Last month you received a notice about an investment workshop that was accidentally sent as my Prosperity Alert newsletter banner. Please forgive this mistake. When my newsletter is sent, the emphasis is on news & views on matters that affect your prosperity. I treat my editorial job as the Prosperity Alert newsletter editor very seriously and I don`t use it as a way to get an ad read by you. Don`t get me wrong, I am proud to mention things that I offer because I believe that I offer true value but there is a proper way of informing you about that. I want you to know that I am grateful that you subscribe and I want to make sure that when you receive an email marked Prosperity Alert newsletter that it is first and foremost a newsletter with information and commentary beneficial to your financial well-being. I`m glad I got that off my chest. Let`s move on to getting some perspective on the craziness in the marketplace.

Crazy. Unsettling. Downright .Frightening These adjectives and more describe the insanity in the financial markets in recent weeks. Many positions in many portfolios have plummeted 10-20%. Before I get to explaining what is going on, let me get to the punch line first:

IF YOU ARE IN GOLD, SILVER, ENERGY & ALTERNATIVE ENERGY, STAY THE COURSE. THE SHORT TERM-MADNESS DOES NOT AFFECT THE INTERMEDIATE & LONG-TERM PICTURE. EITHER ADD TO YOUR POSITIONS OR SIMPLY SIT TIGHT AND RIDE IT OUT.

This is the same message I sent off as a client alert a few days ago. The clients that have been with me for a few years or longer understand this as a temporary yet ironically necessary event in an unfolding bull market. Every bull market in the last 5,000 years has had pullbacks as we are now seeing. The underlying fundamentals have not changed. Actually, they have changed. They have gotten better for commodities in general and gold, silver, uranium & related energy & precious metals investments in particular. Let me ask you a question.

From the highs that, say, precious metals have hit in early May to the lows they have plummeted to in early June, do you really think that anything has fundamentally changed in the world, the economy & the financial markets in the short stretch of a month? Think about it for a moment. Has anything fundamentally changed? Did a meteor strike us? Did a team of geologists discover that Antarctica is melting and we found that the entire continent is 100% gold, silver & energy? No. Did we make a spectacular discovery that promised us endless resources? Peace? Safety? No. No at all. You see, there are still powerful megatrends going on right now that will have a HUGE impact on our limited resources in the coming months and years. Look at these relentless powerful movements.

Conclusion: It becomes obvious: more people & more paper money means more demand for resources and higher prices for these resources.

The stock market has also corrected but I want to convey to people what happens when you invest with your head and tolerate the occasional short-term madness. What if you had invested money equally in general stocks (50% of your money in the Dow, NASDAQ, etc.) in the beginning of this decade (January 2000) and commodities (the remaining 50% in gold, silver, energy, etc.)? How would you have fared?

In the opening months, your stocks (especially your NASDAQ stocks) would have done well. The commodities would have lagged. After a few months, you might have said “gee, the stock market is great and the commodities market is not” and then proceeded to change accordingly. But what would have happened over the long haul, say stretching out to today?

The Dow Jones Industrial Average (DJIA) was at an all-time high of 11,722 in January 2000. As I write this article (June 8, 2006), I see that the DJIA fell below 10,900. In about 6 ½ years, the cumulative impact is that the DJIA fell over 800 points. In six and half years you not only didn`t make money but you lost ground. NASDAQ surpassed 5,000 during the first quarter of 2000 yet it is today under 2,200. In over six years your formerly high-flying NASDAQ portfolio fell by about 56%! But how about commodities such as precious metals and energy?

During that same time frame.

How about well-positioned stocks in these same commodities? On average, quality stocks did anywhere from 300% to 2,000%!

The lesson is that we must make rational moves with the long-term in mind even when the short-term seems crazy, irrational and look like they are going the wrong way. Here is a warning: The volatility and the insanity will stay with us a while because there are huge megatrends and countervailing forces affecting the markets. Some of it is accidental and the end result of millions of investors and organizations moving billions of dollars in and out of markets every minute of every business day. It makes the short term moves in the markets seem incomprehensible. Let me tell you something that SOUNDS crazy: don`t sweat it. These crazy swings usually are harbingers of major moves in the marketplace and if you are diversified and positioned in those investments that are LOGICAL, RATIONAL AND FUNDAMENTALLY SOUND, you will be rewarded when millions will get clobbered. It has happened before and it will happen again.

What bothers me in all of this is the government. It has played a hand in this madness and it infuriates me because people (like you and I!) have been harmed, if only temporarily. A big reason for gold & silver`s violent correction has been that central banks (government-run banks) sold off tons of gold and have allowed similar artificial moves in silver to force the price of both down. You can find more details about this wretched intervention & interference in a different section of this issue. (See below in the freebies on the Internet section). As the government intervenes and gets gold & silver to drop, this in turn panics the short-term traders and speculators who in turn sell their holdings which causes a steeper price fall.

Why would the government intervene like this? First of all, the government (more specifically, the Federal Reserve (America`s central bank) & the US Treasury (in concert with private investment bankers) see gold & silver as competition against their currencies. Traditionally, central banks hate gold & silver. Secondly, precious metals such as gold have been seen as an inflation hedge. As inflation goes up, people get more of their wealth out of dollars & other currencies and get into gold. The point here is that government should be a referee in financial markets, not an aggressive player. This is infuriating since it tremendously warps the market in the short-term. In spite of this, precious metals (and other commodities such as oil & uranium) have a very bullish future and the data tells me that the picture will become more bullish.

For more on this topic, Please listen to the first edition of Prosperity Alert`s audio report (see details below).

Right now, it is best to be on the sidelines (briefly) for those that are in stocks, futures & options. This month will very likely be the bottoms of this vicious correction so if you have positions, sit tight. You will be fine since time & market conditions are on your side. In the meanwhile, do some things to improve your financial condition:

A.      Reduce your debt. Interest rates may keep rising.

B.      Build up your cash reserves (emergency fund). You need a “rainy day” account. This is also a place to park your cash in anticipation of the next leg in the bull market.

C.      Start finding ways to cut expenses, spending, etc. This is a consumption society now and it will come back to haunt us (sooner rather than later).

D.      Find ways to reduce your exposure to rising energy costs. (Get rid of the SUV?) Investigate things such as solar power. Rising energy costs are in our future.

E.      Buy Silver Eagles. 5 years from now you`ll say that it was one of the best things you ever did. Need some great guidance on doing this? See the item later in this issue regarding www.silver-investor.com.

The following important essay was reprinted with permission from James Cook. This and other excellent market commentaries are provided at the website www.investmentrarities.com. This is a BOMBSHELL article:

TED BUTLER COMMENTARY
June 12, 2006
Silver Default Looming?

(This essay was written by silver analyst Theodore Butler, an independent consultant. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)

In last week`s article, "Proving the Silver Manipulation Again," I highlighted the growing and extremely large concentrated position of the largest short traders (compared to the largest long traders) on the COMEX silver market. I based all my analysis on source data contained in the Commitment of Traders Report (COT) as of May 30, 2006. My intent was to show how the evidence constituted reasonable grounds for an immediate investigation into possible manipulation. I directed this information to the new chairmen of the Commodity Futures Trading Commission (CFTC) and the NYMEX/COMEX, as did many of you, with the expectation that they would explain and/or rectify the situation.

The just released COT, for positions held as of June 6, 2006, shocked and dismayed me. Not only did it confirm my contention that the largest short traders on the COMEX continued (and actually increased) their dominance over long traders by excessive concentration, the new COT contained data that was so disturbing that it raised the possibility of a looming default in COMEX silver. At a minimum, the new data fully explains the recent sharp sell-offs in silver and strengthens my allegations of a downward price manipulation.

What makes the new data so disturbing is that it may indicate that a couple or even just one of the very largest short traders may have become isolated from the rest of the dealer short community and has turned into a rogue trader seeking to intentionally drive prices down to reduce economic loss or to acquire silver on the cheap in other markets. While the dealer community, as a whole, aggressively bought back and covered short positions on the price decline in silver (as expected), the very largest trader(s) actually increased short positions on the decline. This is unprecedented.

And for those confused as to why silver prices have been so weak, the COT report should provide an answer. The largest trader(s) have been selling whenever the market is most illiquid (on the electronic Access market on off-hours and regular session openings and closings) to cause the biggest price declines. It is predatory pricing at its most extreme, designed to cause liquidation from leveraged long position holders. Unfortunately, it has had the intended effect, as leveraged longs have been flushed from the market. Needless to say, this violates commodity law.

Most importantly, the new short selling by the largest trader, on severe price declines, provides prima facie evidence of manipulation. Previously, short selling by the commercials only occurred on price rallies. As such, such selling could fit into the category of market making (a separate issue which may violate commodity law). But with new shorting on severe price declines, all pretense of "normal" selling goes out the window. The selling by the largest trader is clearly designed to cause further price declines. More compelling evidence of manipulation is hard to find.

Let`s look at the data. The current COT shows that the reporting commercials reduced their total net short position by 5300 contracts, principally by an increase in their gross long position. Even the traders identified as the largest 5 through 8 traders reduced their net short position by roughly 2000 contracts. But the traders identified as the largest 4 or fewer traders actually increased their net short position by 1200 contracts. As a result, the 4 or less large traders hold a more concentrated position, relative to long traders, other commercials in total and the 5 through 8 traders, than at any time in history.

The change in the actual numbers of contracts in any one-week is not as important as is the behavior and intent of the largest traders that those changes may reveal. It is clear from the ongoing data that the dealers as a whole are running from the short side of silver, while the very largest trader(s) is selling more. I repeat, this has never happened before and should be a significant signal to the CFTC that something is very wrong.

Starting with the COT report of February 28^th, the concentration ratios showed that for every net short contract held by the 5^th through 8^th largest trader, 1.96 net short contracts were held by the 1^st through 4^th largest traders. Since that time, this relationship has changed. With the last report we now see that for every Net short contract held by the 5^th through 8^th largest traders, there are now a staggering 4.45 contracts held by the 1^st through 4^th largest traders. The following graph illustrates this increasing concentration of short interest on the part of a very small number of traders:

 In other words, the 4 or less large traders have more than doubled their concentrated short position relative to the next 4 largest traders during this time period. (Special thanks to Carl Loeb for the graphics and other important contributions for this article).

As previously noted, the fact that a concentrated position exists does not in and of itself mean that a price manipulation is occurring. However, it is also true that without position concentration, manipulation is impossible. This is presumably why the CFTC publishes the concentration ratios for the 8 largest traders – so that when concentrations begin to occur, they can serve as a "red flag" for regulators to make sure an illegal manipulation is not occurring.

Note that the graph shows that the majority of the increase in the concentration of the large trader(s) net short position occurred from May 9^th on – precisely during a period of significant and relentless price declines when all other commercial traders were significantly reducing their short position and adding to their long position. A concentrated position either long or short can be an indication of intended manipulation. Such a concentration which drives the price in the direction of the concentrated position is a smoking gun that cannot in conscience be ignored by the exchange or the CFTC

The most recent COT reports provide stark confirmation that an unprecedented concentration of positions has occurred, is growing larger, and as a result, alarm bells and flashing red lights should be going off at the CFTC.

The 4 or less large traders are now net short the equivalent of 187,625,000 ounces, or 37,525 futures contracts, an incredible 86% of the total net commercial short position. This is the highest percentage in history. Mathematically, this means that the 4 or less short traders also hold the offsetting and reciprocal 86% of the total net long position in the combined non-commercial plus the non-reportable categories. Please think about that. What it means is that 4 or less large traders are net short what many thousands of public participants hold net long. Literally, 4 traders short against the world. Or, perhaps more accurately, one main short against the world, with the other 3 traders in this reporting category holding much more modest net short positions more in line to those traders in the 5 through 8 largest trader group.

What does this unprecedented and verifiable concentrated short position, manipulative as I allege that it is, have to do with possible looming silver default? Here you must rely on your common sense. You must think of how this concentrated short position will be resolved.

As I have written previously, every short position is an open transaction that must someday be completed, or closed out. The completion can be by a delivery, in this case by actual silver, or by a repurchase, or buyback of the shorted contracts. This applies to the 187 million ounces held short by the 4 or less largest traders. If, in fact, these traders do hold 187 million ounces of real silver that they intend to deliver, then there is no default looming. But that still doesn`t mean they are not guilty of manipulation and predatory pricing, as the ownership of a large quantity of a commodity does not allow one to dominate and manipulate a market, according to commodity law.

If these traders do not own the actual silver, however, in addition to price manipulation, the specter of disorderly pricing and/or default becomes more likely. These large traders are clearly influencing prices to the downside and it stands to reason they will influence prices to the upside if and when they reverse course. First, manipulation to the downside, then disorderly pricing to the upside. That`s pretty ugly from a regulatory perspective. But there`s even an uglier outcome – an actual default on the COMEX silver contract by repudiating those contracts through bankruptcy.

Of the 187 million ounces held short by the four or less traders, I am now convinced, from studying the data that anywhere from 100 to 125 million is held by just one trader. It is looking more likely that this could be a rogue trader, selling more in order to buy time, although he`s probably already in too deep. The other dealers are realizing this and they are moving to buy back their short positions and going long, leaving new selling solely to the big short. Recent history is replete with examples of this type of behavior. For instance, rogue traders from the Peoples Republic of China have emerged in both oil and copper in the past couple of years. Why not silver? While I certainly wouldn`t be surprised if it turns out it is a rogue trader from the PROC behind the concentrated silver short selling, the person who is not important. What is most important to the market is that rogue traders eventually default, and the default causes chaos

I know I can`t blame the officials from the CFTC and the COMEX if they do not want to hear from me. What institution wants to hear from a critic, especially an outsider? But I know I may be doing them a favor, by alerting them to a very serious potential problem. Given the current concentration of a short position well in excess of all COMEX inventories (certainly not all of which is available for delivery), the risk of a default in COMEX silver by the largest and most concentrated trader looms large. Innocent bystanders, from clearing member firms to ordinary seat holders and traders, and employees of all types would suffer in a silver default. Default is the worst possible thing that could happen to any exchange or market. A default would make the thought of the NYMEX going public a sick joke, even sicker than Refco`s public offering turned out to be.

The last thing I wish to witness is a default in COMEX silver. In the spirit of averting such a terrible occurrence, I`ll even offer a constructive solution for preventing such an outcome. Exchange and regulatory officials should insist, just for the most concentrated short traders, that for every contract not certified to be backed by readily deliverable silver, the full contract value be maintained as surety the position can be settled without disrupting the common good and damaging the ordinary investors the CFTC was created to protect.

Just so no one misinterprets my words, this default potential is the most bullish development possible for the price of silver and those holding real silver positions. It introduces a bullish factor beyond description, as and when this concentrated short position is resolved. Please allow me to leave it at that, as I don`t want to detract from my message to the regulators by speaking of the investment merits of silver.

I know that the issues I raise are serious and the regulators will respond, as they always do. However, the last time I petitioned them, with your help, we had to wait five months and wade through 9 pages of convoluted and misleading denials. The current situation in silver is an emergency. It is a crime in progress. The big short is forcing the market sharply and intentionally lower by building on an already heavily concentrated short position as is clearly evident from the CFTC`s own published data. This serves no sound general economic purpose, and may only serve to delay a terrible day of reckoning, which when it comes, may be a very ugly event for the exchange, its trustees and the CFTC.

The regulators from the CFTC and the NYMEX/COMEX must immediately intercede to halt the manipulative behavior of the concentrated short trader(s) and take measures to protect the market from default. Or explain, in a timely manner, why their published data is not indicating a manipulative and dangerous concentration not seen since the days of the Hunt Brothers.

There is so much to say about the current market that I can`t adequately convey on paper so I decided that this month is the launch of my audio report. It is at my website www.supermoneylinks.com. There is no charge so feel free to listen to it (or download it) and feel free to pass it along to others. Please keep in mind that it is a proprietary audio program however I will allow people to freely pass it along as long as the content is not changed and it is not used in an abusive or unlawful manner. To get to this important commentary, please CLICK HERE.

You need to know what`s going in with gold & silver so I strongly recommend that you go to Bill Murphy`s excellent site Le MetroPole Café. Sign up for a free 2-week trial membership at www.lemetropolecafe.com. Get a free email subscription to Jason Hommel`s excellent email newsletter at www.silverstockreport.com. Both sources offer great insights that are so needed right now.

The advanced workshop that I ran in April was very well received so the next session will be on Saturday, June 24, 2006. Feel free to contact me at 201-585-0239 or email paul@mladjenovic.com. It will be an intensive nuts`n`bolts workshop with strictly limited attendance. Full details will be emailed to those that are serious inquiries.

All my data tells me that silver will be a phenomenal speculation for the remainder of this decade. It has been very volatile in recent weeks so investors need to navigate this market with top-notch information and market intelligence. Consider David Morgan`s website www.silver-investor.com. I thing everyone should buy some silver eagles as a part of their wealth-building pursuits (especially during a market correction). But how do you go about it? Prices & premiums on silver bullion coins can be varied and confusing. Fortunately, David Morgan has a great consumer report of buying silver. It could save you a lot of money as well as time & effort. Go to his site and explore it. His resources and offerings are great (no. I wasn`t paid to say this J. Go see for yourself)

Thank you for reading this issue of the Prosperity Alert. The May-June period has been a rough time for precious metals & energy but the upside will be more powerful as the months and years unfold. Stay patient, informed, diversified and disciplined. These qualities are necessary for every wealth-building plan no matter what is happening with the markets. I will provide more information & commentary in due course.

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For those of you that need excellent point and click Internet services, please contact them directly through their website at www.NexWEB.com.
Tell them Paul sent ya!

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Thank you for reading this issue of the Prosperity Alert. Feel free to pass this along to others (unchanged, of course) or encourage them to get their own free subscription at www.SuperMoneyLinks.com. The next issue will be in your email inbox sooner than you think.

Regards,

Paul Mladjenovic
Email: paul@mladjenovic.com
Tel: 201-585-0239