Updated:    Saturday  November 22, 2003

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  GOLD:    $420 Next Week?

Here's the story, as best I can relate it without breaking confidences.  I learned on Friday of a coin shop owner who reportedly was contacted by a New York gold firm and asked if he would sell the NY brokerage 10,000 ounces of gold.  "I don't have that kind of inventory," was his reply.  "Well, can you do 5,000?"  Turns out he might be able to do that amount - over time - but the kicker to the story is the price.  "We'll give you $19 over spot if you commit by close of business today [Friday]."

What?  Does this mean that gold is going to pop up $20 next week alone?  If you own a coin shop, send us a note (News Tips on menu above) to let us know if you got the same call Friday.

It may be driven by the news from Barrick that that were no longer committed to forward sales (hedging).  Barrick's hedging activities have been under examination in the www.gata.org suit over manipulation of the gold prices.

Meantime: We'll be watching the NYC Forex trading scandal.  Turns out that the latest development in that related-to-metals-pricing mess, NY AG Spitzer has been talking with at least two of the money traders involved - and they may be talking.  Same source tells us the Exchange Stabilization Fund's manipulations of the metals may come out - and rumor is that the scandal could grow north of $1 trillion because its gone on for about 20-years.  (ESF was officially set up after the 1987 market dive) Talk about lawsuits against a rigged casino...wowzer...I can see 'em now. 

I read stories like this and dream of the day when I can trot out my $50K of option losses when interventions robbed me of shorting profits...that and damages would pay off everything and leave me with a little FY money. They'll never let it happen, though.

Speaking of Books, Medium Well...

Freddie Mac's confessional Friday was a doozie.  From the Freddie Mac press release:

Hiding Amchitka's Earthquakes:  Update

"Ain't no such thing as coincidence," one of my colleagues reminds me.  You might have noticed this week that the Department of Energy map of the 1960's and 1970's nuclear testing at Amchitka Island in Alaska suddenly stopped working.  And the link, to the original web site at http://www.em.doe.gov/bemr96/ainp.html stopped working, too.  We notice the subtle change of address that happened this week.  The background info is now living at http://web.em.doe.gov/bemr96/ainp.html, although if too many readers (like you) go visit the site, it may disappear again, only to reappear at a new address.  Yeah, yeah, I know:  Normal site maintenance - coincidence - yadda yadda yadda...

Meantime, by the stats at http://gldss7.cr.usgs.gov/neis/bulletin/bulletin.html there were 31 earthquakes near Amchitka this week - and the USGS is still calling them south or southwest of Little Sitkin Island, when Amchitka is much, much closer (and bigger) on all the maps I've seen.  Our point about USGS dancing "don't mention Amchitka" jig has been made.  For now...

Coming Monday:

Our friend Dr. Stephen Rinehart has new charts out on market targets -  up this weekend for Inside Report subscribers- along with an article on Productivity of Teaching:  When IT replaces TA's"

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Friday

Al's BIG WHOPPER

We read this morning that Alan Greenspan has joined the chorus of global corporatists who don't want "Protectionism" creeping back into their free-trade free-for-all.  http://www.reuters.com/printerFriendlyPopup.jhtml?type=reutersEdge&storyID=3865529.  I've highlighted a few interesting parts - but you'll no doubt have your own.  Remember, this is going to have way more impact on your life than Jako's being released on bond.  As speaks Al, so runs the fix...

Remarks by Chairman Alan Greenspan At the 21st Annual Monetary Conference, Cosponsored by the Cato Institute and The Economist, Washington, D.C. November 20, 2003 Among the major forces that will help shape the euro's future as a world currency will be the international evolution of the euro area's key financial counterparty, the United States. I will leave the important interplay between the euro and the dollar--and particularly forecasts of the dollar-euro exchange rate--to more venturesome analysts. My experience is that exchange markets have become so efficient that virtually all relevant information is embedded almost instantaneously in exchange rates to the point that anticipating movements in major currencies is rarely possible.1 I plan this morning to head in what I hope will be a more fruitful direction by addressing the evolving international payments imbalance of the United States and its effect on Europe and the rest of the world. I intend to focus on the eventual resolution of that current account imbalance in the context of accompanying balance-sheet changes. I conclude that spreading globalization has fostered a degree of international flexibility that has raised the probability of a benign resolution to the U.S. current account imbalance. Such a resolution has been the general experience of developed countries over the past two decades. Moreover, history suggests that greater flexibility allows economies to adjust more smoothly to changing economic circumstances and with less risk of destabilizing outcomes. Indeed, the example of the fifty states of the United States suggests that, with full flexibility in the movement of labor and capital, adjustments to cross-border imbalances can occur even without an exchange rate adjustment. In closing, I raise the necessity of containing the forces of protectionism to ensure the flexibility needed for a benign outcome of our international imbalances. Here's what he missed (because he doesn't work like you and I do for a living): Globalization's flexibility has everything to do with corporations taking advantage of unequal pay for equal work.  He's lying through his teeth to compare sweat shop wages of Asia with nearly livable wages in the U.S.  If he wants to call that flexibility, I disagree wholeheartedly.  If you're unemployed or are among the 14-million IT/computer job holders who Gartner Group says will lose their jobs to "least cost" overseas workers, you might differ with our financial knight in tarnished rhetoric.  His example of the States of the US is specious, insulting, and derogatory.  The States had a common currency.  I suggest we pay Greenspan exactly what he makes today in US dollars as Yen instead!  Maybe that'd teach him about the importance of a level labor playing field.  Can you believe this guy runs the Fed?  Read America's lips: Equal Pay for Equal Work!  Require U.S. Minimum wage equivalents be paid to all foreign workers.  We do that and our jobs will come flying back here so fast it'll make your head spin.  The reason for global is not Free Trade...it's Screw the Workers somewhere else on the planet for the sake of the P&L.  * * * The current account deficit of the United States, essentially net exports of goods and services, has continued to widen over the past couple of years. The external deficit receded modestly during our mild recession of 2001 only to rebound to a record 5 percent of gross domestic product earlier this year. Our persistent current account deficit is a growing concern because it adds to the stock of outstanding external debt that could become increasingly more difficult to finance. These developments raise the question of whether the record imbalance will benignly defuse, as it largely did after its previous peak of about 3-1/2 percent of GDP in 1986, or whether the resolution will be more troublesome. Duh.  America current account is in trouble because of unequal pay for equal work.  See previous remarks.  Again, doesn't this guy get it?  Screwing workers in Asia will come back to bite us - and now he's worried about it.  It's like driving a car by looking through the rearview mirror.  Policy?  Try incompetence.  The reason for things like FFTA and WTO getting people out in droves to protest is that America's are really a lot smarter than  the sell-outs at the top would like to believe. * * * Current account balances are determined mainly by countries' relative incomes, by product and asset prices including exchange rates, and by comparative advantage. To pay for the internationally traded goods and services that underlie that balance, there is a wholly separate market in financial instruments the magnitudes of which are determined by the same set of asset prices that affects trade in goods and services. In the end, it is the balancing of trade and financing that sets international product and asset prices and global current account balances. He almost admits it - countries' relative incomes is the whole issue.  There would be no poverty in the Third World is a global minimum wage was in place.  The term "comparative advantage" means "corporations can take advantage of lower paying workers in one part of the world". The buildup or reduction in financial claims among trading countries--that is, capital flows--are hence exact mirrors of the current account balances. And just as net trade and current accounts for the world as a whole necessarily sum to zero, so do net capital flows. Because for any country the change in net claims against all foreigners cumulates to its current account balance (abstracting from valuation adjustments), that balance must also equal the country's domestic saving less its domestic investment. Economic double talk.  What's trying to say - and I will make this simple for you, is this: When you screw people, it comes back to haunt you later.  I honestly can't take Greenspan seriously anymore because he's let slip that he's not looking at underlying inequalities.  There's no equal pay for equal work in his view of the world.  He's all about maintaining the status quo for the corporations that exploit real people.  If you want to read more, go don the rose colored glasses and click over to http://www.federalreserve.gov/boarddocs/speeches/2003/20031120/default.htm

FTAA Arrests

More than 100 were arrested according to local media during the FTAA demonstrations in Miami on Thursday.  The latest cobbled up framework to steal American Jobs and hand them out to half-priced workers south of the border was passed in a hurry yesterday by the (nervous) corporatist's puppets: http://news.yahoo.com/news?tmpl=story2&cid=509&u=/ap/20031121/ap_on_bi_ge/us_trade_talks_23&printer=1.

The War for Turkey

Following up to our view of Turkey as a flashpoint in the battle between excess consumption and angry people (see below) there's a good piece in the Economist this morning. http://www.economist.com/agenda/displayStory.cfm?story_id=2233160   And the politicians, as predicted, are trying to figure out how to respond.  http://news.bbc.co.uk/1/hi/world/europe/3225806.stm

Tax the Net

Something I have been telling you is coming - taxing the Internet - is about to make a major move forward as a big year-end spending bill will be held up if it includes a prohibition on taxing the Internet.  http://channels.netscape.com/ns/news/story.jsp?id=200311201940000285868&dt=20031120194000&w=RTR&coview=. 

Here's why this is important:  A lot of the "powers that be" now realize that the 'net is a totally dangerous thing.  First, it allows people to see what's really going on - then write about it.  Next, it allows people to share ideas and organize - whether for the WTO, John Deans campaign, or whatever.  The 'net - the FreeNet - is about self organizing groups of humans.  Self organizing, did I say?  Ah - that's the rub.  Self-organizing means we don't need them - the powers-that-be to organize us. (And tax us blind...)  The 'net is at its core a revolutionary tool. Deflationary, too.

Therefore, in much the same spirit that freedom of the airwaves was stolen from the public by the Communications Act of 1933, and later sold back to corporations to control and restrict access to mere individuals, we're seeing the same moves afoot today for the 'net.  It's dangerous to let mere citizens chat among themselves freely.  We need to install surveillance (Carnivore, that system of government email scanning) and get ready to tax it.  It's just far too dangerous to let people really be FREE!

Wait till you start seeing a $10 month "web access" tax to keep you off the net - and then taxing of servers...you'll get the point. I haven't been wrong on this yet...

Fund While It Lasted...

NY Post headline this morning has the SEC and NY AG Spitzer filing charges against Pilgrim & Baxter...gory details at http://www.nypost.com/business/11395.htm if you're still sinking money into the 401 rat hole.  If you can explain how everyone will be able to get their money out when the boomers start retiring, I'd sure like to here it.  Yeah, yeah, Dow's going to 40,000 and all that.  Did anyone tell you that if that happens it will be because of hyperinflation, not sound business? Two years ago I told you buy gold at $260 - which we did. Wanna compare returns?

Forbes Review

I didn't know till yesterday that my hobby had gotten notice from Forbes. Their review at http://www.forbes.com/bow/b2c/review.jhtml?id=1903 

Urban Survival www.urbansurvival.com A site for those who not only believe that the bear market is upon us, but that the bear is chasing us. Articles like "Which of the Four Horsemen" and "Is there a Central Bankers' Conspiracy?" abound. Do not expect any sound investing advice here, but amuse yourself with the articles, many with hand-drawn graphs and charts that would make Far Side cartoonist Gary Larson proud. BEST: Commentary that you will not find elsewhere. WORST: Awful site design.

Turn about is fair play:

Forbes www.forbes.com A magazine for those who believe that Greenspan's a genius, Bush didn't go AWOL and scant mention of gold. Do not expect any sound investing advice here, but amuse yourself with the columnists who are a healthy counterpoint to the establishment rap. BEST: "With all your getting, get understanding"  (Thoughts on the business life, Inside back page) WORST: Awful site design.  They presently try to install 3 - count them 3 - spyware programs on unwary users computers:  Eliven, MediaPlex, and Avenue A.

Inside Report

This weekend, we'll cover trends in higher education and how TA's got replaced by IT - and where that leads us...

Thursday

The Replay of Manzikert?

Losing Turkey

What has become frighteningly clear to the casual observer of economic news this week is that the oil-thirsty West may be about to lose Turkey.  This morning, after two bombs did extensive damage to the HSBC Bank building in the city's financial district, the BBC reports the Turkish markets drop 7.4% http://news.bbc.co.uk/1/hi/business/3222930.stm and the ripple carried into the British Exchange, and by extension we may see weakness in the U.S. markets later today.

Let's pause for a moment to study a bit of history.  Turkey has been a flashpoint of Western conflict with Islam ever since 1071 and the Battle of Manzikert, where Seljuk Turks squared off with the Byzantine Empire. Only a few days after 9/11 I wrote about today's conflict with militant Islam as being analogous to the Christian Crusades, and a book published this summer by J.W. Smith of the Institute for Economic Democracy holds forth a similar viewpoints and is worthy of considerable thought:  Smith sees the same 1,300 year battle that I've mentioned and the period involved is written about at the IED website http://www.ied.info/books/why/1300.html if you want more background.  It's also one of those books to think about for Christmas...

Now let me get to the point of this morning's latest horror http://news.bbc.co.uk/1/hi/world/europe/3222608.stm.  You'll recall that Turkey didn't grant the US access to its ports to move equipment and supplies into Iraq.  Certainly, in any move toward Iran, which many people figure is next on Vice President Oil's shopping list, would be aided if the U.S. had easy access to Turkey.  But it looks like that won't be the case.

Here's the policy problem for both Turkey and the U.S. now:  Turkey will likely want to deal with the Turkish synagogue bombings of last weekend and the Istanbul bombings of today as an internal matter, although metaphorically, the bombings last weekend said whoever perpetrated the bombings didn't like Jews and location (Turkey) told us who was involved (militant Islamists).  This morning, by attacking a financial center (another bank building bombing) we can figure out which part of militant Islam.

But if Turkey insists on handling this as an internal matter, the U.S. which might lend considerable aid to Turkey, will be effectively checked.  And that would leave the militants able to pretty much take over Turkey at their own leisure - a frightening thought because remember that if Turkey and Iran ink any kind of mutual defense pact, Iran's small fleet of submarines could almost instantly close down the vital waterway, which in turn would weaken Russia dramatically and allow militants to munch away on Russia's southern tier of already partly Islamic countries.  Admittedly, it's a big picture view, but remember the Crusades were fought over 200 years, and thanks to constantly changing governments in the West, the side with the longer term view is almost certain to win.  Especially because they control oil.

It's critical to understanding the conflict between our high consumption lifestyle, and the rest of the world suffering, that we understand that the word Crusade means entirely different things depending on audience.  To the Christian West,  the term is about "spreading the Word".  To Muslims, the term evokes powerful negatives when hordes of Western forces pillaged their lands.  This linguistic point, and pivotal role of Turkey is almost certainly not lost on Osama bin Laden.

New Sites to Check Out:  http://unansweredquestions.org/   And pictures of the Bush demonstrations at http://www.indymedia.org.uk/en/2003/11/280962.html

Iraq Probe Expands

USA Today reports this morning at http://www.usatoday.com/news/world/iraq/2003-11-19-cia-iraq_x.htm that the CIA is continuing to widen the internal investigation to find out why we didn't know that Iraqi WMD's don't seem to exist.  As we've held from the outset:  Iraq is not the end...it's only the beginning.

Warning from Asia:

One of our knowledgeable Asian readers sends this note from Singapore to help you grasp why the buck is drooping (as a precedent to out and out crashing...)

We Asians want *OUT* of USD bonds. See, we're getting nervous. We're gonna setup our own bond markets, and want out of US Treasuries and all that.

http://business-times.asia1.com.sg/sub/views/story/0,4574,100324,00.html

(will be archived offline after 3 days)

At the street level, some of the unit trusts (mutual funds in your language) here are still peddling US Govt, GNMA and other USD bonds.

Like hell we'll bite.

And that will seal the fate of the buck...  Meantime, another one of our news tipsters (see menu above to send in your news tips) tells us he recalls seeing an article in the Financial Times recently about China hoarding that we should all read: http://search.ft.com/search/article.html?id=031115001460&query=China+and+commodities&vsc_appId=totalSearch&state=Form

Meantime, with Japan now well under the 10,000 mark, the "global wave" picture looks increasing glum by our work:

Another reader sent me a www.lexisnexis.com  archive from the Daily Telegraph of Sydney Australia in which writer Ian Lovett says (in fair comment extract only):

 WHILE the rest of the world has been obsessed with an Iraq war and growing tensions between the US and North Korea, China has been quietly buying gold.

China first tiptoed into London's secretive bullion market in December, snapping up a cool $1.61 billion's worth of gold.

The purchase increased its reserves by almost 25 per cent to 19.29 million ounces.

China's spending spree can not be disregarded as an aberration. China has $162 billion left in its kitty, and British financial newsletter writer David Fuller believes this is just the beginning of gold's bull run.

Now this was a February 15th article, so there's another 9-months worth of buying under the belt now. 

Let's try to be economic geniuses, shall we?  What will happen to the U.S. dollar when China announces a golden Yuan or the Islamic Dinar takes off?  My best guess:  We will still have 50 states (plus a few in the Middle East informally) but the Dollar will be renamed the Yankee Peso. Especially after the Free Trade Area for the America's nonsense that will job jack even more positions from the US and send them to corporatist profit centers in places even cheaper to hire labor than Mexico...

Write Laws, Shoot Foot

Up to 20 refineries will be closed down in the next 3-5 years according to the oil biz...thank the environmental rules...  http://biz.yahoo.com/rc/031119/energy_refineries_outlook_1.html  And you wonder why I won't buy a new car? The answer is smaller, lighter cars with better mileage, but we got rules against them, too...It takes so much weight to make a crumple zone and then you need to have horsepower to move the mass around... Circular reference equals a constrained system equals a breakdown sometime..

Speaking of Trade

China is threatening to impose punitive tariffs on certain U.S. goods if we don't go along with a WTO decision on our steel tariffs... http://news.bbc.co.uk/1/hi/business/3222580.stm.  You see how global trade works?  China's dumping bucks to buy resources.

It's Enough to Make You Cry...

Mexican onions are being barred from import to the U.S. because of that Pennsylvania hepatitis outbreak we mentioned when, last week?  Story popped last night at http://news.yahoo.com/news?tmpl=story2&cid=571&u=/nm/20031119/hl_nm/food_hepatitis_dc&printer=1

Forex Fraud?

Story?  What story?  Notice how quite the arrest of 50 people at the big name trading firms got hushed up and buried? (See yesterday's report...)

The Michael Marker:

Although I promised not to get into coverage of Jako's troubles, this snip from a reader does deal directly with economics and our future:

"Can’t help but juxtapose the current (sudden) Mike Jackson media frenzy with that of Representative Gary Condit which pre-occupied America during the summer/early fall of 2001.  It was Condit-all-the-time preceding 9/11 and, then, the story dropped completely off the radar.  At the time, the Condit headlines served to mask the degrading global economic picture and the abysmal state of domestic security.  One can only begin to enumerate the issues the current administration is trying to mask.  Perhaps there is more to the timing of this JAKO media circus than meets the eye.  Perhaps there is a much larger story developing which will become apparent shortly.  One thing is for certain; the current administration’s ringleaders (Perle, Wolfowitz, Cheney, Rumsfeld, et al.) have studied Orwell very closely:

Orwell understood the difference between 'what the public is interested in' and 'the public interest'. "

Al & Hill Follow Up

A reader writes about my Al & Hill comments (below):

"...Hey, maybe St. Al's a Hillary fan, who knows?"

If I recall accurately, during Bill Klinton's first State of the Union

address, wasn't Alan Greenspan sitting next to Hillary?

Also, wasn't it A. Greenspan that goosed the money supply in 1995, then

again in 1997 and again in 1998 then again in 1999 thereby enabling the

asset bubble and making Klinton look really good on the economy?

Remember "It's the economy, stupid!"

I am still wondering if Sir Greenspan has totally abandoned his

gold-is-real-money beliefs of his objectivist '60's or is deliberately

destroying the dollar to prepare the way for a return to constitutional

money.

Will we (or he) live long enough to find out????

Server Move - First Try

Our ISP tried moving the UrbanSurvival site to a new (Linux/Unix) server yesterday, but without much success...not only have my stats disappeared, but the new site didn't work as planned - and for a couple of hours yesterday morning, last week's report was up.  We'll have to teach the ISP a few more things about how to move big sites...so if you notice anything odd (or out of date) over the next week or so, just check back in an hour.  It's due to the move to a faster server...

Wednesday

$400 Gold Arrives

It happened - but only by a dime - overnight.  I expect it will be back, so check out the Kitco charts periodically, as those Maples and 'rands  we bought for $260 and $270 2-years ago shame anything Putnam has tabled lately. We expect the powers-that-be to stomp on gold like crazy today, but with the U.S. buck making new lows versus the Euro, it's only a matter of time till $415, and then, over the next year or so, $625.  It's amazing how many people still don't get it:  Gold isn't going UP...the dollar is becoming Weimar paper...  No Brainer expectation:  The powers-that-be (played by the Treasury's Economic Stabilization Fund) will massively intervene before the open so it will look like an "up" open for stocks and gold dropping - but about halfway through the session, (if not 30 minutes into the session) expect reality to set in.  Traders aren't completely stupid, recent evidence to the contrary aside.  We have no way to paper that $44-trillion problem we've keep reminding you of......

Taiwan Tensing

While most of the world's conventional press are focused on Michael Jackson's ongoing problems at Neverland, I've taken the view that besides the Thriller album, Jackson's of little or no economic interest unless you are in the business of making right-handed gloves, glitter knee pads, or perhaps you're a record promoter/psychologist/lawyer/ or Santa Barbara tour guide. I'll leave it to "pop media" like the Drudge Report and CNN to spoon feed that one - I want nothing to do with it.  This site's about thinking...not moon walking, unless it's Chinese moon walking and they're surveying the place, of course...

Instead, we'll busy our minds with more substantive food for thought, such as China's latest warning to Taiwan that any move toward independence will be risking war: http://news.bbc.co.uk/1/hi/world/asia-pacific/3282491.stm  The Bush administration is trying to quietly exert pressure on China to lighten up.  A symmetry of response is noted in the visit of a US Navy ship to nearby Vietnam reported at http://news.bbc.co.uk/1/hi/world/asia-pacific/3279863.stm and the Bloomberg report that the U.S. has announced limits on apparel imports from China.  http://quote.bloomberg.com/apps/news?pid=71000001&refer=top_world_news&sid=ab.dja549JtM Now, the real question is this:  Are the Chinese simply reacting to the U.S. projection of power over China's future, or, are the Chinese really rattling the cage first?  Perhaps if we look at how China is approaching the future, we can gain some insight...

China & Korea:  Energy Hoarding

We've caught bits here and there, from the web bot trickles that keep coming in, about how Asian economies are hoarding energy.  Stories about abandoned mines being filled up with imported coal...things like that.  It's obviously because Asian countries are doing more planning for the end of cheap energy and the probable die-off of humans that will come with it, than is the U.S. which is practicing the none-to-subtle art of gunpoint diplomacy in Iraq now, and probably Iran next.  So with this background, I have to admit having an "Ah Ha!" moment when I read that Korea and China have signed a 30-year gas deal with Russia!  http://english.pravda.ru/main/18/89/357/11296_gas.html.

Bill & Steve's Not-so Excellent Adventure

We've covered in past updates the fact that in Asia governments are putting muscle (and money) behind a drive to build an open source Windows alternative.  This morning in the NY Post, more coverage of how Bill Gates and Steve Ballmer are trying like crazy to keep Asian countries from picking up where Linux leaves off in the quest for ever-more-powerful open source operating systems: http://www.nypost.com/business/11147.htm

Forex Fraud: The Next "Big Thing"?

Here's one of those stories that seems to be evolving in a predictable way - the kind of economic stories that are the most fun from a spectator's viewpoint, because you can almost see the "light of day" dawning across the American media consciousness.  Specifically, we're looking today at the short AP story that crossed the wires just before 8 PM last night.  http://www.newsday.com/news/local/wire/ny-bc-ny--foreignexchangera1118nov18,0,6202065,print.story?coll=ny-ap-regional-wire.  When you read this version, you hear that about 10 people have been arrested. Next, a little later, there's a rewrite coming in sometime after midnight that ups the number involved to "several dozen"...

http://ap.tbo.com/ap/breaking/MGA08QH67ND.html. 

In the New York Times this morning we find out that not only was the number of arrests "about 48"  - a different kettle of fish from the 47 people "targeted" in the AP story.  http://www.nytimes.com/reuters/business/business-financial-forex-arrests.html  But now what's interesting is the report in the "gray lady" gives rise to wondering who's really involved: Notice that the AP report said that "In one alleged case, employees at J.P. Morgan Chase & Co. and UBS AG were accused of arranging deals...."  On the other hand, the Times story referred only to the address 2 World Financial Center, with a minor firm named and the Times report says the "names of the other companies involved remained unclear..."  I expect the names will pop out later today.  But, for this morning's cup of coffee, we can see what may be interpreted as the ghostly outline of securities firms, already up to their behinds in fund and front-running problems, getting another kick while they're down from forex fraud charges.

What's This?  Suddenly Honest Al?

Another story in the Post this morning that caught our eye was the a short little Reuters blurb that Fed Boss St./Sir Greenspan is urging the Department of Labor to fix a stats problem that routinely understates the number of newly unemployed each week.  http://www.nypost.com/business/11162.htm. 

I have to admit being stumped by this, because I've already explained to you a zillion times how people are under-reported and eliminated from all counting processes. One example goes something like this:  A sales exec or a hot shot programmer is offered a lucrative "consulting" position in lieu of the fulltime gig they once had - an alternative to being fired.  Then, after a few months, the consulting gig suddenly ends.  The "consultant" was never fired, but because they were "independent" they are not able to apply for unemployment...and so they just sort of disappear from the body count.  This is not the kind of honesty that Greenspan's move is about, but it's curious that he should do anything with stats in an election year that might make the incumbent look even less credible...Hey, maybe St. Al's a Hillary fan, who knows? (Wait a minute!  Does Hill look anything like Ayn Rand?)

Iraq: Another Assassination

We notice again today that serving in Iraq as a government official is a life threatening decision: http://ap.tbo.com/ap/breaking/MGAPAPV67ND.html

Amchitka Follow Up

Six more quakes yesterday.  Still no explanation of why USGS keeps calling it 70 kilometers south of Sitkin Island when the epicenters are about 15 miles from Amchitka...  But you know, right?  "Policy"  (That's another word for sanctioned deception...)

Tuesday

Amchitka Cover Up?

Smell a Rat? Amchitka  Area Shakers

The U.S. Geological Survey's site reports a huge swarm of earthquakes has been occurring up in the Aleutian Islands in the Rat Island area.  Here's the data from USGS...which we caution, some quake experts think is under reported to avoid alarming people:

Source: http://gldss7.cr.usgs.gov/neis/bulletin/bulletin.html

What is being assiduously avoided by government types is any mention of Amchitka Island in the middle of the quake area which is where the US did underground nuclear testing in October of  in the late 1950's early 1970's timeframe.  In fact, the US Department of Energy notes that Amchitka, where three underground atomics tests were set off, is the southernmost of the Rat Island Group.   The Department of Energy Nevada Environmental Management site at http://www.nv.doe.gov/programs/envmgmt/blackmtn/EROffsitesProjects.htm provides this overview of the three big atomic tests at Amchitka:

Amchitka Island: The southernmost island of the Rat Island Group in the Aleutian Islands is known as Amchitka Island. This was the location of three high-yield underground nuclear detonations conducted by the U.S. Atomic Energy Commission (predecessor to the DOE) and the U.S. Department of Defense. The first test, Long Shot, was detonated in 1965; the second test, Milrow, was detonated in 1969; and the third test, Cannikin, was detonated in 1971.  Extensive environmental monitoring and sampling for the past 25 years have provided no evidence of long-term hazards to humans, plants, animals, or groundwater sources.  Nonetheless, surface remediation of mud pits is planned in the next several years and groundwater modeling is ongoing.

Here's a convenient DOE map.  Notice where Constantine Harbor is...about 5-miles southeast of the Milrow and Longshot tests, and maybe 8 miles from Cannikin site:

"Amchitka?" Misdirecting the Public

The DOE site on Amchitka http://www.em.doe.gov/bemr96/ainp.html notes that the blast sites are about 1,400 miles from Anchorage while the Rat Island quake swarm is listed at 1,370 miles from Anchorage.  You getting the picture on this?

Let me see if we can dig into this a little deeper:  We notice that the USGS says the 7.8 quake was 70 kilometers south of Little Sitkin Island if you read the location information at http://gldss7.cr.usgs.gov/neis/bulletin/neic_bgae.html. 

Now we click over to the University of Alaska where we find Little Sitkin is 76 miles northwest of Constantine Harbor which you can see as the most protected bay on the Amchitka map above. http://www.avo.alaska.edu/avo4/atlas/Little_Sitkin.htm.

I've got to head for the office in a few minutes, but here's the bottom line. 

• Amchitka is a hell of a lot closer, if I'm reading this right, to the epicenters of the quake swarms than Sitkin, so USGS failing to mention Amchitka has the "smell" of deception and misdirection.  This is  like referencing the WTC as an event that happened so many miles from Brooklyn instead of coming out and calling it Manhattan.

• There is plenty of reason not to talk about Amchitka. The Nome Nugget reported that through January 9th of this year, more than $20 million in health claims had been sent to 139 workers on the atomic tests. http://nugget.nomenugget.com/20030605/features.html 

• Anchorage Daily News report Don Hunter reported in Feb 2002 that the state of Alaska was trying to get more teams to the area to assess possible leakage:  http://www.adn.com/alaska/v-printer/story/772025p-824481c.html

And what does this have to do with economics?  Well, consider the implications for a hungry world of radiation leakage into salmon and king crab of the Bering Sea.  That's the question no one seems to be in any particular hurry to answer.  I might be a bit off on the distances, as my charts of the area were on our sailboat when we sold her...but close enough to demand some answers to questions.

Where's the Golden Whistle Blower?

As we saw from the price action of gold yesterday, there continue to be what appears to be high jinx going on behind the scene of a type that are probably at or above the level of crookedness in the mutual funds.  The problem that folks like www.gata.org have had is that they've never need able to find the "smoking gun" kind of evidence to force a major criminal conviction of the gold manipulators.  What's needed is someone who can point out specifically how the manipulation is affected, who makes the decisions, and who executes the trades, with specific examples of what date and so forth.  On Monday, Jim Sinclair put an offer on the table that should tempt any would-be whistle blower: $50,000 in gold coins for turning over the real evidence.  Jim's offer at http://www.jsmineset.com/home.asp.

Freak Weather:  The New Normal

All you need to know about meteorology to make a "season of hell" forecast for the U.S. Southwest is this:  When hot air and cold air collide, you can get violent weather.

Now, take that knowledge and look at the following two maps from the NOAA 2003-04 winter weather outlook for the nation.  First temps, then precip charts.  Ready?

When you look at the chart, you see where Texas has a lot more rain coming for the winter and with temps up to 40% above normal...that spellls (repeat after me) "winter of hell".  I expect the Houston area 10" of rain yesterday and the tornado will only be the start.  The whole NOAA forecast at http://www.noaanews.noaa.gov/stories2003/s2100.htm is worth study.

Monday

Global Depression Resumes

Two weeks ago, readers of our Inside Report were shown our Global Aggregate Index, an equally weighted average of 8 of the world's most influential stock markets.  We noted at the time that our Global Index looked as though it had completed a Fibonacci bounced from previous historic lows in March and that there was a good chance that the global economy would now begin pulling back.  Sure enough, the decline appears to have begun last week and with word overnight of the Nikkei dropping below 10,000, we're seeing the broad outline of the return of Depression II.  We expect the Japanese decline, reported at http://quote.bloomberg.com/apps/news?pid=10000087&sid=an8nCUOPUcNI&refer=top_world_news, will be followed by a U.S. market decline today.  Although the futures point to as modest -50 to -60 kind of open, it shouldn't take much to motivate a lot of mutual funds to unload stocks - while they can - to free up funds for disillusioned investors who are slowly wising up to the danger of redemptions pushed by demographic shifts (see related interview below). 

Another place we read signs of the global bust returning may be found on the BBC's site this morning, where red tape and extra taxes are diluting British resilience:  http://news.bbc.co.uk/1/hi/business/3275645.stm  We don't need to comment on the "jobless recovery" in the U.S. where just about everyone knows government spending has accounted for most of the "jobless recovery"...

Last Gasp Globalism

As if GATT agreements, NAFTA, and the WTO weren't enough, global corporatists seem to be running - as usual well behind the curve - arguing that globalism will save everyone, if just this one more thing were to happen.  The latest example, is the Free Trade Area of the Americas hoax, which kicks off hype meetings in Miami this week.  As the Ft. Lauderdale Sun-Sentinel reports, police are already braced for what is likely to be a series of WTO-style demonstrations: http://www.sun-sentinel.com/news/local/southflorida/sfl-zftaa17nov17,0,6838018.story?coll=sfla-home-headlines   Ross Perot was absolutely right about NAFTA and this latest plan won't save an American, but it might save a few corporate P&L's - but only for a while because ultimately, Americans  - as in U.S. Americans - need jobs. One line editorial: Steal our jobs and who care's about corporation X's P&L? Except corporation X and the derivatives house of cards...

"Swab 'em, Danno"

Remember the old Hawaii 5-Oh series?  "Book 'em, Danno..."  Well now, the forces of big government want to spend 755-million of your hard earned tax dollars to collect DNA samples from juveniles and people who haven't been convicted of anything reports the USA Today Monday editions at http://www.usatoday.com/news/washington/2003-11-16-fbi-juvenile-dna_x.htm. Of course the senate, never particularly good at reading the will of the people, couldn't find a better way to spend the money, could they?   If you're a senator, sampling spit is more important than keeping kids in school and moms and dads in jobs - 'specially when it's being lobbied by the Fatherland Security cadre and we know how smart they are....

Bush: Loosing  - But Who Notices?

Speaking of the ill-conceived U.S. response to terrorism, which included mind benders like issuing visas to terror suspects 6-months after 9/11 and letting Saudi's fly as they pleased a day after 9/11 when no U.S. citizen could fly, is quietly failing in ways that the Bush administration is hoping the general "dumbed down" media won't catch on to.  For example, we read this morning that the U.S. is about to agree to international control of our forces in Iraq in order to spread the blame for failure:  http://news.independent.co.uk/world/politics/story.jsp?story=464488.  We also read this morning that the U.S. is likely to pull back from its "trip wire" role in South Korea along the DMZ: http://www.cnn.com/2003/WORLD/asiapcf/east/11/17/skorea.rumsfeld/index.html . Taken in as a whole, these news events suggest that continuing to launch big attacks in Iraq http://www.cnn.com/2003/WORLD/meast/11/17/sprj.irq.main/index.html will cost more than the U.S. can afford. Therefore, the working premise of a news analyst (played by yours truly) would be that because we're running out of money and troops to project power, we'll now try to pull a quick switch to "international cooperation" and refocus the Pax Americana adherents on less grandiose designs.  Bush's ploy will be to pretend we've in a gradual withdrawal of forces - and pimp that "Big 'un" in the election campaign... watch and see if I'm right on this...

Sunday-Monday Overnight

Thanksgiving Travel Disruptions?

Earlier Sunday I posted this "Help wanted" to research solar flares potentially grounding aircraft over Thanksgiving.  Report back this morning from a teacher/sleuth who wished to remain anonymous at http://www.channel4000.com/sh/weather/stories/weather-264103520031116-061147.html

Sleuth Bonus Points:  The sleuth's story is out of Minneapolis.  I didn't mention in my first report that Northwest was one of the airlines that supposedly got the quiet nod from the feds... Fit: 98% Coincidence?  Odds getting longer....

Tetanus War Next?

An alert tipster sends this: 

Strange things seem to be happening.  I went to my Primary Care Physician the last week for a flu shot and to check on a tick bite.  They asked me if my tetanus shot was current and what do I find on Debka!

 

 "The experts cite no specific new evidence apart from the recent discovery of several canisters of unidentified chemicals and possible residues of a “tetanus virus-carrying chemical” and a bio-terror manual in a police raid on a Jemaa Islamiyah hideout in the southern Philippines."

 

complete article http://www.debka.com/article.php?aid=675

 

I am not sure if these are related, you might want to call your doctor to see if they are recommending tetanus shots.

 

I just subscribed to the inside report last week.  Thanks for all your hard work.

Yeah, I think Elaine and I will get shots in the next couple of weeks.  Although I expect she might welcome my coming down with lock jaw...

Are Consumer's Tapped Out?

A doff of the cap this morning to Terry Keenan of the NY Post for telling it like it is:  Wal-Mart's numbers are telling us a couple of things - mainly that the U.S. consumer is tapped out: http://www.nypost.com/business/10870.htm although some of us skeptics wonder if exercising eminent domain to kick out local merchants for shopping super centers in smaller towns is a good thing..  Here's what's not in Keenan's article, but it ties it together neatly:  Personal bankruptcies are at record levels.  You tell me what this means:  Tapped out or not?  http://apnews.myway.com/article/20031114/D7UQJ2A00.html  Meantime, Elaine and I went to Publix for our bi-weekly load 'em up:  $184.50.  I noticed steaks are down a bit, but still hugging vegetarian prices, fish (which we really like) is still stratospheric, although dinner for me tonight is a bottle of a cheap but drinkable Chianti, almost a pound of coldwater small shrimp ($6.99/lb) over Romaine leaves ($3.09) and with a loaf of bake-it-myself French bread ($2.09).  Elaine will snack on some of my salad and share bites 3.4 lb of Mahi Mahi ($7.55) with a lemon caper sauce and some champagne (Taylor's, $6.54/bottle and some portion thereof).  Ground sirloin for spaghetti later in the week is $4.59.  But come on...the food bill is so high that I'll never be able to save up enough for a new liver or cholesterol pills at these prices...The same dinner out?  Oh, about $125 in Boca before valet charge.  Is this a great country, or what?  Meantime Panama Bates reports from the ranch that 3- filet mignons are $12.95 a pound.  That as gas prices around $1.35 in Texas.  No wonder Bush got erected. (yeah, spelling intentional).

Drudge  "Flash" On Bush Polling?

....that about one in three Brits think Bush is stupid: http://www.drudgereport.com/flash.htm  While we appreciate the sentiment, remember we've already named Bush winner of the re-election bid, provided he stays alive through the oil patch gang war, and based on the power to manipulate.  Besides, the Drudge Report story didn't ask the people who really matter:  What is the reading of Central Bankers, exiled Saddam, bin Laden, South American Presidents with resources, OPEC chiefs, and China about Mr. Boosh?  I'm guessing more than one in three when you poll world leadership that has us by the...er...goanies......but it don't matter to me.

Gummie Bares?

Chewable Contraceptives?  Spearmint flavored?  Followed by 8 ounces of liquid? Did Cupid's Quiver miss something, or what?  (Did I just reveal my age?) http://story.news.yahoo.com/news?tmpl=story&cid=97&ncid=751&e=7&u=/hsn/20031116/hl_hsn/fdaoks1stchewablecontraceptive  Next thing you know, contraceptives will be available in the blow-to-warm oil variety, a crass male marketing ploy almost sure to follow...and how far away can scratch and sniff be for the drug prone?  Share the patent royalties, please.

Research Help Requested

Is Thanksgiving Travel in Trouble?

Here's the scoop from a single source:  Word is that NOAA/NASA have supposedly been quietly telling airline avionics chiefs that if the sunspots about to re-emerge into earth view act up a lot, there may be airline travel disruptions worldwide in the next two weeks.  This is a pretty interesting claim, but so far only from a single source.  The only reference on the 'net right now seems to be a British advisory http://www.ukresilience.info/contingencies/cont_index.htm which is pretty general in nature, does cover the time period, but doesn't tie back to a formal NOAA or NASA note.  Here's what I'm looking for:  If you know anyone in the airline business, call them up and ask them if they've heard anything about possible travel disruptions in the next two weeks, especially toward Thanksgiving when the sunspots will rotate behind the limb again.  If you get any straight scoop, use the news tip form (click here) and I'll pull together the big picture...or not...depending on responses...

Saudis Off The Hook!

You won't be seeing much of this story on "controlled" US media...but here's the scoop on the 9/11 victim families losing a round in court:     http://www.arabnews.com/?page=4&section=0&article=35171&d=16&m=11&y=2003   Once again we're asking, why were Saudi Royal family members and friends the only ones allowed to fly after 9/11 when U.S. citizens and U.S. airlines were grounded?  One view is "normal diplomacy" while the other is more like "a truce following gang warfare over the oil patch..."

Don Christensen:  Spectacularly Right

I was straightening up the Inside Report library of past issues early Sunday morning when I came across a dusty page that I think everyone - not just Inside Report subscribers, ought to have access to. Because it's Sunday, and you should have a little time, why not pull up a cup of coffee and think about what we were warning of more than a year ago?

^{Urban Survival’s} Inside Report # 52 October 13, 2002

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Mutual Funds:  Trouble Waiting to Happen

 

I told you about this guy several times, but just like Santa, I know who has been naughty and who's been nice (Oh, OK, good then...) and lot's of you have been naughty.

 

Think back: "How many times has George told me to read Don Christensen's book about the market imploding due to the arrival of huge numbers of retirees at the same time mutual funds had no cash and the funds would have to sell stocks and that would drive things into the ground?

 

Well, you've been slow on the uptake - not to mention Don's book is scarce, although you can find it on Amazon as a used book now and then.  Between you, me, and the fence post, Don is working on an update.  But frankly we can't wait.  We're Urban Survival, dammit, and we wanna know now.

 

OK.  Done.  Here's my interview with Don.  Read slowly and think deeply.  This is some serious doggie doo.  Remember, I did broadcasting so this interview is done "transcription style" because that's who Don is and that's who I is....er....am.....

 

George:  Background:  In the mid-1990s when Don Christensen wrote the book Surviving the Coming Mutual Fund Crisis, he was one of the first people to recognize a gathering swell of mania and warn of the consequences. Now that the mania that Don predicted has collapsed and the consequences are being felt, we've had a chance to ask Don about the predictions he made and his views on what is still ahead.

Your book was first published in 1994 and revised for a paperback edition in 1995. The predictions you made have taken a long time to unfold. Why?

Looking back at the last ten years, I would say that the mutual fund industry has been operating in crisis mode since at least late 1996. The general buoyancy of markets, until mid-2000 that is, covered up the serious problems plaguing the fund industry in the mid-1990s. That was about the time that actively-managed funds started getting a lot of deservedly bad press for investing fund shareholders' money in a way different than the way the funds were promoted. That's when we started hearing the phrase "style drift" to explain, for example, why a fund that called itself a "Blue Chip Growth Fund" was really investing heavily in new, unseasoned companies. A huge group of fund investors got fed up with this and started shifting money into index funds. The thinking was that in an index fund you would know at least where your money was being invested. So the dominance of managed funds diminished as the fund industry grappled with a crisis of confidence and the index funds started attracting a greater share of investor dollars than ever before. Of course, that caused an even worse situation in markets.

How so?

As more and more money got concentrated into index funds, specifically S&P 500 index funds, the pricing of the stocks in that small universe of stocks got completely out of whack. The mere fact that the stocks were in that small index created the valuations of the stocks. The funds were required to buy those 500 stocks to satisfy the rush of investment dollars into the index funds. Then, as the valuations kept going up and up, the performance of the S&P index was the measurement that was announced on TV news every night. And everyone thought they were getting rich. Not so.

They were just caught up in a classic mania, or bubble, that for a while was self-fulfilling because so many people were throwing a lot of money at the same idea with the false impression that everyone can do the same thing and get rich. Totally crazy. But the leaders of the fund industry and leaders of mainstream financial media didn't tell anyone that. The result, we now know, is that the people in the fund industry and mainstream financial media were about the only people who got rich during this mania. That is also a classic characteristic of manias, no matter what the focus of the mania might be.

And what about the role of managed funds in the problems we are seeing today?

As the index funds were getting the lion's share of new investment dollars, the managed funds, in a desperate attempt to outdo the impact of an enormous amount of money being flung at 500 stocks, starting taking on more and more risk in their investments and investment techniques. For example, a greater percentage of a typical fund's assets were thrown at new companies, like many of the now-defunct dot-coms, and ever-higher holdings of untraded securities that carry with them serious questions about valuations. These are high-risk techniques that no average fund shareholder could ever evaluate when making a decision about whether or not to put money into a fund. Eventually the overvaluations of all these different markets and sectors of markets came down to earth. It always happens this way. It is part of the unbroken cycle of mania and crisis.

Where are we now in this cycle?

Actually, I think as far as mutual funds go, we're still in the early stage of the downward slope of the cycle. The general investing public has not recognized the full role that mutual funds as well as other institutional investors have had in the meltdown we've been watching for the last couple years. There is still a lot of denial going on. A lot of assumption that things will get better in a short period of time and that professional money managers know what they are doing. We will need to see more disgust with the idea of mutual funds and anger directed at the people who run the funds before the downward part of the cycle can be completed. There are a few signs that this might starting. I see, for example, that Mutual Funds Magazine, which gave my book a rather vicious review in 1995, just went out of business. I see also that shareholder lawsuits are starting against mutual fund companies for mishandling fund money. There's a particularly interesting one that got reported last week involving a Merrill Lynch fund. I would expect to see many, many more of these suits before the fund industry starts a round of reforms to regain investor confidence. This was the pattern in the past when the fund industry enjoyed periods of enthusiastic mania and had following periods of dishonor. The past periods of mania were during the late 1920s and late 1960s. The 1930s and 1970s were grim times for the mutual fund idea. We're not there yet, but we'll get there.

And the implications on markets?

Not pretty. Here's an axiom: Every mania is followed by a mirror image of disillusionment. In other words, every period of over-optimism sparks a period of over-pessimism. That hasn't happened and will have to happen before we can start a new leg of an upward cycle.

What do you see as the immediate dangers for investors?

The biggest mistake among people who had been involved in a mania fall prey to is grabbing on to something even crazier to match the type of experience they had before. In other words, the assumption of getting rich fast with no work, which is what the mutual fund concept promised and seemed to deliver during the 1990s, gets shifted to some other idea. For example, speculation on real estate or some other corner of the financial world. This is also the period when scam artists will be out to try to promise easy riches. Finally, however, people will get disgusted with the whole idea of financial speculation and will retreat to the safest, most heavily guaranteed vehicles for money. In the past, that included insurance, fixed annuities, government-insured CDs, U.S. Treasury bills and notes. Even government savings bonds. I was a champion of U.S. savings bonds during the mania for stock mutual funds. I was belittled for it, but they have been the best performers during this time. They offer the best, safest return without any risk of fluctuations based on changing interest rates. Compare that to bond funds. Yet another disaster waiting to happen.

What about bond funds?

We see the billions of dollars shifting to bond funds, mainly because the fund industry is irresponsibly promoting them. People think they are getting safe yield. But they are not. They are buying the bond market, not a portfolio of individual bonds that could be held to maturity. The bond funds fluctuate based on changing interest rates. The minute interest rates go up, the value of the bond funds will plunge. People think bonds are easy. They are not. The bond market is in many ways more complicated than the stock market. Perhaps it will be the collapse of these bond funds that will be the final blow to the fund industry. Then we will see all kinds laws about how funds can be promoted. Of course, this was already done in the past, but the fund industry got such laws repealed so that they could go right back to the old, bad ways. The addition of the way the fund offerings in 401(k) plans are promoted and handled will be the biggest scandal. How many trillions of dollars have already been lost in these retirement plans? How many more trillions will be lost in the future? That is the really sad part of this nightmare. Eventually someone will be held responsible for this nightmare. So far it has not been the real culprits. Namely the promoters of mutual funds.

So what's the little guy to do?

There's no right answer for every person. For example, a savvy individual investor can make money in the stock market no matter what the overall atmosphere might be. But generally I would say that this is a time to be as conservative as possible. Or, rather, continue to be as conservative as possible. Don't chase after schemes that somehow seem to promise easy wealth or some type of special tax benefit. In the case of the choices within a 401(k) plan, look to the least speculative choices. On the other hand, there could be an opportunity in the next few years to get excited about speculative markets. The signal will be when everyone else is disgusted. Again, we are not there yet. Not by a long shot. But we will be. And you will want to have the money to grab the chance.

Is your book still available?

The book is officially out of print. But it is widely available in libraries and on web sites that sell used books, such as Amazon.  Overall, the book is still valid. However, some things have changed, such as the introduction of Roth IRAs and inflation-indexed U.S. treasuries, which I love by the way. Otherwise, the book defines a step-by-step prediction of how the mania would build up and would collapse that even I get spooked by when I reread it.

 

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There...some additional background about the presently unfolding collapse-in-slow-motion of the Mutual Fund business - and a little more insight into why we bought gold at $260, which we expect to pop through $400 this coming week on it's way to $2,000 in a few years.

Inside Report - This week

Never one to shirk a task - even the impossible task, Inside Report this week sets off to build a crystal ball for predicting our economic future.  Of course it's already built, but it's hidden between the lines of commodity futures pricing... click here to enter.

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Write when you get rich - or sooner if you feel like it...

George Ure

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All contents (c) 1998-2003 by George A. Ure, MBA, except authors as linked or noted