THE INTERNATIONAL FORECASTER August, 2002 ( 4 ) Part 1
An international financial, economic,
political and social commentary.
Published and Edited by: Bob Chapman
Phone & Fax: 941 639 4756
E-mail: bif4653@comcast.net
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Please note: We only print excerpts from the IF, which publishes over 50 pages of commentary weekly. If you'd like a free introduction copy, please access bif4653@comcast.net
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UP-COMING CONFERENCES
2002 Calgary Venture Investment Conference
Sat/Sun, October 5 & 6, 2002
Telus Convention Centre
120 - 9th Ave. SE, Calgary, AB T2G 0P3
Hotel:Calgary Marriott Hotel
110 - 9th Ave. SE , Calgary, AB T2G 5A6
Room Reservations: 1-800-228-9290
International Inc. info@cambridgeconferences.com
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We still recommend the following SHORT POSITIONS: The first number is the price when we recommended it, the second is the current price and the third is the price to cover.
GE $37.96, $32.30, $29.00; Citigroup $46.93, $34.35, $34.51; J P Morgan Chase $36.04, $24.74, $29.04 - stopped out - but re-short for $23.00, re-short for $12.00; Monsanto $54.00, $16.08, $19.75 - stopped out; Goldman Sachs $82.25, $79.88, $63.27; Amazon $6.71, $15.38, $3.00; Sun Microsystems $10.40, $4.18, $6.25 - stopped out; Computer Associates $36.00, $11.33, $18.13 - stopped out - but re-short Open; AOL-Time $32.01, $14.33, $18.00 - stopped out - but re-short for $12.00 - stopped out again; Fannie Mae $79.00, $76.70, $48.13; Cisco $17.26, $15.11, $11.04; Dell Computer $24.92, $28.05, $16.01; Ebay $35.38, $60.40, $26.75; Temple-Inland $56.66, $52.50, $34.63; International Paper $40.85, $37.85, $26.31; Boise Cascade $37.63, $27.57, $21.75; Weyerhaeuser $62.05, $55.40, $36.06; Georgia Pacific $35.49, $21.00, $19.31.
We recommend putting on PUTS or SHORTING these stocks. They are Lennar (LEN-NYSE) short at $40.92, $52.15, cover at $24.88; D. R. Horton (DHI-NYSE) short at $24.00, $21.55, cover at $13.64; Standard Pacific (SPF-NYSE) short at $21.41, $27.41, cover at $13.31 and Pulte Homes (PHM-NYSE) short at $36.19, $49.12, cover at $25.19 and Waste Management (WMI-NYSE) short at $31.27, $25.53, and cover at $17.00; IBM (NYSE) short at $109.50, $81.00, cover at $80.06 - stopped out - re-short for $70.00 - re-short for $38.00; Home Depot (HD-NYSE) short at $40.32, $32.68, - stopped out $30.30 re-short for $21.00; Maytag (MYG-NYSE) short at $31.11, $33.13, cover at $22.25; Dynegy (DYN-NYSE) short at $30.35, $2.13, $0.51 - stopped out; Starbucks (SBUX-OTC) short at $22.66, $20.87 and cover at $13.46, Tyco short at $50.00, $16.72, cover at $22.00 - stopped out - re-short for $5.00.
LONGS POSITIONS: *Power Technology $0.71, $0.15, $1.30; *Starfield Resources C$0.37, C$0.29, $1.25; Cusac Gold $0.10, $0.21, $0.30; *Agnico Eagle $7.49, $13.09, Open; *Goldcorp $4.00, $8.85, Open; Crystallex $0.625, $1.53, Open; Anadarko $60.13, $43.40, Open; Apache $60.15, $55.30, Open; EnCana $45.42, $30.51, Open; Questor $31.91, $23.50, Open; KleenAir $1.00, $0.85, Open; Candente C$0.26, C$0.45, Open; Clifton Mining $0.08, $0.36, Open; Sovereign Chief C$0.40, C$0.40, Open; AURA Systems $0.24, $0.10, Open; Cabo Mining C$0.08, C$0.11, Open; Knexa.com C$0.15, C$0.12, Open; SkyHarbour Development C$0.18, C$0.30, Open; Golden Eagle $0.10, $0.15, Open; Silverado $0.10, $0.33, Open; Excellon Resources C$0.20, C$0.18, Open; American States Water (SWR-NYSE) $20.25, $24.90, $29.01; California Water Service (CWT-NYSE) $20.45, $26.45, $27.75; Philadelphia Suburban $16.02, $20.70, $25.00; Connecticut Water (CTWS) $20.35, $27.98, $32.21; Southwest Water (SWWC) $11.48, $15.42, $19.10. Add SJW Corp. (SJW) and Middlesex Water (MSEX).
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U. S. MARKETS
Qwest sells directory unit to Carlyle for $7 billion (Q) by Anne Stanley Qwest Communications late Monday agreed to sell its yellow pages directory business to a team of investment firms led by the Carlyle group for a little more than $7 billion in the second-largest leveraged buyout in history, said a person familiar with the situation. The deal gives the trouble telephone company an important cash boost that could help it avoid a bankruptcy filing. Qwest stock gained 31 cents on Monday to close at $2.24.
We wonder what the elitists are up to here. Is this more data collection for them to more easily track us and control us.
A group of prominent Saudi Arabian businessman called for the withdrawal of Saudi investments in the US totaling more than $750-bil if a lawsuit filed in the US against three prominent members of the royal family and Islamic charities is allowed to proceed, the newspaper al-Watan reported Sunday. "Acceptance by the US courts of the lawsuit, seeking damages of up to $300-bil for the families of the victims of the Sep 11 attacks, will encourage all Arab investors and in particular Saudi investors to withdraw their investments from the US for fear their assets will be frozen," the paper quoted Basheer Bakheet, head of Bakheet investment house as saying. Bakheet said Arab investments in the US were estimated at $1.3-trillion.
We recently recommended five water stocks. We are adding SJW Corp. (SJW-NYSE) Recently $78.75 buy at $74.00 and sell at $91.25. Middlesex Water (MSEX-OTC) Recently $22.70 buy at $18.30 and sell at $26.72. Companies that build desalination plants are IONICS (ION-NYSE) Recently $20.11 buy at $18.90 and sell at $33.90. We have no recommendations on the following water equipment companies. You might look at them if they interest you. Osmonics (OSM), Calgen Carbon (CCC), Millipore (MIL) and Covanta Energy (COU). Publicly traded bottled water plays are Glacier Water Services (HOO), Hawaiian Natural Water (HNWC) Aqua Vie Beverage (AVBC) Vermont Pure Holdings (VPS) and Eldorado Artesian Springs (ELDO).
NASA is developing brain-monitoring devices to receive and analyze brain wave and heartbeat patterns at airports to identify possible terrorists. These non-invasive neuro-electric sensors will be imbedded into gates. As usual this is another insane idea. All those with fear of flying would set-off the device causing hundreds of flyers per flight to be pulled aside only to find nothing and delay every flight. This is the ultimate in the invasion of privacy. Our government wants to read our minds.
Magellan's assets slipped by more than $6 billion pushing it into second place behind Pimco's Total return fund, which has $61.2 billion versus Magellan's $59.9 billion. In July investors redeemed $1.27 billion the biggest outflow in 4-1/2 yrs. Pimco Total Return has risen 4.5% this year beating 81% of all funds. Magellan is off 22%. The Dow is off 13%, S&P 21% and Nasdaq 33%. Vanguard Group's 500-index fund ended July with $69.97 billion down from $77 billion. It is the biggest long-term fund. Retirement funds made up 86% of the funds assets as of June 30. What is of great interest is that in regular stock funds, even the ones that have done relatively well, there are record outflows.
The percentage of junk bonds in distress has surged past the level right after 9/11 and is near an 11-year high. That is 29.7% in August up from 25.5% in July. This is just above the 29.6% of 9/01 and just below the 32.8% peak of 12/00. These bonds are distressed because they trade 10 points or more above Treasuries. Overall this is the worst year for junk since 1986. Distress ratios usually foreshadow default. Mega selling in bonds has been coming from Middle East interests. They may be putting financial pressure on the US in reaction to reports that the US will invade Saudi Arabia.
The dollar is still down 9.9% versus the euro and 9.7% versus the yen since the beginning of the year. Global fund managers continue to believe corporate America has the worst outlook for profits and worst quality of earnings. Net foreign buying of US assets grew five-fold throughout the 1990's peaking slightly above $500 billion late last year. The 12-month rolling sum in May of net foreign buying of US assets was down 14% or to $450 billion. Net buying of US dollar equities has been slowing since 1/01 and July outflows were $60 billion. In May 2001, foreign bond demand for US corporates reached $248 billion. Since then it has fallen 24% to $189 billion. The quarter ending September should be even worse.
Moody's has placed SBC's AA3 senior unsecured long-term rating on review for downgrading. Moody's placed more than a dozen companies whose long-term debt ratings are just a notch above junk, Baa3, totaling nearly $25 billion on review for possible downgrade, which has helped pull prices lower for other comparable credits. Investment-grade issuers have 3.4 downgrades for each upgrade so far in the third quarter, down from 5.9% in the previous quarter. Lending standards have been tightened and capital access has diminished for the telecom and energy trading areas. Corporate-loan activity, investment grade syndicated loan issuance in the second quarter totaled $208 billion down from $250 billion a year earlier, it's still a substantial sum.
Debt continues to grow even though 257 public companies with $258 billion in assets defaulted last year and went bankrupt. Household debt, corporate debt and credit market debt is now almost $30 trillion. That is 2.9 times GDP with far less collateral compared with previous recessions. The current account deficit is 5% of GDP and savings are 4-5%. The government says inflation is 1%. We say its 6%, but deflation is on the way. We see prices continue to fall for goods. Some services have held and some have moved higher. Goods prices are at a point that we believe consumers will wait for even lower prices. That is what has happened in Japan. They have had lower prices for 33 months and there is no end in sight. The Japanese have one advantage: they are big savers and that is what probably has kept them from falling into deep depression over the past 10 years. Our low savings puts us very much at risk for deflation. We have low interest and mortgage rates, which continues to liquefy the consumer. The problem is those loans they are taking out represent 105% of equity. Once house prices fall some owners will have serious problems. Debt problems are super serious. At the top of the bubble household debt was 72% of GDP, today it's 79% of GDP. What professionals refuse to recognize is that the problem is systemic. It is not going to go away like in other recessions. This is a 1929 scenario. One very interesting phenomenon we are seeing in the market is that investors are taking gains instead of letting them run. They have been offsetting losses for the past two months. That is why it is very important that Congress cancels capital gains taxes and lets investors take $20,000 in losses giving them less taxation. Better yet let them write off all the losses they can. The market cannot launch any kind of sustained rally with funds leaving the market, foreigners selling and funds with 4.4% in cash. They need the cash for redemptions. Investors' ownership of stocks has dropped as a percentage of financial assets from 46% in 3/2000 to 35% today, which is still way above the 50-year norm of 24%. Then there are derivatives. Once one major counter-party goes under the whole house of cards will fall. It's only a question of when?
Hutchison Whampoa, controlled by the Chinese Army, and Singapore Technologies paid $250 million for the bankrupt Global Crossing. This is the result of the payments pervert Bill Clinton received from the Chinese. This was simply a give-away.
The gift and the intellect for understanding also burden us with responsibility. You know and understand the truth and you have a duty to preserve that truth by passing it on to others. We know for every 100 people that you discuss the truth with one wants to listen and then in varying degrees of acceptance. Well don't fret it's supposed to be that way. If everyone understood the realities of existence we wouldn't be in the fix we are in today. Keep on doing what you are doing because that is the way it is supposed to be.
It has only taken three years since the repeal of the Glass-Steagal Act that the Federal Reserve Banks, under instructions from the FED, have been manipulating all markets they wish to manipulate. This is why the elitist FED had to have Glass-Steagal repealed. This was followed by the Gramm-Leach-Bailey Act, which amends most of our key banking legislation. Incidentally, Gramm is always for sale and Leach for years was V.P. of the Parliamentarians for Global Action, which is a one-world government group. Whatever firewalls were left were repealed by the Sarbanes-Oxley Bill and between the three bills our Congress and President shifted oversight of our financial system to the privately owned Federal Reserve. Now the FED can implement their global financial structure, the new architecture the elitists spoke about beginning in the mid-1990s. That architecture was the financial new world order, the looting, as evidenced by Enron, was part of the asset stripping and robbery of corporations and their shareholders, which is allowed under the new rules. If you notice you see and hear little of elitist Kenneth Lay in your media. Everything financial will now be harmonized for the betterment of the illuminists. The Sarbanes-Oxley Bill not only puts corporate fraudsters in jail it also will be used by elitists to control corporate management. You either do this our way or we'll find a way to bring charges against you. The bill is also a control mechanism. We find the elitists are able to manipulate in the short term, but the long term is far more difficult. We believe that is the case with today's gold manipulation. The FED believes interest rates will only move higher again when they decree it. We have news for them. Every time in financial history when this control by interest rates has occurred the governing powers have lost control and rates have moved up in the flight to quality. In order to stop that from occurring they execute another war. One of the main reasons they can't control interest rates is that different regions or countries are at different levels of the economic cycle. Some are improving and some are falling, this way one interest rate can never fit all and that is what the ECB, European Central Bank, is learning the hard way. It is impossible to synchronize success or failure, if for no other reason than some manage risk better than others. Concentration is power, but it also brings with it added responsibilities. One mistake and the game is over. The end game is to rob you of your sovereignty and freedom.
Eleven companies have failed to meet a government demand to swear to their past financial results. Officers of 942 big companies were required to certify their latest results or explain why they couldn't. 761 have filed with the SEC.
Vivendi Universal's first half $12.1 billion loss caused its credit rating to be downgraded to junk. Needless to say its shares fell almost 30%. Now they have to raise $5.5 billion by next March at prohibitive rates or sell assets at bargain basement prices.
The US corporate debt is getting onerous having nearly doubled in the past five-years to $3.9 trillion in May. Corporate debt is a heart attack waiting to happen. 1997 debt including bonds was $2 trillion. This year to June 42 companies defaulted on $76.6 billion in loans, a 64% increase versus the first half of 2001. We figure this will go on for one to two more years. That means higher unemployment and less consumer buying. Debt and lower earnings coupled with less interest means higher prices in many industries especially insurance. The 29 most indebted companies, excluding financial companies, accumulated $446 billion in debt over the past five years.
The federal government is cracking down on the sub-prime credit card business that caters to customers with poor credit or low income. These loans are estimated to be 37% of credit-card loans. MBNA has set aside $300 million in reserves to meet requirements and Capital One increased reserves $247 million. 40% of their loans are sub-prime. This is on a par with Fannie Mae and Freddie Mac's 40% of mortgages being sub-prime. The crackdown is spreading to the auto and home equity loan sectors. This tightening of lending to sub-prime borrowers will come at the worst possible time and will put extreme downward pressure on consumer spending. In Atlanta counseling services have received thus far this year 32% more calls then in all of 2001.
Jack Grubman has become the new pied piper of Wall Street. He is leaving probably never to grace a buy or sell recommendation again. He is joining the thousands of brokers, analysts, economists and back-office people who have as we predicted, been blown out of the brokerage business since 4/2000. Jack is unique, he believes his own lies and we suspect his fines will be large ones, because this man is another sociopathic criminal. Needless to say he'll neither admit nor deny and he'll escape prison. The tremendous losses he caused for American investors is part of what is slowing consumer spending. The damage he, Wall Street and CNBC caused will slowly strangle consumerism. The remnants of the new world economy are collapsing. That means Sir Alan Greenspan is on his way out.
The Conference Board's index of economic performance over the next 3-6 months declined 0.4% last month, after falling .02% in June. This is the largest drop since the 0.6% last November after 9/11. Right after that announcement the market went up 213 Dow points. The Plunge Protection Team never sleeps.
Interest rates are at historic lows and homeowners are scrambling to refinance their mortgages to remove equity. The practice is questionable at best, but very disturbing is the pressure on appraisers to over-appraise property values. The practice has been rampant for the last three years and it will lead to an even bigger real estate correction. Homeowners are threatening to withhold payment to appraisers if they don't deliver the demanded result. Homes have become piggy banks due to existing tax law and the insane purchase of mortgages by Fannie Mae and Freddie Mac. Many homeowners are piling on debt that they'll never be able to pay back when interest rates again rise. Presently 1% of loans are either in foreclosure or 90 days delinquent. Inflated appraisal reports by lenders are starting to hit authorities and hopefully a crackdown will ensue.
We recommended a short on Monsanto at $50.00 and covered at $18.00. It recently hit $13.20 and is presently $16.41. Monsanto has shed the last vestiges of its pharmaceutical business and has become a pure-play-corp biotechnology company. There are 261 million shares outstanding because Pharmacia gave their shareholders 220 million shares as a special dividend, drenching the market with liquidity. Competitors are making knockoffs of their Roundup weed killer, which generates 50% of income. They have lost patent protection on glyphosate, the active ingredient in Roundup. Bad debt from operations in Argentina and Brazil has cut income 62%. The company is now a pure-play biotechnology company or the largest producer of frankenfoods in the world. Genetically modified foods, as we predicted six years ago, are very controversial because we don't know what affect they'll eventually have on humans. Every time you eat GM foods you are taking drugs you don't need. The EU has banned GM corn and wheat and that won't change soon. The company has two major lawsuits against it and they stand a good chance of losing them. We'd re-short at $19.75 and cover at $13.20.
Bond default rates have remained steady at 10.3% over the first two quarters of the year and yield margins above Treasuries for high-yield bonds have reached historically wide levels amid concerns about the economy and corporate scandals. Junk bond mutual funds suffered their 10th straight week of outflows and last week $2.5 billion left. We expect the outflow to continue.
Almost every single report over the past six months, in context has been negative. Wall Street, government and CNBC refuse to discuss the recovery that never happened. This is doubly negative when you consider the trillions of dollars thrown at the US and foreign economies. We are in recessionary stagnation fighting deflation. This is a vicious falling cycle. The weekly index of economic indicators is down 3.2% over the past three months in the US and is mirrored in Asia and Europe. This is three consecutive declines, which means if September follows, we are in an expanding recession particularly if GDP figures decline over the next two quarters. There is absolutely no question the economic outlook has deteriorated significantly from earlier in the year. Economists won't admit that because they get paid to project happy stories. If you remember these same "experts" said the "slowdown" would be over by 1/1/01 and of course they were wrong again. Japan and Europe are being squeezed by the stronger Yen and Euro and both show almost no growth. The geniuses at JP Morgan Chase predicted the world's other economies would expand by 3.2% in the second half of the year. They now predict 2.15% and we predicted 1.5%. Nobody seems to get it; the world economy is falling. It is in various stages of recession and depression. Worse yet, all the US figures are phony. Germany will only show 0.5% growth for the year. Meanwhile the US Congress is finding new ways to cut taxes and raise deficits. Hours worked and productivity gains are falling, which means less consumer spending and a deeper recession. Household wealth has been decimated by the drop in the stock market. What happens when the debt and real estate bombs explode?
Intel out of Amman, Jordan says Israeli Air Force radar experts are stationed at its ultra-secret, H-5 air base. Mossad agents inside Iraq say Saddam intends to launch a pre-emptive strike against Israel between September and the onset of Ramadan. The strike would be led with missiles equipped with chemical warheads. We wouldn't be surprised if Israel didn't strike first. It's expected any Iraqi attack would be directed at the nuclear facility at Dimona. There is a plan to inoculate the countries entire six million Israelis against bio-chemical weapons. Every city, town and hamlet has received its antidotes.
The 19th Special Forces Group of the California National Guard is shipping out on a secret mission to places unknown.
The budget deficit for July was the widest for that month since 1994, as spending increased and tax revenues fell. A $29.2 billion deficit versus a $2.8 billion surplus in July 2001. This was the biggest shortfall since a $33.2 billion gap eight years ago. |
