Federal prosecutors in Boston are investigating possible criminal charges against Schering-Plough, Johnson and Johnson, Wyeth and Bristol-Myers Squibb for sending unsolicited checks to doctors for $10,000 to over $100,000 for consulting, which really were for prescribing their medicines. Doctors, who demonstrated disloyalty by testing other company’s drugs, or even talking favorably about them, risked being barred from the money stream. The checks are payoffs. Patients are being subscribed drugs they do not need or that cheaper substitutes are available for. Last month Pfizer paid a $430 million fine and pleaded guilty to criminal charges. Astra-Zeneca paid $355 million last year and TAP Pharmaceuticals paid $875 million in 2001. As you can see just like in the banking, investment banking and stock brokerage industry these people defraud and steal millions and billions of dollars and no one goes to jail. There are two sets of rules, one for the elitists and one for us.
Economists at HSBC, Hong Kong Shanghai Bank Corp., believe a bubble exists in real estate. That is a far different appraisal from what the Federal Reserve Bank of New York said last week. The Fed said it found little evidence of a nationwide housing bubble, but then again, the Fed has always had trouble discerning truth from fiction. HSBC says house prices relative to income, rent, replacement-cost and home equity have all set new highs that are unsustainable. The 47-page report from HSBC said a “hard” landing is typical after a housing bust because of the wealth effects, which can affect consumers’ spending from real estate, are more powerful than from stocks.
World current account deficits now amount to three percent of GDP or about three times the gap in 1991. The US has accounted for fully 98% of the cumulative increase in dollar-based world GDP over the 1995 to 2002 period. Economists call this dis-equilibrium. The Fed, of course, has been responsible for the massive injection of liquidity in the economy and low interest rates that created a carry trade. Low interest rates allowed for home refinancing that amounted to more than five percent of disposable personal income in 2003. These low interest rates caused house prices to rise and allowed the refinancing. The process of normalization is in the process of happening. As US interest rates climb, the economy will slow and in turn the economies of China, Japan and Germany will slow, which will prove very disruptive. By way of comparison, the mix of global growth was much more balanced over the 1990-95 period and the US accounted for only about 25% of the cumulative increase in dollar-based world GDP instead of today’s 98%. Today’s distortion is 150% worse than in 1994-95. That spells acute vulnerability. In 1994-95, the US current account deficit was 1.5% to 2% of GDP; today it is 5.1% of GDP. This creates a major problem. The additional result of higher interest rates and normalization will be a fall in the dollar, stocks, real estate and bonds and the appreciation of gold and silver related assets. Considering all this leverage, America is headed for a very hard landing irregardless of what Wall Street and George and the neocons tell you. This time there is no cushion and your financial future cannot be taken lightly.
The value of mergers and acquisitions during the first half of the year increased 37% after a three-year turndown, but confidence displayed earlier has started to wane, particularly in Europe. The latest CFO outlook showed companies are still worried that fears of domestic terrorism, interest rate increases and wage inflation could threaten both economic growth and earnings. Eighty percent thought oil prices would moderate. Thanks to low interest rates, companies are more willing to use cash rather than stock for acquisitions.
The bond bubble has burst. In the first six months of the year, global new issues of investment-grade corporate bonds were down 40% to $180 billion compared with $300 billion in the same period of 2003. This was the weakest first half since 1997. The US fell 50%. Companies have continued to lower their capital expenditure and debt levels and to buy back their own bonds. The fall in new issues should accelerate in the second half of the year. Oddly enough, junk bonds had a better first half, especially in Europe, where issuance was more than double the first half of 2003. Junk makes up 10% of the US market. Asset-backed and mortgage-backed securities have fallen globally from last year’s record first half levels, but Europe again, a much less mature market than the US, showed growth of 40%. We expect all bonds to have three more poor years and the junk and ABS sectors will be pounded.
When you comes right down to it Iraq and the situation of the entire Middle East is really about who will control the oil and the governments of the Middle East. Will it be the elitists or will it be the Muslims who live there? Saddam was a collaborator with the elitists and no friend of Islam. The Islamists know this and they know they want to fill the vacuum. Americans are hated more than ever in the Middle East and the elitist pawns in Saudi Arabia are close to being overthrown. Due to this, Americans and Israelis are not safe anywhere in the world. There is a war of civilizations between Islam and Christian America. When politicians cannot make the economy work, they have wars just as we predicted they would in Afghanistan and Iraq long ago. The only way the US can now come out of this fiasco is to allow Iraqis and Saudis to govern, remove our troops and give justice to the Palestinians. If we do not do that, we will pay a terrible price.
Saudi Arabia, which has been producing 9.1 million barrels per day of oil since June 1, says now that oil is off 15% in two weeks that $36.00 a barrel is a fair price. OPEC meets in three weeks to consider a 500,000 B/P/D increase. The big question really is, will the Saudi government be overthrown, or will George and the neocons invade before it happens?