute for the real thing. If you can get it, it’s even better to to own a real asset - ownership backed by tangible, dense, truly rare precious metals. But first, let’s quickly go over the case for gold and silver as money, with particular attention paid to silver.)

Let’s start with the dollar’s forced debasement. It’s the main reason holding a small percentage of your portfolio in real precious metals is not just important, but urgent. Gold and silver protect you against the inevitable decline of hollow paper money. They insure you against inflation. Today, inflation’s nearly as certain as death and taxes.

Did you know that today’s dollar can only buy about 2% of what it could buy in 1900? Compare that to gold, which today buys 150% of what it could in 1900. So, in roughly a century, gold has catapulted to 75 times as much purchasing power as the dollar.

The government’s promise of a stable dollar reeks. Like the breathless pledge of a toothy codger to a hooker. Not sober. Not to be trusted. And it’s certainly not something you should rely on for your investment future.

The value of gold and silver does not hinge directly on a promise from a government’s central bank. It is not a promise to pay. It’s just gold and silver. The real thing. Those precious metals form a safe haven for your wealth, protecting you from the horrors of inflation and the destruction of paper currencies.

In addition to offering unparalleled protection in today’s uncertain financial world, gold and silver actually can offer you a powerful opportunity to increase your wealth. You can protect yourself AND profit from the right exposure to these precious metals. It’s an excellent combination — killing some of your risk and adding the possibility of gains…

But just how likely is a rise in the gold and silver prices? After all, both metals have had good runs lately. Is the best behind us? Not at all. In fact, according to some, a second, even more powerful leg of the raging precious metal bull is nearly inevitable.

I’m assuming you know about the stellar recent run-up in gold. It’s doubled in a short period of just over 3 years. Silver’s done slightly better than gold in the same period of time. But there’s an alarming fact about silver that you have most likely never heard…

Above the ground, silver is rarer than gold.

That’s right, silver is rarer than gold. But now you ask “Greg, you dolt, why the heck does an ounce of gold cost 54 times as much as an ounce of silver?” I’ll get to that in a moment, but first I’ll show some more about silver’s relative rarity.

There’s less above-ground silver than gold…the main reason for that is the fact that nearly all dug-up silver immediately goes to industrial use. Silver’s one of the most useful elements on earth, with incredibly high thermal and electric conductivity.

In addition to the rabid industrial hunger for silver, the world’s Central Banks, including America’s, have sold off or used up the vast majority of their silver stockpiles. America ran through her reserves to issue popular silver coins. It didn’t seem like a waste at the time because the price snoozed at low levels throughout the mid-eighties to the early nineties.

Today, industry uses only 5% of exhumed gold. And, obviously, gold’s industrial use only grew out of the industrial era. For over 2,000 years, hard money, jewelry, art and other lasting artifacts formed the sole uses for gold.

That means nearly all of the gold ever yielded by the earth sits in gold bars, coins, or jewelry, shining through the ages with pride. All while almost every unearthed ounce of silver perishes in industrial use.

(Now, an army of grinning grannies could liquidate their heirloom tea sets and serving spoons with $25/ounce silver. I wouldn’t want to get in their way. But such an unpredictable unloading would unlikely have a lasting effect on industry’s necessary inventories of silver.)

That’s why there are 1.6 billion ounces of gold inventory compared to only 300 million ounces of silver inventory. That’s 5.33 times as much gold as silver. For the sheer heck of it, let’s translate that into dollar value…

At $554 per ounce, the entire gold inventory has a worth of $886.4 billion. At $10.33 per ounce, the entire silver inventory’s worth $3.1 billion. So, the total mass of above-ground gold’s dollar-worth outweighs silver’s by 285 times. Even though silver’s five times rarer.

And, there’s no argument I can recite that explains why silver’s not as good an inflation hedge or dollar-bastion as gold. You probably remember that the British Empire measured the first world reserve currency, the pound sterling, in silver.

In fact, if the argument for a precious metal’s worth takes its power solely based on rarity, then you might think that silver should be worth MORE than gold. And yet, ounce per ounce, gold’s 5.33 times more beloved than her slighted silvery sister. Of course, if more people start figuring this out and begin to stockpile silver for wealth protection and appreciation purposes, then silver might equalize herself more with her glistery sister.

And, although silver’s ramped up on a tear, hitting a 22-year high…even though the silver market’s notoriously volatile, it could have even more explosive mid to long-term upside if its price equalized more with gold’s.

This kind of situation makes the case for higher silver prices based on pure supply and demand. But, you probably have heard the mutterings about a possible silver ETF from Barclays that would buy bullion directly, similar to the gold ETF with the symbol GLD. Now, that new ETF would definitely put a strain on the already slim silver inventory supply.

Overnight, you’d have demand for millions of ounces of silver.

That anticipated strain scares the heck out of industrial silver users. Which explains their ferocious opposition to the proposed ETF.

In fact, multiple interesting theories swirl around whether or not the silver ETF will gain regulatory approval. Such as: where could the huge amount of silver necessary to line the ETF’s vaults come from? Does some billionaire, maybe Buffett, have a huge silver stockpile sitting around? Why are the silver users so adamant about in opposing the ETF? Do someone have a bunch of naked short contracts out there?

It’s enough to get a conspiracy-minded fellow extremely giddy. But I’m not here to speculate about whether or not the silver ETF will get SEC approval. I think the price of silver has a good chance of going up. ETF or not.

If the silver ETF does list and trade sometime this year, your potential gains from buying shares in it would take a swift hit from the huge 28% collectibles tax, not the usual 15% or so that usually hits your other stock market capital gains. So, to get a lower tax rate, an investor would have to buy it through an IRA or other similar vehicle.

Moreover, the ETF would take a 0.5% annual management fee, paid to itself by selling the silver bought in the fund. Thus, the amount of physical silver represented by each ETF share held dwindles incrementally year-by-year.

Wasn’t one of the main benefits to precious metals investing an escape from the dollar and “paper” profiteering? With an ETF, any gains you could possibly make by an increase in silver’s price would eventually convert back into dollars - the ETF won’t deliver the silver bullion to your house.

Introducing the Bank Account Made up of Silver and Gold

Don’t get me wrong. Gains are gains. But in some sense, for real hard money bugs, a metals ETF is a temporary dollar “laundry machine,” not a permanent store of wealth.

Profits from purely financial assets are easy come, easy go in this fluid world. It’s enough to make you want to get your hands on some actual silver.

It just so happens that there’s a fresh, new way to buy actual silver coins and bullion bars. It comes from Whiskey & Gunpowder ally EverBank.

EverBank has just launched a new “bank account” that’s made up of physical silver or gold. You can easily convert your paper dollars right into real, dense bullion and coins. You can even take delivery of the actual metals if you so desire.

And, unlike a mining stock or ETF, with EverBank Metals Select you can buy or sell your silver or gold close to the spot prices of those metals. It’s the closest and most direct connection I know of an investment’s price to precious metals themselves.

There are 2 ways to jump in on this innovative new opportunity: you can choose a pooled account or holding account. The pooled account contains a mix of coins and bars of your favorite metal. There are no management, custodial or insurance fees - and you’re free to buy or sell your holdings at any time the market’s open.

The holding account offers you more direct control over your investments. With it, you can decide exactly which kinds of bullion bars or coins you want to hold - but you’ll pay a storage fee for the holding account.

Best of all, you can open a Metals Select account for as little as $5,000. That’s cheaper than 210 shares of Pan American Silver and it’s less than 100 shares of the gold ETF. And, don’t forget, you pay very close to the spot price of silver or gold when you open your account, add to it, or sell your holdings.

Those are huge advantages if you decide to open a Metals Select account. You’re getting this new opportunity because EverBank wants to create the best bank on the ‘net. Your Whiskey editors already think they ARE the best bank out there. And we try to work with them whenever we can, through our ongoing business relationship. We’re proud to call them a partner.

This is a unique, revolutionary opportunity in precious metals investing, and Whiskey & Gunpowder is excited to share it with you. Please look here for more information…

Regards,

Greg Grillot

This article was originally featured on Whiskey and Gunpowder

What’s Rarer than Gold..?

Sitting alone at my desk in dreary, chilly Baltimore, I often dream myself tramping around the crowded, filthy, sweltering streets of Mumbai.  But don’t you fear, staid Whiskey aficionado - I’ll return to India this fall.  With you, if you’d like.

One of the reasons I visited India - and China last year, which our long-sufferers may recall - was to help plan out the “Two Wonders of the World” tour.  Right now, Karim Rahemtulla, Addison Wiggin and I are throwing that tour together.  The tour will focus on the cultural, artistic - and of course -financial wonders of the two rising eastern powers.

We’ll visit the Taj Mahal and the Great Wall.  And we’ll go to Mumbai and Shanghai, these eastern giants’ respective financial centers…where we’ll get the inside scoop on the potentially massive hidden profit opportunities that these world financial powerhouses hold.  Of course, you’re invited on this trip…please look to future Whiskey shots for the full details on what promises to be a stupendous tour.

Let’s start with the Taj Mahal.

Why?  Because the Taj Mahal is indescribable.  And you must see it, hulking in front of you, for you to grasp its sheer beauty.  Nonetheless, I’ll imitate the blurry reflection in the above pool by trying to describe this grand place in photos and words.

No other man-made thing, except the Great Wall, has inflamed me with such wonder.  When I first gazed at the Taj, the wind slowly drew from my lungs as the heavy beauty of this wonder pressed the breath right out of me.  I’m not exaggerating.

Here’s the first full look, as you walk through the outer gate into the charbagh, or rectangular garden:

Legend also claims that Shah Jahan never set foot inside the Taj Mahal and that he intended to build a black Taj even more magnificent than the white one you see above.  Thinking Islamic conquest a better use of that much treasure, Shah Jahan’s third son Aurangzeb imprisoned him in Agra Fort.  Aurangzeb then killed two of his brothers to take the throne of India.

Makes you wonder how 17th century artisans could create something so enormous with simple tools and scaffolding.

Calligraphic Koran verses surround the above entrance archway.  In a slight optical illusion, the lettering grows in size as its gets higher, to fool you into thinking that all of the letters have the same height.  You can also see the ornate flowers in the bottom right corner of the above picture.  These colorful, intricate flower patterns are precious and semi-precious stones inlaid right into the white marble.  Chinese jade, Tibetan turquoise, Afghan lapis, Arabic carnelian, Sri Lankan sapphire and the Ocean’s coral all form the wondrous palette of petals that creeps along the inside and outside of the Taj tomb.

Furthermore, most Mughal buildings used red sandstone, which you can see above in the Masjid.  Shah Jahan opted for the Hindu building art that utilized cut and polished marble blocks.  And finally, the numerous lotuses and other flowers that grow all over the building in pietra dura splendor originate in the Hindu tradition.

The Mughal mystic writings often portrayed Paradise as a walled garden, fertile and abundant.  Normally the tomb marks the middle of the garden, but the Taj sits on one end of the charbagh.  But, some scholars have postulated that the black Taj, destined for the opposite bank of the Yamuna, would make Mumtaz’s tomb the center of a massive garden and memorial complex.  Who knows?  Before the English re-made the garden in the formal English lawn style, it held a profusion of roses, daffodils and fruit trees.  Above you see some crimson bouganvillea blossoms - the prickly, vengeful bane of your managing editor’s past tree-trimming career.

Now, let’s return to Agra Fort, Shah Jahan’s lonesome prison.

And, finally, one last picture to bring us back to earth:

In fact, this picture paints a pretty accurate pastiche of India.  Repulsive filth within clear sight of one of the most impressive and beautiful structures in the world.  Take from that what you will, but I must inform you that my friends Eric Fry and Aussie Joel over at the Rude Awakening are putting the finishing touches on a “Water Emergency Report” right now.  It’ll show you how to play the non-renewable liquid that’s more important than oil…so keep reading your Whiskey to get your shot at that report.

I apologize - I will have to post the rest of my India pictures next weekend.  It’s late and I’m tired.  And, until then, you might ponder the majesty of the Taj - and the wonderful, profitable quandary that is India.  And hopefully you’ll join Addison, Karim and myself on the tour this fall.

Good night and warm regards,
Greg Grillot
March 5, 2006

P.S. As always, if you have any friends or family that would be interested in this webpage, please forward them this link!

This article was originally featured on Whiskey and Gunpowder

Whiskey Plods Eastward ~ Again!

While I visited India earlier this month, the fiery Sensex finally poked through mythical - and psychological 10,000 mark. She joined the illustrious bedmates of the Dow, Hong Kong’s Hang Seng and Japan’s Nikkei.

Encouraged by the rampant growth in India - and the corresponding gains in the stock market, foreign institutional investors shoveled money into the Indian market throughout the Sensex’s frenzied seven and a half month run from 7,000 to 10,000. (Here one wonders whether the foreign investment forced the same run up that it tried to harness and profit from.)

Now you may ask how it could possibly happen that a short time of heavy institutional ramping could affect an entire market. Here’s how. Even though the Bombay Exchange is the oldest stock exchange in Asia, its 3,500 companies have a combined market cap of only $466 billion - compared to GE’s cap of $355 billion and Microsoft’s massive $255 billion. So, with a market that small you can see why frothy inflows of buying can force some upward momentum.

Which brings us back to our psychological milestone of 10,000.

In a self-prophetic swoop, the foreign institutions started taking profits after the Sensex glided over the 10,000 hurdle. Last week, for the first time all year, foreigners became net sellers, taking profits just as cavalierly as when they pumped money into the market months before.

Funny how that works.

And so the Sensex closed on Friday in the comparably somber quadruple digit realm. Oh, sometimes membership in the ten-thousand club can feel so fleeting and cheap! But will the Sensex stay in the 4-digit realm?

In short, I have no idea. What I do know is that the average company on the Sensex is expensive at nearly 20 times earnings and four times book. Normally that means India’s favorite exchange is due for a steep correction. But who knows?

If the basket o’ BSE carries on its 5-year average annual growth rate over the next year, in Feb ‘07 we’ll see it solidly in the 5-digits with a tasty score of 13,567. That might be pushing it a little, though…let’s compare it to it’s five-digit friends.

Iif the Sensex chose to imitate the DJIA, it would stumble around in a sideways stasis for the next 5 years…or if it followed after the Hang Seng’s 5-year avg. annual path, we’d see 10,221 in Feb ‘07. Or, to slap a Nikkei comparison on the Sensex, it would lose 33% in the next 2 years only to climb up to 12,002 in 2011.

Or, everything could simply fall apart in the event of widespread scandal(s) - it IS India we’re talkin’ about here. Your guess is as good as mine…it’s tough to accurately predict where an index will go based solely on its recent past performance. It’s also not perfectly relevant to compare the Sensex to the other indices in the illustrious 5-digit club. But we use what we have and go from there.

That said, the foreign institutions will probably start pumping money back into India if there’s a substantial pullback. They will most likely jump back in once some value re-enters the market.

After all, India has a savings rate of 10% - massive compared to America’s - and one wonders what would happen if the common Indian family tapped into some of that rupee stockpile and plugged it into the chugging market…

Please write in to me to give your prediction of what the Bombay Stocks Exchange index will do over the next one and five year horizons: greg@whiskeyandgunpowder.com

Until then, I leave you with a quick photograph of some non-exchange related business I did in India. If you can guess where I am, you get a free one-year Resource Trader Alert subscription! Shoot me an e-mail…

P.S. My colleague Sala Kannan has recently completed a special report on India that contains 4 picks that have climbed up right along side the Sensex.

Quote(s) of the week: “$8,248,610,906,449.65″ the National Debt, via http://www.publicdebt.treas.gov

“About $250 billion of China’s reserves are in U.S. Treasuries. China’s purchases “put Pimco’s Bill Gross to shame and contribute to low yields” in the world’s biggest economy, said Nouriel Roubini, a former U.S. Treasury official who’s now chairman of New York-based Roubini Global Economics LLC.” ~ Bloomberg.com

Headline(s) of the week: “In Japan, Day-Trading Like It’s 1999″ ~ NY Times

“Even the President’s Budget Suggests We Are Below Full Employment” ~ AngryBear.blogspot.com

This article was originally featured on Whiskey and Gunpowder

India Joins the 5-Digit Quartet

Here’s the main gist of what I found: Nicaragua boasts some of the cheapest pristine coastal real estate left in the Americas. Admittedly, land prices in Nicaragua have trended briskly upward over the past few years. But it seems to me that that’s simply the beginning of a long-term trend. And compared to overdeveloped coastal plots in my South Floridian Fatherland, Nicaragua’s a darned steal.

But why is Nicaragua still somewhat cheap? There must be some good reason.

To answer that question, please permit me to impersonate Byron and use recent history to show why Nicaragua’s real estate market lay dormant and cheap for so long - and why it’s just started to appreciate at a healthy clip.

That’s right, Nicaragua has, until now, suffered from a lack of foreign investment. Too exotic, perceived as too dangerous, not worth the risk went the mantra. And, it’s remained undervalued until recently because people still think the country is run by Communist, or that a civil war rages on.

That couldn’t be further from the truth. Nicaragua’s become very stable and safe, and the present President has made it very easy for foreigners to come in and invest. An unfounded but persistent fear has kept Nicaragua cheap for along time…but savvy investors knew better and jumped in at the bottom of what should be a long-term profitable development trend.

Why were investors scared for so long? And why were they wrong? To explain that, we must delve further into Nicaragua’s 20th century to see from whence the Sandinistas sprung.

The Sandinistas: “Somoza May Be A Sonofabitch, But He’s Our Sonofabitch”

So said Franklin Delano Roosevelt of Anastasio Somoza Garcia, who ruled as de facto military dictator of Nicaragua from 1937 to 1956. Successive American administrations backed his harsh and kleptocratic rule because he buffered against the spread of Communism in Central America.

A native poet shot Somoza Garcia in late 1956, and he perished a few days later. His eldest son, Luis Somoza Debayle ruled from 1956-1963, and then his next eldest son, Anastasio Somoza Debayle became dictator until 1979, when the Sandinistas overthrew his regime. This last Somoza dictator met his end by assassination in Asuncion, Paraguay’s capital.

Here we should look back a few more decades to uncover the Sandinistas’ origin. The group took its name from Augusto Cesar Sandino, who led various rebellions against the U.S. military presence in the country and assorted Nicaraguan regimes. Forced to flee to Mexico after attempting to kill a prominent conservative politician’s son, Sandino apparently fell in with Freemasons, Seventh-Day Adventists and communist revolutionaries. He returned to Nicaragua when the statue of limitations for his attempted murder ran out.

Upon his return to his native land, Sandino led a revolt against the U.S.-backed conservative regime. He also fought directly against the U.S. military presence. Here’s something he said to American forces:

“Come on you pack of drug fiends, come on and murder us on our own land. I am waiting for you on my feet at the head of my patriotic soldiers, and I don’t care how many of you there are. You should know that when this happens, the destruction of your mighty power will make the Capitol shake in Washington, and your blood will redden the white dome that crowns the famous White House where you plot your crimes.”

There is no dome on the White House, by the way. But in 1933, U.S. forces pulled out of Nicaragua, turning control of the National Guard over to the aforementioned Anastasio Somoza Garcia. Sandino laid down his arms. And in early 1934, he laid down his life. Somoza’s National Guard kidnapped and executed him.

Fast forward to 1961. Somoza’s dictatorial dynasty begins as three men form the Sandinistas to oppose the U.S.-backed Somoza ruling family. The Sandinistas were inspired and influenced by Marxism, especially Fidel Castro’s particular Cuban brand. . They portrayed themselves as liberators and organized a guerrilla revolt against the Somoza dynasty.

The Sandinistas gained considerable peasant support in the early 70s, and experienced a huge upsurge in power after the devastating earthquake in Managua that killed 20,000 people and left six in ten Managuans homeless. The Somoza regime embezzled a huge part of the international aid intended for quake victims and neglected to rebuild large swathes of the city. ( In fact, the earthquake’s ravages are still visible. A handful of tall buildings dot the skyline and the city grows ever outward to escape the vengeful fault line passing right through her center. )

In early 1978, a prominent anti-Somoza newspaper editor was assassinated. The Sandinistas used this to gain more popular support, leading general strikes, uprisings and guerilla attacks. With the support of other Latin American countries, the Sandinistas launched a “war of liberation” from Costa Rican soil. The National Guard eventually disbanded and the final Somoza dictator fled as the Sandinistas marched into Managua, greeted by, at least for awhile, an ecstatic populace.

In 1984, a national election placed the Sandinista Daniel Ortega in the President’s seat. The Reagan administration told the CIA to covertly reassemble the disbanded National Guard as a counter-revolutionary army to fight the Communist-sympathizing Sandinista government.

Sandinistan dissidents unhappy with the growing influence of Cuba also launched attacks. Finally, native tribes banded together on the Caribbean coast to fight the Sandinista’s “modernization” efforts and control over resources contained in their ancestral lands. The American press called these various forces the “Contras” for short.

In 1981, Ronald Reagan approved the National Security Decision Directive 17, which provided $19 million in aid to the Contras and authorized the CIA to recruit and support them. Reagan assumed that the Sandinistas would install Cuban-brand socialism and that they supported Salvadoran leftist guerillas. Placing a complete embargo on Nicaragua, the U.S. mined Corinto, Nicaragua’s most important Pacific port.

After the Boland Amendment forbade any future American involvement in Nicaragua in 1982, Reagan and the CIA turned to “alternative” methods of financing the Contras. This led to the infamous Iran-Contra affair where proceeds from secret missile sales to Iran washed over to the Contras, despite Reagan administration vows never to deal with Iranian terrorists. It is also suspected that drug profits from Panama and other countries went to fund the Contras with tacit U.S. approval. From a report from the Senate’s Foreign Relations Committee: “senior U.S. policy makers were not immune to the idea that drug money was a perfect solution to the Contras’ funding problems.”

After long mediations with other Latin American governments, and possibly due in part to the increased difficulty in obtaining U.S. funding and assistance, the Contras finally agreed to a ceasefire in 1988. Then, in 1990, the Sandinistas had a nasty surprise as the Nicaraguan people voted them out of office. You see, the people were sick and tired of living under the painful trade embargo and the decade of war. The country’s infrastructure crumbled, the economy shriveled, and the populace bristled under the forced Sandinista conscription of 16-year-old young men.

Throughout the 90’s the country gradually rebuilt itself as more moderate administrations ruled Nicaragua. The Sandinistas are a spent political force and haven’t won a presidential election since the 1990 loss. The present President, Enrique Bolanos, beat the Sandinistas cleanly in the 2001 election, and he has presided over the new economic resurgence.

He aggressively courts foreign investment and tourism. Tourism Law 306 allows a foreign investor to open a tourism-related business and not pay taxes for a full decade…and not pay taxes on any service or good related to starting or maintaining that business - whether that’s constructions, furniture, rental surfboards, a fishing driftboat, etc. That’s a great deal. And it seems to work.

• A Taiwanese group of investors bought the Intercontinental Hotel - Managua’s biggest. They also built and entire super-modern shopping mall and another hotel in Managua.
• A Guatemalan group invested millions in refurbishing the Managuan Princess hotel. Another Guatemalan group has built another Managua hotel and a new sparkling convention center.
• A New Orleans company has secured the rights to improve Puerto Cabezas, the closest port to the U.S. They will sock over $100 million into modernizing that port, more than likely bringing in American Cruise ships packed with eager tourists…

And this is just the beginning of the boom times…

So, while the popular and well-known countries like Costa Rica, Belize and Panama are relatively overpriced and nearly over-developed, Nicaragua looms as the best remaining “Central American Value Play.”

For example, the cost of living is miniscule compared to what you’re used to in America, Canada, and most parts of Europe and Australia. You can have a full-time maid for less than $100 a month…a fine lobster dinner for two with a nice bottle of wine costs less than $20. You can go see a movie for $2 - or get a haircut for $1.25.

In 2004, the IMF “forgave” about 86% of Nicaragua’s debt, with the only caveat that she’d have to spend the same amount of money on infrastructure improvements. This money heads stright for schools, hospitals and roads, bringing prosperity and production jobs to the Nicaraguans.

Speaking of roads, Nicaragua will soon break ground on the Coastal Road, which will run down almost the entire Pacific Coast. When finished, the road will certainly bring more tourism and development to my beloved Pacific Coast (which, if you remember, is the home of my choice location, Rancho Santana.)

Nicaragua’s own “Pacific Coast Highway” is another big reason why the recent uptick in Nicaraguan real estate prices is just the beginning of a long term trend. As it gets easier to reach the entire length of the west coast from the Managuan airport and the other major cities, development will almost certainly soar.

In the past three years, the real estate prices have doubled in Rancho Santana. And even if it looks as if American development and prosperity have also brought American-style price bubbles, there’s no reason why this little nook of Paradise can’t continue to appreciate at a healthy clip.

Rancho Santana, perched on a sprawling 1,700 acres of gorgeous oceanfront beaches, mountains and cliffs, is a self-sustaining escape with modern conveniences such as a clubhouse with full restaurant serving red snapper and lobster caught mere hours before you sit down to eat, a cool swimming pool, a bar that serves sublime margaritas, convenient internet access ( which prevented me from having a “work-free” vacation, ) a helipad, horse stables, a cozy general store, lighted tennis court, hiking trails, and too many more amenities to list.

So even though I basked on nearly abandoned beaches, I wanted for no modern convenience. That’s the ironic allure of the place - it’s simultaneously rustic, romantic, beautiful and convenient.

Here I must add that Rancho Santana has made great strides for the local Nicaraguans. Over 300 men and women work there, doing anything from security to construction, landscaping, bartending, full service cleaning, fishing and cooking.

I met one young man who fished from the rocky shore until the waves picked up, when he’d sell his catch to the clubhouse kitchen and then surf until sundown. That seems pretty darned good to your city-stranded managing editor. I talked to the manager of the restaurant and other Rancho employees, and they told me that just a few years ago, the surrounding area suffered from massive unemployment and poverty. Now, the young men have surfboards and bikes while the maids will busily work while wearing fashionable American clothes and listening to portable CD players. The development has brought some prosperity to the local Nicaraguans.

I hope I’ve piqued your interest in Nicaragua in general, and in my favorite little Pacific Paradise of Rancho Santana specifically. There are still lots for sale there, and you can easily go there for a week (or ten) and the helpful team, led by my buddy Tom Gordon, will be happy to show you around.

Now, I must disclose that the same guys who feed your managing editor’s voracious pitbull own a stake in Rancho Santana. Yeah, they pay my check. And it is also possible that Whiskey & Gunpowder could receive commissions on certain future property sales in Rancho Santana. I’m also good friends with some of the staff there, including Tom Gordon, who I’ve sung plenty of bluegrass with. But the most important disclosure I can make is my sincere desire for you to at least visit this place. It’s the most beatific place I’ve ever seen, but don’t let me gush too much: please see for yourself:

Regards,
Greg Grillot
January 29, 2006

Make sure to say hello if you see me down in Rancho Santana when you visit. I plan on going back as soon as humanly possible. And - I am very interested in buying my own property down there, so I hope it doesn’t all get scooped up right away.

If you want, you can contact my friend Tom directly: land@ranchosantana.com

Tell him Greg from Whiskey sent you! And if you decide on going down there, shoot me an e-mail - maybe we’ll run into each other on the beach! I’ll be the tan guy with the big smile and a big cigar.

Regards,
Greg

Headline(s) of the week: “Silver sets 19-year peak, gold near highs” ~ fxstreet.com

“Americans: world’s worst savers” ~ CNNMoney.com

Quote(s) of the week: “One of the “wins” in the win-win of globalization has failed to materialize. Job creation and real wages in the mature, industrialized economies have seriously lagged historical norms. It is now commonplace for recoveries in the developed world to be either jobless, or wageless — or both. That this shortfall has occurred in the midst of accelerating globalization and surging global trade is all the more disconcerting.” ~ Stephen Roach

“Si pequeña es la patria, uno grande la sueña.”
“If small is the fatherland, one dreams it large.” - Nicaraguan poet Rubén Darío

This article was originally featured on Whiskey and Gunpowder

The Sandinistas: Central America’s Last “Value” Play

QUITE AN AMBITIOUS task he set for himself. But then, an inherent duty of all historians may be to give to all time. Thus, I will humbly attempt to suss out some contemporary parallels for Thucydides’ fine work on the first recorded “World War” between Athens and Sparta. I’ll leave the final answers to you. But first, we must add some enriching background detail to Thucydides’ subject.

After repelling the Persian attack on the Greek mainland, the Greeks formed the Delian League in 478 BC to contribute to a common standing naval defense against further Persian incursion. Athens, by far the strongest member city of the Delian League, lusted to transform the league into an Athenian Empire.

(Here an implicit question springs up: When and why do Democracies become Empires?)

The Athenian Empire: Creating the Athenian Empire

Over the next few decades, Athens succeeded in creating its own Empire from the ashes of a willing coalition. Athens took many of the member cities’ ships as tribute and so amassed an enormous standing navy.

And eventually, under Pericles, Athens moved the common treasury of the league from the island of Delos over to Athens and proceeded to use the vast majority of forced tribute from the member states to build such luminary monuments as the Parthenon. This imperial swagger angered many of the Greek cities, including Sparta, which had the strongest land-army in Greece.

On top of worrying Sparta herself, Athens deeply offended the two key Spartan allies of Corinth and Megara. First, Athens prevented the Corinthian invasion of Corcyra. Then, she placed economic sanctions on the key city of Megara, which sat on the only landbridge between Athens and Sparta.

Wary of encroaching Empire and insulted by offenses to its allies, what could Sparta do?

Attack the Attican lands surrounding Athens. So started the war - but let’s take a look at its eventual end.

Fast forward through many deadly battles and a failed peace. Neither of these powers can concede to a mutually compromising truce. After a grueling 27 years, Athens finally lost, nearly starving and without a navy.

And the main factor in their eventual defeat is widely seen as the failed Sicilian expedition. 17 years into the war, Athens made the decision to attack the Sicilian city of Syracuse, a Spartan ally over 1,000 miles away. Ironically, Syracuse was the second largest democratic city in the world.

A young, brash general named Alcibiades was the main catalyst for this expedition. He may have wanted to harness and surpass the Imperial notions of the great Pericles, who died from the plague early on in the war. Alcibiades headed up the enormous expedition along with Nicias, a pious and more responsible general who might buffer the young and impetuous Alcibiades. A third general, Lamachus, rounded out the trio of command.

If Athens could take Syracuse, and then the entire island of Sicily, she could subsume an enormous navy and pilfer enough riches to allow for a virtually eternal war with Sparta.

And, of course, the second largest democracy in the world makes a fine addition to any grasping Empire.

But the Sicilian expedition turned into an enormous failure.

Here’s a quick rundown of why…Athens called Alcibiades back to face impiety charges early in the expedition. Fearing execution or ostracism, he turned traitor and sailed over to Sparta to inform them of the details of the expedition he engineered. Naturally, Sparta headed over to protect Syracuse and thwart Athenian imperialism. Nicias and Lamachus hesitated in key points of battle, due to indecision and superstition, and key points of advantage slipped through their fingers. And finally, right before the Athenians could finish a wall that would choke off Syracuse, the Spartan force arrived. Nicias and Lamachus both died in the ensuing battles. The Spartans blockaded the Athenian navy in the port and crushed the entire fleet. Half of the Athenian navy was lost, and almost 5,000 of their troops.

This crushing defeat was the catalyst for another ten grueling years of war. And finally, after losing all but twelve of their ships at the battle of Aegospotami, the Athenians starved under a Spartan blockade. So they surrendered to the Spartans in 404 BC.

The Athenian Empire: The Nature of the War at Hand

Why did the Athenians lose the war? Trying to answer that question might be valuable to those living or ruling in a democracy. Could we learn something about our present war?

First we must try to understand the nature of the war at hand - what are the strengths and weaknesses of our enemies? Those questions are difficult and complex, but we have three angles to attack them from:

1) We can try to understand the political structures of the belligerents
2) We can try to understand the structure of the international environment
3) We can try to understand the goals of the belligerents, and how they will try to achieve those goals

Was the restless and overreaching spirit of Athens unique? Or is it a symptom of mature democracies that turn toward Empire? Why expand the Empire through belligerence rather than looking to perfect the state inwardly? Expand for the sake of expansion itself? Can an Empire’s appetite ever have satiety, or does every morsel gulped induce a newer, more monstrous and uncontrollable hunger?

With Democracy and equality of opportunity sprouts a fertile hope. Hope to achieve more than you have, to achieve more than your forebears achieved for you, to achieve more and more so you can pass it on to your children. Add that to the Greek desire to have a Zeus-like dominion over everything, including the fellow gods, to the point of devouring them, eternally crippling them and maybe even raping their human wives. Quite savage to modern folk, but those “ugly ideals” formed a part of the Greek ethos.

Could it be that a voracious Democratic Empire might exhibit some Zeus-like thunderbolts?

I won’t answer the above questions in regard to present-day America. I leave that to you, if you’re interested. I merely peer backstage and rustle the curtains - you’re free to write or act in the play. As are G.W. Bush, Donald Rumsfeld, Ahmadinejad, Syria, Pakistan, Israel, etc.

“I have written my work, not as an essay which is to win the applause of the moment, but as a possession for all time.” ~ Thucydides, History of the Peloponnesian War, I.22

Regards,
Greg Grillot

January 15, 2006

This article was originally featured on Whiskey and Gunpowder

Tireless History

“They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.” ~ Benjamin Franklin

“There is undeniably an important and legitimate privacy interest at stake with respect to the activities described by the president. That must be balanced, however, against the government’s compelling interest in the security of the nation.” ~ Assistant Attorney General William E. Moschella

MERRY CHRISTMAS. Your editor praises and thanks Jesus. Alas, I am not so forgiving as He…so today I will forget all Holiday Cheer and make the case for impeaching the President.

To put it simply, the President broke the law by authorizing domestic spying without a warrant. He also tramples on the Bill of Rights and Article II of the Constitution. His actions are illegal and unconstitutional. Christmas notwithstanding - it’s time to impeach.

First, let us see why authorizing warrantless surveillance is illegal.

The Foreign Intelligence Surveillance Act (FISA) was created in 1978 after extensive public outcry on domestic surveillance on civil-rights activists and war protestors. The act states that the Foreign Intelligence Surveillance Court must grant a warrant before the federal government conducts any domestic surveillance. Further, to allow agile intelligence gathering, the act permits the government to conduct surveillance without a warrant, provided that the government requests one from the court within 72 hours.

Impeach President Bush: Unconstitutional

Then, how are those actions unconstitutional? Here’s a snippet from that grand document:

“The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.” ~ Amendment 4

I don’t even have to interpret that. The words ring clear.

Here’s another tasty snippet from that superb Constitution:

“Before he enter on the Execution of his Office, he shall take the following Oath or Affirmation:-”I do solemnly swear (or affirm) that I will faithfully execute the Office of the President of the United States, and will to the best of my Ability, preserve, protect and defend the Constitution of the United States.” Constitution, Article 2, referring to the President

It does not seem to me that the President protects or defends the Constitution. In fact, he has spat upon it and tossed it in the mud.

And one more piece:

“The President, Vice President and all civil Officers of the United States, shall be removed from Office on Impeachment for, and Conviction of, Treason, Bribery, or other high Crimes and Misdemeanors.” Constitution, Article 2

Now, I’ll leave it to you (and the courts) to decide whether or not the President has committed a high Crime. But I feel that he has, and that the impeachment process should roll. The last time around, the President was impeached for lying about adultery. I ask you, how does that compare with breaking the Congress-passed FISA law and assaulting the Bill of Rights?

Impeach President Bush: Why Skirt around the Courts?

Why is warrantless domestic surveillance even necessary, considering the generous 72 hour time period? Why would the President willingly break the law when the NSA can conduct intelligence and request warrants 3 days after the fact? Maybe because the people that the NSA watches aren’t terror threats. Maybe the NSA snoops on journalists and war protestors. Why else would the administration knowingly circumvent the courts..?

Whoever it is that the NSA secretly monitors, you can safely assume that the FISA court would refuse to issue a warrant in those cases. Otherwise, there would be no need to circumvent the courts! And it may be that your editor will attract their attention upon the publication of this missive.

But that’s OK. If the NSA deigns to secretly monitor your editor, they’ll learn a few things. Namely: I’m a brawling, drunken lout with poor hygiene and a penchant for profanity. Not exactly of national security interest.

Adding to the morbidity, here’s a piece from the NSA website:

“Americans expect NSA to conduct its missions within the law. But given the inherently secret nature of those missions, how can Americans be sure that the Agency does not invade their privacy?

The 4th Amendment of the Constitution demands it… oversight committees within all three branches of the U.S. government ensure it… and NSA employees, as U.S. citizens, have a vested interest in upholding it. Respecting the law is only a part of gaining Americans’ trust.” ~ NSA website

Now, before you write in and excoriate me for hindering the war on terror, I ask you if it’s worth it to sacrifice your liberty and rights to feel safe.

Or, to put it in a brash way, I’d rather fight Bin Laden himself, mano a mano, than willingly suffer under a draconian government. Yes, America seems more and more imperial every day, but that’s the topic of another essay. Until then, I sign off and repeat Benjamin Franklin’s sage words:

“They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.” ~ Benjamin Franklin

Please shoot me an e-mail with your opinions here: greg@whiskeyandgunpowder.com

Regards,
Greg Grillot
December 25, 2005

Weekend Whiskey mailbag: Here’s a front-line response to Mish’s recent housing piece entitled “Housing Peaks in Fresno”

“Greg-Who Cares?

“I care. Not in the sense that average consumers are about to take a beating on their recently bought housing (i.e. credit cards for retarded over-consumption), but in the revelation of the trend.

“Fresno, Bakersfield, and the string of small, carbon copy, San Joaquin Valley towns in the surrounding area, were considered by many to be the last bastion of affordable real estate in California. When the surge of high priced housing in more desirable areas of the state caused residents to flee, many settled right here in the San Joaquin Valley. In turn the housing here experienced a dramatic increase in pricing on a percentage basis (notice I did not say value). There are several articles floating around stating that central California is on the map of the most overpriced housing nationally. Here is an anecdote for proof.

“By the summer of 2005 I figured the boom had played out. We hit the
market at $185,000 expecting to have buyers by the short and curlies. We anticipated that we would not budge on price, inspections…etc. Too late; the market had already begun to turn.

“Hello reality. Several months of marketing brought one offer: $160,000 with seller paying for all, I repeat, all of buyer’s expenses including closing cost for their loan. We got the price up a little higher but all other concessions were met. I am in escrow as of this writing with fingers crossed.

“Worst part (for the buyer): The damn thing isn’t worth a penny over $75,000 if you look at the value from an intrinsic/historical standpoint. Well I guess he is only overpaying by 113%.

“We were the last ones (in the state) to see the appreciation, and it seems we will be the first ones to see the decline in prices. Its not different this time; markets that boom eventually bust.

“Thank you so much for you efforts on W&G. I love every minute of it.

J.L.G.
Real Estate Appraiser
Porterville, Ca”

Thanks for the informed comment, JLG - and for the undue praise!

Quote of the week: “One F.B.I. document indicates that agents in Indianapolis planned to conduct surveillance as part of a “Vegan Community Project.” Another document talks of the Catholic Workers group’s “semi-communistic ideology.” A third indicates the bureau’s interest in determining the location of a protest over llama fur planned by People for the Ethical Treatment of Animals.” ~ NY Times

Headline(s) of the week: “Take it from Japan: Bubbles Hurt” ~ NY Times

“IRS Argues That the Bush Tax Cuts Reduced Tax Revenues” ~ Angry Bear

This article was originally featured on Whiskey and Gunpowder

Impeach President Bush: Liberty or Safety?

Mr. Wu is a kind man. He’s a long-retired archaeologist — meaning he most likely excavated dynastic treasure and terra cotta warriors for the glory of Mao. Mr. Wu is of the eternally young variety of Asian elders. He smiles with his eyes and mouth as he answers questions through his interpreter — he understands English, but doesn’t speak it.

My companion, The Supper Club’s Karim Rahemtulla, asked Mr. Wu some interesting questions. Here’s a portion of their conversation:

Karim: “How has your standard of living changed in the last two decades?”

Mr. Wu’s interpreter: “Thirteen years ago, his pension was 250 yuan a month. Now it is 2,500 yuan. [Greg's note: 250 yuan = $30.21 and 2,500 yuan = $302.06 at the time of this writing. Because the yuan is exactly pegged to the dollar, those conversions will no doubt be precisely the same when you read this...but not forever.] He recently had a cash offer to buy his home for US$300,000 — he’s lived here for 50 years, and his two sons live here too. He won’t sell, though — he wants to pass this house on to his sons and his wife after he passes…”

The other folks that joined Karim and myself on the tour asked some questions about Mr. Wu’s single outdoor bathroom, his marble-tiled living room, etc., while I noted a subtle cloud of suspicion pass over Karim’s face.

Chinese Banking System: A 900% Pension Increase in 13 Years

After Mr. Wu graciously answered the final questions, I followed Karim outside into the courtyard amid the beautifully painted porcelain dining set and vacant bird cages.

“Greg, something doesn’t add up here. His pension shot up 900% in 13 years while inflation snoozed at 2-5% per annum. How could the government pay him that much more in such a short period of time? I’ll tell you some more about the banking system when we get back to the hotel.”

Karim was right — my happiness for the kind old man’s recent prosperity nearly overawed my critical faculties. A gaping enigma lay somewhere between 900% and 2-5%…something didn’t add up. Why does it matter, though?

He’s a nice old man and smiles, and it doesn’t seem to occur (or matter) to him that anything is wrong with this situation.

In fact, the more you look around, the more you notice that no one seems to know, or care, how so many people can produce so much so cheaply…and sell it below production cost. How does the Chinese miracle work exactly? Are the Chinese playing with economic fire?

All over Beijing, you find people selling things for less than they must have cost to make, like watches — I fended off the 24-cent “Woe-lex” slingers and landed in the comfy cab of my furiously beckoning and smiling Manchu friend…absorbed in confused economic thought, I gazed at the passing Shicha Lake.

Weary with reeling thoughts, I returned to the hotel.

Plopped in a fine fake-leather chair in the lobby of Beijing’s Grand Hyatt, I tried to answer three interwoven questions:

1. How did Mr. Wu’s pension jump 900% in 13 years when the average rate of inflation loomed under 5% annually over the same time period?

2. How can you buy a disposable cigarette lighter in Beijing for 12 cents?

3. Why does the love of my life have to pay back the money she borrows on her credit cards?

OK, the first two questions look enigmatic to me — the third has a simple, reflexive answer. But the answer to the final question just might unlock the first two.

I recalled the rich Cuban cigars I smoke with my travel mate, newfound friend and vintage Harley restorer T.M. Offering me ignition, he’ll laugh about the 12-cent lighter he bought from a street monger.

I thought: “12 cents…hmm…I know labor’s cheap. Cost of living’s damned cheap, too…but how can it possibly be so rock bottom that they can sell lighters and working counterfeit watches for 12-24 cents?” The more you look around, the more you wonder.

I recalled one of Karim’s recent quandaries: “I took a 20-minute cab ride today for $1.50. The gas prices here are the same as in America — crude’s cut in dollars — so let’s say we used a half gallon. The gas alone cost $1.10. Now include the driver’s time, the vehicle’s cost with wear and tear — that cab’s gotta operate at a loss. How’s that possible…?”

(At this point, I wondered how much virtue would cost me in the narrow alleys here — I’m not wealthy, and my aforesaid love would appreciate it if I picked some up…virtue never comes cheap, and that’s why it’s so rare…a moral luxury item…although some would say the demand for it is — or at least SHOULD BE — inelastic — but back on topic for now!)

Back at the Hyatt, in the realm of numbers that either do or do not add up, Karim and I looked over the books of a Chinese steel company. Its year-over-year gross sales increased at a fine, steady clip…but despite these increasing sales, its debt ascended a bit faster than its sales.

So its net profits slowly dwindled over time. Convenient — despite increasing sales, its taxable revenue went down. But it also looked like the company never pays down its debt…which is a good deal, if you can get it. But in a free market system, a free lunch is mythical (like my virtue).

In the land of the world’s greatest capitalists, there’s one business that isn’t governed by free markets even remotely: the banks. In the simplest terms, the banks and the government are one and the same.

Like modern American banks, the Chinese banks (read: the Chinese government) freely loan money to fledgling and huge established businesses alike. But unlike modern American banks (most of them, anyway), the Chinese banks don’t expect businesses to pay back the money lent to them. That’s what the perpetually rolled-over debt on the steel company’s books told us.

So peering hyperopically from a panoramic view, here’s how China looks to me: domestic steelmakers, lighter producers, and cabbies produce their goods and services for free. So they can peddle their wares for far less than production costs.

Free money, via loans not needing repayment, essentially lets the steel company produce steel for next to nothing and then sell it at market price.

Which, in the West, is far below what you’d pay for a company that had to worry about profits and paying back loans or selling at ABOVE the cost of production.

That may be how T.M. bought a 12-cent Chinese lighter to inflame our $20 Cubans.

That may be how Karim’s cabbie barely pays for gas with his fares. (I wish I could collect a free paycheck — please don’t read this, Mr. Bonner!)

But even more than that, I wish my love, like the Chinese steel barons, didn’t have to pay her credit card bills.

It would be nice to get a free lunch every single day of the week, and dessert too!

No, wait — my greatest wish is this: to purchase that virtue for 12 cents.

Enough of the virtue stuff — Karim mentioned something about the savings and loan crisis that swept over America. Even if it’s a deliberate policy, an economy can’t be deliberately inefficient in allocating capital. Things cost money. They cannot, typically, cost less than the value of the raw materials to make them. The whole cannot be worth less than the sum of the parts…anymore than you can buy virtue in a dark alleyway in Beijing. Some laws of economics, like the laws of ethical behavior, can be bent, but not broken…at least not without consequences.

Greg Grillot
April 28, 2005

This article was originally featured on Whiskey and Gunpowder

Chinese Banking System: The Mystery of Mr. Wu