I'm sure all of our readers know about the tragedy in South Asia. The death toll from the tsunami has reached 150,000. Secretary of State Powell has described the conditions as worse than the Vietnam War. If you would like to help, CNN has compiled a list of charities that are accepting donations at http://www.cnn.com/2004/WORLD/asiapcf/12/28/tsunami.aidsites/

Although the U.S. has generously pledged to donate $350 million, and to help transport supplies to the devastated region, there may be a more pragmatic reason for the aid. Powell expressed hope that American contributions to tsunami victims would improve U.S. security around the globe. "We believe it is in the best interest of those countries and it's in our best interest and it dries up those pools of dissatisfaction which might give rise to terrorist activity," he said.

Unfortunately, guerrilla violence continues in Iraq. The governor of Baghdad was assassinated this week, when insurgents ambushed him in his car. Fifteen people were killed yesterday by a suicide bomber in an area of central Iraq known as the "Triangle of Death." This violence and other recent incidents cast doubts on the plan to hold a national election on January 30th. So far, over 10,000 U.S. troops have been wounded in the Iraq War. Iraqi President Allawi has extended martial law for 30 days to attempt to maintain order at the polls. Sunni leaders want to postpone the election due to guerrilla attacks, but Lt.-Gen. Thomas Metz asserted that any delays could spark civil war.

Silver and the Dollar

Silver's drop is probably related to a short covering rally in the U.S. Dollar, which reached a high of 83.35 today. The dollar refused to drop below the .8000 level on 5 occasions, so many traders anticipated a bounce. We may see more strength tomorrow if the American employment statistics are positive. The dollar may have also been helped by the Federal Reserve's announcement that it plans to continue raising interest rates.

However, the dollar will inevitably decline again. It's already shed over 30% of its value since 2002. (See http://futures.tradingcharts.com/chart/US/M for the chart). The U.S. current account deficit shakes the confidence of foreign investors. Spending on foreign aid and wars further strains the America's budget. Fannie Mae and Freddie Mac, with a collective $1.7 trillion in debt, look like they will need a government bailout. Many corporate pension plans already have been rescued by an infusion of cash from the U.S. Pension Benefit Guaranty Corporation.

In contrast to the dollar, silver's fundamentals have never been stronger. As I mentioned in a past newsletter, China has secured 75% of silver production for 2005 through derivatives and other contracts. This leaves very little supply for the rest of the world. Silver demand from India and Middle Eastern countries continues to increase. Industry continues to find new applications for silver, improving electrical, medical, and automotive products. Silver won't stay under $7 for long, so stock up now!

In the next newsletter, I'll talk about the big news coming out of Mexico and China. Have a good weekend!