Tuesday, January 3, 2012

Free Preview of January 2012 CMV

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Below is a preview of the CMV (Contrarian Market View) Newsletter for January 2012.  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

CMV has erred.  Yes, we make mistakes.  One error is our perception, shared by many, that the battle for the presidency and the financial security of America in November will be principally waged between the “haves” and the “have nots” – between the independent self-reliant capitalist mind-set and the dependent redistribution socialist mind-set.  And, of course, the one percent would clearly be aligned with the rich, Wall St., Republican crowd.  Much to the dismay of the Occupy Wall St. Group and the to the surprise of the Right, we now know that the left has strong financial support from the ostensibly opposed 1% Wall St. “Robber Barons.”

How could that be when there would be such a wide ideological shift?  And, the President’s ardent supporters are confident that they will raise an unprecedented one trillion dollars for the 2012 Campaign.  How could they raise that amount from “poor folks?”  Read page 10, “Throw Them All Out” and you will gain an insight into the emergence of a new political system in this country which CMV has dubbed “American Fascism.”

The second error was financial.  Regrettably, CMV did not issue a SELL signal on September 1, 2011 for all precious metals.  As we go to press it appears that gold is searching for a bottom, rallying sharply on the last two days of the year!  Read page 4 for our positive outlook on the Sector for 2012.

CMV attempts to spot growing social, political and economic trends that could materially impact our security and way of life in the future.  Here are a few:

You’ve probably seen Charles Binder, the lawyer in the cowboy hat selling his services to the disabled telling the viewer he’ll do all the necessary work to get you your disability benefits because, “you have enough to worry about.”  Social Security Disability (SSDI) is a separate fund from Social Security (SS) that was established to provide benefits to those workers who were totally and permanently disabled.  In the past, it was difficult for anyone to qualify for SSDI.  Twenty years ago it took a family member almost five years to finally get approved for benefits.  Now, thanks to the efforts of Charles Binder and his firm Binder & Binder (B&B) and a liberalized judicial review system, SSDI benefits have ballooned. $130 billion has been paid to 10.6 million employees in 2011.  Fees paid by the Social Security Administration to B&B has risen in just 5 years from $25 million to almost $100 million and the time to review a case has declined to 360 days.  771,318 cases are presently waiting to be heard.

What’s the problem?  The SSDI fund will be broke in 5 years.  The abuse of the SSDI system to obtain benefits for the non-disabled is indicative of a growing entitlement society that scams as much money as it can from what is perceived as an unending source of funds – the Federal Government.  Certainly there are many people that truly need and are entitled to benefits but to a large number of recent applicants its an early retirement plan.  The SSA is investigating the practices of B&B and other firms as well as a number of judges who have a 100% case approval record.  It doesn’t occur to any of these beneficiaries (as yet) that their disability checks could end, be reduced or be consumed by inflation.

At the city and state level entitlement cuts are already being instituted.  Last month retired city employees of Pritchard, Alabama experienced a complete termination of their retirement income.  Former employees in Vallejo, California are receiving about 30% of their former retirement after the city filed bankruptcy.  In Central Falls, Rhode Island, retired firefighters and police officers agreed to cut their pensions by 25% and support a plan that would give bondholders 100% of the money owned on city debt.  Before Central Falls collapsed Rhode Island lawmakers passed a law that puts bondholders first in line amongst all creditors of municipalities in the state.  State and local governments all over the US are viewing this law as a solution to their unfunded pension liabilities.  Once the rating agencies downgrade the cities and states, funding becomes extremely expensive or unavailable.  At the Federal Government, they simply print more money with the click of a mouse.

In Arizona, a major journalistic effort by the Arizona Republic not only revealed that Phoenix Metro area County and State employees enjoy top salaries and benefits, they have the ability to receive unused sick-leave cash payouts at retirement.  Payouts in 2010 to Phoenix employees was $10,798,370 or $11,958/employee for 903 employees.  In Scottsdale the payout was $24,443/employee and the State of Arizona had 502 employees with payouts of $12,994 each.  What is remarkable about this situation (other than affected employees) is that few citizens knew that this practice existed especially at a time when the State was facing a severe financial crisis.  Public pressure and the coming economic reality will change this benefit all over the US but to bureaucrats, it couldn’t possibly happen.

Another phenomenon is occurring which not only highlights a disturbing trend, it signals a societal shift.  A riot broke out during the holidays at the Westfield South Center Mall in Seattle, Washington.  As a large number of young people (how about thugs?) were pressing to buy the new Air Jordan $180 sneakers, a melee ensued to the extent that officers had to use pepper spray to disburse the combatants.  A popular sport of young thugs (“Flash Rob”) is to raid a store and take as many items as possible before the police arrive.  Many mom and pop retail outlets are financially hanging on by a thread. Nothing will drive the consumer to on-line purchases faster than unruly kids roaming the malls and streets.  The bigger picture is more meaningful.  Civility, decorum, politeness and mutual respect for our fellow man, is rapidly evaporating in American society.  Road rage is provoked at the slightest provocation.  Athletes and fans want to fight at virtually every venue and it’s growing exponentially.   This phenomenon is a harbinger of civil unrest to come.  As CMV has said many times, the abuse of freedom will lead to the loss of freedom.  A police state is in the making.

Closely aligned with the above, the National Defense Authorization Act (NDAA) of Fiscal Year 2012 has been passed by the House and the Senate and is has been signed by the President (with reservations), despite petition efforts to request he veto it for its very controversial features. The bill authorizes the President to indefinitely detain terrorist suspects, including US citizens, without trial, and that detention can be by the US military on US soil.  CMV never thought it would be on the same side as the American Civil Liberties Union (ACLU) on any issue.

A report produced by the US Army War College’s Strategic Institute warns that the US may experience massive civil unrest in the wake of a series of crisis which it terms as “strategic shock.”  The report was authored by (RET) Lt. Colonel Nathan Frier.  The Tea Party, free rights advocates and conservatives fear that the NDAA is a critical move by the Congress towards creeping state-ism just like the New World Order elitists utilized in Libya.  As the President told  us “we’ll fundamentally change America.”  Only CMV and a select few knew what the word fundamentally meant.

Let’s examine critical financial trends.

US banks are awash in cash referred to as “hot money.”  At the end of the third quarter there was a total of $10 trillion in our banks with 20% of it in non-interest-bearing accounts which most often prove to be “flighty” or prone to leave as fast as they were deposited.  A large amount is coming from the EU.  Why non-interest-bearing?  The Dodd-Frank Act provided for unlimited FDIC insurance on these accounts, whereas there’s a $250,000 limit for interest-bearing accounts.  The catch is that this insurance expires at the end of 2012 and the banks use of ‘free money” will likely end.

A meaningful step was made by China this past week when they entered into a currency agreement with Japan that gives the Chinese yuan a more powerful role in international trade.  More importantly perhaps, it gives both countries the opportunity to diversify away from the dollar and move the yuan towards recognition as a global currency. The Chinese are master chess players.  This is another strategic move in their quest to replace the present number one.

A year ago Illinois Governor Pat Quinn and his Democratic-controlled legislature passed a $2 billion take hike in an attempt to bailout the near bankrupt state.  Income taxes rose 67% and the corporate rate rose from 7.3% to 9.5%, one of the highest business tax rates in the US.  What happened?  More than a dozen companies have left the state for Wisconsin and Indiana.  And, the Chicago Board of Trade and the Chicago Mercantile Exchange who employ thousands threatened to leave the state.  Quinn responded by giving both $85 million in tax relief leaving the small business sector to fill the gap. Lesson learned is – this is what will happen in California and similar states to the benefit of  zero and low corporate tax rate states like Texas and Nevada.  It also sends a message to the tax and spend advocates in Washington who insist this is the way to growth and deficit reduction.
The Coming Gold Rush Of 2012

History not only repeats it often has a REBIRTH.  That’s about to occur in the gold market as we begin the new year.  First, the history.

Gold Bullion (Au) began its’ brilliant bull market in 2001 at $265/oz.  Despite a number of minor corrections, Au reached a new record (in nominal terms) of $1,000/oz in the fall of 2008 just prior to the collapse of Lehman Brothers (LEH).  Fear, a run to the safety of US Treasuries and profit taking caused Au to decline over 30% to about $700/oz by the end of 2008.  Then, in a sudden and unexpected reversal, Au began to rally off its’ lows in January 2009 and by the end of February (in just 3 months) Au retraced 100% of its’ decline to $1,000/oz.  There was a brief correction in March and April and then Au, along with most of the commodity and equity market, began its’ relentless run to $1911/oz by September, 2011, posting 732 days above its’ 200 day moving average.  This rally was accurately forecast by H. L. Quist in his book, “How To Profit From The Coming Inflationary Boom: And Avoid The Next Crash.”  Au began 2010 at $1100/oz after a 20% correction in late 2009 and it barely took a pause on its’ way to $1911.

Despite a reversal in the overall economy in the summer of 2011 and forecasts of a negative outlook on Au by Larry Edelson and others, Au exploded in price from $1500/oz in June, 2011 to the high of $1911 by September – a move of almost 30% !  A major correction was due, especially after the “double top” formation in late August and the fear that permeated the markets precipitated by the crisis in Greece and most of Europe.  You’ll note on the chart the September surge in liquidation that took Au down from $1800 to a low of $1535, a rally back to $1800, then a recent sell-off to $1566.

Lost in all the hand-wringing and omniscient prognostications of Au’s demise from Dennis Gartman and others, Au is up 10% for all of 2011 and is the top performing Sector in the US unless you had a leveraged long US Treasury position (TMF) or utilities.  Also forgotten is the fact that Au has had a positive gain every year for 10 years and is up 491% in that period.  No other asset class comes close.

This history gives us a point of reference as we try to determine what does the future hold for Au and the planet earth in year 2012 and beyond.  Here are some of the fundamental issues that all markets will be factoring in going forward, including gold.

●   According to the Hightower Report, the total world demand for gold in 2011 will equal about 3400 tonnes.  Total world mine production is about 2700 tonnes.  A demand-supply deficit has existed for over 10 years.  A similar deficit should exist in 2012.  China’s demand could soar.

●   Au did NOT assert itself as a flight to safety asset in the 2011 EU debt crisis, still unresolved.  This was probably caused by an overriding fear of a severe contraction and depression and the perception that inflation would not be a salient factor.  CMV maintains that ongoing deficits, sovereign debt defaults and social unrest due to worsening employment opportunities and food shortages will result in monetization of debt and increased spending in the EU, US and China that could result in global inflation.

●   Central Banks in the EU are actively involved in the bullion market to meet their liquidity needs. Germany is the second largest holder of bullion (119,825,037 million oz) to the US, Italy third, France fourth, and the Netherlands seventh.  Greece, Portugal and Spain also have sizable gold reserves.  Some Central Banks have been “leasing” their gold out to bullion banks such as JP Morgan Chase and HSBC who use the leased gold as collateral for additional fractional paper short sales in order to drive prices lower.  Some Central Banks may have conducted “Swaps” of gold to the Bank of International Settlements (BIS) to obtain cash for liquidity needs with the intent to reverse the trade when the crisis ends.  As CMV has previously reported, the supply of gold bullion at Fort Knox, the COMEX warehouse and other depositories is in question.  Most traders and analysts believe that a strong demand for Au could precipitate a short-covering rally similar to the one experienced in early 2009.

●   An unsavory and unsettling political battle in the US in 2012 could reduce the desirability for US Treasuries. China has already indicated that it plans to diversity out of the US dollar.  The US must rollover $4.2 trillion in debt in 2012.  Who will be the buyers?

●   Most assuredly, the Federal Reserve will be involved in some sort of Quantitative Easing in 2012.  A proliferation of US dollars and resulting monetary inflation could be the key driver of Au prices in 2012.

●   As Paul Brodsky (QB Asset Management) reports:

    “Real interest rates (nominal rates less CPI) are negative across the majority of the largest developed and emerging economies, implying that a stable or rising gold price has positive carry.”

    “...global inflation is already substantially higher than common price baskets indicated, meaning real interest rates are even more negative than the CPI currently suggests.”

    “...the future growth of paper currencies will continue to exceed gold production by a wide margin, which implies the price in paper currency terms of physical gold should continue to rise substantially.”
    “...there will be global hyperinflation that peels the skin off your face.”

One of the axioms in the investment business is,  “it’s different this time.”  The bullet points above offer additional factors that are different compelling reasons for a bull market in Au in 2012.  Remarkably, Citigroup just forecast a price target of $2400/oz within two years for gold which is surprising since the bank is not regarded as a prominent player in this Sector.  Citi’s ultimate target? $6000/oz.

If the investing public marveled how $1.2 billion could vanish into thin air from MF Global’s customer accounts, the revelation that solid silver bars could shrink by 28% defies comprehension.  Customers and traders who are holding warehouse receipts for delivery of silver bars have been advised by the bankruptcy Trustee that they won’t receive full delivery!  To add insult to injury futures accounts that were frozen have seen their accounts fall by 31% since then and the situation supports CMV’s contention that the silver (and gold) bars do not exist.  The question is, will the forthcoming customer lawsuits open Pandora’s box and reveal Wall Street’s dirty secret?  Stay tuned!

The New World Order – Its’ Time Has Come

The concept of a New World Order (NWO), contrived by a secret cabal of global leaders and elitists whose goal is to control the world, has been the focus of ridiculed conspiracy theorists for the past 50 years.  Now, the NWO is no longer a secret.  Here’s what David Rockefeller, the last surviving son of John D. Rockefeller and the number one point man for the NWO, is quoted as saying:

“This window of opportunity, during which a truly peaceful and inter-dependent world order might be built, will not be open for long...we are on the verge of a global transformation.  All we need is the right major crisis, and the nations will accept the New World Order.”  – David Rockefeller speaking at the United Nation’s Ambassador’s dinner, September 23, 1994.

The NWO’s time has come.  The “right major crisis” is the collapse of the European Union, itself a creature of the NWO.  Mike Krieger (Zero Hedge) has provided the following insightful analysis  to events that are in motion that will impact all of us.  Mike believes that “Greece and Italy have now officially been placed into the receivership of ‘technocratic governments’ and are now in the final phase of their looting” by the NWO.

Mario Monti has been “chosen” to lead Italy out of its’ financial chaos by the powers that be (TPTB).  Monti is a member of the Bilderberger Group, is the European Chairman of the Trilateral Commission (a think tank founded by David Rockefeller in 1973 and responsible for the elevation of a peanut farmer to the US Presidency in 1976) and is tied closely to Goldman Sachs whose advice to Greece doomed its’ fate.  A coup has taken place in Italy without a vote of the citizenry.  According to Krieger, Italy and Greece will be “looted” of their gold reserves in a disguised quest for financial stability.  Spain and Portugal are the next candidates although Spain has just thrown out the Keynesian Socialists and intends to resist intervention by the NWO crowd.

Kreiger offers CMV readers an insight to how the “reorganization” of the EU is impacting gold bullion.  He says the reason why the EU doesn’t come up with a solution is because the TPTB doesn’t want a solution.  They know that if they announced a Quantitative Easing or monetization of debt scheme, gold would skyrocket in price and the NWO’s ‘gig’ would be up.  The plan is to announce nothing (of substance), sell sovereign gold behind the scenes out of public view and perform all kinds of manipulation of the markets behind closed doors.  Chaos will ensue and the NWO will assume control.  China, Russia and other members of the Shanghai Cooperation Organisation know exactly what’s going on in Europe and, as outsiders, will happily acquire the EU gold at these discounted prices.

The European Central Bank’s (ECB) new President, Mario Draghi (Santa Claus) delivered a Christmas present to all the EU members in the form of a Long Term Refinancing Operation (LTRO).  This gift amounted to 489 billion euros ($638 billion) in the form of 3 year loans at 1% to EU banks – the largest in EU history.  523 banks camped out all night like shoppers at Wal-Mart to get their gift.  The immediate liquidity needed to avoid bank runs has been met but the sovereign debt problem still exists.  However, before Santa departed some of the banks used their new-found euros to buy their country’s sovereign debt.  Santa with a wink and a nod and a hearty ho, ho, ho, climbed into his sleigh and with Rudolph in the lead, disappeared into the fog of Euroland.  By Easter, the banks will need $700 billion more.  Just in time for the Easter bunny.

The NWO knows that the western-centric fiat monetary system is about to collapse. They’ve known that for several years especially since the contrived Greenspan Plan of 2002 led to a bursting of the debt bubble not only in the US but also the EU (Remember, Wall St. sold tons of MBS to the EU banks.)  So, if the Euro currency evaporates into the dustbin of history, what will be the NWO’s currency of choice?  IT certainly won’t be gold, the enemy of the banksters.  Kreiger says it could well be “SDRs” – Special Drawing Rights.

SDRs is a product of the International Monetary Fund (IMF) created in 1969 as an international reserve asset.  It’s value is based (presently) upon a basket of currencies consisting of the USD, the Euro, British pound, and the Japanese yen.  Since the NWO goal all along has been to have a one world currency, how convenient the SDR would be minus the euro.  The result could be a massive devaluation of all existing western world currencies plus Japan and the USD’s purchasing power would plunge.  The SDR would be sold to us as a solution to the EU and US massive unsustainable debt problem, but in reality it would be another fiat currency scheme, just as the euro.  Obviously, the focus in 2012 will be on the EU but if the banksters pull it off, David Rockefeller’s dream could come true in his lifetime (now 96 years old).  The NWO’s Plan B might be to allow the present monetary system to crash first and let the proles (proletariat) demand a solution.  In the end NWO folks (the real 1%) want control of a totally dependent and subservient population.  To those who called us conspiracy theorists, look around and observe how America and the EU is fundamentally changing.

The Great American REFI – Part II

The Great American Refi – Part 1 was launched in the fall of 2002 which was dubbed the Greenspan Plan by H. L. Quist.  This deliberate strategy conceived in the solitary confines of the US Federal Reserve Bank as a means to get the moribund consumer to spend money was the nucleus of the debt bubble that has destroyed lives and property values throughout the world.  Now, in a desperate attempt to help homeowners and the residential real estate market take on some semblance of recovery, the Wizards of Washington have announced a second edition of the Home Affordable Refinance Program (HARP).

HARP 2 is aimed at refinancing approximately $5 trillion in Fannie and Freddie mortgages owned or guaranteed by these two taxpayer-owned agencies which make up about 50% of the total mortgage debt.  The plan is to offer refinancing at rates at or below 4% with minimal closing costs to those who have equity or are deeply underwater on their mortgage.  The catch 22 is that HARP 2 is only open to those with “strong repayment records” with Fannie and Freddie, but borrowers no longer have to demonstrate their ability to repay the mortgage.  Critics of HARP 2 say it will only generate about 1.6 million refinancings out of 14 million Fannie and Freddie loans and hardly be worthwhile. Joseph Gagnon, formerly of the Federal Reserve in Washington, has floated his plan called “The Last Burst” and wants to push rates down to 3% and have the Fed initiate a QE program buying $2 trillion in mortgage-backed securities from the “evil twins” and refinance everyone!  Now we know why Treasury Secretary, Hank Paulson, kept the twins alive.  Like vampires, they never die.  As the election debate heats up don’t be surprised to see HARP 2 become the great American giveaway.

Meanwhile, across the hall Barrack Obama’s operatives are exercising muscle which seems to be at cross purposes with HARP 2.  Get this!  The Administration appointed an Inspector General to supercede the regulator (Federal Housing Financing Agency) in looking into the operations of Fannie and Freddie.  Steven Linick has the power to make arrests, issue subpoenas and conduct searches (without warrants) of all the employees of these two agencies.  Linick’s agents who carry guns and have badges have gotten everyone’s attention at Fannie and Freddie!  David Felt, a former senior lawyer at FHFA said, “It creates a very chilling atmosphere.”

As of this date, Linick and his storm troopers have 48 investigations underway and his federal agents have raided several homes of Fannie employees as part of an investigation related to defaulted commercial mortgages. Sources have cited numerous cases of kickback schemes and fraudulent loans as one cause of the investigations.  The question CMV raises is, where were these troopers when the real serious money was stolen by Franklin Raines et al?

As a side note, the SEC has just filed charges against six former senior officers of Fannie and Freddie for failure to disclose to Congress the true condition of the ‘evil twins’ who have cost taxpayers over $150 billion to date.  And, the SEC is seeking “disgorgement of ill-gotten gains with interest” which should send a message to these crony capitalists in the future.  At least we didn’t have to pay the $12 million in executive bonuses this year.

China Has Hit Its’ Wall!

China’s past voracious appetite for industrial and agricultural commodities and consumer goods has been the driver for the global economy.  No calculation of world-wide growth can be projected without looking at the Chinese economy going forward into 2012.  Here’s a compilation of facts (provided principally by Ambrose Evans – Pritchard of the Belfast Telegraph) that may surprise the reader but are essential to projecting what’s ahead for what is now the world’s second largest economy:

●   China’s credit and real estate bubble has burst.  Home prices fell 35% in Beijing in the month of November from the month prior.  As reported previously by CMV there are reportedly 66 million vacant apartments in China plus the infamous “ghost cities.”

●   The growth in the money supply fell to 12.7% in November, the lowest in 10 years.  New lending has fallen 5% on a month to month basis but the central bank has begun to reverse its’ tightening policy initiated to stem inflation that was at double digits.

●   The Shanghai Stock Index is down 30% since May and off 60% from its’ high in 2008.

●   Investors are grossly underestimating the risk of a hard landing in China which will impact the BRICs (Brazil, Russia, Indian and China).  China exports 21% of its goods to Europe.  Negative GDP growth there going into 2012 will create excess manufacturing capacity in China and a possible fire sale for its’ products worldwide.

●   China’s $3.2 trillion of foreign reserves is dropping rapidly as “hot money” is flowing out of the country.  The central bank may devalue the yuan at the same time that the US is demanding an increase in the value of their currency.

Perhaps the most noteworthy sign that not all is well in China is the recent revolt in the Village of Wukan in the Province of Guangdong.  Villagers have forced local officials and police to flee after the death of one of the residents who was protesting the seizure of land in the city.  It is estimated that officials in China have taken about 16 million acres of land from citizens and farmers since 1990 depriving owners of about $314 billion due to the discrepancy between the compensation they are paid and the land’s real value.  The police have responded by blockading the city stopping the flow of water and food and preventing fishing boats from leaving the harbor.  Uprisings are occurring all over the country for this and other reasons.

The bottom line is that China faces unexpected and potentially irreconcilable challenges.  They must re-inflate their economy or face ever-increasing civil unrest and another round of monetary stimulation which will fan the fire of inflation.  Welcome to the world of Capitalism. CMV is betting that the Chinese will try to inflate the dilemma away.  And, for possibly a year, will succeed.

Throw Them All Out

Throw Them All Out: How Politicians and Their Friends Get Rich Off Insider Tips, Land Deals and Cronyism That Would Send The Rest of Us To Prison” is the recent book by Peter Schweizer that has created angst among the Washington establishment and anger amongst the public.  The longest book title in the annals of literature, clearly states what is within the pages but the well-documented detail will infuriate the reader like none other.  Here are some of the bipartisan low-lights.

Representative Dennis Hastert (R-ILL) who served (or should we say took) in the House of Representatives from 1986 to 2007 and became the Speaker, is an example how an elected official can enter public service with modest resources and leave a rich man.  In 1986, Denny had a net worth of about $200,000. Eleven years later, he was worth about $11 million.  Since average current salaries are approximately $175,000 per years (plus another $100,000 in benefits) how could Mr. Hastert amass such a fortune?  Simple – land deals.  Hastert bought a piece of farmland near his home in Illinois, got local officials to design a parkway that would run through the property, got Congress to approve a $207 million earmark to build the parkway and then sold the most favored location to developers – a nice 140% profit.  More deals followed.

There was perhaps no greater “wheeler-dealer” in Congress than Lyndon B. Johnson (D-TX) who secured his Senate seat by fraudulent means and parlayed his position to a fortune.  His investment in a small radio station in Austin, TX (KBTC) of $17,5000 grew into a media empire through exercising industry control through the Federal Communications Corp.

And, there’s the story of Representative Tom Lantos (R-CA) who played a key role in the phenomenal growth of Boeing by serving on the House Committee on Foreign Affairs.  Through the  Export-Import Bank, Lantos was able to direct the lion’s share of Boeing’s international sales financed through the E-I Bank.  When Lantos died in 2008 Boeing stock was $85/sh and Rep Lantos had been buying the stock for 25 years.

Of all the Congressional transgressors, however, nothing is as onerous as insider trading.  To Registered Investment Advisors (RIA) and traders this means revocation of their authority to do business, fines and jail time if found guilty.  It is an entirely acceptable practice to Congressmen if their respective ethic committees approve it.  And, without exception they do.  Time and space do not permit the entire story but, as Obamacare and Medicare D (Rx drugs) were being debated in Congress, both John Kerry (D-MA) and John Boehner (R-OH) profited enormously by purchasing and selling stock in pharmaceuticals and health care companies.   Since members of Congress do not have to report stock transactions that are in “blind trusts” or simply report transactions in dollar ranges “like one million to five million,” the actual profits are not known.

Then there’s the case of Nancy Pelosi (D-CA) and her husband Paul that profited handsomely in early 2008 with shares in Visa, secured prior to an Initial Public Offering (IPO).  Representative Pelosi played a key role in defeating legislation that would have been damaging to VISA and initiated another bill that enhanced the card company’s profits.  The couple reportedly has a net worth of $200 million.  As Schweizer states, “...professional athletes can’t bet on games but politicians can.”

The penultimate insider trader title goes to Spencer Bachus (R-MT).  He was in attendance in the meetings with Hank Paulson (Secretary of the Treasury) and Ben Bernanke (Fed President) when the financial crisis reached its’ perilous peak in the fall of 2008.   Knowing that General Motors, Fannie and Freddie and other companies were facing bankruptcy and the banks were in dire straits, Bachus loaded up on options going short or betting that all the stock prices would plummet.  Then just prior to the passage of TARP (Troubled Asset Recovery Program), Bachus switched sides and went long betting that stocks would recover – and they did.  As the author so poignantly points out, Bachus was able to buy stock with one hand while playing the role of overseer with the other.  A massive conflict of interest as well as profiting from insider information.  All condoned by the Ethics Committee.

All of what you’ve just read appears almost minor compared to the prime example of Crony Capitalism by what Schweizer refers to as the “Permanent Political Class.”  The author lists all  contributors to Barrack Obama’s 2008 campaign, the amounts paid and how these contributors benefited (say paid back) from various programs.  One prime example is the 1706 Loan Program through the “green jobs” initiatives by the Department of Energy (DOE).  Of the $20.5 billion allocated to the DOE (from taxpayers) guarantee program $16.4 billion went to alternative energy companies owned or controlled by contributors to Obama’s National Finance Committee.  The $573 million loan guarantee and subsequent bankruptcy of Solyndra to Obama’s “bundler” George Kaiser, is the most publicly recognized deal.  Most Phoenicians don’t know that the big players in First Solar were Ted Turner and Goldman Sachs who contributed one million dollars to the President’s campaign and, virtually all Americans would never expect the name of Warren Buffet to surface as one of the largest benefactors of taxpayer’s money.  Schweizer refers to America’s most recognized and admired capitalist as the “Baptist Bootlegger” – an apt description of one who has a pious public persona but profits from an illicit operation in the back woods.  (NOTE: H. L. Quist’s “Open Letter To Warren Buffet” submitted to the WSJ in the December CMV.)

Berkshire Hathaway BRK.A made, what most observers believed at the time, were risky loans to Goldman Sachs (GS) ($5 billion) and General Electric ($3 billion) when the world was coming to an end in late 2008.  President Obama considers Mr. Buffet as a valued advisor.  As an advisor Mr. Buffett was privy to the fact that TARP would be passed and provide three quarters of a trillion dollars to the banking and key industry giants.  BRK.A firms received $95 billion in TARP funds thus assuring that $500 million in dividends would be paid per year from GS to BRK.A.  Other companies in the Berkshire family would successfully leverage taxpayer money and realize much higher stock prices.  George Soros, who CMV has labeled “the most dangerous man in America” also became an advisor to the President – one day after the election.  Schweizer details his involvement.

Schweizer’s expos√© reinforces American’s distrust of Congress and the failure of our political system, which is morally and ethically bankrupt.  Washington is so corrupt that leadership is arrogant.  They could care less that the public is onto their game.  We do have recourse.  United we can throw them all out but CMV sees another aspect of this contemptuous situation that no one wants to talk about.

FASCISM comes from the Latin word Fascis which means to “bundle.”  In CMV’s opinion what is taking place in America today, as evidenced above (and what we experienced with Fannie and Freddie which worked so well), is the bundling or the merging of government and large businesses together in order to consolidate power, to control the population and to  accumulate  wealth.  Most political pundits consider the Presidential election of 2012 to be a face-off between the haves (Republicans) and the have-nots (Democrats).  That’s not the case.  Many of the 1% are squarely aligned with the radical left in what could be classified as Neo-Fascism or American Fascism (to differentiate it from Mussolini’s fascism which sought to use its’ power for expansion through force.)  Barrack Obama’s principal objective is to destroy Capitalism in order to “fundamentally change America.”  What Americans (and the 1%) do not know is, will the bundling continue after the coronation in 2012 or will the 1% be re-characterized as Capitalists and be purged?

Forecasts 2012
 2011 was a bad year for optimistic forecasters including CMV.  The unexpected downtown in the US economy at the end of the second quarter forced us to revise our forecast for the remainder of the year.  As a result, the CMV forecasts of:

●   The Economy and Financial Markets Will Surprise to the Upside.

●   The “Shock and Awe” Real Estate Loan Program (would lift sales)

●   The Bond Bubble to an Asset Bubble (would lift stocks and commodities)

Did not materialize.

Amazingly, however, it appears that all of the above forecasts were simply delayed principally due to the unexpected decline in GDP in the second and third quarters and fear generated by the severe crisis in Euroland, the downgrade and US debt and the extreme volatility in the US and global financial markets.  Using the same lead lines above, here is what CMV sees for 2012 in these 3 Sectors plus new forecasts for the year ahead.

1.   The Economy and Financial Markets Will Surprise to the Upside.
    All of the ten prominent strategists and money managers quoted last year picked the S&P 500 to finish 10% higher in 2011 but it finished absolutely flat at 1257.  None of the experts forecast the 10 year T-Note anywhere near 1.89% up 17% for the year thinking rates would rise.  And the consensus was that technology would be the top performer, when it had a -1.8% return and was the worst performer.  No experts, as is almost always the case, picked gold to outperform the indices but it turned in a +10% performance for 2011 in third place behind bonds 17% and utilities 15.6%.  CMV  was correct when we said S&P 500 earnings would be negatively impacted by increased raw material costs but we missed the boat when we called for inflation and higher interest rates for the year.  You win some, lose some and some get rained out.

So, what’s ahead for 2012?  Punt?

CMV can’t recall when, historically, there have been so many dynamic factors that could directly influence the financial markets.  For evidence read those discussed below.  We could build a solid case for substantial gains and all Sectors – stocks, commodities and real estate, which could be impacted by one or two of these events, discrediting the Bullish case.  In addition to those factors listed below we thought that George Hoguet, the Global Investment Strategist for State Street Investors, made a statement that is apropos (Barron’s January 2, 2012):

“Given that the EU is larger than the US economy it is impossible for the US to decouple from a significant recession in the EU.”

What is the most likely scenario?  Again CMV defers to someone whose point of view is much more unbiased than fund managers and advisors who want you to contribute more funds and not withdraw them.  Thomas G. Donlan is the Editor of Barron’s.  He said: (January 2, 2012):

“Muddling through (which is exactly what happened in 2011) is our best hope.  The world is heaping up money and debt in such quantities that the ultimate blow-off will require a new word to describe it.   Depression will just seem inadequate.”

Tom, there is a word for it.  It’s called a “crack-up boom.”  CMV believes that we could experience the BOOM (blow-off) and the crack-up will follow.  The Boom is the “last rodeo.”  The Crack-Up is the depression.

2.   The “Shock And Awe Real Estate Loan Program”
    Please refer to page 8 for the Great American REFI- Part II.  As this point we do not know how extensive HARP 2 will be.  If Joseph Gagnon’s “The Last Burst” (Harp 2+) plan is augmented, 2012 will be an exceptional year for residential real estate.  One fact is known.  A revival of this market and the bailout of millions of homeowners is the centerpiece of Barrack Obama’s re-election strategy. The market is presently mending on its’ own.  HARP 2+ would accelerate it to levels even the most optimistic and aggressive real estate prognosticators have forecast.

3.   The Bond Bubble To an Asset Bubble.

    In H. L. Quist’s “How To Profit From The Coming Inflationary Boom” And Avoid The Next Crash” the premise was that Federal Reserve monetary policy and the multitude of Congressional stimulus packages would create asset inflation starting in March of 2009.  That forecast was 100% on target from that date to the fall of 2011.  Commodities had the biggest run during this period and understandably, took the biggest hit when asset Deflation became the fear of the day.  Gold fell 15%, Copper 22%, Wheat 22% and Cotton 62%, illustrate the point.  The major stock indices, beginning in August, started the scariest roller coaster ride in our 50 year memory and the S&P 500 ended about -0.4% YTD, far below expectations.  Barring (again) unexpected events (some outlined below) all the major indices could challenge their all-time 2007 highs if all goes right.  Thus, the forecast BOOM in 2012 will be “reinstated” which (unfortunately) sets the markets up for a resounding CRASH in 2013.  CMV’s consistent theme has been that the US is about to experience “The Last Rodeo” which to investors means, get on board the raging bull in 2012, enjoy a rocky ride but be prepared for a sudden exit to avoid a hard landing.  When?  We do not know now but when the rodeo clown makes his appearance, the ride is over.

New Forecasts – 2012

1.   The World Will Be Hostage to Chaostan
    Richard Mayberry (“Early Warning Report”), coined the word for the geographical area referred to as the Middle East – the land of chaos.  Twenty years ago, Richard boldly forecast that this region of the world, which has experienced little peace in 4,000 years, would eventually become the planet’s dominant theater of war.  That time has arrived.  It was naive  for the US and the world to believe that the “Arab Spring” would result in Egypt, Iraq and other states to become as Barrack Obama proclaimed, “sovereign, self-reliant and democratic.”  The Shiites’ grand scheme is to control most all of the Middle East including Saudi Arabia.  Only days after US troops left Iraq, extreme violence broke out and Prime Minister Nouri al-Maliki issued a warrant for the arrest of a Sunni leader and made it clear that he would break up the multi-sect government coalition kept intact by the US.  The purge has begun.

Of critical importance is Iran’s nuclear program.  Un-named sources indicate that Cyber attacks have been unleashed on the Iranian facilities to sabotage them and a number of nuclear scientists have disappeared or have been murdered.  The sanctions have created angst amongst the civilian population.  There’s a distinct possibility that Israel will bomb the nuclear plants which conceivably will bring a host of combatants into the fray, namely: Russia, China and of course, the US.   The Iranians will immediately respond to the bombing by blocking the Straits of Hormuz and oil prices will skyrocket to $150 to $200/BBL.  The entire global economy will be at risk.

2.   The Two Party Political System Will Fragment.

    The 2012 presidential election will be the most onerous and potentially fraudulent one in American history. There is a concerted effort being undertaken by “traditional” and “blue dog” Democrats to replace Barrack Obama as the party’s nominee.  Like Harry Truman in 1952 and Lyndon B. Johnson in 1968, who were encouraged not rot run for the sake of the party, mainstream democrats fear that Obama’s extreme methods and attacks on his republican rival will wreak such havoc on the party that it could render it powerless for 20 years.  Hilary Clinton could be the candidate of choice by acclamation  at the convention.  Whether or not Obama is the candidate and regardless whether he wins or losses, the party will ultimately split.  The left will become the Socialist or the Progressive Party.  (See page 12)

The Republicans also face a dilemma.  Donald Trump could run as an Independent.  Ron Paul and Gary Johnson and others could contend for the Libertarian nomination.  Either Mitt Romney or Newt Gingrich, or a dark horse, will be the Republican nominee.  Any one of the above fragmentations will probably cinch Obama’s re-election (regardless of affiliation) and will make the year 2013 the year of the CRASH.

Barrack Obama presumably has read Machiavelli.  Divide and conquer is a simple but effective strategy in political war.  Obama is Machiavelli’s Prince.

3.   Solar Storms Could Knock Out All Electrical Power Worldwide.
    One thing we know for certain.  In the past couple years the world has experienced an unprecedented number of, and to a severe degree, earthquakes, tsunamis, floods, volcanic eruptions, drought, wind storms and other natural catastrophic events.  Are these events simply a coincidence or are they a precursor of things to come?  Astrophysicist, Alexei Dimitriev and NASA scientists reveal that our solar system is entering an interstellar energy cloud that will cause the sun to become more active and create solar storms.  These storms can cause the Carrington Effect which could knock out all electrical power and all forms of communications for months.  That means no cell phones, PCs, radio or TV.  The lack of electrical  power could also severely limit water and food supplies.  It appears that the Mayans had also figured this out.  Their calendar ends on December 21, 2012.  Normalcy bias will prevent 95% of the world’s population even considering the probability of this event occurring.  Google:   Solar Storm Warning and learn for yourself.  Whether or not these storms are a threat to our existence, like Y2K, the December headlines will dominate the news later this year and effect human behavior. We’ll pray that this is NOT our last forecast.

4.   Arizona Professional Teams Will Sparkle In 2012.
    ●   SUNS – Despite an eclipse in their start they will shine late and make it into the playoffs.

    ●   DIAMONDBACKS  – Will rattle and slither to win 100 games.  If they win the National League title they’ll win the World Series.

    ●   CARDINALS – The Red Birds will fly to 10-6 and make the playoffs but the Super Bowl is out of bounds.

    ●   COYOTES – We know little about hockey but it appears that they’ll skate into the playoffs.

Plan For The Worst And Pray It Doesn’t Happen.

Happy New Year!

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