Tuesday, December 13, 2011

For All Shareholders of Pan American Goldfields Ltd (MXOM)

Hello World,

Special Bulletin from the Contrarian Market View

Mr. Neil Maedel, Chairman of the Board of Pan American Goldfields Ltd, will be in Phoenix on Thursday, December 22nd, and will host a informal get-together for shareholders and guests at the Ritz-Carlton Hotel, 2401 East Camelback Road, Phoenix, Arizona at 10:00 a.m.

    The purpose of the meeting is to inform shareholders of the company's plans for 2012.

Please call (602) 840-4117 and advise of your attendance as soon as possible.


Tuesday, December 6, 2011

HL Quist Leads Seminar Tomorrow - December 7th


Seminar Wednesday - December 7, 2011

Reservations Required

    H L Quist will be conducting a two and one-half hour seminar tomorrow afternoon (12/07/2011) at 1:00 p.m. at the Gainey Ranch Golf Club in Scottsdale, Arizona, sponsored by Southwestern School of Real Estate.

    In addition to a discussion of trends and cycles in real estate, H L will take up current US and global economic issues and reveal his forecasts for 2012. There will also be a Q & A session. A charge of $10 is required for all attendees.

Please call Burt Sweetow  at (480) 656-0017 for reservations.


Sunday, December 4, 2011

Free Preview of December, 2011 CMV

Hello World,

Don't miss podcasts by The Myth Buster.  Bookmark the podcast site http://www.hlquist.libsyn.com/.

Below is a preview of the CMV (Contrarian Market View) Newsletter for December, 2011.  See the end of this post for a free book offer with the purchase of a subscription to the full monthly newsletter. (Note: due to the limitations of a blog post the appearance of this preview is not as it will appear in the actual subscriber copy.)

Important Notice:
The December edition of CMV was written with a market close of Tuesday, November 29, and the text does not include the major Wednesday price increases in equities, commodities and precious metals.  In CMV’s opinion the Central Bank coordination intended to prevent a major financial meltdown in the EU marks a commitment to attempt to inflate the crisis away.  CMV sees this development as very positive for most of our recommendations.  We will keep you advised by special bulletin.

Market Overview
Jon Kyl, Arizona’s Senator, who served as one of the twelve on the Super Committee, gave an articulate post-mortem on the failure of the effort to reduce the federal deficit.  He said (the committee) “was probably doomed from the start because of the absolutely irreconcilable views of the parties about the goal of its’ work.”  Kyl went on to say that  “The White House was perfectly satisfied with failure because it fit with the President’s campaign to run against a ‘do-nothing’ Congress.”  Americans will be faced with another year of out-of-control fiscal deficits but one analyst saw the lack of action as a plus.  Chris Edwards at the Cato Institute said, “A Super Committee plan might have paired phoney spending cuts with real tax increases.”  He also added that if Congress did nothing the budget could be balanced by 2021.  On January 1, 2013  the “Bush Tax Cuts” will automatically end thus raising taxes which is precisely what the President wanted.

As CMV predicated last month, the third quarter GDP was revised downward from the original estimate from the Commerce Dept of 2.5% to 2.0% – a drop of 20%.  The recent decline in Consumer Confidence would have an implied negative sales growth of a -7% which are recession levels but actual positive results are confounding the experts.  BMO Harris Bank says that the top 20% of income earners are creating 50% of retail sales.  CMV, after observing lines of almost maniacal shoppers on Black Friday and documenting the various forms of entitlement benefits that the US Government pays out to low-income recipients, takes the view that the bottom 20% of income earners are holding their own when it comes to retail spending – especially during the Christmas holiday season.  Remember, 47% of all Americans receive some form of government entitlement.  The upper 20% is actually funding the bottom twenty.

Stephanie Pomboy, who heads Macro Mavens and has been quoted often by CMV because she’s not only smart but she’s also has raised a cogent issue regarding spending.  She says, “...what if the gains in spending, like the gains in the stock market, have also been a paper illusion – a function of higher prices, not rising demand?”  She adds that in nominal terms growth is up $783 billion from its’ pre-crisis levels but in real terms GDP is up an imperceptible $27 billion.  In short, after TARP and an alphabet soup of various government programs, and after the $787 billion stimulus program all the US got was a 0.2% increase in real growth and a 0.96% increase in consumer spending.  Stephanie concludes that consumers aren’t spending because they want to, it’s because they have to and prices are increasing at an accelerated pace.  QE 2, of course, was the major culprit.  QE 3 is coming soon and we’ll experience more of the same.  James Dines calls this condition an INFRESSION – an inflationary recession.

Here’s another invisible trend that has dramatic implications.  In Barron’s (November 28, 2011) OTHER VOICES section, Bob Adams cites the research of American Wave (AW), a firm that has been tracking the trends of Americans considering relocation overseas since 2005 using the IBOBE-Zogby opinion survey firm. AW reports that 40% of young Americans 18 to 24 are thinking about leaving the US to seek opportunity abroad.  There are 42 million Americans between the ages of 25 and 34 who are amongst the most energetic, innovative and creative Americans.  Approximately 5% of this age group is actually in the planning stage to relocate.  In the 18 to 24 age group nearly 40% indicated a desire to relocate to mostly Asia or Latin America.  Ominous overtones for a US economy and culture desperately in need of creative and motivated young people who fear they will have to support an aging population.

Another rude awakening fact that now effects more than 44 million Americans is that the Pension Benefit Guaranty Corp announced that it has a $26 billion deficit.  This is the government agency that insures pensions of those whose employers have gone bankrupt and can’t pay pensions to their former employees.  In addition some retirees currently receiving a pension are selling their pay-outs for cash at a deep discount.  BuyYourPension.com is one of the sources.  In one instance one retiree sold what was calculated to be $125,000 in future payments for a cash sum of $57,000.  Senator Tom Harkin (D-Iowa) has launched an investigation into this practice to make certain that “our laws are respected and pension participants are not abused.”  CMV takes the view that Congress should also examine the role that it played that has created this act of desperation.

CMV has opined as for back as a year ago that Barrack Obama would not be the Democratic nominee for President in 2012.  In an Op-Ed piece in the November 21, 2011 edition of the WSJ, Patrick Caddell and Douglas E. Schoen, both long-term Democratic Party consultants and advocates, called for the President to step down because the President “can’t win by running a reconstructive campaign, and he won’t be able to govern if he does win a second term.”  In order to win, the two men believe, the President would have to wage the most negative campaign in American history.  One year ago, in the WSJ, Caddell and Schoen warned that Obama’s partisanmanship would result in 2 years of political gridlock at a time when the nation could ill afford it.  That’s exactly where we’ve been the past year and 2012 will be the same.  Who do the consultants propose?  Secretary of State Hillary Clinton, who has played the role of “good soldier” and has never criticized the President or his policies though justified to do so.

On November 21, 2011 on FOX with Neil Cavuto, Charlie Gasparino, who is privy to all the scuttlebutt on Wall St., said that the “tipping point” for the withdrawal of financial support for the President from the “Masters of the Universe” came when the Occupiers posted the pictures of the heads of the banksters on spikes and paraded down Wall and Broad Streets.   If Warren Buffett and George Soros also come to the conclusion that BO can’t win, the President’s tenure is over.  Like Herbert Hoover in 1932, these tent cities will come to be known as “Obamaville.”

Hillary Rodham Clinton has more baggage than her potential opponent Newt Gingrich.  Her Senior Thesis at Wellesley College, unretrievable in 2008, will certainly surface which mirrors the President’s far-left ideology and Ms. Clinton’s relationship with Saul Alinsky.  Certainly the videos of her “F Bomb” rants while she was the first lady of Arkansas will run rampant on youtube.  And, of course, the mysterious death of her former lover, Vince Foster will be resurrected.  With so much baggage Hillary will need a valet.  Bill is available.  Yes, it will get ugly but the nation desperately needs strong leadership not partisanship.  The challenges for the next five years will be as formidable as they were in 1932 and 1941.  May we have the courage and the will of the past to overcome the obstacles of the future.

The Coming EU Implosion

Just a week prior to Thanksgiving in the US, the newly anointed Prime Minister of Italy Mario Monti, startled all Europeans when he raised the prospect of “the end of the euro.”  Monti may have had a flashback to 1999 when the euro was introduced and Milton Friedman, one of America’s premier economists and forecasters, said that the euro would fail at the first major financial crisis in Europe.  That event is at hand.

It is generally agreed by the French and German leaders that the collapse of Italy, the euro-zone’s third largest economy behind the two aforementioned countries, would indeed cause the end of the euro.  Investors worldwide fear that this event could spark a global contagion that could be more devastating than the collapse of Lehman Brothers in 2008.  This was effectively stated by David and Joy Levy (Levy Forecast) in Alan Abelson’s “Up & Down Wall St” column (November 28, 2011) when they said that they had never seen anything like this when “an enormous external crisis with sufficiently severe consequences to take out the US expansion.”   There is a prominent school of thought that maintains that a EU crisis will NOT impact the US and that corporate earnings and stock prices will enjoy a robust 2012.  CMV disagrees and sides with the Levys.

Americans, unknown even to those who consider themselves erudite and in “the know,” have a major financial stake in what happens in the Euro-zone.  The first ever Government Accountability Office (GAO) audit of the Federal Reserve was just carried out recently due to the persistent efforts of Ron Paul, Alan Grayson, Jim DeMint and the Socialist Independent Senator Bernie Sanders.  The  Audit was vehemently opposed by Ben Bernanke, Alan Greenspan and the super secretive banksters who have successfully resisted an audit for 100 years.

Information revealed from the audit was mind-boggling!  The US Federal Reserve doled out $16,000,000,000,000 (that’s trillion) to US banks and corporations and foreign banks and governments all over Europe between December 2007 and June 2010.  The Fed calls these “loans” but virtually none have been repaid and was loaned out at 0%.  These funds were ostensibly to prevent a global financial crisis and collapse of the world economy.  Now, the Euro-zone has returned to the same precipice as 2008 and it appears to CMV that the urgency and the amount of money needed to forestall a collapse is even greater.  There’s more that you may not know.

EU law prohibits the European Central Bank (ECB) from making direct loans to euro-zone governments.  The “self-appointed committee” of banksters to save the euro has concocted a scheme whereby the ECB would print a massive supply of new euros, lend them to the International Monetary Fund (IMF) and the IMF in turn would lend to Portugal, Italy, Greece and Spain (PIGS).  Ireland has been removed from the list of the destitute thanks to the nationalization of the Irish banks and the resolve of its citizens to fulfill its’ obligations to creditors.  The problem for Americans is that the US contributes 17% of all funds assessed by the IMF.  For the euro-zone a total of 75% of all funds would be coming from countries outside of Europe!

Oliver Sarkozy, Chairman of the elite global investor Carlyle Group, recently (November 23,2011) stated on CNBC that the amount of money needed to bailout the EU was probably in excess of 10 trillions euros – $13 trillion dollars.  CMV believes that the money-well is going dry.  What the world is about to experience is the beginning of the end of the western-centric monetary system that was created 100 years ago.  It will be the end of a fiat money system that believed it could create, without limit, massive currency and debt without dire consequences.  The euro-zone will soon be forced to nationalize most if its’ banks and trillions of euro debt will never be repaid.  Who takes the loss?  Pension funds, mutual funds, hedge funds, and investors worldwide.

The over-encumbered and over-entitled socialist EU system will fail. Yet, the US has a President whose goal is to replicate this system which is also doomed to fail.  The handwriting is on the wall.  Read It and Weep!

Cities Robbing John Q To Pay Paul

As previously reported by CMV, city and state governments across the country are facing severe budget shortfalls that expose bond holders and taxpayers to possible default and bankruptcy.  Harrisburg, PA, Jefferson County, AL are two high profile cases, with Jefferson County being the largest in US history.  Now, compounding an already deteriorating situation, cities are diverting money intended for specific purposes such as fixing roads, sewers and the like to projects that are more aesthetically or socially acceptable and neglecting the essentials.

For example, in Portland, OR, money raised for water and sewers was used for other purposes including remodeling of a building of a non-profit organization that runs the city’s Rose Festival. The diversion of funds may have appealed to the general public who simply do not ‘get it’ but in doing so the city violated state law, city code and most importantly, bond covenants.  A municipal borrower that misleads investors, when funds are used for other purposes, could violate anti-fraud provisions also.  Cities nationwide have persisted in this type of practice so in an effort to curtail this activity the Securities & Exchange Commission (SEC) fined individual officials in San Diego to settle allegations the city had misled bond investors.  City and state bureaucrats, as long as they can hide under their blanket of anonymity, will continue this practice until they are personally accountable or their muny bond funding dries up.

Adding to the shortfall is the cost that major cities are incurring on police over-time, clean-up and repairs during the Occupy Wall St. revolt.  A recent analysis indicates that 18 cities have incurred about $13 million in costs directly related to the protestors.  Oakland, CA for example, has spent $2.4 million when they are already faced with a $58 million budget deficit.  The eventual outcome should be obvious even to the oblivious but it’s not.  Cities and states will be forced to layoff employees, police, firemen and cut essential services and entitlements.  All city officials and employees should read the story of Vallejo, CA.  Ex-employees there have experienced all of the above.  Now, Detroit has declared bankruptcy.  Meredith Whitney was blasted by Wall St. for her forecast, but she was right.  Rolling defaults will roil the Muny Bond market.

Real Estate

A feature WSJ article dated November 15, 2011, entitled, “Mortgage Insurer’s Cash Depleted, Auditor Warns,” written by Nick Timeros, indicates that there is close to a 50% chance that the Federal Housing Administration (FHA) could run out of money and require another taxpayer bailout in the next year.

As private lenders have withdrawn from the housing market over the past four years, FHA’s market share of mortgage loan guarantees has ballooned from about 5% in 2006 to 33% in 2010.  Federal law requires that the agency have cash reserves above 2% of the level of loans outstanding to bank future potential loan losses.  As of September 30, 2011 reserves stood at 0.24% of all $1.1 trillion mortgages insured.  Industry experts say FHA could require an infusion of $13 billion in additional funds that, of course, do not presently exist at the US Treasury.

Gone un-noticed by those in the real estate industry and specifically mortgage companies is that the Obama Administration promised in February 2011 to wind down Fannie Mae and Freddie Mac and rein in the FHA in order to encourage the revival of the private mortgage market.  Now, in a typical backroom deal on November 14, 2011, a bipartisan Congressional Committee announced an agreement to increase FHA’s maximum mortgage limits from the present $625,500 to $729,750 through December 31, 2012.  The Administration’s promise was to return FHA “to its’ pre-crisis role as a targeted provider of mortgage credit access for low and moderate-income Americans and first-time home buyers.”  These limits seem hardly geared to low income buyers.  This decision plus the recent increase in funding for Fannie and Freddie bringing taxpayer losses to $169 billion to date, indicates that the Administration’s goal is to be the nation’s lender of first resort.

As of this date, the $25 billion settlement against the “robo-signers” is nearing a potential conclusion with all the states except California and the Administration’s mortgage reduction and refinance plan is also gaining momentum.  All of these initiatives are geared to revitalize the morbid real estate market by mid-2012 giving the President a strong leg to stand on provided by you know who.

In many of the nation’s housing markets mortgage loan payments have fallen so far that it cost significantly less to own vs. rent.  In Atlanta the average monthly mortgage payment is $539.  Rent  is $840.  In Phoenix the average mortgage is $651 and rent is $723.  On the surface it would appear to create perfect conditions for a  residential recovery.  Qualifying for a loan, however, remains a key issue preventing many renters from becoming buyers. Some renters simply will not buy.

A Monolith Crumbles

According to a November 22, 2011 feature article in the WSJ “for years Penn State’s (PSU) football program and its’ four-decade tenured coach, Joe Paterno, were considered to be a model for all college football.  PSU had won two national championships, its’ players graduated at rates far above the national average and it was one of only four major-conference athletic programs never to be sanctioned for major violations by the sport’s governing body the NCAA.”  The recent child sexual abuse scandal involving Jerry Sandusky, a long-time assistant coach at PSU, has dramatically changed that reputation and uncovered a culture that has a much greater societal significance, which is CMV’s primary focus.

The philosophy and purpose of the PSU football program and college sports in general, has taken a dramatic and profound shift in the past 10 years.  Today, its all about, “show me the money!”  In the case of PSU, all sports brought in total revenue of $106 million in 2010.  About $70 million was generated by football.  In addition, if PSU would have been invited to one of the five BCS post-season bowl games they would have earned an additional $22 million that would be shared with other Big Ten member schools.  In effect, college football is big business.  It’s virtually equal to the Pro games in the public view without a huge (direct) payroll expense for the players.  In addition, the Big Ten, and other conferences, have their own TV networks.  On any given Saturday you can watch at least 20 games on major networks or cable all day long.  An enthusiastic fan base at PSU plus other alums, has created a $1.7 billion endowment at the school.  All of these numbers bring us to the obvious conclusion: PSU, as well as most other institutions, will do most anything to preserve the goose that lays the golden egg – including a cover-up of one of the (potentially) most onerous cases of child sex-abuse in the country.

Coach Joe Paterno made certain that “extra-curricular activities” of his players would also be sheltered from criminal prosecution and an inability to perform on Saturdays.  In 2003, PSU hired Dr. Vicky Triponey to become Vice President of Student Affairs, who was responsible for enforcing a student code of conduct of any incident on or off the campus.  Dr. Triponey soon discovered that PSU football players were getting in trouble at a “disproportionate rate” from other students and often for very serious acts of violence.  In 2007 about 24 players broke into an off-campus apartment creating a brawl that destroyed property and knocked one student unconscious.  Police filed a criminal complaint against 6 of the players. Largely due to the intervention of Coach Paterno police dropped most of the charges and none of the players missed a single game.  The Coach was quoted as saying, “it should be his call if someone should practice and play in athletics.”  Somewhat prophetically before the Sandusky incident, Dr. Triponey resigned under pressure saying, “Coach Paterno would rather we NOT inform the public when a football player is found responsible for committing a serious violation of the law and/or our student code...despite any moral or legal obligation to do so.”  (Thanks to Rachel Bachman, Kevin Helliker and John W. Miller of the WSJ for this information.)

So, college football, not only PSU, but also at Southern Cal, Ohio State and other programs have been above the law.  Like our contemporary American society, priorities and values are out of balance.  In the future, the PSU incident (though not the sole cause), will be recalled as the time when college football reached its’ pinnacle of financial success and influence.  These massive stadiums seating over 100,000 mostly maniacal fans are somewhat reminiscent of the Roman Colosseum, near the end of the world’s greatest empire.  These monoliths will begin to crumble and decay as a recessionary US economy inhibits discretionary spending and attendance shrivels.  TV revenue will decline as sponsors cut their advertising budgets. State funding to colleges which has been declining substantially in recent years will continue to fall.  And, college tuition, growing exponentially at 8% per year ever since taxpayer subsidized student loans were created, will cease to be available as the number of defaults accelerate. Excess always breeds abuse of power, corruption and over-indulgence in any system.  College athletics is a window in to the emerging change in America.

The rest of the newsletter is only available to paid subscribers and includes the portfolio of recommendations.

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-- H. L. Quist

Tuesday, November 8, 2011

Thursday, November 3, 2011

Free Preview of November, 2011 CMV

Hello World,

Don't miss podcasts by The Myth Buster.  Bookmark the podcast site http://www.hlquist.libsyn.com/.

Below is a preview of the CMV (Contrarian Market View) Newsletter for November, 2011.  See the end of this post for a free book offer with the purchase of a subscription to the full monthly newsletter. (Note: due to the limitations of a blog post the appearance of this preview is not as it will appear in the actual subscriber copy.)

CMV’s Special Notice

The November CMV was written one day prior to Greek Prime Minister George Papandreou’s announcement that he would call for a public referendum in January 2012, on the EU bailout package approved by the 17 EU countries just days ago.  A public “NO” vote which presently has support of 58.9% of Greek citizens according to a recent survey, appears headed for rejection of the bailout.  The fear amongst investors is that the resultant Greek default will spread to Italy, Spain, Portugal and other EU members.  Greece also faces the prospect of expulsion from the EU and the euro.  Most of the October sector gains highlighted below have been erased by the overnight sell-off in the global markets.  CMV will advise by SPECIAL BULLETIN if any changes should be made in any sectors.

CMV Recommendations Comparisons

                                                 YTD                    52 Weeks
The CMV Portfolio                 -14.8%                18.8% (since 1/1/10)
Dow Jones Industrial Avg.        5.65%            10.01%
S&P 500                                     2.2%                 8.6%
NASDAQ Composite                3.2%                  9.2%

Market Overview

“A wave of euphoria swept through the global markets last Thursday in giddy response to the communiqué out of Brussels that the 17 nations in the euro zone . . . cobbled together a financial care package to rescue Greece and stave off a widely dreaded contagion of downgrades and defaults that threatened to engulf a good chunk of the continent,” said Alan Abelson in his October 31st “Up & Down Wall Street” column.  It was like the world was whistling “Happy Days Are Here Again” while walking past a graveyard of deceased and dying EU nation states.

In sum, the EU leaders announced a deal with three key points:

1.  Private sector banks will take a “voluntary” haircut of 50% to the principal of the Greek bonds they own which ostensibly lowers the Greek debt from 170% of GDP to 120% which still can’t be paid.

2.  EU banks will be required to be re-capitalized by 106 billion euros ($150 billion USD) by June 30, 2012 with no indication where the funds will come from, and

3.  The Bailout Fund, European Financial Stability Facility (EFSF) will be leveraged (5x1) to provide a one trillion euro backstop to future bond issues.  The strategy when faced with massive de-leveraging is to leverage up again.

In CMV’s opinion it’s the “samo, samo, plan” – dig a deeper hole to get out of the one you’re in – Another short-term fix that sets up the EU for a more colossal failure down the road.  It’s the same model that the Masters Of The Universe in the US have used for 40 years that has brought us to the brink.  BUT, and it’s a big BUT, the deal has spawned a huge stock and commodity relief rally that substantially improved the CMV portfolio about 10%.

The resultant rally made October’s surge reverse most of the third quarter’s loss and move stocks to near 2011 highs.  “The overall US stock market has surged 17% since October 3 and 6% from its’ 2011 peak,” says Kopin Tan in the October 31st, Barron’s.  Specifically, the Dow Jones Industrial Average gained 422 points or 3.6% to 12,231.  The S&P 500 closed up 3.8% to 1285 and the NASDAQ Composite Index added 100 points or 3.8% to 2737.  Gold, after it reached an inter-day low of $1535 in Mid-October, closed October 29th at $1746/oz and a remarkable move of 211 points or 14%.  Everyone is asking the same question. Is the rally for real?  How long will it last?

There are solid reasons to have doubts and misgivings while at the same time seizing the opportunity of the moment.  The US Bureau of Economic Analysis (BEA) report on Thursday, which also spurred the markets, said that the 3rd Quarter GDP gained a robust 2.5%.  Before we enthuse too much, a word of caution. Every quarter after the original announcement, the BEA issues two revisions and they’re almost always downward.  The 2.5% will probably end up being 1.5% 60days from now but few will notice.  John Williams of Shadow Government Statistics says the 2.5% is “utter nonsense” and in truth the US economy is edging along barely positive.

Additional stats seem to support Williams’ claim.  Personal income rose a mere 0.1% in September while consumer spending climbed 0.6%.  Personal savings shrunk from 4.1% to 3.6% meaning people are using more plastic and reducing savings to get by.  The Department of Agriculture (DOA) last week on Tuesday reported that food prices will increase 3.5% to 4.5% this year after climbing just 0.8% in 2010.  As CMV pointed out last month, beef prices are going to rise substantially next year far in excess of DOA’s forecast.  If CMV is accurate, all the focus next year will be on the “Inflation Jeannie” as she again pops her pretty head out of her master’s bottle.

Barron’s interviewed 9 asset managers in its October 31, 2011 issue called “The Smart Money Speaks.”  Here’s what Felix Zulauf and Stephanie Pomboy, two of CMV’s favorite authorities had to say:

Felix Zulauf:
    “The (EU) crisis will drag on for a number of years, with the result that countries on the periphery will remain in recession for a long time.”  (Felix lives in Switzerland)

“...the US will have very low growth for a long period of time . . . investors should be defensive, look to preserve capital and prepare a list of short-sale candidates for the next leg down.  And they should buy more gold on dips.”

“...commodity prices will experience a cyclical correction into the second half of next year.  But oil could pop to $100 a barrel and some Exchange Traded Funds such as XLE, OIH, and HAP could be played as short-term trades.”  (CMV believes that oil will go much higher in 2012.)

Stephanie Pomboy:
    “We have yet to sow the seeds of a sustainable recovery, meaning employment gains.”

“Yes (QE 3 is inevitable) because we haven’t cured the disease . . . The Fed needs to keep huffing and puffing until the wealth effect eventually starts to work and creates jobs.”

“But for the long term I still like hard assets, specifically gold and oil.”

What is really interesting in that none of the “smart money” commentators or any of the journalists in the WSJ or Barron’s forecast anything resembling an inflationary period or a hyper-inflationary  “Crack-up Boom.”  CMV is the lonesome cowboy in the “Last Rodeo.”  All of the major global economies must create growth through inflation.  The EU, US and yes even China, can’t service their existing debt at present levels.  How will they be able to handle another layer of IOUs?  Ever since the days of the Roman Empire governments have devalued and debased their currencies in an attempt to inflate the debt and entitlement problem away.  All have failed.  But, there could be one last BOOM.  CMV calls it the LAST RODEO.  China has committed to reflating their economy and the boom has begun in the Pacific Rim.  The EU bailout should provide, at a minimum, temporary relief.  The US QE 3, when announced, chould propel stocks and commodities to potentially new all-time highs.  Get your tickets for the LAST RODEO.  It’s going to be a wild ride.

Who Stole America’s Gold From Fort Knox?

The US Government has steadfastly maintained for decades that it owns 261 million ounces of gold bullion (8,100 tons) – far more than any other nation in the world.  A recent book “Good As Gold? How We Lost Our Gold Reserves And Destroyed The Dollar” by Chris Weber, debunks the myth that America’s gold reserves are safely stored at Fort Knox, Kentucky.   CMV has read Weber’s meticulously researched book and it, coupled with Steve Orlowski’s (Insiders Strategy Group) supplemental updates, CMV will reveal here for you not only the biggest scandal in America’s history but it also presents to you one of the greatest opportunities.

The mystery of America’s missing gold begins with Franklin D. Roosevelt’s Executive Order in April 1933 banning the private ownership of gold bullion by any US citizen.  Under the threat of a $10,000 fine and imprisonment, all Americans were required to deliver to any Federal Reserve Bank all their gold and receive $20.66/oz in newly printed Federal Reserve Notes that were backed by nothing.  In 1936 an underground bullion depository was built in Fort Knox, Kentucky to store this vast horde of gold which by 1949 amounted to more than 700 million ounces – equal to 70% of the entire world’s supply!  FDR, once the gold was confiscated, “revalued” bullion at $35/oz and since the Fort Knox gold was higher than the world market price, central banks around the world were eager to trade their gold for dollars.  Then, in 1961, when the shiny metal became more valuable than $35/oz the Fort Knox horde began to disappear.  That’s when the US Federal Reserve Bank (Fed)  and seven other central banks initiated the “London Gold Pool” – a coordinated scheme to defend the official price of $35/oz by dumping bullion on the London market.  It has been established that between 1961 and 1974, 509 million ounces of gold was removed from Fort Knox.  The scheme allowed wealthy investors, including US citizens, to buy gold at $35/oz and store it outside the US.

Frank Chelf, an 11 term Congressman whose home district was Fort Knox, charged that the government was secretly removing gold from Fort Knox by the truck load in the middle of the night.  Edwood Durell, a businessman in Berryville, VA, was able to obtain an official document from the US Mint detailing more than 10 years of shipments from Fort Knox.  He caught the Mint and US Treasury officials red-handed.  They admitted that 1,762,386 ounces of gold in one shipment was a “mistake” and never entered into the official record.  What we don’t know, of course, was who were the entities who acquired the bullion at $35/oz that would soon skyrocket in price to $850/oz in just a few years?

The story gets dicier.

CMV has pointed out numerous times that Robert Rubin’s (Secretary of the US Treasury) “Strong Dollar Policy” initiated in 1995, was the beginning of the demise of US manufacturing jobs but it also played a critical role in the gold market.  Rubin and Federal Reserve Board Chairman, Alan Greenspan, knew that low interest rates would produce higher gold prices which would undermine their “Strong Dollar Policy.”  They had to control the price of gold.  What did they do?  The Fed began to “lease” gold from its’ (supposed) reserves to the biggest banks on Wall St. at an interest rate of about 1% per year.  The banks then would sell the leased gold bullion on the open market and invest the proceeds at a much higher rate of return.  The huge amount of sales would continue to suppress the price of gold then at about $300/oz.  Alan Greenspan even admitted in testimony before Congress in 1998, that the purpose of the leasing was to manipulate the price of gold.  The cogent question is, where did the Fed get the gold to lease out?  That’s the dirty little secret the Masters of The Universe (MOTU) didn’t want anyone to know but the cat has just been let out of the bag.  The  Fed leased out more gold than it owned or had access to.  It was gold that only existed on paper. And, the gold at Fort Knox was US Treasury / US Taxpayer gold – not Federal Reserve gold.

China, as well as many countries around the world, sensing that the price of gold could skyrocket in price as currencies are being debased, purchased 60 metric tonnes of gold in October 2009.  The Hong Kong bankers who received the gold tested the bars to guarantee their density and weight.  They were shocked to discover that many of the bars had only an outer coating of gold!  The centers were filled with tungsten – a cheap metal with the same weight and density of gold.  The Chinese claim that the stamps on the bars showed that they originated in the US and had been stored according to Orlowski, in (you guessed it) Fort Knox.  In order to perpetuate its’ price-fixing scheme and attempt to hide the fact that it was out of gold, Orlowski states that it appears that the US Fed and the Treasury have created perhaps up to a trillion dollars of counterfeit gold bars at today’s price of $1700/oz.  Thus, the biggest financial scam in US history begs the simple question: If this story is true, where are the indictments?  These MOTUs should be in jail.

There’s more to the story.

You probably know the story of DSK – Dominique Strauss-Kahn, the former head of the International Monetary Fund (IMF) who was accused of assaulting a hotel maid in New York City this past summer.  You don’t know that Makmoud Abdel Omar, former Chairman of one of Egypt’s largest banks and a close friend of DSK, was also arrested and charged with a similar sexual attack of a hotel maid just blocks away from the DSK incident only two weeks later!  What are the chances that these two men ages 62 and 74 years old would both make the unlikely decision to accost maids in their hotel rooms?  Here’s the rest of the story.

While head of the IMF, DSK had required the US to deliver 191 tonnes of gold to the IMF to fund the US share (17%) of reserves necessary for the IMF’s “Special Drawing Rights.”  It is revealed by Steve Orlowski in his report that “rogue elements” within the CIA informed DSK that the reason the US Treasury was repeatedly stalling on the delivery of the gold bars was because of the counterfeit gold at Fort Knox.  Orlowski maintains that the charges against both DSK and Omar were contrived to keep them silent.  Even Russia’s Vladimir Putin came to DSK’s defense.  Obviously, a tactic was being implemented that is well-known to the KGB.

This entire sordid and mind-boggling story would be worthy of a John Grisham novel and a film at a future time.  Importantly, what does all this mean to you aside from the political and legal ramifications?  In CMV ‘s opinion, it validates the point that the supply of gold (and silver) simply does not exist to meet demand.  As Eric Sprott said at the Casey/Sprott Summit “When Money Dies,” The demand will overwhelm the bank’s ability to control the price of bullion.”

BUY the miners who have the proven reserves in the ground and the coins that can be authenticated by a reliable dealer. CMV believes the next leg up in bullion could go parabolic.

“The Chinese Are Coming.  The Chinese Are Coming!”

The National Governor’s Association Conference (NGA) was held in Salt Lake City, Utah in mid-July.  Directly across the street a forum on US and China Trade, Culture & Education Conference also met.  Just a coincidence?  Hardly.

As most of us are aware many states in the US are deeply in debt and are desperate for funds especially since the flow of subsides from Washington, D.C. have slowed to a trickle.  The Chinese are willing to help extracting a major price.  The states would sell or give the Chinese land for Enterprise Zones (EZ) within the states whereby the Chinese would setup their own businesses run by Chinese workers.  While the EZs  would employ some US citizens, the Chinese will achieve their primary goal – colonization.  The fact that some locations are in proximity of sensitive military facilities doesn’t seem to alarm the US officials.

At the end of the dual conference, four state governors signed at least 20 trade agreements with the Chinese despite the fact that Section 10 of Article I of the US Constitution prohibits states from entering into treaties.  The China Daily had numerous articles and photos of governors shaking hands with Chinese officials.  After all it was a major coup for the Communists.  Very little, if any, news was reported in the US media and if it weren’t for the New American magazine, there probably wouldn’t have been any revelation whatsoever.  The Chinese have planted their flag in the EZs.  It’s their sovereign territory.  The US Rule of Law no longer applies.

Occupy Wall Street

Douglas Schoen, who served as a pollster for President Bill Clinton, and is the author of “Hopelessly Divided: The New Crisis in American Politics & What It Means For 2012 & Beyond,” wrote a defining OpEd piece in the October 18, 2011 edition of the Wall St. Journal.  A researcher for his firm polled 200 protesters in New York’s Zucotti Park.  Some of the their observations are remarkable and instructive as we should all try to understand what is happening in America;

•   52% have participated in a political movement before.
•   98% say they would support civil disobedience to achieve their goals.
•   31% would support violence to advance their agenda.
•   15% of the protestors are unemployed.
•   51% now disapprove of the President and only
    48% will vote to re-elect him in 2012, and
    25% will not vote.
•   32% call themselves Democrats, while almost the same portion, 33%, say they are not represented by any political party.

Contrary to public opinion, Schoen’s research shows that this movement doesn’t represent unemployed America and is not ideologically diverse.  What binds this group together according to Schoen regardless of age, socioeconomic status or education, “is a deep commitment to left-wing policies: opposition to free-market capitalism and support for radical redistribution of wealth, intense regulation of the private sector, and protectionist policies to keep American jobs from going overseas.  Sixty-five percent say that government has a moral responsibility to affordable health care, a college education and a secure retirement – no matter the cost.”  In short, the OWS crowd wants exactly what the Greek and other EU citizens have and are about to lose.  If the OWS crowd wins, they’ll lose but that won’t deter them.

As a political analyst, Schoen concludes that the Obama Administration’s support for the OWS crowd will prove to be catastrophic for the Democratic Party.  He says 41% of Americans define themselves as Conservative, 36% as Moderate, and only 21% as Liberal.  If more radical elements of the OWS become violent, the President won’t even be (in CMV’s opinion) the nominee next November.  You only have to harken back to the 1968 Democratic convention in Chicago to attest to that point.

Schoen’s observations are enlightening but CMV believes that the OWS crowd should focus more pointedly on a limited number of individual and institutions who were instrumental in creating the conditions in America that has invoked this “revolution.”  After all 99% of those who are employed on Wall St. are simply carrying out the policies set by 1% or less of those at the very top.  It would behoove corporate management to insist that their employees read James Owen’s Cowboy Ethics: What Wall Street Can Learn From The Code Of The West, a book CMV has highly recommended in the past.

Ever since Americans unwittingly ceded control of the nation’s banking system to private interests through the Federal Reserve Act of 1913, policy has been promulgated at all levels of government to principally serve these private interests, mostly at the expense of the American public.  The history of America’s lost gold (page 3) is just one example of how a very few individuals can successfully carry out a scheme for the benefit of a few at the expense of the many through the destruction of our money.  Here’s just one contemporary example of how one man and a board’s complicity effected a strategy and formulated a policy that directly led to the desperate financial chaos that gave birth to the OWS movement.

Alan Greenspan was appointed by Ronald Reagan in 1987 to serve as Chairman of the Federal Reserve. The President’s choice was not made in a vacuum and not without assistance from the banking industry that Greenspan was, principally, to serve.  All Chairmen of the Fed are in effect hired guns, to make certain that the objectives of the banking industry and the Masters of the Universe (MOTU) are realized.  (CMV’s opinion.)  See page 10 “Coming Money Trust” which became The Federal Reserve Bank of the United States in 1913.

One of Mr. Greenspan’s primary ‘directives” was the repeal of the Glass-Steagall Act of 1933.  Congress, after a long and contentious investigation in 1932-33, concluded that the commercial banks and their reckless trading and speculation were one of the major causes of the stock market crash of 1929.  Glass-Steagall, amongst an array of other provisions, prohibited the commercial banks from speculating in the stock and commodity markets for their own account.  The big commercial banks by the 80s, wanted to play high stakes poker like the Investment Banks and Glass-Steagall had to be repealed in order to do it.  It took 12 years, but on November 12, 1999, with Greenspan’s encouragement, the Act was repealed.  (Gramm–Leach-Billey Act).

In 1998 Long Term Capital Management (LTCM), a hedge fund, collapsed which created another financial global crisis.  LTCM made highly leveraged bad bets using various derivatives.  Greenspan, Treasury Secretary Robert Rubin and his Assistant Secretary, Larry Summers, were celebrated on the cover of TIME magazine, as the Committee Who Saved The World, for preventing a world-wide banking contagion.  Congress, however, later raised the question of the use of derivatives and excessive leverage, particularly by the banks.  During extensive Congressional hearings on the “hill” the principal proponent for the continued use of derivatives was none other than the Fed Chairman.  At one point during the confrontation as Congress was determined to ban the use of derivatives Mr. Greenspan quipped (paraphrasing), “It won’t prevent the banks from engaging in the use of these instruments...they’ll simply take trading them offshore.”  Greenspan won the argument and the next six years during the sub-prime bubble, the notional value of these leveraged bets grew five times to $600 trillion and was the primary cause of the collapse of the housing market and the bankruptcy of America’s middle class.  Mr. Greenspan was referred to as the “Maestro” by pundits and the media.  They were right.  He orchestrated the biggest bubble in American history that served his MOTU and devastated tens of millions of homeowners.  Forgotten was the fact that he and his board devised the cash-out refi strategy in 2002 as a means to get the consumer to spend.  By 2004-05 when it was apparent to Ed Grandlich and other board members that the low interest rates, unlimited credit and Wall Street’s greed were getting out of control, the Maestro refused to intercede and slow the bubble train that was headed for a crash.  Greenspan claimed that he was a Libertarian who believed in a “hands-off” policy.  The truth was imbedded in the profit orgy that the banks were drinking from the horn of plenty and the Chairman wasn’t about to take away the punch bowl.

OWS should also focus their ire on other key characters such as:

Former Senator Chris Dodd and Representative Barney Frank

    These two key policy-makers were responsible for mandating a “quota system” through the amended Community Reinvestment Act, that required lenders to make home loans to low income and poor credit borrowers.  By 2007, over 50% of new loans had to be made to unqualified applicants.  As a result of the carnage they helped create these two lawmakers crafted the Dodd-Frank Wall St. Reform & Consumer Protection Act of 2010 to protect consumers from the lenders who profited from their mandates just eight years earlier.

Henry Paulson
    While CEO of Goldman Sachs (GS), he successfully lobbied the Securities & Exchange Commission (SEC) to allow the banks to increase their leverage from 10 x 1 to 40 x 1.  While at GS he condoned the creation and sale of “synthetic” CDOs that had no underlying assets.  GS sold short some of the very assets they created and marketed, knowing their value would fall to zero.  As Secretary of the US Treasury, Paulson had the final say in the demise of Lehman Brothers, a principal rival of GS, which cost creditors untold billions in losses, and sent the global markets into chaos in October 2008.

Franklin Raines
    The former CEO of Fannie Mae (FNM) from 1994-2004, who used the Government Sponsored Enterprise (GSE) as a vehicle to buy the mandated sub-prime debt originated by Countrywide Financial (CF) and an array of other unscrupulous lenders.  He then “cooked the books” at FNM to hide $10 billion in losses which has ballooned to $150 billion that are now born by the US taxpayers.  He and his fellow officers also paid themselves obscene bonuses based upon fraudulent numbers.  Congress and the Justice Department refuse to connect the dots linking the criminal enterprise between the GSE, CF and Congress.

Former Senator Phil Gramm
    As Chairman of the Senate Banking Committee from 1995-2000 he led the Congressional repeal of the Glass-Steagall Act.  Gramm was also responsible for exempting various derivatives from regulation.  Gramm’s wife served on the board of Enron and its’ use of these leveraged bets led to the firm’s collapse prior to the real estate debacle.

Kathleen Corbett
    Was the head of Standard & Poors, the country’s largest bond rating agency, which affixed AAA ratings on the toxic sub-prime debt in exchange for hefty fees from the MOTU.  The AAA rating enabled the debt to be sold world-wide without due diligence.

There are numerous other players that should be in the “Hall Of Shame” and the focus of the OWS crowd but you get the point.  What do all these MOTU have in common?  Virtually all deny any role in the financial collapse and none of them will ever serve jail time. And, all (with the exception of Frank) are comfortably retired, set for life without any fear of recourse.  No accountability and obscene profits are the root cause of the continued boom and bust cycles.  That must change.

CMV’s message to the OWS crowd is to turn your focus to the MOTUs and not the Capitalistic system.  Set up your camp at the doorstep of Congress and the homes of the MOTU. It’s the only recourse that we can, as citizens who, to some degree, are all victims of the MOTU.

One other observation.  The OWS crowd is being exploited as “useful idiots.”  This revolution, like almost all others (except America’s first) are being financed and promoted by those who want to take the power from those who now possess it.  Once the likes of George Soros, et al, obtain control they will cast aside those who were instrumental in bringing about the change.  Even Barrack Obama is expendable if the polls show he’s unelectable.  Did the proletariat thrive after the French Revolution?  The Russian?  And, do we really believe that the Arab Spring will foster democracy and a better life for the Middle Eastern masses?  CMV doesn’t think so, but I won’t mind being proven wrong.  As the chaos in Greece demonstrates, their abuse of freedom will result in the loss of freedom and the return to bondage.  It can happen here.

. . .

This “not so funny” cartoon appeared in an unknown periodical in 1912 prior to the Federal Reserve Act of 1913.  The artist used the name National Reserve Association.  This depiction of the Fed as an octopus with its’ tentacles controlling all government and private enterprise through a “private syndicate” (Cartel) accurately forecasted the inevitable destruction of the US monetary system 100 years later.

The “Aldrich Plan” was written by Senator Nelson W. Aldrich (whose maternal grandfather was Nelson A. Rockefeller) to form a new central bank that promised financial stability and an end to bank panics.  The crash of 1929 occurred only 16 years later and an on-going series of boom and bust cycles has continued since.  CMV strongly recommends that you read “The Creature From Jekyll Island” by G. Edward Griffin.  You will understand why we’re about to experience the collapse of the US monetary system.  And, those who control the Fed will soon propose a solution to its’ demise.

September 21, 2011

An Open Letter To Warren Buffet

You are presently celebrated in the US as an iconic epitome of American Capitalism.  Under your direction and guidance Bershire Hathaway Inc. (BRK.A), which is a cross-section of American enterprise for a half a century,  has employed millions of workers and has produced admirable returns for its shareholders.
    Now, however, you have made the mind-boggling decision to not only support President Barrack Obama, an anti-capitalist, for re-election but to lead an effort to help him raise one billion dollars for his campaign. Please tell us, Mr. Buffet, given the freedom and opportunity to excel in your career under an economic system that is the envy of the world, how you can reconcile your success with your decision to support a man who has lived up to his campaign promise, “We are five days away from fundamentally transforming the United States of America.”?  A promise to destroy capitalism.  It’s a given that there are those Capitalists who have abused the present system and they need to be held accountable.  We shouldn’t, however, destroy the goose that lays the Golden Egg.
    You are a man whose success and reputation was, in part, a result of comprehensive due diligence before BRK.A  made an acquisition of a company as an investment.  Certainly you must have investigated the close association that Barrack Obama has had with the blasphemous hater of America, Jeremiah Wright, the convicted and unrepentant terrorist Bill Ayers and his childhood mentorship by Frank Marshall Davis, a die-hard communist?  Perhaps you didn’t know that Saul Alinsky’s son, L. David Alinsky, has recently stated that Barrack Obama has followed his father’s “Rules For Radicals” to a tee ever since he moved to Chicago and President Obama helped fund the Alinsky Academy.  Why would you align yourself with those who openly advocate the overthrow of the U.S. Government?
    We got a mirror into your change in mind recently when you revealed that the IRS was “coddling” the rich, such as yourself, and that you should be paying more taxes – a Populist theme by the left.  Since we assume that most of your income is from dividends and your rate is 15%, are you advocating that all savers pay more?  We understand that BRK.A is currently in dispute with the IRS over unpaid taxes.  Given your stance, we would think that you will gladly acquiesce and pay your fair share to avoid any assertion of hypocrisy.
    In event you are successful and the President is re-elected next year, you should expect BRK.A to also undergo a “fundamental change.”  Your “A” shares are now down about 25% from the post-crash high.  Within four years you could expect your share value to drop an additional 50%, your shareholders should revolt and remove you and your board.  In the end, the Marxists will turn on you and all their benefactors.  They will be in power and this country will be in chaos.

Please Mr. Buffet – change your mind!

H. L. Quist
Quist is an author and economic forecaster who resides in Phoenix, Arizona
Submitted to the Wall St. Journal but not published.

Athens, California

There isn’t a more fitting microcosmic example of how the over burden of debt will ultimately crash  the economy and a lifestyle than is present in the State of California.    In Michael Lewis’ recently released book “Boomerang,” the author interviews Arnold Schwarzenegger, the former governor. The “Governator” came into office in 2003 with an approval rating of 70% with a mandate to fix California and left in 2011 with a rating below 25% with little or nothing accomplished.  Even an iconic film actor with macho muscle failed.  The answer to why, is the most instructive and forecasts the inevitable.

Lewis quotes from “California Crackup” written by two non-partisan journalists, Joe Mathews and Mark Paul who answer this critical question:

“...he (Schwarzenegger) was never going to win.  California had organized itself, not accidentally, into highly partisan legislature districts.   It elected highly partisan people to office and then required these people to reach a two-thirds majority to enact any new tax or muddle with spending decisions . . . Politicians are elected to get things done and are prevented by the system from doing it, leading the people to grow even more disgusted with them . . . the system is very good at giving Californians what they want . . . people want services and not pay for them.  And that’s exactly what they’ve now got.”

Schwarzenegger came into office with boundless faith in the American people and given his image and popularity he felt that he could appeal directly to them to do what had to be done to save the state.  In November 2005 he called a special election that sought approval on four reforms:

•   Limit state spending
•   End Gerry-Mandering of legislative districts.
•   Limit public employee union spending on elections
•   Lengthen the time for public school leaders to get tenure.

All four propositions were designed to address the state’s looming financial crisis.  All four were defeated soundly.  They weren’t even close.  As just one example, pensions of state employees doubled from the time Schwarzenegger came into office to when he left which now has a shortfall of about $200 billion.  In 2010, the state spent $6 billion on 30,000 prison guards who could retire after only five years of service (after age 45) at almost full pay.  The head parole psychiatrist for the prison system made a salary of $838,705 in 2010.  The system became unsustainable and most of the prisoners have been released.  That coupled with the reduction of state and city police officers presents an opportunity for career criminals to continue their trade and the public’s growing need to protect itself.  In Oakland, California, the police will not respond to a 911 emergency call unless there’s a risk of homicide.  During the recent Occupy Wall Street protests in that city, officers were called in from the entire Bay area to assist to control the mob.  It wouldn’t take much for the mob to overwhelm the police in just about any city in the US.

California, like many other states, have been receiving billions of federal government stimulus funds and proceeds from Build America Bonds to pay the salaries and entitlements of state and municipal employees for the past three years.  (Note: The funds weren’t intended for investment to create jobs.)  Those funds are no longer available as the President’s American Jobs Act, has been defeated in the Senate.  The crisis that has been postponed is now upon them.  Californians, like the Greeks, have come to expect that there’s no limit to the amount of money available to perpetuate their lifestyle.  As Lewis says, “The richest society the world has ever seen has grown rich by devising better and better ways to give people what they want.”  Now, it’s over.  Pensions of state and municipal employees will be cut from 25% to 50% or more in many jurisdictions.

On October 27, 2011, California Governor Jerry Brown, unveiled what is considered one of the nation’s widest-reaching pension overhauls raising the retirement age to 67 from 55, and increasing the pension contributions by future employees through the use of 401(k) plans.  Brown’s proposal was immediately attacked by Dave Low, Chairman of Californians for Retirement Security, a group representing dozens of unions in the state.  Mike Genst, of California Pension Reform, taking the opposing view said, “It (Brown’s plan) doesn’t go nearly far enough” because it wouldn’t apply to current employees.

Reality will come hard on the left coast.  Will Californians and all Americans recognize the problem and work together to solve it or will we add another chapter to the Greek tragedy and continue to riot and protest that will destroy our culture and our country?

Greece, the birthplace of democracy is toast if they vote “NO” on the referendum and reject cuts in employment, salaries and entitlements.  All of us are witness to a political and cultural event of historic proportions – a failure of democracy due to the over-empowerment of the people.  As CMV has reiterated many times, the abuse of freedom will result in the loss of freedom.  The Greeks are about to experience it and its’ aftermath. May we learn from their experience.

The rest of the newsletter is only available to paid subscribers and includes the portfolio of recommendations.

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-- H. L. Quist

Wednesday, October 19, 2011

Interview with H. L. Quist on "Politics and Patriotism" podcast show

Hello World,

Justin Oldham of Politics and Patriotism interviewed The Myth Buster recently.  Oldham talks with author and financial historian H.L. Quist about his book, "The Aftermath of Greed: Get Ready For the Inflationary Boom." Mr. Quist believes we are headed for a deliberate global financial meltdown. His evidence is compelling. Will he be right?


Justin discussed the book in a brief extract from a prior show with Fern Crossley from Alaska.

The link to Quist's podcast site is here  - for the book review discussion with Fern click on episode from October 18th.

Books are available from your favorite bookseller, online or at the publisher's site in either print or e-book format.

Quist's monthly newsletter provides commentary and recommendations for investors.  Subscribe through the sidebar on this blog.  You can find monthly previews of the newsletter on this blog, also.

Sunday, October 9, 2011

Free Preview of the CMV for October, 2011

Hello World,

Don't miss podcasts by The Myth Buster.  Bookmark the podcast site http://www.hlquist.libsyn.com/.

Below is a preview of the CMV (Contrarian Market View) Newsletter for October, 2011.  See the end of this post for a free book offer with the purchase of a subscription to the full monthly newsletter. (Note: due to the limitations of a blog post the appearance of this preview is not as it will appear in the actual subscriber copy.)

Market Overview

Taking and editing a line from a well-known film, Apollo 13, “America, we have a problem,” seems appropriate for the state of the US (and global) economy.  We’re lost in space and our navigation systems have failed.

Stimulus I and II, Federal Reserve Monetary Policy, and Congress in the past three years have:

•   Not appreciably improved job opportunities and unemployment remains over 9% with over 14,000,000 Americans unemployed.

•   Not improved the quality of life for Americans as 15.1% of the country lives below the poverty line which was set at an income of $22,314 per year for a family of four, the highest poverty level since 1993.

•   Seen the nation’s Gross Domestic Product (GDP) grow at less than 1.5% per year over year ending the first half of 2011 – a level normally associated with a recession and with the prospect of less than that number for the remainder of 2011.

•   Seen consumer prices rising faster than the real economy while at the same time personal income has declined almost 2%.

•   Ratcheted interest rates down to near-historic lows depriving Americans who have assets in money market funds, CDs, US Treasuries, etc., of spendable investment income that has cut consumer spending by an estimated $600 billion in 4 years, and created an estimated 4.1% rise in unemployment.

•   Seen the Federal budget balloon from a deficit of $459 in FY ending September 30, 2008 to an incredible $1.4 trillion in 2008 and for the following two years ending this past September 30, 2011, the number will be close to $3 trillion.  All this massive deficit spending and a Federal debt approaching $15 trillion, the nation is further from recovery and resolution of our problems than before.

Given the Macro view that the US, the EU and China are experiencing an implosion of the debt bubble and the combined economies are on the brink of collapse, what strategy, what plan do these Masters of the Universe (MOTU) have?  The following was derived from the Doug Casey/Sprott Asset Management Summit entitled “When Money Dies” held October 1, 2 & 3 in Phoenix.

First, an absolute certainty.  The US economy must de-lever one of two ways.  Given the choice between Deflation or Inflation, the global central bankers will choose inflating the monetary base.  The Federal Reserve Bank of the United States will soon initiate another round of purchases of US Treasury debt to inject perhaps as much as one trillion dollars into the economy.  The goal is to avoid Deflation despite the risk of asset and price inflation.

The following strategy was proposed by Paul Brodsky, Co-Founder and Co-Managing Member of QB Asset Management Co. (QBAMCO).  The presentation was entitled “The Necessary Failure & Transformation of the Current Global Monetary System.” The strategy would:

•   Inflate the US monetary system, save the banks and keep debtors solvent,

•   Stabilize the US dollar and prevent commodity inflation,

•   Restore confidence in the US dollar, and retain the USD as the World’s Reserve Currency.

The Federal Reserve should institute the following:

Administered Dollar Devaluation

1.  To remediate all past monetary inflation and resent the global monetary regime, the Fed would tender for privately-held gold at or near the Shadow Gold Price (SGP).  (The SGP of $10,000/oz is derived by dividing the US monetary based by the official US gold holdings of 261.5 million ounces.)

2.  As the Fed purchases gold, the gold would flow to the asset side of its balance sheet.  The Fed would fund those purchases through newly-digitized Federal Reserve Notes, which would flow to banks in the form of net new deposits.  This would be a discrete monetary inflation event (devaluation) and a simultaneous de-leveraging.

3.  Once the Fed acquires enough gold from the markets, a gold price peg for the US dollar would be established.

Obviously, this is a simplified version of a solution to a very complex problem, but its’ very simplicity makes it doable.  There are some subtle but meaningful advantages to Brodsky’s plan.  First, the bullion banks don’t presently have a sufficient inventory of physical gold and silver bullion to make delivery on demand.  This plan could get them off the hook.  Secondly, the mining companies would have a ready market at a fixed price.  Their profit margins would be enormous and their ability to pay substantial dividends to shareholders would make them akin to utilities.

CMV sees this plan as a “repricing mechanism.”  Prices of all goods, services, stocks, commodities, real estate, etc. could increase.  Debt is a constant.  Real property, for example, could increase in value, the mortgage would remain the same and remarkably, there could be equity in the property.  We could see a situation where wholesale refinancing could take place.  Income would also have to re-adjust in the re-pricing.

Brodsky’s plan is conceptually creative and simple.  Government and the Federal Reserve have destroyed our money.  Had Franklin D. Roosevelt and Richard M. Nixon not taken the US off the gold standard the USD wouldn’t have lost 95% of its’ value since 1933.  Will the MOTU adopt the Brodsky Plan?  Unfortunately, government seldom does the right  thing.  Time and options are about to expire.

Without a counter-balance to the Fed’s expansion of the monetary base the prospect for uncontrollable inflation or hyper-inflation would be highly probable.  Are the MOTU listening?

The Future For Gold

Given the dramatic sell-off in all the global financial markets in late September, including gold which declined from the July high of $1921.00/oz to close on Friday at $1593.00/oz – a decline of about 17%, the obvious question is:   Is the 10-year gold bull market over?   My answer is No.  And, Hell No!  Your writer had the privilege of attending the Casey/Sprott Research’s Summit “When Money Dies” for 3 days at a cost of $1500.  CMV will share some of the words of the host Doug Casey, one of the world’s foremost authorities in the precious metals market.

The Global Macro Picture:

Everything I know about economics tells me that it’s impossible for the global economy to get out of this intact...Greece, Italy, Spain, Ireland – all of these governments are bankrupt.  So is France.  The Euro is in terminal decline...almost anything looks good relative to government paper.  It’s another bullish indicator for what’s in store for gold...and it’s happening now.

The US Dollar:

The Chinese have more US dollars than anyone else and are unloading those dollars anywhere they can.  For instance: in Africa, in exchange for real wealth – natural resources to fuel their future growth.  We have finally gone beyond the point of no return.  There is no way to avoid a gargantuan catastrophe – much worse than in the 1930s and ‘40s.  There are several ways this could play out, but the government always chooses the worst alternative, which in this case is the destruction of the US dollar.
The United States:

Its’ (the government’s) first priority is saving the US government, not the dollar or the interests of the people.  The politicians will end up destroying the productive parts of the economy to save the government; the parasite will kill the host...It’s a total disaster.


...gold and silver are no longer the cheap values they were 10 years ago – but over the next year or so they are going much higher.  Nobody is going to want to hold dollars...gold is going to be driven much higher by fear, greed and prudence, all at once...I expect a historic gold mania is still ahead.

CMV believes that readers can take Doug’s views to the bank.  For a more philosophical and intellectual perspective on gold, one of CMV’s true heroes is Jim Grant, Editor of Grant’s Interest Rate Observer.  In an interview with Barron’s on September 19, 2011, Leslie Norton asked Jim:

“Is gold in bubble territory?”

Jim’s reply:

You can think of gold as a stock that went from 25/8 to 18 in a dozen years.  I’m not sure that’s a bubble.  It is the nature of gold that its’ valuation must be forever a mystery.  It earns nothing.  It pays no dividend.  No conference call, no management to call up and complain to.  What I do think gold is simply the reciprocal of the world’s faith in the institution of managed currencies.  It is one divided by T where T stands for trust.  And trust is a shrinking number and will continue to shrink.  Therefore, I am still bullish on gold...

Some other comments were:

The dollar will become the beneficiary of this (Europe’s) mess.  The Euro is confederate money...the  Euro will break up.

Today the eccentrics are the gold people.  The establishmentarians are teaching at Princeton and running the Central Bank.

Gold will go up a lot and that’s as finely calibrated as I can get.

So, you have the same conclusions from a noted gold guy (Casey) and an intellectual and economic analyst (Grant).  The sell-off simply represents an opportunity to add to positions at a nice discount.  The handwriting is on the wall – the same wall that the Banksters have just collided with.  They won’t read the writing and would not understand it if they did.  You just got the message.

Real Estate

The real estate market is vital to the nation’s health, and is a principal reason why the economy is as Ben Bernanke says, “faltering”.  Observing the US real estate market today is like watching a re-run of the “Good, Bad & The Ugly.”

First, the ugly.

Acting as a conservator for “The Evil Twins” Fannie Mae and Freddie Mac, the Federal Housing Finance agency (FHFA) is now suing 17 large banks on the grounds that the banks misrepresented to Fannie and Freddie the quality of the loans inside the mortgage-backed securities bought by the Twins during the housing boom.  Yes, after all these years FHFA is shocked that the Twins were buying questionable mortgages.  This despite FHFA’s own examiner who concluded that Fannie was “the worst-run financial institution” he had see in 30 years as a regulator.  It gets even more absurd.

•    Congress re-wrote the Community Reinvestment Act in 1994 and created quotas that mandated financial institutions to make mortgage loans to low-income applicants.

•   Franklin Raines, the former CEO of Fannie and other officers “cooked the books” at the Government Sponsored Enterprise (GSE),  paid themselves millions of dollars in bonuses based upon fraudulent numbers and were never criminally prosecuted for their theft of taxpayer’s money.

•    Barney Frank, Chairman of the House Finance Committee, continually stonewalled the Office Of Federal Housing Oversight (OFEHO) investigation of Fannie while all members of the Committee were receiving outsized political contributions from the GSEs.  Can anyone dare say the word “bribe?”

•    FHFA is attempting to extort billions from the banking industry at a time when the industry again needs liquidity.  Bank of America (BAC), in particular, has already repurchased $8.5 billion mortgages from other institutions (originated by Countrywide Financial) and is in the process of selling off assets and laying off thousands of employees in anticipation of the action by FHFA. BAC also just sold off an $880 million commercial mortgage portfolio at a 20% to 25% discount.

The Good:

Certain sectors of the real estate market are recovering on their own without government intervention.  As previously reported by CMV, in Phoenix, the low-end residential market in the $100,000 range is very vibrant.  In one case, well-known to CMV, a buyer was unsuccessful in 5 attempts to acquire a home due to competitive offers.  At the other extreme, Barron’s reported on September 19, 2011, that the high end city real estate (apartments and town homes) in the $5 million range, were up as much as 50% in New York, Miami and San Francisco.  Buyers from China, India, Russia and Brazil are seeking exceptional value in this market. What remains to be seen is what impact the current sell-off in the global stock markets will have on luxury homes.  We will soon find out.

The Federal Reserve’s “Operation Twist” should have an impact on long-term fixed mortgage rates. For those who can qualify 3.5% or lower is in the near-term future, although the 10 Year T-Note yield has jumped over 30 BP’s in 2 weeks.  The President recently indicated that refinancing will be available for homeowners that are “underwater” on their mortgage.  The Brodsky Plan, if adopted, could jump start the real estate market.

The Bad:

A two-year revival in the commercial real estate market which has been a god-send for developers, investors and mortgage holders, is losing momentum.  Industry experts reported in a recent Wall St. Journal article, however, that commercial property sales have dropped significantly this past summer and the Architectural Building Index has fallen below 50 after a rise from below 40 in 2007.  The Commercial Property Index (a measure of value) which has risen over 30% since 2009 is now flattening out.  The recent burst of the debt bubble in Europe and the stock market sell-off could also negatively impact a market that was experiencing a pause prior to these events.  Likewise, a perceived solution in the EU could have a positive impact.

Green Jobs

You should be able to recall the imposing figure of Van Jones, the Green Jobs Czar, microphone in hand parading across numerous venues two years ago promoting the advent of the brave new world ahead in solar and alternative energy that would create thousands upon thousands of new jobs.  Unfortunately, Mr. Jones became a lightening rod for the Obama Administration because of his Marxist rants and he lost his job but the seeds were planted for an example how the private sector and government could create jobs and make a positive environmental impact.  (Jones has just re-surfaced on Wall St. charging up the protestors.)

Approximately $500 million of private equity and a $535 million Department of Energy (DOE) loan guarantee launched Solyndra, LLC, a California manufacturer of a new cylinder-type solar product which differed from the more conventional solar panels.  The product, as forecast by several industry analysts, turned out to be for more difficult and costly to manufacture and within two years of receiving  the loan the firm declared bankruptcy in September, 2011 and laid off 1000 employees.  The largest government co-venture capital deal gone bad quickly became a criminal and congressional investigation.

Bloomberg reported on September 22nd that several issues “cry out for investigation.”   It seems that no  information will be forthcoming from the key officers at Solyndra as the CEO and CFO invoked the 5th Amendment and refused to testify.  In question is the ties that the solar company may have had with George Kaiser, a campaign supporter of President Obama, and the role he may have played in awarding the loan guarantee.   The DOE released its’ First Lien position just prior to the filing.  Other skeletons are certain to surface before Halloween.

The Solyndra episode, unfortunately, has cast a pall over the other solar projects in the pipeline.  There are eight companies with tentative commitments for $6.5 billion of taxpayer financing to be funded prior to September 30th.  First Solar, a Phoenix-based company, has been advised by the government that there wouldn’t be enough time to close a loan guarantee for a $1.9 billion, 500 megawatt solar-powered plant in California.  It’s possible that many viable and worthwhile projects will be deprived of funding because of the sunlight that exposed Solyndra, LLC.

In another case of government involvement that has affected Arizona , the Secretary of the Interior, Max Salazar decided that there will be no uranium mining on one million acres of federal land that lies north of the Grand Canyon National Park.  The area contains approximately 375 million pounds of high grade Ux which is equivalent to 13 billion barrels of oil.  Salazar’s decision came despite two years of study and consultation with federal, tribal, environmental groups, public hearings and The Bureau of Land Management’s (BLM) verdict that mining there “would do little irreparable harm.”  Thousands of potential jobs were lost in an area that is economically depressed.  Unfortunately actions and decisions like this by the Obama Administration has led to this conclusion by Thomas G. Donlan in Barron’s:

The administration is re-tooling politically in order to create jobs.  It should re-tool legally to recreate jobs it has destroyed.

Greece – Where Democracy Failed and Dignity Died

The macro and micro view and meaning of the tragedy that presently unfolds in Greece is misunderstood by most Americans both in personal and political terms.

In a macro sense the Greek government has simply borrowed and spent itself into bankruptcy and the debt bubble has burst.  The country’s GDP has plummeted from a plus one percent in the first quarter of 2010 to a minus 8% in the past three quarters.  1000 Greeks were losing their jobs per day in the private sector in August and a businessman interviewed recently on CNBC stated that 80,000 small businesses have closed down in the past year and he expects that number to double.  Consumer spending has fallen precipitously and the government’s tax revenues have dropped sharply as a majority of citizens have refused to pay taxes.  Greece is on the precipice of default on its’ sovereign debt if it doesn’t receive additional financing in the very short term.

That’s the situation as most Americans understand it.  But the micro or personal story hasn’t been told until Marcus Walker’s piece in the Wall St. Journal (September 20, 2011) entitled Greek Crisis Exacts The Cruelest Toll which revealed the gut-wrenching tragedy that is playing out in this beautiful, historic and democratic country.

Walker relates the story of Vaggelis Petrakis who owned a fruit and vegetable business in Athens.  As Greece became a “credit-driven” economy as it joined the EU (as opposed to the old fashioned cash and carry economy), small business owners like Petrakis had to accept post-dated checks for his goods and the supermarkets would take several months to pay.  To get money more quickly, Petrakis, like most small business owners, would take the post-dated checks to his bank and sell them at a sizeable discount.  Merchants using this system were slowly going bust and when the government’s debt-bubble burst, the post-dated checks began to bounce.  The banks refused to buy them.  Loan sharks entered the vacuum and compounded the problem.  Suddenly friends and customers became enemies and this network of happy, gregarious small business owners – the heart and soul of Greece – became unglued.  Petrakis, a very proud man, wrote a long suicide note declaring that it was the banks that had destroyed him.  His son later said after his father’s death, “It was his shame, fear, pride and dignity.  Whoever you ask, they will say he was a man of dignity.”  Suicides are rising at an alarming rate.

Now, the rest of the story.

Unemployment in Greece is stated at 16% but with most of the private sector small business owners going bankrupt this probably understates that number.  In the government sector however, “Over the past year the government hasn’t laid off a single civil servant,” according to another article in the WSJ.  As the Greek government has attempted to exact harsh austerity on the private sector, the government’s union employees are assured that they have a job for life and they can retire at near full pay as early as age 55 with guaranteed healthcare.  As the WSJ article states, “Greek politicians are loathe to give up the system of spoils that they have long run through these enterprises, which are staffed by the party faithful in exchange for votes.”  De-nile is not a river in Egypt!

What the world and most Americans fail to see is that the banksters have destroyed the small business owners and entrepreneurial spirit that epitomized Greece and the power has been transferred to the bureaucrats.  What these bureaucrats can’t see is their money will die also, salaries and entitlements will be cut and jobs for life will end.  The strikes, riots and shutdowns will be fruitless.

The Greek tragedy dramatically portents what is now emerging in America.  The Socialist-Democratic Welfare  system in Europe is collapsing while our President is intent on replicating the same European model.  The Greeks at their pinnacle of enlightenment founded a democratic system knowing full well that it was vulnerable to destruction when the populace realized that it could vote itself perpetual jobs and entitlements.  America has a chance to change direction. Do we have the will?

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Saturday, September 3, 2011

Free Preview of The CMV for September 2011

Hello World,

Don't miss podcasts by The Myth Buster.  Bookmark the podcast site http://www.hlquist.libsyn.com/.

Below is a preview of the CMV (Contrarian Market View) Newsletter for September, 2011.  See the end of this post for a free book offer with the purchase of a subscription to the full monthly newsletter. (Note: due to the limitations of a blog post the appearance of this preview is not as it will appear in the actual subscriber copy.)

Market Overview
This past month was, perhaps, the most volatile August in global stock market history.  And, few were at the office to deal with it!

August is the well-established month for vacations in Europe when the Greek crisis worsened.  The cost to insure against a Greek sovereign debt default (credit default swap - CDS) soared to a rate higher than 2008 and interest rates on two-year Greek notes skyrocketed to 44%.  Depositors are withdrawing funds from the Greek banks in droves and 50% of the money is going out of the country exacerbating a liquidity crisis.  Converting euros to Swiss francs has prompted the Swiss to attach a surcharge on new accounts as the franc has soared in value against the euro.  In short, Greece is heading towards default, a restructuring of their sovereign debt and possible expulsion from the EU.  The Swiss franc is so overvalued a Big Mac in Zurich now costs $17.19 and the Swiss National Bank has spent $36 billion in its attempt to hold down the appreciation of the franc.  Imbalances such as this foretells a crisis of huge magnitude is waiting in the wings.

Here in the US, Congress passed the Deficit Reduction Act, which was a farce, and proceeded to adjourn for the month of August.  We were told that the Act would reduce spending by $2.4 trillion over 10 years but it won’t.  What it did do was allow the US Treasury and the President to exceed the current limit and immediately borrow $900 billion in two quick tranches (which most has already been allocated) and another $1.2 trillion after some trade-offs.  The “Super Committee” reports on Thanksgiving which seems inappropriate for us pilgrims.

What soon followed was the greatest case of motion sickness the US stock market has ever experienced.  The Dow Jones Industrial Average’s week “that was” ended:

Tuesday    August 4    -265.87
Wednesday    August 5     +29.82
Thursday    August 6    -512.76
Friday    August 7    +60.93
Monday    August 10    -634.76
Tuesday    August 1    +529.92
Wednesday    August 12    -519.83

And, it continued in varying degrees for the remainder of August.

Who benefited from this game of yo-yo?   Professional and day traders, of course. And, the exchanges who gain the most from volume regardless of profits or losses.  The principal cause is the “robo” High Frequency Trading (HFT) that senses the direction and momentum of the market and piles on.  HFT cares less whether the move is north or south.  Long-term investing now has come to mean more than one day.  It’s devastating because it destroys confidence.  The small investor feels that they don’t have a chance.  And, they don’t.

CMV sees this phenomenon as a forecast of things to come.  It’s as if the traders also sense that we’re in the last stages to exploit the equity market before the pall of deflationary doom wipes away all the momentum and the profit opportunities.  Here are a few signs that the last quarter may be a real downer:

●  Consumer confidence has taken a significant drop in August.

●  The August Chicago Purchasing Manager’s Index has fallen from 58.8 to 53.8.

●  Nomura Securities reports that there has been a major decline in payroll tax receipts which could forecast an increase in unemployment for August and validate their opinion that a “new recession” began this past month.

Note: Normura and Rick Santelli were correct.  The August job growth was Zero!  This hasn’t happened since 1945.  Layoffs are the highest in the financial industry and state and local government.  It’s official, the “Double Dip” is here whether we like it or not.

●  Inflation adjusted GDP for the second quarter was -3.4%.

 Assuming for the moment that a slowdown is indeed ahead, what about the Fed and the Fed Head?  Traders eagerly awaiting GODOT (Ben Bernanke) speaking from atop the Grand Tetons, were disappointed that he did not reveal another easy QE stimulus plan that would move the markets north.  No commands were etched in stone as GODOT descended from the mount.  His silence was deafening but perhaps he was reserving his pronouncement until after the Fed’s meeting on September 20-21.  (That now appears inevitable given recent data.)

Both Nouriel Roubini (Dr. Doom) and CMV’s favorite asset manager, Felix Zulauf, both agree that the Fed (though dissidents exist on the Board) will be compelled to inject massive liquidity into the economy this fall to prevent the slowdown becoming a slide into the abyss of a depression.  In event that these two experts are correct we can expect a stock market and commodity rally that could propel these markets to all-time highs.  Gold would knock out the inflation adjusted high of $2200/oz faster than Usain Bolt could run the 100 meters!  The “Last Rodeo” would begin.  Pick the bucking bronco of your choice and jump aboard. It will be a wild ride and the key will be to jump off before you’re thrown off.  The “crack-up boom” will end the party.  It’s CMV’s time to shine!

Late News Flash

A highly regarded strategist at Goldman Sachs (GS) (whom CMV affectionately refers to as Goldman Sucks), has issued a 54 page report sent to its’ institutional clients that forecasts that Europe, US and China are in deep doo doo.  Goldman’s Alan Brazil has designed a complicated option play that is intended to hedge all these markets that he believes will decline substantially.  This report could have triggered the sell-off on September 1, 2011

The Rating Game

The Standard & Poor’s (S&P) downgrade of the US’s credit rating triggered a sell-off in the US equity market pushing the Dow Jones Industrial Average to its sharpest one-day decline since the financial crisis in October 2008.  The Dow ended the day down 634 points (5.5%) to 10,810.  Trading volume  reached the fourth highest level in history.  A volatile “Week That Was” followed.

The question CMV raises is, why did S&P wait so long when the burgeoning US debt was rising exponentially for several years.  One answer is that S&P has a proven track record of failing to do their due diligence when there would have been time for affected parties to react prior to a credit event or default.  Cases in point:

New York City in the sixties or early seventies was an example of political mismanagement and phoney accounting according to an editorial by Thomas G. Donlan in the August 15th edition of Barron’s.  While rumors persisted that the Big Apple might be rotten at its’ core, City officials effectively lobbied the two major rating agencies S&P and Moody’s, and their top credit ratings were affixed in 1972 and 1973 by both agencies.  By 1975, however, the City finally faced up to its’ inability to meet its bond obligations and a tense period followed when NYC defaulted.

The recent housing fiasco can be directly tied to the AAA ratings by both agencies which enabled Wall St. to market those mortgaged-backed securities all over the world by virtue of their ratings.  A critical component of these fallacious ratings were the extension of AAA to Fannie and Freddie and their paper.  Both were still rated triple A until the downgrade in August!

S&P has done a horrendous job of forecasting the potential for sovereign debt default in advance when investors need guidance.  Of 15 government defaults S&P has tracked since 1975 , the firm rated 12 of the countries single B or higher one year prior to default.  To S&P, a single B rating had just a 2% average chance of default within a year.  In short, S&P drastically underestimated a one-year default risk in 80% of those cases.  They missed the Russian default in 1998 when Long Term Capital Management lost $5 billion in one day and set off a major US financial crisis.  They missed the Argentina default in 2001 when the country stiffed the US banks and settled years later at about $.30 on the dollar.  There was also Orange County, California in 1995.  And, Enron and World Com in 2001 which were massive frauds.  S&P just recently announced that it was opening an Investigation into the sub-prime fiasco.  Hello!!!

Now, the ratings are playing out in the political arena.  As the President’s approval rating dropped below 40%, he reminded all Americans that “despite the ratings the US will always be Triple A.”  Tim Geithner, US Secretary of The Treasury, had stated prior to S&P’s decision, “The US will never be downgraded.”  There are those who speculate that Republicans conspired with officials of the ratings companies to encourage a downgrade to make those in power look bad.  To that CMV responds, they did not need any assistance.

“Un” Real Estate

There are a couple of initiatives that have recently surfaced that could materially impact the real estate market.

J. P. Morgan Chase has notified a number of delinquent homeowners who are fighting foreclosure that the bank will forgive $100,000 in debt on a “short sale” with a kicker for the homeowner: $10,000 to $35,000 to stay on the property and facilitate it’s sale.  The reasoning is that the bank recovers more than in a foreclosure and avoids attorney fees and the cost of maintaining the property.  It’s also possible that the bank can’t locate the original note and these number of cases may be limited.  JPMC, like other major banks, faces a fine for the “robo signings.”

The Obama Administration has floated another of its trial balloons regarding the government’s inventory of unsold real estate in a formal Request for Information (RFI) – turning foreclosures into rental homes.  Fannie and Freddie together with the FHA own approximately 250,000 homes at the end of June, 2011 and other 830,000 homes are in some stage of foreclosure.  A couple of the proposals are:

1.  Sell packages of hundreds or thousands to investors in bulk who agree to rent them out, or

2.  Have investors enter into joint ventures with Fannie and Freddie to invest in a pool of converted rental homes.  There would also be national property management business to handle the landlord responsibilities.

This administration, keeping a keen eye on the 2012 elections, recognizes that all of the residential real estate initiatives to date have failed and represent a major obstacle to re-election if the problem is not resolved.  A market-based solution would be a good idea but CMV’s concern is that the bureaucrats at Fannie and Freddie, whose number one objective is to preserve their jobs, will prevail and the “evil twins” will dodge their programmed extinction and live again to bleed the US taxpayer.  What 99.9% of all Americans don’t know is that these two zombies continue to pay huge dividends (despite horrendous losses) to the US Treasury (and others) from taxpayer funds.  That’s why, then Secretary of the US Treasury John Paulson, placed Fannie and Freddie into CONSERVATORSHIP rather than Chapter 11 – use taxpayer money to create and service debt with income accruing to the benefit of the government.

It was announced in late August that Freddie Mac plans to accelerate its program to buy loans secured by apartment buildings – up to $16 billion this year.  Fannie has already bought $10.5 billion in the first 6 months.  It probably hasn’t occurred to these bureaucrats that they are exacerbating the single family home rental market in the process.

Bloomberg reported on August 12, 20011 that Barclays Capital has projected that Phoenix and Atlanta have the best potential for the sale of new homes.  Phoenix has the potential for 46,485 new home sales but no time period was given.

The Debt Bubble

Both the Democratic Truman Administration (1945-1951) and the Republican Eisenhower Administration (1952-1960) were faced with the unenviable task of growing the economy, providing jobs and paying down the massive mountain of debt accumulated during World War II.  They were both successful and the 1950s came to be regarded as the “Golden Era” in America.  Sound fiscal government ended in the mid-60s when Lyndon Baines Johnson convinced Congress that America could afford an entitled “Great Society” and an expensive war in Viet Nam (“Guns & Butter”) at the same time.  Thus began a borrowing binge and a raid on the Social Security Trust Fund that has brought the United States to the point that it can’t possibly meet its public obligations amassed over the past 45 years.

Richard M. Nixon, a Republican (in name only), drove a stake into the heart of America’s fiscal sanity when, exactly 40 years ago (August 15, 1971), he declared himself a Keynesian and effectively took the US off the gold standard when bullion was $35/oz.  Nixon also instituted wage and price controls which ultimately created severe imbalances in the economy and contributed to the ruinous inflation in the late 70s.  The US Dollar has lost 82% of its’ value since that fateful day. And you thought Watergate was Tricky Dickie’s place in infamy.

Your writer remembers that day as if it happened yesterday.  It was a Sunday and the Quist family was returning from a weekend at the lake when the news flash was announced on the radio.  Somehow your writer knew that this event was a watershed moment.  Several years later it became legal for US citizens to own gold again and by 1974 bullion rose to $195/oz.  By 1979 it reached $850/oz.  The relationship between the federal and public debt and the price of gold over this 40 year period should have been apparent to even a casual observer but it hasn’t registered until now.

Despite all the evidence to the contrary, there are those in Congress who insist that the federal government must borrow and spend more to stimulate the economy.  We’ve been there and done that and it’s resulted in a dramatic decline in the nation’s GDP.  Worse, these Keynesians have unleashed a vitriolic attack on fiscal conservatives that projects an irreconcilable stalemate that lies ahead.

E. J. Dionne, Washington Post columnist said that Tea Party representatives were content with “blowing up the country.”

Joe Nocera, New York Times columnist said, “Tea Party Republicans have waged a jihad on the American People.”

Maureen Dowd, New York Times columnist, referred to Tea Party members acting like “a maniacal gang with knives held high.”

And, the epitome of criminal aspersions was cast by Vice President Joe Biden who said that Congressional Republicans “have acted like terrorists.”

It isn’t an accident that all these statements characterize conservatives as an evil, destructive force, whose policies will destroy America.  The irony, of course, is that there are those, who while cloaking themselves with the intellectual cover of Keynes, are in fact, Marxists whose goal is to destroy Capitalism and America as we knew it.  The 1960s Cloward-Piven strategy was to so burden the US Government with entitlements that the economy and by proxy, Capitalism, would collapse.  The hope is that fiscally conservative Democrats and Independents who are committed to America’s future have already seen through this charade and this Administration will suffer a humiliating rebuke in 14 months.

Riveting Riots

A wise philosopher once said, “Civilization hangs by a thread.”  That frayed rope is close to breaking.

●  We witnessed the riots in Egypt as the 30-year rule of Hosni Mubarak came to an end.  The revolt reportedly was for freedom.

● We witnessed the riots in Syria to depose the autocratic rule of the Assad dynasty.  The revolt reportedly is for freedom which may be quashed.

● We witnessed the riots in Greece where free democracy was born. There the long abuse of freedom has led to the nation’s bankruptcy and ultimately a full circle return to bondage.

● We witnessed the riots in a democratic England where the opinion pools cite criminality as the root cause .

CMV sees the onset of a new movement - egalitarian envy - a rebellious flash-mob outburst from the hooligan have-nots to take from the haves enabled by English law which protects the criminal and imprisons those who defend themselves.  All Euroland is faced with a common seed of discontent fostered by high unemployment amongst those under the age of 25.  Spain has an unemployment rate of 21% but it is 45% under age 25!  Greece 15% and 39%, Italy 8% and 28% and the rest of the Eurozone has similar numbers.  The only major exception is Germany at 6% and 9% but given their recent economic data, it appears that those numbers could change for the worse.

The European Union is bound together with one currency and one constitution and has shackled itself.  It doesn’t have the flexibility to solve this growing problem.  They can’t adjust wages based on productivity and local living costs since wages in many countries are set “centrally.”  Most have costly indulgent entitlement programs that decrease the incentive to work and provides the youth the time and motive to create havoc.  In the past, these government would improve labor costs and opportunities by devaluing their currencies.  That option is no longer available.

Why is this important to you?

1.  The European Union is the largest economy in the world.  GDP is plunging there at a dramatic rate.  The contagion  will have a severe negative impact on the US economy which is already slowing.  The EU may not survive.

2.  The present administration in the US has embarked upon a European-styled central planning strategy that is also doomed to fail.

3.  The concept of egalitarianism (equal legal rights, economic benefits and political status for all citizens) is migrating to the US.  As the economy worsens social unrest will quicken.  As a small business owner, what will you do when they come to take what you have?  Will our police, already stretched to the limit in manpower and resources, stand by or be overwhelmed by the masses?  Develop a strategy now!

The global social, political and economic infrastructure is crumbling.  The rule of law is being circumvented.  Fraud and corruption are running rampant.  People are becoming more polarized.  There is little sense of community.  The change we were promised three years ago, was an illusion. And, there are those in power today that see the coming chaos as a means to an end – destroy Capitalism and make the masses more dependent on government.

The rest of the newsletter is only available to paid subscribers and includes the portfolio of recommendations.

Subscription box in in the left side bar here on the blog.
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-- H. L. Quist