BERAL, INC.
Andrew Racz
Director of Research
300 East 54 Street, Suite 26C
New York, NY 10022
Phone: (212) 319-6949
Fax: (212) 753-1944
E-mail: mlikar@aol.com

The Age of Mediocrity (2006)

July 19, 2006

The 21st century started with the best of possible circumstances. President Clinton left America with a current account surplus. The industrialization of China has already begun. There was a lull of peace in the world. The peace was actually based on solid circumstances. When the September 11th terrorist attack came to the United States the world was united. President Putin came with the strong backing of the Western civilization against any kind of terrorism. When President Chirac descended from his aeroplane he brought along reassuring feeling of Western solidarity and when President Bush delivered his first State of Union message in 2001 he pointed to America's longest and most faithful ally, Prime Minister Tony Blair.

The financial markets were solid. And it seemed that having weathered the first real terrorist attack on Western soil, the world was having a peaceful decade.

To be fair, a hundred years before Wilhelm II, the Kaiser, brought forward to celebrate the new century, the year before and Germany with rapid industrialization opposite the robber barons of America talked in Europe prosperous future. The Kaiser expressed that his cousin Nikki and on the other side cousin Queen Victoria would rule the world for 150 years.

The 21st century actually begun to advance on many fronts, some peaceful but at the pace when radicalism was almost bound to happen.

In the Far East there were 3 billion new capitalists who began to consume raw materials including oil, including sugar, including steel, including iron ore, including copper, including nickel at a pace totally unforeseen even by the best brains of the last century.

Money started to flow across continents and very soon the United States was heading toward a trillion dollar cash deficit towards China, towards Japan, and the Middle East and oil producers began to accumulate dollars at a phenomenal pace. By July 2006, the deficit amounted to $8.4 trillion. The last development what we called in the last century the information superhighway revolutionized transaction of money between countries, continents and the various stock markets and commodity markets sprung up all over the world, market revenues increased five to ten fold in five years.

The 21st century in fact started to benefit from the hard work of the last century, but the pace of developments was so fast that rapid changes could easily dislocate the equilibrium at any part of the world.

The emergence of Dubai as a monetary center or as an accumulator of tremendous wealth was almost unheard of 10, 15 years ago. Yet, today various communication and mining companies are preparing to be listed in Dubai.

The impression is that the world in the last 10 years technically doubled and it is not only doubled from in the number of consuming civilized, educated and working people, it has doubled in services, doubled in money flow and doubled in monetary transactions which in turn has brought about a gold price up from $230 to $650, a silver price from $7 to $15 and copper from 100¢ to 400¢.

The demand for money, the demand for services and demand for consumption has been satisfied by a modern version what 50 years ago we called The Organizational Man.

One would have thought that in this rapid changes there are a whole series of individuals would emerge whose brainwork and contribution would ease the pressure, deliver the services and make a major contribution to the welfare of mankind.

In fact the opposite happened. There is not an individual among the OPEC nations who would be a modern day Sheik Yamani or the Shah of Iran.

When ethanol has been discovered it is the corn and sugar, particularly in Brazil, there isn't a single individual who would be credited with organizing. It was an organizational nation undertaking.

The economic miracle of China which created jobs for 800 million inhabitants, leaving still above 600 in a poverty level was attributed to nameless bureaucrats with a few mainly Hong Kong based billionaires who simply benefited from the trend. But the work was done by the bureaucracy.

The first person whom we can pick as an individual to mastermind the Russian energy miracle is President Putin. He came to power in the year 2000 and he grabbed the money, the power, the influence from the so called oligarchs who had illegally as part of the decadent system of President Yeltsin acquired billions and begun to live like medieval dictators or oil sheiks of the last century. The first person of the century was President Putin's regrouping the oil industry in Russia, reacquiring the wealth for the government and for organized institutions and created in a way the first energy conglomerate run by a private individual who might be president of Russia. Where was John D. Rockefeller a hundred years before? Having one individual behind the elimination of the oligarchy, the strengthening and expansion of Gasprom, bringing public Russian oil companies via the Western stock markets and having a surplus of over $100 billion is now in the hands of one individual whose foresight and personal vision can lead the second most powerful nation in the 21st century.

It took two decades for the world, including the first five years of the 21st century, to have the international steel industry decline, go bankrupt, became unprofitable, neglected and delegated to the back burner of industrialization.

Actually two men, Wilbur Ross in the United States who bought up a whole series of bankrupt steel companies like Bethlehem Steel, Inland Steel and LTV and formed International Steel, went public listed on the New York Stock exchange and then sold the company for $4.5 billion to an Indian, Mr. Mittal who diligently, mainly in this century in five or six years, created a steel combine that represent 10% of the world's steel production.

Considering that with the Chinese demand in production, the world production with India itself and Japan is probably going to be double in 2010 than what it was at the beginning of the century, Mr. Mittal is now with his personal efforts might be a lasting influence in this century. The world goes forward and there are individuals who grasped at the weakness, who recognized the possibilities and pool their brainpower and determination together and applied themself to do something in the century we live in.

The monetary fields has not seen in our century a J.P. Morgan. Undoubtedly, a whole series of names like Sandy Weil of Citicorp and Jamie Dimon of the Chase Bank, which owns J.P. Morgan and Casanova and Mr. Ken Hanson, who was heading Goldman Sachs created organizations. But the forward looking momentum doesn't really come from any individual alone but the vision is the creation of an organization that they put together and therefore there aren't revolutionary ideas that could make the difference.

The field in international finance when it came to gold was often relegated to humorous journalistic expressions, the lunatic fringe. Unethical or not, I have to admit that as a survivor of the Second World War, the post Second World War, gold has saved my family's daily livelihood. In the 1970s when American brokerage industry was starving, my previous experience in 1961 in South Africa and the Belgian Congo brought me to Africa every six months or so and brought me in contact with some of the world's leading gold experts like the late Dr. Dietrichs, state president of South Africa, the late Edmond Safra the founder of Republic Bank of New York and founder of the Euro market, gold brought me a prosperity in the seventies which compared to my colleagues in Wall Street was commendable and eventually this is how I got involved with silver in 1979 and met the Hunt family.

The last few years an individual broke to the front who has made some contribution to the development of the practical and theoretical gold saga. As time progresses he may make a difference to gold in our monetary system.

A former stockbroker, he created an investment company called Goldcorp worth $50 million, a $7 billion giant in 18 years. His net worth became substantial.

Having divested himself of chairmanship and the management of Goldcorp he formed what is called Toronto based merchant banks investing in or building gold companies and natural gas companies and some others in the next few years.

So far he launched the gold company called U.S. Gold with something like $10 million, which a few months ago after aiming to create the largest territory for gold exploration in Nevada approached the $1 billion mark.

Natural gas company, Lexem Exploration, was launched a few days ago with market capitalization of close to $20 million. His holding company lists besides U.S. Gold and Lexem Exploration, investments in Goldcorp, Guyana Gold Fields, Anderson Mineral, Evertone Resources and Cyberplex. The common denominator of all these entities are twofold: astute drilling to find commodities, and capitalizing on a stock market success almost unheard in our history. The corporate overview is based on entrepreneurship to reach beyond preconceived limits. The company's open to financing and marketing different types of business opportunities, private, public capital the holding companies interesting and willing to listen.

There is something unique. The entity's unique in a sense that behind the mechanical activities and the leverage in the stock market McEwen firmly believes that gold will play an important part in the monetary system that several countries will use gold as their reserve currency or actual currency for trading and as a result his holdings will appreciate accordingly.

Needless to say the view on oil is shared by many people.

My imagination goes as follows. If the value and the price of gold appreciates and if Mr. McEwen has good enough sense of associating with the right entities his personal net worth could grow from the current $2 billion plus maybe $10 billion or more in about 10 years.

Granted this would only bring him in line with some of the Hong Kong and Russian billionaires, but here productive and proven mind in an individual is matched against the era that is not yet clear to the general public or to even the sophisticated investors, if the price of gold over and above $1000 or $1500 the field in which Mr. McEwen operates will become so much importance to the world's monetary system that the dynamic individual with power and money could make a difference.

I am writing these lines in July, 2006.

I regret it is the age of mediocrity. It is an age when stray rockets from North Korea or Iran, nuclear threats forming by one country against the other in the Middle East, when totally mediocre South American dictators are making the headlines, the world is suffering from these events.

It would be a time to create what Churchill called the Grand Alliance, but it's not happening. It would be a world when Bismark would make sure that Europe has proper balance. But it's not happening.

So the world is left for a few visionary thinkers. When 10 years ago Yeltsin was in hospital and the world was frightened of the return of communism, nobody believed that a man called Putin would come along and create the beginning of an Energy Empire.

Ten, 15 years ago nobody invested in steel. Now steel prices have more than doubled, more than tripled than five years ago and there is actually a visionary who carries one of the oldest basic industry forward. When 25 years ago the price of gold hit $825, the world was screaming about manipulation and witch hunting of certain individuals. There is however an individual, Robert McEwen, who moved from the executive suite to a townhouse in Toronto and sent a message to the world:

"When gold hits $1,500 I will be around and you will be around."

Disclaimer

Information contained herein is based on data obtained from recognized statistical services, issuers reports or communications or other sources believed to be reliable. However, such information has not been verified by us and we do not make any representation to its accuracy or completeness. Any statement non-factual in nature constitutes only current opinions which are subject to change. BERAL INC. or their officers, directors, analysts or employees may have positions in the securities or commodities referred to herein, and may as principal or agent buy and sell such securities or commodities. An employee, analyst, officer or a director of BERAL INC. may serve as a director for companies mentioned in this report. Neither the information nor any comment expressed shall constitute an offer to sell or a solicitation of an offer to buy any securities or commodities mentioned herein. There may be instances when fundamental, technical and competitive opinions may not be in concert. This firm may from time to time perform investment banking or other services for or which investment banking or other businesses from any company mentioned in this report.

 

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Andrew Racz. 300 East 54 Street, Suite 26C, New York, NY 10022
Phone: (212) 319-6949 Fax: (212) 753-1944. E-mail: mlikar@aol.com

Copyright © 2011 Andrew Racz. All Rights Reserved.

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