International Forecaster (December)
Entertaining reading with some truth, but maybe a bit to much on the conspiracy side.
U. S. MARKETS
Shortly after the US Congress passed the "USA PATRIOT Act," which authorized government agents to conduct unannounced "Sneak and Peek" searches, an article posted on MSNBC.COM revealed that the FBI intended to plant a Trojan Horse program code-named "Magic Lantern" on the computers of citizens it suspected of crimes. (Apparently, the FBI had been engaged in such practices even before the bill was signed into law; in October, the agency sought to suppress information about keystroke logging technology it had used to obtain encryption keys from the computer of alleged gangster Nicodemo Scarfo.)
Unfortunately, the FBI's enthusiasm for stealth technology has led to a troubling development: complicity by vendors of security software. According to an Associated Press article Network Associates, maker of the McAfee line of anti virus products, had contacted the FBI so as to ensure that its products would NOT detect computer tampering by government snoops. While Network Associates' public relations staff quickly published a narrowly worded denial, the reporter who wrote the original story stuck to his guns, saying that he'd been told of the policy by a Network Associates executive.
Shortly thereafter, Symantec, another anti virus vendor, also announced that it had pledged not to allow it's anti virus software to detect the FBI's illicit code.
The prospect of "back doors" or intentional "blind spots" in security products is particularly troubling because hackers and industrial spies could exploit these weaknesses just as easily as could the government. And both Symantec and Network Associates sell other products upon which companies and individuals rely for security. NAI also sells the Pretty Good Privacy (PGP) encryption software, the Sniffer network monitoring products, and the Magic Solutions remote control software, and Symantec's "Norton" line contains several similar products.
Customers must now be concerned that any or all of these products could potentially be rigged not to report possibly unconstitutional snooping by the government -- or by third parties who designed their products to mimic the government's snooping software. Any or all could allow systems and networks to be compromised. The best alternatives may be products that are manufactured overseas--or "open source" products in which back doors can be usually be detected by inspection of the code.
Enron is the victim of its own greed and the unregulated derivative market that Alan Greenspan and Robert Rubin so dearly love. Enron thought of itself as the ultimate energy bank. Let this be another reminder to Americans that unregulated derivative markets are guaranteed to destroy our financial structure. There must be regulation. Just because big banks, brokerage houses and insurance companies are the moving parties does not mean the system cannot collapse. We made a speech and published an article in 1973 when the derivatives market began. We said eventually they would destroy the financial system. The stock market was not meant to be a gambling casino, but a place for raising capital for American business. The flaw in the Enron collapse was not Enron's business plan, but its use of derivative formulas that can't work under intense duress. This is what took LTCM under. Again, elitist companies think can get away with anything. They lie and Arthur Anderson swears to it. Hopefully they'll feel the wrath of shareholders for being a party to criminal deception.
Part of the rewards or bounty in the police action against terrorism is the responsible cooperators program, which offers US citizenship for information. Our AG Mr. Ashcroft believes unsavory tactics are necessary to expose terrorists, which someday may be you or we.
It shouldn't be long now before the market heads down again. Earnings are poor; there is lack of liquidity, higher unemployment and the FED's abject failure to manipulate the value of the thirty-year bond. The FED couldn't let the 30 spoil their game of a strong dollar and the myth of no inflation.
Every time we hear about Military tribunals in a police action we get upset. People do not understand the order's dangerous breadth, and the administration and Republicans excepting Bob Barr and Ron Paul have done their best to conceal its true nature. Even Osama bin laden deserves constitutional protection. If we are not a nation of laws we are rabble. We cannot sink to the level of a medieval culture. President Bush's order covers 20 million non-citizens in the US. If our president is so concerned about a fifth column in our country why doesn't he have all the illegal aliens rounded up and sent home? There are 11 million of them here and they all present a danger to our country. The order is not directed at leaders and masterminds of terrorism. In the vaguest terms, it covers harboring anyone who has ever aided acts of terrorism that might have had adverse effects on the US economy or foreign policy. Talk about a fishing expedition. Under such executive orders, Nelson Mandela, Gerry Adams and Menachem Begin, terrorists all, would now be dead having been hanged or shot under such onerous unjustified regulations. Remember, we are not at war. Our representatives in Congress have not declared war. All defendants under these circumstances are entitled to public trials before independent judges in the US where the Act was committed and they should be supplied with competent council. If we don't take prisoners then we have a president with the mindset of a Genghis Kahn. President, read the 6th Amendment. Remember our president's primitive orders could easily be extended to citizens, under the administrations faulty legal theory. What George W. bush has done is un-American and unconstitutional and for the first time in 42 years we agree with the ACLU. We are a government of laws, not of men. Our president is assuming dictatorial power by executive order. Congress should challenge George W. Bush and stop the miscarriage of justice, which could lead our country into rebellion.
Distributions by stock mutual funds so far this year have dropped 71% from 2000. That includes dividends. The dividend yield for the S&P 500 was just 1.47% on 10/31/01. Distributions paid out through 11/29/01 were 2.11%, less than half of the 4.97% they paid at the same time last year. Utility funds have lost 21.19% versus a drop of 13% for the average US stock fund.
Rising confidence was suppressed by the Beige Book report, which showed slower economic activity during October.
J.P. Morgan will get creamed by the Enron failure. They face further write downs of their mortgage service rights, their syndicated loan portfolio, their collateralized debt obligations, their sub prime auto and mortgage businesses and what could be mega losses in gold shorts and derivatives. Morgan could conceivably go under. We have a short on the stock and we strongly urge further shorts.
The experts are batting 1,000, they were wrong again. They grudgingly predicted a fall of 0.4% in third quarter GDP, but the figure was a dreadful minus 1.1%. We expect a 2% fall in the fourth quarter. They expect minus 1.5%. Then these experts expect the economy to turn on a dime and accomplish solid growth in the first quarter of 2002. We still expect minus 1% at best.
Manufacturing, agriculture and mining are being destroyed in America as free trade allows the world to dump their cheap products on our market. Our government encourages this destruction by encouraging devaluation of foreign currencies making foreign goods ever cheaper. Our government is even assisting Japan in printing Japanese currency to buy U.S. Treasury paper thereby pushing the value of the yen lower, so Japan can send more cheap goods to the US. As they say desperate people do desperate things. The US is at the end of the line. Nothing is working to save the US and world economy. Not lower interest rates nor massive money and credit creation. We still have to experience the collapse of debt, real estate and derivatives. The FED and the US Treasury have postponed the inevitable purge, but not for long. It is coming and their attempts to stall these events will only make the final adjustment more painful. The Enron event might just break the derivative bubble; we'll have to see. You say, where do we go?
Ultimately to gold and silver related assets and Swiss francs. We are ultimately headed toward deflation, but we'll have perhaps 6 to 9 months of inflation as government spending and FED monetary infusion works its way through the economy. Then the flight to quality.
Shades of the KGB and Gestapo descend upon America. Our AG John Ashcroft is considering a plan to allow the FBI to spy on religious and political organizations in the US. This is another step in the direction of dictatorial power by George W. Bush in modifying civil-liberties protections under our Constitution. In order to make the edict more palatable there would be two sets of guidelines, for domestic and foreign groups. Employees of the FBI are furious and there is a tidal wave of resignations about to be visited upon the federal government. It is of great interest that after almost three months of investigation official investigation has found no conspirators in the US, yet some 700 people have been incarcerated. This is a perfect example of totalitarianism at work.
The poster child of financial engineering is dead. Enron will go done in financial history as one of the worst scams and the malefactors, who are very close friends of George W. Bush, will take him with them. The case is a paramount example of what is wrong with American business and politics. The majority of both professions, and we are being kind, are sociopaths most of who should be in jail. Never before in financial and political history has such criminality reigned. Incidentally, this has nothing to do with political party labels, both parties are equally bad, they either are under control or are on the payroll of the elitists. The greed knows no bounds. Ken Lay of Enron made $300 million over the last 10 years. He was assisted by cozy dealings between the company and employees, which defied the laws of prudence and legality. Here was a company where 75 traders made over $5 million a year. That doesn't happen it has to be created. Enron was also a company that was perpetually looted by its management and some of its regular employees. Their elitist friends at Fortune Magazine hailed these thieving miscreants as the most innovative company in America and it was. It inflated profits and concealed debt. This is what the new economy has brought, a cabal addicted to profits no matter at what cost. In the process of this elitist debacle J.P. Morgan Chase, Goldman Sachs and Citicorp, along with the FED, assured us that commodities regulators, the SEC and other officials that there was nothing to worry about. Lies, lies and more lies. When are Americans going to wake up to what this gang of criminals is doing to our country? One thing this fiasco will do is stop the stock market from going any higher and it will make lenders and borrowers even more cautious. This means the FED will have to pour even more aggregates into the economy. Thus far, as we predicted, lower interest rates and unbelievable amounts of money being infused into our system has done absolutely no good, and as we said before we are entering a liquidity trap just as Japan has. You ask us is their hope? The Answer is no. Get your life and house in order. Get out of debt and into precious metals. It ultimately is the only answer.
Word reaches us that Bertelsmann wants to exercise its option to sell AOL, its 49.5% stake in AOL Europe for $6.7 to $8.5 billion. The problem is it's worth $2 billion. Of the purchase price $2.5 billion is in cash. The second problem is they don't have the cash. That is no problem for an elitist-CIA operation. They just go to their elitist friends at J.P. Morgan Chase, Goldman Sachs and Citicorp and presto instant cash. This is another brewing crisis. We recommended a short on AOL at $60.00 and covered at $28.00. We recommended another short at $32.51. It is now $34.90. We strongly recommend this short with no cover price.
Independent auditor Arthur Anderson was paid $52 million to audit the books of Enron.
Disturbingly they found nothing wrong. We believe the US Attorney's Office should investigate their behavior. Are they that incompetent or were they paid off? After the civil lawsuits are adjudicated they will be hard pressed to stay in business.
As an afterthought Cablevision clustered in NYC around AOL properties is a buyout candidate by AOL-Time. If the Dolan's read this we advise them to keep their assets. They do not under any circumstances want AOL-Time stock.
The increases in base metal prices, led by copper, could well be telling us major inflation is on the way. Enron is going to create a credit implosion.
Dynegy A (DYN-NYSE) is $30.35. It has no support until it hits $9.00. It's a short.
Thus far Enron supposedly has $13 billion in debt and $17 billion in derivative contracts.
Estimates are that the distressed universe is about $250 billion, which includes bonds in default plus bonds trading with a yield-to-maturity of greater than 20%. We believe Enron's debt and derivatives will come in at about $55 billion, which will leave very little for creditors and vultures.
Our sources in NYC say the bosses in the NYPD are telling the troops whatever you hear about the AA flight, which went into Jamaica Bay, it wasn't an accident. There was an explosion in the back of the plane and the tail fell off. The FBI has a video detailing the entire incident.
The Bush administration is asking Congress for a second major expansion of federal surveillance powers that would eliminate the Foreign Intelligence Surveillance Act. It would radically change laws that long have protected the rights of Americans and allow the CIA to gather telephone and Internet records from domestic communications companies. The proposals presented to House and Senate Intelligence committees are secret, but we do know all the CIA and FBI would need would be probable cause. This attempt to gut the FISA also further blurs the line between intelligence and law enforcement creating a secret police bringing us closer to dictatorial government.
There is a move among Wall Street Treasury's leaders to make the 20-year bond the primary benchmark for the US Treasury's market, supplementing the terminal 30-year bond. Specifically targeted is the November 2021 because of its substantial size, $30 billion outstanding. Some dealers said the November 2027 also makes sense. The 30 will continue to be the prime market and the 20 will be used for a pricing benchmark.
Insurance premiums will rise 30% as a result of terrorist attacks. Some rates will increase even more as insurance companies reduce their losses. This could make earnings gains for insurers strong next year and at the same time cost general business billions.
Enron has sued Dynegy for $10 billion. That triggers our focus to something they both have in common and that is the $1 trillion credit-derivative market. Who is going to bear the massive losses incurred by Enron's failure? Who is going down with Enron? Will it be J. P. Morgan Chase, Goldman Sachs or Citicorp? We are told almost all financial companies are exposed. If recovery value is zero losses could range from $55 to $200 billion.
AG Ashcroft wants 4,000 National Guardsmen to patrol the Canadian border. We recommend 2,000 US personnel and 2,000 Canadian soldiers. We also recommend 4,000 guardsmen to patrol the Mexican border and that we collect, all illegal aliens, and ship them home.
Your friendly drug companies have filed four major lawsuits against states that demand prescription drug discounts.
The federal surplus is gone and Congress wants to raise the national debt ceiling again. We are now looking again at deficits as far as the eye can see, so $5.95 trillion just isn't enough. The $135 billion tax rebate just wiped out Social Security, Medicare, Medicaid and pension reserves. First will come the debt ceiling increase then tax increases.
Ford is going to have a terrible fourth quarter in spite of giving cars away. It now wants to reduce health-care spending for 100,000 UAW members, eliminate its contribution to 401 (k) plans, suspend merit raises for 2,200 executives, increase out-of-pocket costs for certain salaried retirees and employee health plans and suspend a work shift at a truck plant in Edison, NJ. They'll only cut their dividend in half. How's that for financial and economic planning?
On the way out of town the Taliban looted Afghanistan of its foreign currency reserves. Obviously in a hurry they left behind $90,000 in one-dollar bills. They must have been too cumbersome to carry.
The perennial fight between brokers leaving one brokerage firm to go to another has widened. Firms such as Solomon Smith Barney were using temporary restraining orders to keep clients from moving accounts when brokers switched firms. State regulatory agencies have since stopped them from doing so. Thus, moving your accounts shouldn't take 1, 2 or 3 months anymore. Some 14,000 brokerage accounts, valued at $1.6 billion, are transferred daily. The issue is who owns the accounts. The broker does of course. Eighty-five percent of the time investors are with a broker because of performance and relationship, the firm just happens to be a vehicle. Major brokerage firms have for over 50 years dishonestly and unethically encumbered brokers and clients in their efforts to move accounts. It is about time it was stopped.
Firms such as Enron were marking to the market future unrealized, non-cash gains and misstating their earnings. At Enron they accounted for half of pretax profit in 2000 or $1.41 billion. At Dynegy, they accounted for half of there $762 million in profit in 2000. If you own shares in the following companies you might ask them if they are doing the same thing. They are American Electric Power, Duke Energy, El Paso, Entergy, Mirant, Pinnacle West Capital and Williams Cos.
By lying and being deceitful Enron has robbed millions of retirees, parents putting their children through college and investors of their hard earned money. Mr. Lay and his management entourage are simply despicable. Those responsible used every loophole available to mislead and defraud the public. They used sophisticated vehicles, known as Special Purpose Entities (SPES) and other off-balance sheet structures. It permitted them to increase leverage without having to report debt on their balance sheet. Enron has shown what a motivated nefarious group can do in the arcane world of derivates that most stockbrokers can't understand, never mind the public. How can Wall Street expect the American public to invest in stocks when one of America's largest companies is deliberately not telling the truth? Where is the accountability at brokerage houses, investment banks, analysts, and money managers, the NYSE, SEC and NASD? How could they all be asleep at the same time? Can they be that stupid? We don't think so. Integrity doesn't seem to be in the vocabulary of today's sociopaths.
The vacancy rate among the 230 million-square-foot San Francisco office market has surpassed 15%, thus rents have fallen 40% from their highs. That is $40 per square foot down from $67. It is estimated the Bay area will lose about 82,700 jobs this year and in 2002. As a result the office vacancy rate is expected to reach 22% next year with rents falling to the 1997 level of $30 a square foot. It is possible recovery could begin in 2004.
We find it of great interest that Pakistan's Finance Minister, Shaukat Aziz, left a 30-year career at Citigroup to take his present job. He was once touted as a potential successor to former Citigroup Chairman John Reed. Of course, the abandonment of his career was not true altruism. Elitist corporations have a history of bringing employees along for years, especially foreigners, and planting them in government positions in order to swing a nation into the political and economic direction that they want it to go. In this case in behalf of elitist foreign policy for the US, Mr. Aziz delivered Pakistan to their interest for a price of some $5 billion, which we got to pay for. This also leads us to believe that Pakistan was in the elitists' pocket long before the Afghanistan police action. An action we might add with virtually no body count on either side. Mr. Aziz's market-oriented model is being imposed not only by an unelected government, but one that is aggressively oppressive. Previously Mr. Aziz was cleanup man for Citibank in the banks money laundering operations having covered up the nefarious activities of MI-6 operatives former Pakistan PM Benazer Bhutto and her husband and that of ex-Mexican President Carlos Salinas de Gortari's brother. In his assignment as bagman and sherpa for the elitists part of his mission is to destroy the hawala system of Muslim paperless money-transfer networks, so that international banking, particularly Citibank, could capture that multibillion business. Now you really know why hawalas are being frozen or shut down all over the world. The switch has already reliquefied Pakistan's formal financial system. The operation might be compared to the suppression of gold prices. As you can see things are not always as they seem to be.
Finally after hiding for 50 years in the shadows of corporate America the SEC has issued a formal warning to corporations that they could face civil-fraud lawsuits for touting potentially misleading pro-forma financial metrics in their earnings news releases if they don't also explain how they were calculated. After years of complaints the SEC has finally been forced to act in behalf of shareholders. |
