Bull & Bear's Resource Stocks

       Today, all the countries of the world print flat currency (money unbacked by gold and silver).
       But since gold is priced in dollars worldwide, you can now buy an ounce of gold for near $400, half its 1980 price. Seem like a 50% discount? Bullion gold coins took big hits during the 1990s as Central Bankers pushed gold down to below $250 oz, while selling off their gold money to get more paper currencies so they could convert to new euros by 1999 (more unbacked currency). Besides, gold wasn't paying any interest, and dollars would pay interest when gold was sold.
       Since then there have been new developments U.S. Central Bankers have pushed down interest rates to close to zero levels on dollars (mere 1%). And that puny 1% interest is taxable.
       Is it any wonder that the dollar has been somewhat weak lately? People would certainly rather buy homes, which clearly went up 27% in value nationwide, than sit around collecting 1% on their hoarded bucks, taxable. After all, if they bought a home, lived there a couple of years, and it went up, couples could pass through up to $500,000 in profit tax free! Such a deal!
       Central Bankers (dare I say it) looked a little foolish for slapping their gold reserves into the marketplace at $275 to $250 oz, millions of ounces, only to watch gold soar over $400 oz after they were done with their gold sales! Their timing was certainly not the best! Gold that, barbarous relic, in the words of William McChesney Martin, former Fed Head, didn't fall back to $100 oz, $50 oz, or $35 oz. Instead, gold soared in an uncertain world!
       Our clients loved it when gold dropped to ridiculously low levels during the 1990s. They bought 1/2 oz and 1/4 oz Gold Eagles, as well as Silver Eagles, some of which soared to triple their melt value (1996 SEs).

       Roger Conrad: "Yield-hungry buyers pushed prices of many preferred stocks to ridiculous levels last year. Now fear of rising interest rates is putting some of them back in the bargain camp where they belong. One great example: Income Portfolio Conservative Holding Consolidated Edison 7.35 Percent Preferred PINES (Public Income Notes).
       Though callable July 1 at a price of $25, the PINES traded at nearly $26 each only a few months ago, a level guaranteed to lose money for buyers whether they were redeemed or not. Today, they're again slightly below $25, where they'll earn a 7.4 percent quarterly dividend for their owners and be taken out at a profit if called.
       That's less likely now since the company needs capital to finance upgrades to its New York City power and gas infrastructure. Last month's stock offering proved ill timed, raising just $528.4 million of a hoped for $600 million as utility stocks came under pressure and the stock took its worst three-day hit since January 2001. The company is also unlikely to make a move before Empire state regulators rule on its proposed $550 million rate hike.
       Another spike in interest rates could drive the PINES down further. Since dipping under 25 a few weeks ago, however, they've held firm. Simply, there just aren't many "A" credits out there paying high yields. Buy the Consolidated Edison 7.35 Percent PINES whenever they trade at 25 or lower."

       Charles Allmon: "Newmont Mining (NYSE NEM $37.84) posts record revenues and profits, the only S&P 500 gold stock. Newmont stands today as the world's largest gold mining company, with operations on five continents.
       When Wayne W. Mundy, chairman and CEO, reported to shareholders on March 1, he said: "After a great 2003, Newmont continues to lead the gold industry and is the gold investment vehicle of choice. Our stock price was up 67% as we delivered strong financial and operating results, strengthened the balance sheet and substantially eliminated the Australian gold hedge books, consistent with our unhedged philosophy. As the only gold company in the S&P 500 index, Newmont offers investors asset class diversification."
       "The market capitalization of the Company increased to over $21 billion at year-end, the largest in the gold industry. As the gold price rose and the Company's financial performance improved, dividends for 2003 were $0.17 per share, an increase of 42% over 2002."
       "Equity gold sales of 7.4 million ounces were slightly lower than 2002, as we divested our non-core equity interest in the TVX Newmont Americas joint venture and exchanged our equity accounted interest in Echo Bay for an interest in Kinross Gold. In 2003, a stronger gold price more than offset higher total production costs of $266 per ounce, resulting in a margin of $100 per ounce, a 59% increase over 2002. We remain focused on margin growth.
       "Our balance sheet improved significantly due to strong cash flow operations, the sale of non-core assets and net proceeds of approximately $1 billion from the oversubscribed equity offering in November. During 2003, we delivered on our promises to reduce debt and substantially eliminate the Australian gold hedge books."
"In pursuing our vision of 'Creating Value With Every Ounce,' we are executing on our dual strategies of value realization and value creation. Value realization is generated by making our assets work hard to produce good returns for our shareholders, concentrating on our large core regions and effectively deploying our management skills to increase net asset value per share."
       "Value creation occurs through exploration and Merchant Banking as we grow our reserves and pipeline of projects. A stated exploration goal is to at least replace our depletion of reserves on an annual basis. The year 2003 saw proven and probable reserves grow to 91.3 million equity ounces, despite selling properties containing 4.2 million equity ounces. Our current five-year business plan shows stable annual production of between 7.0 million and 7.5 million ounces over the next three years, with increased production and lower production costs by 2007. We are moving forward with the Ahafo project in Ghana and the Phoenix project in Nevada. These projects will cost approximately $555 million to develop over the next two years and ultimately will provide steady state annual production of more than 900,000 ounces of gold."
       "The Company is well positioned to remain the gold industry leader. With the largest reserves in the industry and our global land position of 60,000 square miles in some of the world's most prospective gold belts, we are capable of achieving further profitable growth as we discover and develop new projects. As we do so, we must control production cost increases, and maintain high standards for social and environmental responsibility.
       "On the cost side, we have seen significant increases for fuel, power and other bulk consumables. Effective supply chain management tools, optimum use of e-commerce and emphasis on our Gold Medal continuous improvement program are key drivers in moderating the impact on our production costs. Further, we believe a safe workplace is a cost-effective workplace. Continued emphasis will be placed on maintaining and improving our health and safety programs. As new projects with lower cost structures replace higher cost, maturing mines, the Company's cost structure should improve."
       Also on March 1, Pierre Lassonde, president of Newmont, addressed the weak dollar problem: "There is positive momentum building that should carry strong growth into 2005, and possibly 2006. This should be good news for producers of basic commodities, such as copper and oil, as China's appetite currently seems insatiable.
       "The only problem with this otherwise bullish outlook is that much of the U.S. recovery has been bought on credit, financed mostly by the Asian central banks. In 2003, Asian central banks purchased close to $250 billion of U.S. Treasuries, in the process raising their collective holdings to approximately $1.2 trillion at year-end. The financial imbalances between the U.S. and its creditors have never been greater."
       "The Japanese government spent approximately $190 billion last year, and a staggering $67 billion this January alone, in an unsuccessful attempt to stop the yen from rising. Between the ability of the Japanese government to continue buying dollars and that of the U.S. Treasury to continue printing them, I vote for the U.S. Treasury. As a result, the yen should continue to appreciate and the dollar should continue to depreciate."
       "With total debt in the U.S. at over 200% of GDP, the Federal Reserve has painted itself into a corner. Given a choice between raising interest rates, and possibly tipping the U.S. economy into recession, or letting the dollar fall, my money is on the latter. The bull market in gold is very much alive and should continue for as long as it takes the U.S. to address its fiscal imbalances."
       On 12-31-03 total assets were $11,050,173,000, current assets $2,360,468,000, current liabilities $834,020,000, cash and short-term investments $1,458,733,000, long-term debt $886,633,000, shares outstanding 441,852,000, shareholder equity $7,384,935,000 ($16.71 per share), return on shareholder equity 6.9%, negative cash flow. (Company address: 1700 Lincoln St, Denver, CO 80203. (303) 863-7414.)
       Allmon's Comment: I found Pierre Lassonde's remarks much in line with my own long-range thinking on gold, what might drive the price higher than investors might expect. In 2004, Newmont probably will produce about the same amount of gold as 2003, maybe a little more, or even a little less. The big push in production is several years away. Meanwhile, a sharp jump in the gold price could send profits soaring. Newmont has cleaned up the hedging operation inherited in the recent merger, which means NEM receives the full impact of a higher gold price.
       Everyone should own gold shares in their portfolio. Newmont is the premier company which institutions will flock to when the gold price moves sharply higher. Again, I suggest that we'll eventually see gold well over $1,000 per ounce. As World War III expands with coming century-long battle with radical Islam, we cannot dismiss the possibility that gold again may cross the Dow. I first suggested this several years ago, well before 9/11."

Given all of the above then, where I was calling for a "Time Out!" back in late-2003, early-2004, today you could say I am calling for: "Game On!" Or at the very least, don't get discouraged and sell now! Sell into enthusiasm, not apathy! And it does appear that the technical trend just reserved.
I would only caution readers to anticipate that the climb back to new highs might take some time, with lots of back-filing, stair-stepping and retesting to do. We might expect something closer to the normal "summer doldrums" that were noticeably absent last year. Notice very recently how the HUI's advance off the bottom was stopped dead in its tracks right at the 50-dma line. There's also the overhang of $2.4 billion in financings that took place last year at relatively low prices to contend with. Short of new highs in the gold price much sooner than I anticipate, we should expect significant resistance and possible temporary failures at the 50 and 200 day moving averages.
But this should be the time to "Buy the Dips." Not after prices are soaring around seasonal peaks. I would be topping off to the amount of gold stocks one wants in their portfolio during moments of weakness during this period of market apathy rather than waiting for the market to get overheated again and hoping to jump in then and enjoy the similar large gains.

ECONOMIC ADVICE
3910 NE 26TH Ave., Lighthouse Point, FL 33064.
Monthly, 1 year, $99.
www.economicadviceinc.com.

       James Rapholz: "I do believe that the major down-draft in gold in over; however, I'm not as bullish on gold as I was in the late part of 03. The Greenspan stimulation package has worked out better than I thought it would, the economic recovery is sound for the time being and this combination has placed a temporary floor under the U.S. paper dollar! However, because Greenspan's stimulation has been so positive in 2003 and, so far in 04, it has overstimulated the housing market and auto sales, among other things, and borrowed dreadfully from the future! I see stagflation coming, and a much lower dollar showing up in 2005 & 06, which will be a double positive for, gold.
       I have an update on one of these companies and am placing a strong buy recommendation on the Enerplus Resources Fund (NYSE EFR $25) because of a recent acquisition. It trades on the N.Y. exchange as EFR, it sells for about $25, yields $3.15, (12%) a year and pays dividends monthly.
       I plan to buy this one myself. However, I don't buy yield stocks unless they are going to appreciate considerably! And - you can bank on this one - it is going to appreciate and considerably - too! They just made a very good deal to buy the Chevron Texaco West Canadian Properties, which will be very accretive to earnings over a period of time. Plus, because of the current level of natural-gas and oil prices, which are both sustainable, their assets have appreciated enormously. It is a beautifully run company and, in my opinion, the dividend is secure for 10 years to come and probably will grow a great deal in that time period."

ALMANAC INVESTOR NEWSLETTER
P.O. Box 2069, Old Tappan, NJ 07675.
Monthly, 1 year, $295.

Robert Cardwell: "There are many reasons for thinking the current correction in metals prices is likely to prove a temporary interruption in a long-term bull market:

Metals stocks have enjoyed big gains, but true to their volatile nature they have corrected sharply along with commodities. We have traded them profitably and expect to continue doing so. Buy serious corrections and sell on a sharp recovery. If it suits your style, keep a small core position at all times as a hedge.
ValGold Resources (VAL.V) remains an official Hold for us, but traders can buy on further weakness. The company has liquid assets equal to the current market cap plus several grass roots exploration projects. The Tower Mountain property in Ontario has returned high-grade (but so far short) drill intervals.

       With platinum the best recent performer among the metals, it's a bit of a surprise to find a very cheap platinum play. Pacific Northwest Capital (PFN.T) is a selling just 43% of its 2003 high on the Toronto Stock Exchange. The market cap is $12.2 million (US) on currently outstanding shares and $15 million on a fully diluted basis - less than has already been spent on current projects. That wouldn't be so significant except that at least one of those projects stands a very good chance of becoming a mine. At River Valley in Ontario, the company has now delineated some one million ounces of combined platinum, palladium and gold.
       That puts PFN about half way toward being one of the very few platinum-palladium producers outside of Russia and South Africa. The giant Anglo American is funding the drilling (to earn 60%) and we think Anglo will start planning a mine once they reach two million ounces of reserves. For obvious political and economic reasons, Anglo would like to diversify outside its base in South Africa. This project's location is fairly close to ideal - near infrastructure and two major smelters.
       The mineralization occurs along the boundary of a large intrusive, providing an outsize potential strike of some 9 kilometers. So far only a third of this has been explored to any extent. Last October, drilling in a new zone produced a giant intersection of 73 meters grading 1.52 grams per ton. That's low, but it can be economic given the location advantage.
       An additional less advanced project in Ontario, Agnew Lake, is also being funded by Anglo American. A relatively new program targets the Union Bay area in Southern Alaska, where field results have shown promising platinum values. This venture is being financed by Lonmin, a South African rival to Anglo American and the world's third largest platinum producer. We find it encouraging that these heavyweights are partnering with PFN. Buy the stock with a limit of 65 cents Canadian
       Northern Orion (NNO.T) is a stock we have wanted to get into for some time - but it always seems to jump as we are getting ready to pull the trigger. This has happened again, with NNO recently bouncing from under 3 to 3.40 (Canadian). We'll out-line the situation and watch for another pullback to buy. After moving strongly ahead last year, the stock entered a trading range, so there's a good chance we can get it on our terms.
       This is an unusual junior company in that it already has substantial production due to a 12.5% interest in the large Alumbrera copper-gold mine in Argentina. Alumbrera is a low cost producer: Net of gold credits, copper was produced last fiscal year for just two cents per pound. Cash flow to Northern Orion was US$23.6 million or 41 cents a share. Net earnings were 4 cents a share - all based on substantially lower metals prices.
       The bad news is that the Alumbrera deposit will be exhausted in some seven years. The good news is that Northern Orion owns 100% of a nearby property that will be ready to go into production. This resource, the Agua Rica, has proven and probable reserves of 18 billion pounds of copper and 10 million ounces of gold.
       The idea is that the extensive Alumbrera facilities can be used to process Agua Rica ore, probably phasing in before Alumbrera is completely mined out. This will require a deal with the Argentine government, but the economics are so compelling that it is hard to imagine the deal not getting done. We have to apply a discount to Agua Rica since its cash flow will not start for some time. Still this is an undervalued stock.
       At the same time, we are bullish on copper. One of many reasons: China is already the third largest car market. Within a few years millions of Chinese will be driving automobiles, and most of them will be hybrids thanks to a recent government edict. The electric motors in hybrids use lots of copper.
       Northern Orion trades on the Toronto Exchange but in U.S. dollars. Buy it on a pullback at 3.05 or better."
       Editor's Note: Robert Cardwell is Director of Equity Research at the Hirsch Organization.

James Dines: "We are more confident that uranium is in the early stages of a Major, new bull market what with leader Cameco (CCJ) (CCO.TO) up only 76% since it was first recommended, so far. It seems obvious that governments worldwide are wondering what would happen if the oil spigots were turned off, so maybe they had better look into nuclear power themselves. It is surely no surprise that the price of uranium is in a screaming Uptrend, and we expect that to continue regardless of what the economy does, until the metal eventually emerges into the limelight such that even fund managers finally see that uranium is in a new bull market no matter how far fetched it might seem! Our Dines Uranium Average chart shows DIURANIA, which we believe is the world's only uranium average, in an Upchannel (T, C) such that we would not sell uranium-mining shares at least for so long as Line (T) remains intact. The uraniums are just beginning to rise above their recent Congestion Areas, but so far it is primarily Cameco that has been leading the way higher. Perhaps Cameco is reacting to "company-specific news," such as the possible spinoff of its gold interests, but that should become apparent depending on whether or on the other uranium stocks in our collection begin to move up also. By DIWPAT.
The price of uranium has made yet another new high at $18.10, Confirmation of uranium's Major Uptrend. That uranium-mining shares are not rising commensurately yet again illustrates how determined the stock market is to avoid reacting to good news these days, resulting in this current low-volume market with no obvious leadership. When the market begins to allow leadership to express itself we believe that uraniums will bursts into the limelight "from out of the blue." Based on the Dines Tripod Method (DTM) in your Video Instructional, the Fundamentals for uranium are indominatable, Technically they are in Consolidations within Uptrends and the Mass Psychology toward them believes that to expect a bull market in uranium would be far fetched; this Confirms the three levels that must be satisfied for a clearly bullish probability to exist. Let the markets speak. Opportunity knocks once; importunity knocks at the door more often than op!"

THE COMPLETE INVESTOR
P.O. Box 248, Williamsport, PA 17703.
Monthly, 1 year, $129.

       Stephen Leeb: "Gold and other precious metals stocks offer financial protection against an out-of-the-blue catastrophe, like a terrorist attack. That would be reason enough to hold onto them, despite their having come under pressure of late. But precious metals also offer an exceptional hedge against rising inflation - another good reason to own them now.
       The statistic that correlates best with both rising inflation and rising gold and gold stocks is real interest rates. Specifically, when real rates are negative, inflation and gold tend to rise. When real rates are positive, inflation stays in check and gold does poorly. And right now, real rates - which we define as the difference between three-month T-bill yields and the year-over-year change in the Consumer Price Index - are negative by more than one percentage point.
       To see why this is good for gold, look at the chart, which compares three-month changes in gold stocks (as measured by the S&P gold stock index) with real rates since the bottom in gold near 100 in 1976. The correlation, while not perfect, is exceedingly strong. (Note that it applies to gold as well as to gold stocks.) As it shows, when real rates were negative, gold stocks were strong - posting average three-month gains of more than 11 percent, compared with less than 1 percent when real rates were positive. For the metal itself, the three-month gain was about 8.5 percent when real rates were negative and less than zero when rates were positive.
       To put it differently, over a period of 335 months, the entire gain in gold - about 300 percent - and in gold stocks - about 400 percent - came during the 70 months in which real rates were negative.
       This is no statistical artifact. Gold marches to the tune of real rates because negative real rates are an incentive to borrow and buy, and that's a surefire recipe for inflation and rising gold. To halt gold's long-term rise you'd need a period of positive real rates, and that would mean the Fed would need to raise rates dramatically - even a rise of one full point would still keep real rates negative. Given our highly leveraged economy, we don't think the Fed will take such drastic steps. The bottom line: we remain bullish on precious metals and advise that you continue to have up to 10 percent of your portfolio in precious metals investments."

Ian McAvity's DELIBERATIONS on World Markets
PO Box 40097, Tucson, AZ 85717.
1 year, 18 issues, $225.

Ian McAvity: "Despite my near term bearishness, I would not sell all gold shares, or go short. The primary trend is up in my view, and that's likely to be the direction for most surprises over time. Not necessarily in the short term, but a substantial downside reversal by the Dollar to abort its rally phase could be a potential trigger. But that's not a bet I would make just yet."

INVESTECH RESEARCH
2472 Birch Glen, Whitefish, MT 59937.
1 year, 17 issues, $295.

James Stack: "Once again, OPEC has risen to the occasion with a pledge to increase production quotas. Global markets are already breathing easier as oil prices have started to ease this week. One caveat, however... according to production data from the IEA, many OPEC members are already pumping oil to close to their 5-year maximum rates, and 8 of the 11 members are currently producing well above their old quotas. Only the Saudis appear to have enough excess capacity to increase production significantly. So we wouldn't be surprised to see oil prices remain above the $30/barrel mark.
Is that sufficient to derail the global expansion? The Wall Street Journal recently cited a study by Stephen Brown, economist for the Federal Reserve Bank of Dallas. In the study, Mr. Brown projected that if oil and natural gas prices remain at current levels, it would reduce U.S. economic growth by a little more than 0.5% point per year from a projected rate of 3% to 4%. Swiss bank UBS projects high oil prices could have a 0.3% point impact on euro-zone GDP growth forecast at 1.6% to 2%. Japan, with its reliance on nuclear power, could be less susceptible. It his analysis is close to accurate, most major economies should remain healthy this year in spite of high energy costs, but growth will likely slow and opportunities will be more selective."

FREEMARKET GOLD & MONEY
P.O. Box 5002, North Conway, NH 03860.
1 year, 20 issues, $260.

       James Turk: "We should expect to see higher prices for both precious metals in due course. It is reasonable to expect that silver will be back above $8 and gold will finally climb above $430 before the end of the year, and perhaps sooner than we expect if events spin out of control. What are these events?
       There are a large number of potential flashpoints that could send the metals soaring. These include the continuing uncertainty about the financial position of Fannie Mae and Freddie Mac and their derivative positions (which uncertainty by the way will only grow if the Federal Reserve starts raising interest rates), the unwinding of derivative positions tied to the Parmalat scandal in Italy, recent increases in inflation and a host of other issues that point toward continuing problems for the dollar, not to mention the unfolding geopolitical events.
       In short, the precious metals are in a bull market. They're just taking a breather, correcting the gains seen at the end of last year and the first quarter of this year. So don't lose sight of the big picture while both of the metals go through the process of testing support and building a base that will launch higher prices for them later in the year."

INTERINVEST REVIEW & OUTLOOK
P.O. Box 51462, Boston, MA 02205.
Monthly, 1 year, $125.

Dr. Hans Black: "Although a short-term rally is underway in precious metals are due to geopolitical events in Saudi Arabia and Iraq, the overall corrective process we had anticipated since early this year has continued over recent weeks. While we remain favorably disposed to these markets, more time is needed. Simply put, there needs to be a digestive process in which gold trades between $350-$380 an ounce for several months prior to positioning itself for a continued up trend. It should be noted that, despite the dramatic attacks in Saudi Arabia, bullion has not been able to cross back over $400, leading us to the conclusion that further weak longs need to be liquidated. As in all markets, patience is a virtue. It is possible, however, that gold share prices are already in an early bottoming process; although they, too, will need to spend more time near current levels, they have recently begun to act more positively.
We would continue to accumulate some of our favored companies on any price weakness, which would include, for example, Placer Dome, Newmont, Eldorado, Cambior, and Orvana."

INVESTOR'S DIGEST
133 Richmond St W, Toronto, ON M5H 3M8.
1 year, 24 issues, $137.

       The following is from a recent report by analyst Catherine Gignac, Loewen, Ondaatje, McCutcheon.
       "Gold mergers continue apace as companies search for growth within a strong gold market. Competing bids for Wheaton River Minerals and Iamgold provide an indication of what the market is willing to pay for intermediate producers.
       Applying these markets multiples to Crystallex International Corp. (TSX KRY $2.96, 800-738-1577, www.crystallex.com) indicates an undervalued company with a large asset poised for the startup of production within two years.
       Wheaton River and Golden Star Resources are competing for Iamgold, and Coeur d'Alene Mines has made an equity and cash offer for Wheaton River.
       Based on company reports and our estimates, proven and probable reserves, total mineralization and 2004 forecast production are 10.59 million ounces, 21.6 million and 550,000, respectively.
       Crystallex's Las Cristinas project in Venezuela is not yet in production, thus the production market multiple is shown for interest only and is not yet usable.
       Applying the reserve and resource-market transaction multiples to Crystallex indicates a potential value of $8.06 to $9.34 per share. Current fully diluted shares are used, as well as our conservative estimate for 30.9 million new units to be issued as the equity portion of the US$360-million capital cost for the larger development scenario.
       Crystallex has outlined 10.2 million ounces of gold in proven and probable reserves at its Las Cristinas project, within zones containing over 21 million ounces in mineralization.
       It is currently trading at US$40 per ounce reserve, whereas the market is potentially willing to pay seven times (US$283) this valuation to create up to three new intermediate gold producers.
       We believe there is low technical risk to development of the Las Cristinas project, particularly since two full feasibility studies have been recently completed.
       At the end of the third quarter, management expect to have the results of its current 18-hole infill drilling program and be in receipt of its final environmental and mining permits.
       Geotechnical drilling is completed and the exploration camp is being refurbished. Breaking of ground could occur in the fourth quarter of 2004, construction during 2005, mill commissioning in the fourth quarter of 2005 and production startup in first-quarter 2006.
       A rampup to the larger 40,000 tonnes per day option could be completed in about six months, according to management.
       At the annual general meeting on June 1, the company stated that its comprehensive Form 20F should allow the closure of the ongoing SEC review in the not-too-distant future.
       Crystallex's market capitalization should be sufficient to be considered for inclusion in the S&P/TSX index at its next review, which would be favorable to broaden investor holdings in the company.
       We currently rate the shares of Crystallex International a "speculative buy" with a 12-month target price of $7 a share."

ALL STAR FUND TRADER
P.O. Box 203427, Austin, TX 78270-3427.
Monthly, 1 year, $249.

       Ron Rowland: "The most persistent theme in the markets the last few weeks has been energy, or more precisely the price of it. Crude oil hit new highs above $40 a barrel, and gasoline in most parts of the U.S. is over $2 a gallon. Since the price of energy is, to varying degree, built in to every sector of the economy, stocks react swiftly to such changes.
       We don't need to dwell on the fundamental causes of the situation; suffice to say that it is hard to build a case for significantly lower energy prices in the near future. The more important question is what to do about it. As stocks took a pounding in early May, energy funds rose in our RSM rankings. Eventually we sold off most everything else and energy became our primary holding, along with cash and short-term bonds in some programs.
       The challenge right now is that all energy stocks, and the mutual funds and ETFs that hold them, react the same way to rising crude oil prices. It is a positive factor in some cases, negative in others, and neutral at times. There is also an underlying psychological basis that is difficult to predict. Finally, don't forget oil prices react swiftly to political and military events that can seldom be anticipated.
       Nevertheless, when energy is the only part of the market showing any strength, we think it is prudent to maintain some exposure. During the last part of May, some other sectors started to bounce back; perhaps the fear of higher energy prices is receding. It's true that in historical terms we are far from the highs last seen in the 1980s. In constant dollars (adjusted for inflation), oil is nowhere near as high as it was in past energy crises. Furthermore, in terms of their local currencies people in many places have been paying much more than we do in the U.S. for many years. Somehow their economies have survived and even thrived.
       While there will no doubt be ups and downs, we suspect the energy trend will be with us for awhile. There are numerous ways to participate - sector funds at Fidelity, Rydex, and ProFunds along with several ETFs. Being in the right place at the right time is not so easy. Fortunately we have a non-emotional indicator in RSM to guide us."