This Action Report from the October 2001 EWR Special Action Report October 2001 Copyright © 2001 by Henry Madison Research, Inc. Steps To Take Immediately     I hope I am very wrong about all of this, and peace and prosperity break out tomorrow. But if I am right that the attackers will continue hitting us until America's war fever is so intense that Washington leaps into a huge war, here are steps to take. As far as we at Henry Madison Research have been able to tell, no one in the world saw this war coming so clearly, or was so well prepared for it, as readers of EWR. We will do our best to continue this level of service. Be careful who you talk with and who overhears you. The war fever will last at least until the body bags start coming home. Once the whole country is screaming, how did we get into this?!, then you will be able to talk more freely. For a refresher on "terrorism," the condition of the U.S. armed forces, and guerrilla war, see these EWRs: 8/01, p.1; 5/01, p.6; 3/01, p.6-8; 1/01, p.1; Prices may have changed since the date of publication. 11/00, p.7-8; 10/00, p.3; 9/00, p.3-6; 7/00, p.4-5; 5/00, p.4-5; 2/00, p.1; 1/00, p.1,6-7; 11/99, p.5-7; 10/99, p.1,7-8; 6/98, p.6-8; 5/98, p.6-8; 8/96, p.5-8. (Back issues of EWR are $19 each. See footnote.1) During the months leading to Y2K I said I doubted Y2K would amount to much but you should always have emergency supplies because you never know what might happen - earthquakes, hurricanes, riots, and so forth, including terrorist attacks that might temporarily shut down water supplies, banks, grocery stores, you name it. If you have not taken those Y2K precautions, do so now. See the 1/99 EWR, page 3, and 6/99, page 7. Get involved in a community disaster preparedness effort. This will help protect your family, and it is a way to demonstrate your patriotism without having to display war fever. This is a thousand year old religious war. You may find it helpful to discuss your feelings with a member of the clergy, or a professional counselor. No matter what happens, stay calm. Make no big move until you talk it over with a friend who has good judgement. Your Investments     Regarding the behavior of financial markets, people invest on the basis of what they think they see.     Most have at least a little understanding of economics, but the word geopolitics2 isn't even in their vocabularies.     At the moment, they look at the financial markets and factor in the risks of a recession, because a recession is what they can envision. They have no idea of the implications of guerrilla war in Central Asia.     The war has barely begun.     I believe that in general, as long as investors continue with this exclusively economic view, prices of stocks, raw materials, real estate and most other investments will trend downward.     Velocity is plunging. (Be sure to review my 2-page article "The Velocity Demon Returns," in the 3/99 EWR.) The government's Plunge Protection Team won't be getting a lot of sleep for a while.     After events have forced everyone to start getting educated about things EWR subscribers have understood for years, investors will factor the war into their bids, and defense stocks and raw materials will skyrocket. Velocity, too. Wars produce inflationary environments as governments print money to pay for them. Velocity feeds on that.     If I am right about a new inflationary environment, long-term interest rates will rise, and bonds will plunge.     When the stock market re-opened on September 17th, the three top performers in the S&P 500 were defense stocks: General Dynamics, up 9.2%, Lockheed Martin, up 14.8%, and Northrop Grumman, up 15.9%. All three had been recommended by EWR when that group hit bottom in March 2000, and I had again emphasized two of them in the EWR mailed to you September 4th.     We cannot draw any conclusions from market activity since the September 11th attack because government agencies are probably intervening wherever they feel their wisdom is superior to that of the market, which means everywhere. We may be in limbo for months. Since Congress has, as usual, abdicated its Constitutional responsibilities, all crucial decisions are up to one man, George Bush. The question on which everything hinges is, who will Bush attack, and how big will the war be?     There is no way to know.     Bush will decide how many enemies he will take on, and the enemies will decide how big the war will be.     If Bush does what he has been promising - to strike any government that has helped the attackers - it will be a world war, and it could last a decade or more. In that case, the sky is the limit for weapons stocks and raw materials.     I hope he waffles his way out of that commitment.     The ball is mostly in the guerrillas' court. If they keep hitting America, they can create such intense war fever that Americans will demand bombing of anyone who ever uttered a harsh word against this country.     I can say with confidence that the long-term (five years or more) risk in weapons and raw materials has been sharply reduced. Generally, I have been rating both groups a 4. As we go to press, I am comfortable dropping both to 3. (Risk levels were explained in the 2/01 EWR, p.4,5.)     If you are in these for the short run, do not get greedy, take profits when they occur; you never know when the government will jump in to demolish your best-laid plans.     I intend to wait it out for the long run. I will be surprised if in five years, raw materials and weapons have not tripled from their September 10th levels.     Other forecasts for five years out: Swiss franc and New Zealand dollar, double or more. Oil, $100. Gold, $1,000 or more. Numismatics, up 500% or more. Platinum, $1,500. Silver, $30. Palladium, $1,000. 10-year T-bond interest rate, 12%. CRB commodity index, 500.     The Dow - I'm still thinking about it; probably higher than on September 10th.     For defense stocks, what counts is not the quality of the company's weapons but the size of its battalion of lobbyists.     This means the largest companies are the best bets. After all the consolidations, there are not many left: Lockheed (LMT,NYSE), Boeing (BA,NYSE), Raytheon (RTN,NYSE), General Dynamics (GD,NYSE), Northrop Grumman (NOC,NYSE), Newport News (NNS,NYSE), L-3 Communications (LLL), Alliant Techsystems (ATK,NYSE), Harris Corporation (HRS,NYSE), Titan Corporation (TTN,NYSE), Rolls-Royce (RYCEY,OTC).     I wish I could recommend stocks of firms that specialize in anti-terrorism, meaning X-ray scanners, etc., but I have not done that in years. These are part of the high-tech bubble group, and their merits mean nothing in the face of the irrational emotions which still rule that group.     However, I am sure the big defense firms will get more deeply into anti-terrorism, especially firms that have an electronics orientation: L-3, Harris and Titan might be good bets.     For a mutual fund that specializes in weapons, Fidelity Select Defense and Aerospace Fund (FSDAX, 800-544-8888). FSDAX has not done as well as some of the big individual stocks because it buys small companies as well as big ones, and small ones have fewer lobbyists.     Some small ones have begun to move, however. Allied Research (ALR,AMEX) recommended here in November is up 66%, and it probably still has a long way to go, it's P/E is only 7.4.     Here are four diversified raw materials companies: Pan Canadian Petroleum (PCP,Toronto), BHP (BHP,NYSE), Rio Tinto (RTP,NYSE), Panhandle Royalty (PANRA,NASDAQ). Five year profit potential, 400%; risk level 3.25. This looks like a great time to invest in Rogers Raw Materials Index Fund. Call broker Jim Deeds at 719-487-2854. Five year profit potential, 300%; risk level 2.75.     It is important to deal with a broker who watches Chaostan and researches these investments. For raw materials stocks, I suggest Global Resource Investments, 800-477-7853.     To invest directly in raw materials, the best way is to use commodity futures contracts or commodity options. I suggest Sue Rutsen at Fox Investments, 800-345-7026. Some of you who got into Fox's leveraged Chaostan-type Golden Parachute strategy this summer bought for around $2,200, and as of September 21st were able to sell for $20,000.     For precious metals and numismatics, which are the rarest form of raw materials, Resource Consultants, 800-494-4149.     For weapons stocks, Martin Truax and Ron Miller at Morgan Keegan in Atlanta; toll-free 866-813-9911.     I wish you all the best.        1 A total of 22 back issues are suggested in the October 2001 EWR and this Special Action Report mailed with the October issue. These issues would cost $418 if purchased individually. Best buy is to purchase the EWR Archive, containing all issues of EWR from Feb 1991 through the previous year, available to subscribers of EWR for $495; a $2,666 value. Non-subscribers price is $895, a third of the normal price of the full set of back issues. The Archive is searchable and comes with a Course of Study--indexed links to key EWR issues/articles--including Guerrilla War, Terrorism, and War and Your Investments. 2 Geopolitics: The study of the relationship among politics, geography, military forces, demography and economics, especially in regard to a government's foreign policy. You Must Learn All You Can About World Events! Read THE THOUSAND YEAR WAR. It gives you the big picture and full story of the ten century battle between the Islamic World and Christian West. It helps you understand what is happening in Central Asia and the Mideast, and how the coming oil war will likely develop. If you read only one book this year, this has to be it. $17.95 plus $3.90 shipping and handling (US delivery only). Don't hesitate, call now. You can also order the complete set of eleven Uncle Eric books (which includes THE THOUSAND YEAR WAR ) to assist you in understanding history as it unfolds. These books give you a model to comprehend the events leading up to September 11, 2001, and they will help you glean the essentials as you scan newspapers and magazines. The world has changed forever and you must know and understand what others fail to grasp. Mail the order blank or phone today, 1-800-509-5400. Order a set for yourself and another for someone you care about. ___ YES! I want to get a Free book with every set of eleven Uncle Eric Books I order. I understand I will pay $151.50 (a $166.45 value) plus $12.90 shipping and handling per set (US delivery only) which means I receive the copy "Uncle Eric Talks About Personal, Career and Financial Security" (a $14.95 value) absolutely Free. Please rush me _______sets of the nine Uncle Eric books so I can know and understand what others don't. __Please rush me _____ copies of THE THOUSAND YEAR WAR. 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