THE INTERNATIONAL FORECASTER Part 2
September, 2002 ( 2 )
As housing booms American furniture manufacturers are not prospering, as they should. In fact they are struggling due to free trade. Sales are slow and they are fighting off cheap imports from China and Canada. This has led to deflationary lower prices. Furniture imports were up 71% in the second quarter over 1999 and these duty-free imports are now taking 40% of the entire market. Foreign sales of tables, bedroom furniture, chairs and cabinets are up nearly 80% from three years ago while exports of US manufactured furniture is off 11%. The reason why is Chinese factory workers make $100 a month or .58 cents an hour. This is what American workers have to compete against under free trade, slave labor. Furniture Brands International has closed another domestic wood furniture plant in Thomasville, NC putting another 425 American workers out of work. They already closed their Lane division in Virginia and put 1,100 Americans out of work. Over 500,000 workers in the furniture sector have lost their jobs to foreign slave labor over the past 20 years, of which 38% never found another job. This is an industry where China's exports rose 35% to $3.04 billion, outstripping growth of all other export commodities except high-tech products. America has been committing national economic suicide for 20 years and it has to stop. If it doesn't we'll be a third world country.
Our immense trade deficit is setting off a nasty chain of events and poses a very real threat to the value of the dollar and any possible recovery. We are the dumping ground for the world's manufactured goods and when that slows down or stops the rest of the world's economies fall apart. That means foreigners will sell their dollar based on a future decline in its value exacerbating its decline. Once interests rates hit zero there will be a massive flight out of the dollar. We can promise you faith in America will waiver, and as the US current account balance falls due to depression, other countries' current account deficits will rise. That means moving assets into the euro is futile leaving gold, the only real money, and the only real viable alternative. Our Congress, if you can call them that, declared last week that the current account deficit surpassed 5% of GDP. What a dubious milestone, rather a tribute to stupidity. The dollar must plunge and plunge it will somewhat versus other currencies, but even more so versus gold. The US bought 18.7% of the world's exported goods last year, up from 14% in 1991. By comparison, Japan bought 5.5%, down from 6.5% and Germany fell to 7.7% from 10.7%. It's very obvious at this point as we look in retrospect, the strong dollar policy of Robert Rubin brought economic revival, but the end result will be depression and economic disaster. All palliatives aside we are in deep trouble and sinking deeper every day. Wait until Napoleon Bush has his endless war then you'll really see economic fireworks.
The SEC is investigating Health South Corp. for accounting fraud.
A number of Tyco ex-employees are being investigated for grand larceny for taking unauthorized compensation. They stole $170 million from the company. They'll probably neither admit or deny and pay back the money with a fine. There is no justice left in America.
As we outlined in a previous report asbestos claims should come to $350 billion worldwide and about $270 billion in the US. This litigation should affect 85% of the US economy.
Estimates are that state pension liabilities grew by $103 billion, or 6% between June 30, 2001 and June 30 of this year. The percentage of under-funded state retirement systems will increase from 51 to 75% this year. In Calpers alone, the fund's overall assets fell 6.1% to June 30, versus its long-term expected annual return of 8.8%. In that time its equities investment value slumped 14%, while fixed income and real estate asset values rose 7.4% and 10.3% respectively. Corporate performance was worse. Corporate pension assets fell 12% or $143 billion to $1.024 trillion in 2001. As the market heads lower during the second half of 2002 yearly under-funding should be about $120 billion. The $141 billion corporate pension asset decline provided an 8% growth in liabilities, which almost wiped out the surplus from $238 million in 2000 to only $25 million last year. There are some significant funding problems among mid-size and smaller companies. State pension funds have only averaged 5.1% return over the past five years. In the case of Calpers, 61.5% of assets were in equities, including 37.5% in US stocks, 19.1% in international stocks and 4.9% in private equity and hedge funds. Real estate assets were 9.3% and fixed income 28.6% of all assets. The real estate and bond investment returns offset 16.8% losses in US stocks and a 10% loss on global stocks. Pension funds, both state and corporate, face tough times as they try to recoup losses that will only get steeper and deeper. Incidentally Calpers fired Goldman Sachs for doing a lousy job.
Inventories among US wholesalers jumped in July for the second consecutive month and at the fastest rate in 20 months. Business is gearing up for business that will never materialize. Inventories jumped 0.6% in July in the face of a continuing drop in private-sector payrolls, as government hiring exploded, or so they say it did. If it did we have a new CCC, Civilian Conservation Corp on our hands.
The under-funded pension obligations to 11,000 former employees of bankrupt Polaroid have been assumed by Pension Benefit Guaranty Corp, a federal agency.
Brokerage firms and their stock analysts just don't get it. Only 7.3% of all ratings are sell recommendations, up 1.5% from a year ago. The number of buy recommendations is down from 64 to 54%. The holds are 39% up from 34%. These same crooks evaluated 25% of companies analyzed as attractive or strong buys in the year before they filed for bankruptcy-court protection and just 2% were rated sell. This is criminal.
After 10 years as head of the Council on Foreign Relations Larry Gelb is stepping down. The two leading contenders for the visual seat of the conspiracy are Richard Hass, who heads policy planning at the State Department and Richard Holbrooke, former US Ambassador to the UN, leading negotiator of Bosnia's Dayton Peace accords and a member of Kissinger associates.
Our so-called conservative President wants to extend Section 245(I) of the Immigration and Nationality Act, legalizing another million illegal immigrants with no background checks or health checks. Every minute of every day an illegal enters our country and blatantly breaks our laws with the approval of Mr. Bush. Worse yet our administration in spite of a supposed terrorist threat is issuing visas like popcorn. They also allow the phony consular cards to open bank accounts and get drivers licenses for these felons. In Border States and Florida illegal immigration makes up 90-100% of population growth. Illegal immigration is costing US citizens almost $100 billion a year and three million Americans have lost their jobs to the low wage foreigners and with that $150 billion annually. Americans are being sold out by both political parties and the present administration. Let's throw them all out of office.
For the week ended 9/11/02 money market funds added $19.83 billion with assets of retail investors falling $1.86 billion and institutions rising $21.69 billion, leaving total assets at $2.24 trillion.
Net direct equity investment in the US dropped to $8.6 billion during the second quarter, the lowest figure since 1995. Mergers and acquisitions activity measured just $19.6 billion during the first half of the year down from $108 billion for some period in 2001 and $246 billion in 2000. These results continue to be negatively reflected in the current-account deficit, which went from $112.5 billion in the first quarter to $130 in the second quarter. US imports grew to $295.3 billion in the second quarter up from $271.1 billion in the first quarter. Foreigners who are buying are buying corporate bonds, Treasuries and bonds of government sponsored enterprises such as Fannie, Freddie and Ginnie. We expect all these figures to deteriorate substantially next year.
As we have expressed in the IF now for 10 years we believed there would be US participation in a move to control Middle East oil and to outflank Russia. First would be Afghanistan, then Iraq, which is the key pivotal point in the region. Iraq is only a stepping-stone. This isolates Syria, which will have to move out of Lebanon leaving the lucrative drug trade of the Bekka Valley. Syria has secretly already agreed to this scenario. Iran will be the next to fall and probably the most important. They will be totally surrounded after Iraq falls. Remember the best way to transship Caspian oil and gas is directly south through downtown Tehran to the gulf. Iraq is the key to controlling the region. This has nothing to do with weapons of mass destruction; it has everything to do with controlling the entire Middle East and its mineral resources. It will also lift a great burden from Israel, which won't have to worry about Muslim elements as much as previously. Thus you can expect Iraq to be conquered and occupied, Syria as a vassal state and Iran to be conquered and occupied. If you haven't noticed Libya has already run away with its tail between its legs. They will become another client state and have probably already cut their deal as Syria has. American forces and business interests will occupy and control the region for years to come. This is the elitists' vision. This is a tight neat plan, the only problem is Iraq and Iran will fight back and a geopolitical can of worms will have been opened with billions of Muslims worldwide ready to cut George W. Bush's heart out. That means non-stop terrorism worldwide.
Saudi Arabia will finally have its revolution and they'll be saved by US forces, which will occupy the country indefinitely. Pakistan will remain in line having long ago set a deal. They will eventually root out the remaining Taliban and al-Qaida as part of the deal. Invading and occupying Iraq, Iran and Saudi Arabia will require lots more manpower and that will come from the reimposition of selective service in the US and perhaps Britain. In the middle of a depression the change would be welcomed by many as a way to make a living as a mercenary for elitist global interests.
War is brewing in Kansas City. Hispanic leaders have mounted an effort to stop conservative Republican Connie Morris from joining the Kansas Board of Education. She maintains that children of illegal aliens should be barred from public schools. The view is contrary to federal law, and it infuriates Hispanic groups, which have started a petition against her. Connie Morris says, "Senior citizens often have to work part-time just to pay bills - yet the illegal alien is provided a free education, welfare, food stamps and medical care. We cannot afford to continue to be held hostage to this kind of loose and unpatriotic expenditure of the American dollar." The man she beat in the primary will run against her again in the final election. The liberal/socialist Morris Roundel believes American Anglo-taxpayers have a duty to pay these costs for illegal felons. The Hispanic population in Kansas City, KS district is about 25%.
The Bush and Clinton families have been close friends and business associates for years so you can see why George W. Bush actively covers up the crimes of the perverted Clinton administration. That is why the elder Bush threw the 1992 election and why Clinton destroyed Gore's bid for the presidency. Gore was an outsider - not an elitist. Bush's next move will be to nominate Alberto Gonzalez to be the next Supreme Court Justice because he's Hispanic and liberal. This will kill Bush's chances for re-election and leave the way open for the crowning of Queen Hillary and her unnatural entourage. She will then implement the totalitarian state that George Bush set into motion with the Patriot Act and Fatherland Security. Americans you had better all start thinking about a third party candidate for President.
As we predicted AOL is in trouble, big trouble. New CEO and chairman Miller is shaking up the business affairs division of the on-line Internet division, which is under investigation by the SEC for fraudulently allocating $49 million in on-line advertising. Growth has stopped with conventional users, now the growth is dependent upon upgrades. It will never happen in a depression. We went short at $32.01 was covered at $18. We reshorted at $18.00 for $12.00 and were stopped out again. Short again at $12.75 looking for $8.00.
We reiterate, the flight to quality to bonds is going to continue for now and we believe this trend will expedite deflation and depression. Rates are the lowest since the early 1960's. Government bond yields are the best indicator of inflation expectations because they offer investors a measure of what today's money will be worth in five to ten years. In 1981 ten-year Treasuries rose to over 15%, today they are 3.9%. Usually low rates would augur a recovery, but not in this environment. As we've stated for 29 months, there will be low rates, low inflation, low government bond yields, eventual deflation and higher gold prices. This is worldwide deflation caused primarily by the piercing of the stock market bubble. It will get decidedly more deflationary once the real estate, credit and derivative bubbles are broken. Japan and China are already deep into deflation and Europe is headed there and they are exporting deflation by exporting ever-cheaper goods. Investors, the public, professionals and government just don't get it; we are going into a deflationary depression. All companies have no pricing power left. Rates are going to zero in the US and Europe just like they have in Japan. All those companies that have fixed obligations at higher interest rates are doomed. Moving funds from one market isn't going to work. All markets will be in trouble. Those who increase credit risk will be wiped out. Stay in government paper, the Prudent Bear Fund, the Safe Harbor Fund, short the market and be long very special situations, gold and silver coin and stocks and get out of debt. If you don't you could end up in debtor's prison.
Lord Greenspan has cautioned against further fiscal stimulus, saying it would endanger long-term economic health. The knighted one makes no mention of the $1.2 trillion increases in aggregates by the Fed and Fannie & Freddie over the last two years and this year it will probably be as much. That is, do as I say not as I do. He says war with Iraq will bring a recession. Well, we already have a recession, doesn't he mean depression. And what is going to happen if we have perpetual war for perpetual peace? Will that mean depression? Of course it will. Unemployment is rising and consumption is falling. Apart from vehicle sales and home sales the economy is growing weaker. The current account deficit is at a record high and there is already enough stimulus in the pipeline to blow the economy straight upward, but that isn't happening because the US is caught in a liquidity trap and can't extricate itself.
Last year casino gambling contributed $369 million to the State of Connecticut and the state's most powerful officials say that's enough. No more casinos due to impact on traffic, crime rates and property values. This is like biting the hand that feeds you. The two casinos in the state paid $2.2 billion in state taxes. No other industry in the state, including insurance and defense contracting, pays more taxes. How stupid, another casino near Danbury would serve residents of the western part of the state that have to drive 1-1/2 to 2 hours to get the existing casinos. Plus the state needs the money.
War and rumors of war; oil prices near $30.00 a barrel; unemployment claims at over 400,000 not to mention the millions of unemployed our government has found it convenient to forget. Even though retail sales were up 0.8% in August the economy looked noticeably weaker. Automobiles continue to account for nearly all of the strength in consumer spending as zero financing and $8,000 rebates prevail inducing car buyers to buy vehicles that they'd pay for sometime in the future. Both consumer and auto companies' balance sheets are stretched to the limit, which means retrenchment is just around the corner. Real mortgage rates are negative after subtracting the rate of home-price appreciation. After taking the mortgage deduction into account, home loans hovering just about 6% actually cost about 4%. The flip side is that loan delinquencies are at 1994 levels and last week they were at a 20-year high. While Sir Alan tells government to put the harness on fiscal spending he is working feverishly pumping money into the system at a double-digit rate. Basic material prices, excluding food and energy, which are all near recent highs, are up 9%. These increases will show up in a year and one-half. When spending falls and the home and credit bubbles bust deflation will grip the world economy like a vice.
Investors who have held stocks and funds for five years are now about even. One more move downward and they will be liquidated. That may have begun with funds losing $52.6 billion in July. The funds are not gathering cash they are spending it. When heavy liquidation comes they'll have to do some mighty selling. The Dow dividend payment is still a paltry 2.2%. So what is one to do? That's simple; one buys gold shares and should have been doing so since April 2000 when we recommended one to do so. People who hold paper currencies are getting screwed, even if they are in Treasury paper. Bonds are still certificates of confiscation in the final analysis Gold has moved up while the TIPS spread, the yield premium regular Treasuries pay over inflation-protected securities, has contracted. Gold is where the stock market was in 1982 at about 800. That Dow went to 11,700. Are you getting the picture? Gold would have to go to a minimum of $1,800 an ounce just to play catch-up. After that, who knows? Markets are famous for overdoing things. We could see $2-3,000 an ounce. Can you imagine where gold stocks would be? *Goldcorp over $200 and *Agnico-Eagle over $400 a share. All those exploration and rising junior producers could all go from 50 cents to $50 a share. In the 1930's Homestake made a move, which could easily be emulated by *AEM and *GG and Durban Deep and ERPM went from 25 cents to $52 and $55 respectively. That's a fact, we were there, and our clients made fortunes. Gold is so cheap and it acts so beautifully. This is your last chance to join us on this wild journey, don't be left behind.
You are about to witness financial decapitation in many mutual funds, but it is in unfortunate process at Fidelity Magellan. In March 2000 they had $110 billion in investor funds, today they have $60 billion. They are now cutting their cash position and plunging further into the market. As of July 31 they had only 0.5% of assets in cash versus 7.4% in June. Any repeat of the $1.3 billion exodus in July and they'll be selling furiously. Another sign of weakness is that they will probably cut 15% of staff shortly. We expect the carnage to be so bad in the fund industry that the growth we've seen since 1960 will be decimated and it will take at least 10 years to regain public confidence again and the same goes for major brokerage houses. Incidentally once the market bottoms and gold tops out it will be a great opportunity to open a stock brokerage house.
Don't buy bond funds; just buy funds that buy Treasuries. Interest rates can't go much lower and when they do go up the price of bonds will go down causing losses. Those yields may look good now, but the capital losses will look horrible later. Never ever chase a yield. Stick with Treasuries if you want close to zero risk. Gold shares will give you zero risk and much more. Thus far in 2002 investors have poured $86.6 billion in bond funds and the yearly inflow should break last year's record. When you see these kinds of numbers of public participation you know it's time to get out because the public is almost always wrong. What can you expect in a society where almost 50% of our fellow Americans are functionally illiterate and 13% read periodicals and newspapers.
In June and July investors pulled $70.9 billion out of stock funds almost totally offsetting the $71.4 billion inflow in the first five months of the year. In 1982 fund assets were $239 billion, in 1999 they were $4 trillion and as of July 31 they were down to $2.8 trillion. The public is shell-shocked so they are buying bonds. That's the wrong thing to do. Buy Treasuries and gold and silver shares, that's where it's at.
The SEC is sending out subpoenas to hedge funds. Hedge funds are not required to register with the SEC so they have no jurisdiction and no right to regulate them, nor even ask them questions. They are asking about valuation measures, fees, background checks and performance figures. They even asked for lists of their top customers. The managers should tear up the subpoenas and ask them to refer their inquiry to the US Attorney's office and if they believe something is amiss then they should file criminal charges. Of course nothing is wrong. The government just wants these funds to stop shorting the market. We know the SEC will get nowhere and we believe they will attempt to use the Patriot Act, under the guise of money laundering, to act against them. It's coming, we can hear the footsteps. The best the hedge fund industry can hope for is that the SEC will complain to Congress hoping to get more punitive legislation in order to destroy our industry they don't want to exist. Heaven forbid you should play both sides of the market. Don't forget the SEC is run by political appointees and in the past we have considered many of them nothing more than political stamps. We know all markets are being manipulated by the government. Why not use the SEC to serve its ends.
Bad, old JP Morgan Chase is again headed for a test of $19 a share as analysts discuss a possible dividend cut. The dividend cut is nothing. Analysts look at their multi-trillion derivative exposures. We are still calling for JPM at $12 a share for starters.
At the end of August, the yield on an average corporate bond in the Moody's index was 7%, while that on the 10-year Treasury was 4.14%. That results in a ratio of 1.69%, the highest in 32 years. Under normal recession recovery situations in the past that would be bullish, but this is not a normal recession. This is a depression and the same rules don't apply. We have eight or more bad years ahead of us in order to allow all these excesses created by Sir Alan at the FED to purge themselves out.
US banks and their customers continued to pour money into derivatives in the second quarter, as the total value of contracts surpassed $50 trillion. Bank earnings from derivatives rose to $3.4 billion in the second quarter, a 7.1% jump. The top seven banks accounted for 85% of total trading revenue. They also charged off $25 million or 0.005% of total credit exposure in derivatives. Seven commercial banks account for 96% of the total amount of derivatives and more than 99% is held by the top 25 banks.
Carlyle group was the preferred bidder to take over the research and technology division of the British government called Qinetig. That fits, most of the Carlyle elitists are lords already having been knighted.
It is our opinion that after the Bush administration takes over Iraq, Iran and Saudi Arabia and neutralizes Libya and Syria they will move east and confront China. They are setting up bases in Bitung on the island of Sulawesi in Indonesia, they are setting up in the Philippines, they control Afghanistan and have made arrangements to use land, sea and air bases in Asia from Kyrgyzstan, Tajikistan and Sri Lanka. They are strengthening ties with Singapore, India, Pakistan and Malaysia. The encirclement of China will be complete in three years. Then the big confrontation.
Employers are increasingly reducing retirement benefits and employees and retirees are paying more and more. Many are now putting off retirement just to keep better benefits or just to pay for cost increases. About 20% of employers have eliminated retiree medical plans for new hires and 17% require them to pay the full premium for coverage. 45% cap contributions for new hires and 39% do so for current employees. The median employer contribution cap of $2,000 for current past 65 retirees, that is for those who have Medicare coverage. The median $4,450 for current pre-65 retirees drops to $3,900 for future retirees. Premium increases were the largest in 12 years last year up 13%. At this rate everyone will work to 80 to keep the medical profession wealthy.
It will cost US taxpayers $100 - $200 billion to wage war in Iraq, which will push the US and world economy further into recession. That's 2% of GDP in a year. This will affect interest rates and considerably increase the national debt. Mr. Lindsey, head of the White House Economic Council, thinks this is peanuts and won't have any affect on interest rates and it probably won't with Sir Alan pouring in $700 billion to $1 trillion a year in monetary aggregates. Who cares, we owe it to ourselves. These are dollars being poured down a rat hole. This will create nothing for the economy except profits for elitists. This expert forgets to mention the higher prices and deaths connected to this preventative act. That is $40-$70 oil and mothers seeing their sons and daughters coming home in body bags. We can promise you war, no matter how short, will send the market lower and the economy deeper into recession. What is not discussed is the US occupation troops that could be stationed there for years to come, such as our experience in South Korea, which we get to pay for. Most of the elitists prattle is Orwellian doubletalk. We are stunned by the realization that, most Americans actually believe the lies of vindication of pre-emptive war. Starting a war is illegal under the UN Charter and the US Constitution. America will you please wake up.
A letter to the Editor:
Currently, we have the worst unemployment in the high-tech industry I can ever remember. There are no high-tech jobs available, and American engineers and computer scientists are laid off by truckloads and replaced by cheap H1-B slaves who have no rights here and are exploited by their employers in the most brutal way.
I am an unemployed electronics engineer (mixed-signal integrated-circuit designer) with over 16 years of industry experience. I have an MS in Electrical Engineering from the University of Texas. This is the first time in my life I cannot find a job. Almost all of my colleagues and friends, with MS and Ph.D degrees in Electrical Engineering and Computer Science and many years of industry experience are either out of work or expect to be laid off shortly. The companies are not hiring the American citizens and residents; instead they are bringing to this country more and more people on H1-B visas.
If there is a skilled-labor shortage, how come people like me and my colleagues are out of work?
India and China are not exactly known as developed countries. I cannot think (of) a single example of significant technological development coming out of there. How come their residents allegedly possess greater technological skills then us dumb Americans? And if they do, then we are in even greater trouble. The whole concept of U.S. national security is based upon our technological superiority.
So the story goes ....
In a recent interview, General Norman Schwartzkopf was asked if he didn't think there was room for forgiveness toward the people who have harboured and abetted the terrorists who perpetrated the 9/11 attacks on America. His answer was a classic. Schwartzkopf said, "I believe that forgiving them is God's function. Our job is simply to arrange the meeting".
This appeared in the editorial section of our local newspaper, thought you might find it of interest.
GW The Daily Sentinel Grand Junction, Co. 9/18/2002
Illegal immigration remains nation's No. 1 problem
Editor: I'm a licensed building extractor here in Grand Junction and have worked in the building business in Colorado, Arizona and Nevada for the past 24 years.
Over the past decade, a disturbing trend had developed and this problem gets worse every year. The issue at hand involves the large numbers of illegal immigrants working at not only unskilled labor jobs, but also in skilled labor and as business-owning contractors who may or may not pay taxes.
I did some consultation work last summer on a $40 million trophy home being built for a New York billionaire, on 500 acres in Edwards, Colo. On this particular job, at least 80 percent of the workers spoke no English. There was one English-speaking carpenter from Zacateas, Mex., who, bragged to me that he could easily obtain a Social Security card and Colorado driver's license with any name I desired for a couple hundred bucks.
There are now estimated to be millions of these illegal workers in this country who break our laws at will and the government does almost nothing to control this escalating Problem. Why?
Wages have stagnated as the economic boom of the 1990s has collapsed. From all appearances, the American middle class may be on the endangered species list before too much longer.
Uncle Sam is preparing to head off on military adventures, whistling Yankee Doodle Dandy while our own borders go largely undefended and our own domestic laws go un-enforced.
Our nation is becoming overcrowded with gross overuse of natural resources. In my view, illegal immigration is our No. 1 problem, it needs to be solved, not ignored.
BILL LASHER
Grand Junction, Co.
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