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Printable version |
| From: | hamosh@webmail.visp.conz |
| Date: | Sat, 06 Oct 2001 19:20:57 -0500 |
Excerpts from:
An international financial, economic, political and social commentary.
Published and Edited by: Bob Chapman Vol. 5- No. 10-1
Phone & Fax: 941 639 4756
E-mail: bif4653@home.com
UP-COMING CONFERENCES
CHICAGO NATURAL RESOURCE/TECHNOLOGY CONFERENCE - November 17, 2001
Rolling Meadows Holiday Inn. Speakers: Joseph Granville, Editor "Granville Market Letter";
Bob Chapman, Editor, "The International Forecaster"; Clyde Harrison, Manager, Jim Rogers Index Fund;
David Tice, Portfolio Manager, Prudent Bear Fund; David Coffin, Editor, Hard Rock Analyst.
Reservations required call Barbara Allen at 1-800-285-1700 or email ballen@danoyes.com
or rradez@danoyes.com - the Conference is FREE.
SAN FRANCISCO: The New Opportunities Conference in San Francisco on November 25th and 26th, 2001 at the San Francisco Marriott is the largest and most well attended natural resource investment conference of its kind in the world today. Admission is complimentary to all Fund-Managers, Industry Analysts, Brokers, and Individual Investors and attendance is at an all time high already this year. Top Line-up of more than 75 speakers including Economists, Analysts, Newsletter Editors and more with Mr. Bob Chapman and the International Forecaster. Check the website at www.iiconf.com <http://www.iiconf.com>. – Call for reservations at 1-800-282-7469. Mr. Chapman will be speaking and have a workshop on Sunday, Nov. 25th.
PLEASE NOTE
: WE WILL NOT BE PUBLISHING NEXT WEEKEND, THE 13TH OF OCTOBER. IT WILL BE OUR LAST TRIP UP TO CONNECTICUT TO VISIT WITH THE GRANDKIDS BEFORE THE WEATHER CHANGES. YOUR NEXT ISSUE WILL BE THE 20TH OCTOBER 2001 (#2).US MARKETS
One of the outgrowths of the terrorist actions will be the consolidation of America’s grip on the Middle East, the acquisition of the Caspian basin and an extended military presence in central Asia, which we told you long ago was to outflank Russia. They will exert pressure on Pakistan, which is a nuclear nation and isolate it from China. This policy could lead to disaster if a major war develops.
The elitists have created a climate of fear and through that medium they intend to control and manipulate humanity. The goal of that manipulation is centralized power and a world government run by elitists for elitists. The latest moves in west central Asia are not only to outflank Russia, but also to destabilize the region allowing pro-US governments to assume power and thereby neutralizing sovereignty.
If you wondered why the elitists, through the central banks that they control, allowed our current debt bubble, you might look for the simplest explanation. That is debt is a form of control, because if you can get people into debt you can get them to do almost anything you want. The world is paying interest on money that doesn’t even exist. That money is created by private banks by simply making entries on a balance sheet. This debt is what has historically kept people in servitude. Today, as in the past, nothing is ever done to expose this travesty of fractional banking because usually 80% of politicians have been bought off in one way or another. The same agenda continues to keep unfolding, which is that of global centralization of power and the end is ultimately achieved by the control of money and credit When you think of it governments borrow money from these private banking cartels and pays interest. That means you taxpayers get to pay that interest.
Equity stock funds had an outflow of $14.7 billion in September.
You didn’t want it to be true, but it is true, that the face-scanning big brother camera technology is being used in England and in several US locations. The good news is it’s only effective 80% of the time; the bad news is this scanning technology is linked into (FEMA) the Federal Emergency Management Agency’s computer database. Orwell, where are you now that we need you? These scanners do not cut crime they just help policing organizations keep track of people. The elitists are closing in on us and that is a fact.
Now that they have delisted thousands of long-term listings, Nasdaq is changing the rules for listing standards. We charted 42 Nasdaq gold stocks six years ago, now there are a few left. Nasdaq has now decreed that companies with prices under $1.00 per share will not have to be relegated to the Bulletin Board. All those tech dotcom disasters that traded at $10-$250 now are ready to go under, but they must be saved. They are owned by clients of major brokerage firms. That includes four companies in the Nasdaq 100 Index. 312 listings had been scheduled for relegation. Thus far this year Nasdaq has delisted 324 companies versus 240 for all of 2000 and 440 in 1999. We had said 17 months ago that at the rate delistings were going there soon would be far fewer securities to buy on Nasdaq. We believe that all delisted companies should demand they be readmitted to Nasdaq and if not admitted they should bring damage suits in behalf of shareholders.
All but a few Washington politicians are going along with the $25 billion increase in discretionary spending. That 7% increase will be spent on education and defense and will come from the Social Security, Medicare, Medicaid and government pension funds reserve. The White House pushed the allocation and Democrats eagerly went along. This avoids a yearend budget battle. The extra $25 billion will be split, $18.4 billion for defense, $4 billion for education and $2.2 billion for unanticipated costs.
California Treasurer Philip Angelides warned that a "freight train of fiscal chaos" is racing toward the state and can only be stopped by the pending $12.5 billion power bond offering. The sale has been delayed repeatedly and the alternative is cuts in education or a 2% sales tax increase. A dozen parties are challenging the legality of orders as drafted. It involves the unconstitutional transfer of authority to the California Department of Water Resources. Critics say once the orders are passed the state’s energy consumers will be stuck with paying off the power bonds for the next 15 years.
Home refinancings will now likely total $875 billion or more for the year surpassing the all-time record of $720 billion in 1998. The 30-year fixed rate mortgage is now 6.72%. Mortgage applications jumped 20% this past week. This translates into $52 billion in extra consumer spending.
The theory, as put forth by Keynes, government spending creates jobs, because of the multiplier effect leading to further spending and growth is wrong. This is part of the garbage we suffered through in economics in college. Just the opposite is true. Marginal efficiency of capital is higher in private sector investment and spending than in the public sphere. Command economics does not work, just look at the results of central planning in the Soviet Union. Politicians want public versus private spending so they can control it and get credit for it.
The first bear market rally is in force having been launched from the most oversold conditions in 10 years. It will run up 10-20% in spite of 2002 P/E ratio’s of over 25 times earnings and a market selling at 130% of GDP. Stocks are still way overpriced and the bear market is perhaps only 1/3 over. The University of Michigan reported that consumer sentiment fell to 81.8% in September from 91.5% in August and much of that negativism came before the terrorists’ attacks when the index stood at 83.6%. These numbers are hardly encouraging. We still see the next down leg at 7,200 to 7,500 on the Dow, 940 on the S&P and 1357 on Nasdaq.
For the week ended 9/17/01 M2 was up a staggering $164.5 billion, a 13.7% rise, while M1 was $114.8 billion higher, a 17.9% increase. M2 is currency and most forms of checking-type accounts. M1, the FED’s narrow gauge is cash and checking deposits. The additional accelerated money supply is being used to deflect a collapsing stock market. Prior to last week’s jump M2 was expanding at a 9% annual rate.
According to Moody’s prior to 9/11/01, spreads on junk bonds were 732 BP (basis points), but have since risen to 892 basis points over comparable treasuries, indicating investors demand extraordinary yield premiums for the risks they perceive. That surpasses the former cyclical peak of 879 BP in December 2000. In 1990, junk bonds saw spreads hit 1,000 BP’s. The spread between the Merrill Lynch High Yield Master Index and 10-year Treasuries increased to 852 BP’s on September 24th from 812 BP’s on 8/21/01. Last January junk bonds were trading at their lowest levels since the Drexel debacle in the early 1990s.
As we head toward depression costs are moving higher. A subscriber writes:
Thought you’d like to know---My dad and partner got a renewal quote for property insurance on their 2000 unit $150 Million (before mortgages) Apt Portfolio ---------new rate is more than 400% of old rate.
Yes they have had big roof hail claims in 1998, but this is way more.
Even with a $1mllion per occurrence deductible, the rate does not come close to previous rate.
On a capitalization basis, this could devalue commercial property by TEN PERCENT and force insolvency on recently purchased real estate assets! ! !
Brokerage firms, as we predicted, are continuing to bite the bullet. Morgan Stanley is cutting 200 investment bankers or 10% of its banking staff. The company has 62,000 employees worldwide. Other recent cuts in the industry were Charles Schwab 3,900, Merrill Lynch 3,800, Bear Stearns 346 and S. G. Cowen, the US securities arm of Societe General; the French bank will cut 72 of its 600 employees. Earlier Goldman Sachs cut 12% of its investment bankers or 150 and J. P. Morgan Chase cut 5,000 employees. They probably will cut 3,000 more employees post merger. Global common stock sales have fallen 46% to $79.8 billion in the first nine months of 2001 from $147.2 billion in the first nine months of 2000. The volume of global IPO’s by US issuers has plunged 54% to $27.1 billion in 2001 from $58.5 billion in 2000.
If it’s not working throw money at it, that is taxpayers hard earned money. It is unlikely that a tax cut for businesses will provide the quick shot of adrenaline the slumping US economy needs. The Congress is just on the verge of passing fiscal stimulus, that instead of stimulating economic growth it will undercut that goal by creating uncertainty about long-term fiscal discipline. That is short-term injections tilted toward the poor, who will be sure to go out and spend the extra money. The last tax cut showed enough of the tax cut was spent to hold up spending, but that’s it. Most of it went to reduce debt as we predicted. The poor are essentially too uneducated to worry about whatever debt they have. They’ll spend it quickly. That is all well and good, but it doesn’t solve the systemic financial problem and that is to let the recession-depression run it course. If business tax cuts are imposed the difference will go to pay off debt and simply won’t go into investment, because investment isn’t needed if the demand isn’t there, especially in the teeth of a continued decline. As you have seen, just like in Japan, lower interest rates have done little to help. We are already overinvested that is why this normal economic and financial purging is going on. Uncertainty and lack of confidence in government and our business leaders is depressing demand just as it has for ten years in Japan. That is borne out by capacity utilization of 76%, the lowest since 1982. Lower corporate taxes are a stopgap to cushion profits and will last only a year or so. Americans are spent out and loaded with debt. You can expect no further tax help for the middle and upper class, because they are smart enough not to spend it. Our guess is Congress will reward the poor for being a drag on society and end up spending on pork barrel projects as FDR did. That way they can buy the maximum of votes. There will not be another budget surplus for sometime to come as we are back on the road to record deficit spending.
The anointed, kept, elitist economists tell us now GDP will be off as much as 4% for the rest of the year and that we should cut taxes and increase spending $200 billion. How’s that for madness. As you can see business wants a better economy irrespective of the cost. The cost is the destruction of the Social Security System. The White House has questioned whether the nation can afford to pay such a hefty price. Mr. Cheney figures the present White House approval rate of 90% will let it get away with just about anything and he wants Congress to run with the idea, with his backing. Mr. O’Neill, erstwhile Treasury Secretary has not voiced any objections to the Democrat’s idea of repealing the enacted reductions for high-income families and gives those funds to the poor who will spend them and have even more offspring. Talk about subsidizing the dumbing down of our culture. It is very interesting that these off the record meetings, negotiations, secret talks, are not for public consumption. What we have reported above was leaked by some in attendance. We are surprised the administration didn’t deny meetings took place. Truth is an asset the White House and most of Congress is short on. That is typical of sociopaths.
A tighter immigration policy, augmented by our recent terror attacks, could be on the way. That is new restrictions or even a temporary halt of all legal immigration into the US. Rep. Tom Tancredo, Chairman of the Congressional Immigration Reform Caucus, plans a bill to halt legal immigration for six months giving the INS time to stop and take inventory of what they are doing. Recommended would be a tracking system for legal immigrants entering the US. Democrats gutted such a system from a previous piece of legislation with the help of Republicans. A labor-big business effort. That means tracking 800,000 foreign students. The problem really is Congress has no plan to deport 10 million illegal aliens, many of who constitute a major threat to our society. You don’t want to be in a major city when terrorist acts take place and Haitians, Dominicans or Central or South Americans are involved. You can end up with major social disruption.
Jobs are extremely difficult to find. The travel industry has been decimated. Hotel occupancy rates are 35%, casinos are empty, and New York will lose 108,500 jobs. This would have happened anyway. The terrorist attacks just expedited it as we said before it would. Making matters worse business investment was unchanged in the second quarter, off 14.6% after falling 0.2% in the first quarter. A bright light is that inventories fell by $38.3 billion in the second quarter, the largest reduction since 1983, after having cut $27.1 billion in the first quarter. Due to the slowdown second quarter consumer spending rose at 2.5% versus 3% in the first quarter.
In an ongoing attempt to rig the stock market the SEC took the unprecedented step of extending for two weeks waivers that let companies more easily buy back their own stock. The Labor Department has granted regulatory relief to savings plans hurt in the financial upheaval recently. The action allows investment companies, such as mutual funds and insurers affiliated with retirement plans, to make interest free loans to shore up the retirement plans liquidity. Do you get the impact of such actions? The government is rigging the market in wholesale fashion. They are guaranteeing everyone’s long positions. We wonder if it has occurred to them how they will compensate those who have lost billions of dollars who are on the short side of the market? There is a massive cover up going on of massive government interference in our stock and commodity markets. This is the most blatant misuse of government power in US financial history. Corporatist fascism marches on.
The federal government is hiring by the thousands. Jobs relating to the terrorist attacks for speakers of Arabic, Farsi and Pashto are being offered jobs at $27 to $38 an hour. 12,000 eligibles applied in two weeks. The Office of Personnel Management is rehiring retired federal employees. The FAA is hiring air marshals for $37,000 to $80,000 a year. They received 180,000 applications. Customs advertised for 3,000 entry-level inspectors. They received 5,900 responses in 3 1/2 days. The CIA can’t recruit fast enough.
California is increasing unemployment benefits beginning next year raising the maximum from $230 to $330 a week beginning 1/1/02. By 2005 the benefit will increase to $450 a week. We wonder where the money will come from. Maybe they’ll just print it in a Sacramento basement. In this climate this is financially suicidal. They expect unemployment rates of 5.7% in 2002 and 5.6% in 2003. We say 7% to 8.3% in 2002 and 8.8% to 12% in 2003. California is an explosion ready to happen. They have millions of uneducated laborers and are overrun by illegal aliens, a social powder keg. You get the kind of government you deserve.
Finally, the Supreme Court has disbarred our degenerate ex-president Bubba, the Pervert Clinton. He is a disgrace to our culture and a perfect example of an elitist operative.
Word is 20 Internet domain sites were registered as early as June 2000, 15 months prior to the attacks with names such as worldtradetowerstrike.com and pearlharborinmanhatton.com. Yet the registration company didn’t pick them up and if they did turn them over to the FBI nothing was done about it.
Sandy Warner, Chairman of J. P. Morgan Chase, is retiring before the exposure of the gold manipulation hits the company. The head of the company’s Internet efforts rising star Nicolas Rohatyn, left three weeks ago. Ramon de Olivira, head of investment management and private banking, Clayton Rose CEO and Joe Walker of mergers and acquisitions have also left. It reminds us of rodents deserting a sinking ship.
Bear Stearns says average margin debt has fallen from $56.4 billion during the third quarter of 2000 to just $37 billion for the same period this year.
Something we didn’t see in the US media was that Osama bin Laden had at least 55 bases or offices in Afghanistan and 13,000 men, ranging from Arabs and Pakistanis to Chechens and Filipinos.
US tax receipts are down for the first time in 18 years.
A recap of major layoffs: Boeing 30,000; American Air 20,000; United Air 20,000; Honeywell, Int. 15,800; Continental Air 12,000; US Air 11,000 and Northwest Air 10,000. Airlines alone have layed off 115,000 workers.
The Treasury sold $8 billion of 4-week bills a reduction of $4 billion from the previous sale.
In the third quarter 1% of mutual funds were up in value, the worst performance in 14 years. Blue chip funds lost 10%. 8,627 funds lost an average of 17.96% for the quarter, the worst result since the fourth quarter of 1987, when funds were off 21%. The Dow was off 15.8%, S&P 14.69% and Nasdaq 30.7%. The winner was Pimco’s total return Fund, a fixed-income fund, up 6.5%.
Arizona’s budget deficit is three times worse than estimated, and could be as high as $1.6 billion over the next two years.
United Airlines, while crying poverty and stating it was headed for bankruptcy at the same time was placing an $11.25 million down payment for 30 business luxury jets. What do congress and the administration have to say about that?
Sallie Mae, the largest provider of student loans, will forgive debts owed by sponsors of those killed or missing at the WTC. They also will offer scholarships to victims’ children of $2,500 per year per child. The surviving spouses still have to payoff their loans.
There is no question the Northern Alliance can make life for the Taliban far more difficult, but unfortunately they are funded from opium sales. Their product moves from Tajikistan into Russia and points west. The Taliban had all but stamped out illegal narcotics traffic. Afghanistan produces 75% of the world’s heroin.
The United States government was in an interesting situation. The budget surplus (which may or may not have really existed) could have been returned to the taxpayers, but after grudgingly allowing a minuscule tax rebate, Congress indulged in a pork orgy. They spent the entire surplus and then some, jacking government spending up to unprecedented levels. Absent a dramatically expanding economy, this ensured that taxes would have to be raised to support government programs at the new levels.
Then the global recession began to show itself. It suddenly became clear that revenues were about to plummet. In our opinion, the US government was looking at drastic cuts in spending within two years and a taxpayers' revolt with real teeth in it.
Then we had the terrorist attacks, and voila. The American public now believes that 1) the attacks caused the recession [not true]; and 2) taxes must be raised substantially to support the war effort. The level of taxation has now been removed as a political issue. It's unpatriotic to criticize the war effort, you see...
We now have a permanent state of war, a national emergency that will never end. Elements in the US government that wanted to impose a police state now have free rein to do so. We now have our very own KGB. Any public resistance to the loss of liberty will be squelched by the next two or three terrorist incidents, which are guaranteed to be more heinous and frightening than what we have already seen. --They must be, in order to make us throw away the rest of our freedom.
Bin Laden is being targeted as a PR stunt. When our Special Forces bring him back (or his head), it'll be the photo op of the century. He's a terrorist. We haven't disagreed with that. He's just not the one who is responsible for these attacks.
Information is beginning to seep out that the US government had advance notice of the airliner hijackings. They chose to take no precautions. The borders were not closed; known terrorists already in the USA were not expelled. Even now we deliberately allow illegal aliens to remain.
The FBI investigation is starting to remind us of the Park Police investigating Vince Foster's death or looking for Chandra Levy. It's frenzied activity by (mostly) low echelon personnel while those in the know keep silent. Agents have been told to look for evidence implicating Bin Laden. In FBI speak, this means "ignore and suppress other leads." We saw this done in OK City; we're seeing it again. This investigation is not supposed to produce results (except for the politically ordained finding that Bin Laden was responsible).
While 1/3 of the FBI is attempting to roust every Arab and Arab-American in the country, the other 2/3 plus an army of federal contractors has fanned out through the countryside to track domestic dissidents and Second Amendment advocates. We can't prove this but we are convinced it is true. There are a lot of new faces here in town, and they aren't interested in Arabs. A crackdown on critics of government is in the works.
As to where this is all going, we think we will see several years of police state oppression, including arbitrary confiscations of property, censorship, and critics sent to the camps. We will certainly see riots in the inner cities as the economy craters and minorities who've been on the dole demand reparations.
Over the next year we expect to see President Bush give another speech. By then the economy will have crashed and the international situation will have deteriorated immeasurably. We believe that he will announce a "temporary" (new) state of emergency, with "temporary" suspension of some parts of the Constitution, "temporary" suspension of gun sales and the issuance of gun shop permits, "voluntary" collection of firearms and much else. We believe he will offer to remain in office for the duration of the emergency. (You will note that this was the first thing to cross Rudy Giuliani's mind.) We may not have another national election.
Nevertheless we believe the federal government will eventually collapse. The taxpayers cannot bear the burden of the war costs and the increased expenses of a socialist police state. The government will suck every dollar of value out of the economy as soon as it is created, stifling the recovery. Eventually it will fall of its own weight. We believe and hope we will then reorganize along the lines laid down in the Constitution, if not we’ll have to use alternative methods.
The FED again cut interest rates. This time from 3% to 2 1/2%, a level not seen since 1962. This is the FED’s ninth cut this year. As we predicted a year ago, they were nine months behind the curve. Due to their explicitly poor response and timing, the rate cuts have had little or no effect, just as in Japan. Before long they will be at zero, and they’ll just print and give money and credit away. The next cut could be 2%. A rate we haven’t seen since 1958. While the economy continues to slow our politicians are trying to discover if we are in a recession and Wall Street won’t say we are in a bear market, another non-event.
The terrorist attack has expedited what was already in motion, a plunge in consumer confidence and banks that won’t lend to small or medium-sized businesses. Only elitist and transnational corporations can get loans and they get them at very preferred rates from fellow CFR-Trilateral members. Another factor is the FED is running out of ammo. Another move to 2% interest rates by year-end will just about deplete its power to move markets and the economy. Does Greenspan really want to go the Japanese route to 1/2%? That means total impotency. Homeowners have already extracted $80 billion from their homes this year. They would take out $100 billion next year, but they won’t be able to because home prices are dropping. The government through Fannie, Freddie and Sallie has injected as much fiat money into the economy as the FED has. When they end their lending, because home prices are plunging and the FED has interest rates at a bottom, the only thing left is the printing presses. That means the Weimer scenario and rocketing gold prices. We can promise you 90% of refinancing funds are for debt consolidation and to protect borrowers from credit card debt that soon will not be dischargeable in bankruptcy court thanks to the elitist banks. Homeowners prefer negative real estate equity to debtor’s prison. This is a reversal of the Magna Carta. The public and even professionals don’t realize that the banking system is in disintegration just as it is in Japan. In Japan we can see the losses. They just haven’t showed up here yet. The FED funds rate is below the "official" inflation rate for the first time since 1991-93. The real inflation rate is over 9%. How is that for a loser? A 6 1/2% loss on capital offset by 3% interest makes you a 3 1/2% loser on treasury paper. Now you know why gold and gold shares are so attractive.
We continually hear there is no inflation and we live in great prosperity, well the average US worker must earn at least $11.28 an hour to afford the rent on a modest one-bedroom apartment, or $13.87 an hour for a two-bedroom. That is less than the nation’s $16.97 an hour median paycheck in 2000. The minimum wage is $5.15 an hour and 2.7 million Americans receive that wage. The gap between a minimum-wage salary and the cost of housing is widening everywhere. Things are not always as they seem and as the economy spirals lower the situation will get worse.
The IRS says it costs 39 cents to collect each $1.00 of revenue, the lowest cost level since 1954.
The Peoples Republic of California Public Utilities Commission rejected a proposed rate increase for electricity. Consumers, throwing into turmoil the state’s plan for covering the billions of dollars it has been forced to spend to buy power in the energy crisis. A plan is necessary for the state to sell more than $12 billion in bonds to finance its energy purchases. Governor Davis called the rate an irresponsible act, leaving the budget in perilous condition for 2002.
Not only have the elitists covered what they have done to our no longer free markets, but also they now have a license to print money unabated under the aegis of the war on terrorism. They have proven once again that they are above the law. They can kill with impunity and destroy those who oppose them at will. There is no question, as we mentioned in two previous issues, that bin Laden is an elitist asset, although an expendable one. The errors in why the errant planes were not taken out are legion. Either Americans, on the job are totally incompetent, or there was a conspiracy.
We are then greeted with a mega rally in the Dow, which moved from 8,100 to 9,200 in ten days, or 14.3%. Each and every day there is little shorting by the big Wall Street houses and mysteriously stock is not available to borrow in order to short the market. Each day is ended on the exchange with rallies in the final hour. It just doesn’t normally happen that way. The market is thin and it’s easy to manipulate. Irrespective bear market rallies can run violently 10 to 20%. When the market turns it will go down faster then it went up.
The President and Congress are in the process of spending $130 billion. The FED has injected over $211 billion into the economy. Perhaps now we’ll just perpetually run the printing presses because as Mr. Bush says, "I know our people are hurting." They have never had a bad day in their lives so why should they start now. Besides if we don’t jack up the economy the whole credit structure will collapse. The Treasury Secretary agrees with Democrats that the minimum wage should be increased. Robert Rubin, ex-Secretary of the Treasury, told congressional leaders in a private meeting that we need the stimulus Mr. Bush has requested. It is interesting how one administration really never leaves. The elitists are simply interchangeable. Mr. Greenspan, who just a few days ago told the White House and Congress to hold up on fiscal stimulus, was at the head of the cheering section for more largesse. These creatures all know the economy has lost its momentum, which was the desired effect, and they are pretending to fix the unfixable. That is why there is a stock market rally. They just don’t want to be blamed, because they know how very difficult things are going to get.
As we predicted states are having a very difficult financial time, not having anticipated the economic downturn. Illinois has a hiring freeze, Maine is cutting costs, in Florida $80.00 a month for prescriptions for the poor will be cut, Arkansas is making deep cuts as is W. Virginia and New Hampshire. Cuts will be $1 billion in Florida, $1.6 billion in Arizona and $1 billion in Washington State. In New York 7% of jobs are threatened by the attack and it goes on and on and it won’t get better, it will worsen.
TAP Pharmaceutical Products paid $875 million to settle charges that it inflated prices and bribed doctors to prescribe the top-selling Lupron, a prostate cancer drug. The attempted doctor payoffs were through educational grants.
In order to prevent government price fixing and the purchase of drugs sold at half the price outside the country, Glaxco Smith Kline, the second largest drug maker, has announced a discount program for low income elderly people who lack prescription drug coverage, reducing prices by 25%. This helps those not covered by Medicaid. We expect other drug companies will be forced to follow suit. GSK supplies 6% of drugs for those over 65 and even with the discount most won’t be able to buy needed drugs. To qualify you must be over 65 and have annual incomes at or below 300% of the federal poverty level, which is $26,000 for an individual or $35,000 for a couple, and you can’t have a drug insurance plan. That means less than 11 million people will qualify. You can sign up on 1/1/02. Pharmacies are against the program because it means less profits. The Carlyle Group, an investment firm, found the discount program an innovative response to the political and economic environment. Carlyle Group is financed by the Rockefellers, Bushes and bin Ladens, among many other super rich that own the drug companies. The discount program is a crumb to the masses.
Due to losses on bad debts credit card rates will not come down appreciably.
On 10/15/01 the Treasury will sell $5 billion in inflation-indexed bonds.
Investors added a record $19.59 billion to money market funds last week bringing net assets to $2.158 trillion. Institutional investors added $21.97 billion and retail investors withdrew $2.35 billion. 30-day compound yields fell to 2.89% from 2.99%.
Another Bush beneficiary of the terrorist attack is the "fast track" trade bill, which was dead prior to the incident. The House Ways & Means Committee will vote on it this week.
The Investment Company Institute says July saw investors selling $1.23 billion in stocks and in August $5.25 billion. In August they put $16.59 billion in bond funds and put $61.3 billion in bond funds so far this year.
There are flight data records and voice cockpit recorders for every plane and they have all failed to work or have disappeared. They were designed to withstand a crash and a 2,000 degree Centigrade fire for 30 minutes and 5,000 pounds pressure for 5 minutes. We can’t believe the coincidence. Our government is lying to us again. We want to know whey the evidence has been turned over to the FBI and not to the NTSB, the National Transportation Safety Bureau, as it usually is.
The S&P price to earnings ratio is 28.29 and 2002 is about 23 times. Historically the average is 14.5 times earnings. We still see plenty of downside.
Warren Buffett has again validated our forecast of a deep and long recession. Needless to say, the parasites of Wall Street and our government continue to tell us all is well. By this time next October, as the end of the fiscal year rolls around, the budget deficit will be over $500 billion. The terrible economic figures roll in and CNBC and stock market analysts make believe they are not even there. Nor does, Abby Joseph Cohen who’s present day charge is probably only 12 feet, after having buried so many, with so much inside information at her disposal. American investors are still being seduced and deceived and they buy and stay long the market. Once we arrive wherever it is we are descending too all of these hucksters will be held accountable. Remember, the economy and the market was a snake pit long before the terrorist’s attacked.
As you know we predicted a real estate correction a year ago as prices first began to weaken. We’ve recently reported trophy properties in San Francisco were dropping from $2 to$1 million and in Laguna Beach, CA from$2 to $1.2 million. Our guess is prices on lower priced properties will begin to ease downward and next year and in 2003 we could be looking at a bloodbath. The correction will take a far greater toll than the bear market in stocks. Homeowners have removed much of their equity from their homes by refinancing and if a $300,000 home, with equity of $30,000, drops to $200,000, which it easily could, the owner will simply walk away leaving the property to Fannie and Freddie. If the Dow goes to 4,500 real estate will crash. The $1 million plus homes will be worth $450-$500,000 and so on down the line. We saw this happen as recently as 1989-92. It will affect every home in America and commercial real estate as well. This will be the final straw that takes America financially to its knees, and it just didn’t happen, it was planned that way. This is the only way the elitists can attempt to bring about world government. Then America will have a choice. Will they succumb to servitude or will they take back their republic? This is what will finally bring about the Kondratieff winter so aptly described by Ian Gordon. The buyers are gone, only sellers remain. The credit splurge allowed by the government and the FED has set up the scenario where in the final analysis the federal agencies of Fannie Mae and Freddie Mac will end up owning 70% of the property in the country. You’ll still be able to live in your home even though you won’t own it, but you’ll be instructed by Homeland Security to house two other families designated by FEMA. If you argue you’ll end up in an interment camp, where you’ll join other dissidents like us, if we are still alive. The government, in infusing funds into the economy, is not trying to save it. They are letting it down gently so we won’t blame them for the collapse. They and the elitists want to be your friends so they can control you, so that you don’t challenge them two to four years from now. Like they have recently they’ll call upon your patriotism while your children are off fighting some foreign terrorist horde. Due to the turmoil within our own country foreign UN troops will be invited in by FEMA to protect American citizens and keep order. Under normal circumstances, like in Weiner Germany foreigners would buy property with harder currencies or with gold and silver. That won’t happen this time, every country will have its own problems and wealth won’t be transferred from one country to another. This will be unlike anything anyone has seen in the last 1,000 years. Part of the answer to these problems is get totally out of debt. All excess funds should be in gold, silver and platinum coins and shares and in the Prudent Bear Fund; call Rich Radez at 1-800-285-1700. You should be able to defend your family and have extra food supplies. This is not going to be nice.
On October 4, 2001 the Treasury Department took the unprecedented step of holding an unscheduled auction of $6 billion in 10-year notes. This hasn’t happened since 1977. This was done to help alleviate short-term systemic problems in the repo market and had nothing to do with the government’s borrowing needs. In a repo, securities dealers or other market participants, will borrow money, for one to 28 days and pledge securities as collateral. They take back, or "repurchase", the securities, (thus the name repo) at the end of the loan. Bond dealers, who quote prices at which they will buy and sell bonds, depend on the repo market, estimated at $1 trillion a day, to finance their positions. There was a shortage of 2, 5 and 10-year Treasury’s, which are the most widely accepted forms of collateral. Unavailability caused fails to deliver, fails were $45 billion in the second quarter, but on 9/17/01 they were $1.4 trillion. This showed the system wasn’t functioning correctly due to delays in processing. You can expect more sales as the market smoothes itself out.
$700 million has been raised for families who were victims of the NYC tragedy and it is expected that figure will cross $1 billion soon.
The Treasury plans to raise $32 million in fresh capital with the sale of $23 billion in 13 to 26 week bills on 10/9/01.
Sixty of the$75 billion requested from congress by President Bush will come in the form of tax cuts. 60% of the previous funds from tax cuts went to lower debt, which was a surprisingly high figure. Of this $60 billion probably 85% will go to lowering debt, unless it all goes to the poor who will spend it all immediately. Unemployment figures soon to be released will put the jobless officially at 5.5% to 5.9%. We projected 5% by yearend, but that was prior to the terrorist attack and even then many others found our projections preposterous. Personal savings are 1.1% of income. That is probably enough money to carry a worker for one month. That doesn’t include stocks, retirement plans and homes. Personal and corporate debt is staggering. It is far more than savings figures. 14.35% of US household’s disposable income is used for debt service. Debt services are higher at the lower end of the income spectrum. The troubles of he debt bomb will begin there and at the top end of the income spectrum. The lower end can’t save and much of the upper end has been killed in the stock market. Wait until you see the bill for welfare and Medicaid. Inquiries for debt counseling are up 14% since 9/11/01. Most have no cushion or negative net worth. Already what savings are available is being ripped through. We are on the edge of a financial abyss and 95% of America is clueless to what is happening. Washington, Wall Street, CNBC and the media know but they won’t tell you about it.
The new Homeland Security Council will include 50 agencies and will end up being America’s version of the KGB. The larger agencies to be included are: Coast Guard, INS, Customs, CDC, EPA, FEMA, FDA, the Federal Law Enforcement Training Center and the National Guard, also the Office of Emergency Preparedness, Public Health, FAA, FCC, FEC, Federal Highway Administration, Nuclear Regulatory, CIA, DOD, FBI, NSA, NSC and Secret Service. This is insanity and a death warrant for our republic.
Now, seeing airlines have been subsidized, rental car companies are asking for a $1.5 billion package. Why don’t we just print money for everyone?
Sales of guns at firearms stores are up 25%, bringing a whole new crop of people into the gun world, most of who have never owned weapons before. We can promise you there will now be no gun control legislation in the US. They are buying body armor and lots of ammo. Finally the American public is waking up.
The House overwhelmingly approved a major expansion of federal farm supports, which will cost over $170 billion over ten years. This will keep the corporate farms and the rich elites and politicians on their knees at the public trough.
One of the first jobs for the Homeland Security Department, better known as KGB-Gestapo, is to explore enhancing the screening of visa applicants, seal the borders and monitor foreigners already in the US. No mention is made of ridding our country of illegal aliens.
The monetary base rose 43% annualized in the three months to 9/19/01 and M-3 by 11.7% on 9/17/01. GDP growth is zero and MZM, Money of Zero Maturity, is growing at a 52% rate. Between 9/10/01 and 9/17/01 it grew $172 billion. The FED’s money stampede is on.
There is no question that the Plunge Protection Team is driving the market higher as they continue to cap the gold price and support the dollar. This juggling act can’t go on indefinitely.
The goal in the invasion of Afghanistan is threefold. Separate Osama bin Laden’s head from his body. Complete the gas pipeline the Taliban has held up, which has enraged Bush and other oil interests and for the CIA to control the heroin trade in order to finance their operations. Another winner is Russia. The Northern Alliance is pro-Russian and if they takeover Russia will have accomplished by diplomatic participation what they couldn’t in war, namely securing their border.
Ariel Sharon’s outburst this week against Mr. Bush is a warning that the elitists plan to play both sides to the detriment of Israel, which will lead to a much wider war at a later date. They accept Arafat’s terrorists, but not bin Laden’s. The rulers of Saudi are in the middle. They just want to keep what they have and become richer now that they have achieved the second level in the conspiracy. In order to placate the Muslims the elitists want to form a Palestinian state, if they do that as Sharon intimates, we’ll see WWIII.
Real US interest rates will begin, over the next few months, to come under upward pressure as European paper becomes more attractive, particularly German bunds. Interest rate differentials are 2 1/2% in the US and 3 3/4% in Europe. Even if the ECB were to cut rates again the FED would precede it. We expect a 1/4% to 1/2% cut by the FED in November. Inflation in Europe is 2% and in the US it is 2.8%. We also see a stronger euro. If you add it all up there will be disintermediation from US treasuries into European paper. This will cause further problems for the US current account deficit, putting more downward pressure on the dollar. One most observe that the dollar is where it is because the FED and the Treasury are keeping it there and they can’t do that indefinitely. There isn’t much price performance left in Treasuries as some investment grade corporates and mortgage-backed securities have been outperformed by 1 to 2 points recently. Thus, the pressure on Treasury notes are up and the Treasury is going to have to issue far more debt than has been previously anticipated.
Joblessness has averaged 6.0% over the past 40 years, which is much lower than the average of 9.3% from 1930-59. During the depression unemployment averaged 18.2% from 1930-39. From 1990-2000 it averaged 5.6%, which is the optimum. In order to offset quickly rising unemployment the FED has broken all records for monetary easing, which eventually in combination with falling employment will lead to lower real wages by boosting inflation. Supposedly the increase in aggregates will spur productivity and investment, but we doubt that, until at least all the economic excuses are purged from the economy. The $240 billion fed into the system over the next several months won’t do the trick until real estate corrects, debt is paid off or written off and the derivative nightmare is addressed. The Dow has the most excessive price-to-book ratio ever, about 9-1. The normal range is 1.1 to 1 to 1.5 to 1 to stocks. If historic norms are used the market would be selling at 1,000 to 1,600. We don’t know if those levels will ever be reach, but we find it reasonable to split the difference and say 4,200-4,500 is reasonable.
We suggest the government restrict all Middle East immigrants, that have been here less than 6 years, travel out of the state in which they live. They should turn in their passports and if they choose to leave the country they will not be readmitted. This is unconstitutional, but if we are in fact at war then it is justified. The government must also pick up every illegal alien in this country and ship him or her to his or her home country. All Middle Easterners must be put under continual observation in order to keep those terrorists among them from harming Americans.
We expect 30-35% of auto dealers to go under next year, due to a falling market and too much dealer leverage.
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