The centralized top down approach of the present administration is not working and the public realizes something is wrong. Americans are losing confidence in their government. This lack of faith comes at a time when we face a financial, economic and monetary collapse. If we collapse the whole world collapses with us. The administration, Congress and the public do not want to deal with it. They want it to go away and it isn’t going to go away. Americans are apathetic and they simply refuse to deal with the truth. Our financial and economic situation today is as dangerous as it gets. Let’s hope they wake up soon. AOL has been since its inception an operating entity of the US intelligence apparatus. Their latest admission is that they have formed a partnership with Fatherland Security to permit unlimited surveillance on AOL subscribers, as reported by the US Department of Commerce. They for years have supplied intelligence on subscribers and have allowed government agencies free access. We have told you this time after time for the past ten years.
What AOL did illegally for years was legalized under the Patriot Act, which permits warrantless searches of persons and property. If you use AOL all your personal emails and information is distributed to law enforcement all over the country. American and European business communities are fearful trade secrets may end up in the hands of the Bush crime family and their associates worldwide, never mind the dossiers that are being build upon average American citizens. We have had extensive problems with sending to AOL subscribers for years. AOL has blocked any messages that contain links to sites that AOL forbids you to see. Using software AOL is able to kick back any email that even mentions a forbidden site. AOL members can white-list senders, but it has no effect at all on the pre-filtering that AOL does before the email ever gets delivered. One journalist said AOL bounced 88% of the newsletters that had been sent to subscribers who use AOL, including cs.com and netscape.net. AOL deletes huge quantities of mail prior to delivery.
In August, AOL paid $1.25 million in penalties and costs and has to reform some of its customer services practices to settle an investigation by AG Eliot Spitzer’s office. Three hundred customers said AOL ignored demands to cancel service and stop billing. That has been going on for six years. In similar complaints in April they paid $75,000 to the AG in Ohio. The complaints are legion. A site just dropped all of its AOL subscribers because AOL wouldn’t deliver to their subscribers. We warn you now it is only a matter of time before we have to drop AOL. If you are an email subscriber we advise you to find another ISP. Every week we have problems that you can avoid by changing carriers.
You might go back in history to the Hillary Clinton Refco cattle futures episode. Hillary had $1,000 in her account and bought 10 cattle futures contracts for which normally you would need $12,000 in collateral in the account. Hillary made $100,000 in the account. Her broker Robert “Red” Bone was also broker for the general counsel for Tyson Foods. After an investigation Refco was fined $250,000 for trading practices in cattle futures, then the largest fine ever by the Chicago Mercantile Exchange. That was Hillary’s first and only ever trade. It obviously was a political payoff and Refco was right in the middle of it.
You saw the inflation figures in the last issue and as you well know by now the figures are totally devoiced from reality. They are called hedonic. In 1982, the government changed the way it calculated the housing portion of the CPI. If you use the old method you would find that inflation is 5.3% today and core inflation is 4.3%. This is a far cry from 4.4% and 2.2%, which we are told inflation is today. That is why 10-year US Treasury note yields are headed back to 7% to 8 3/8% soon. That would put 30-year fixed mortgage rates at 8 1/2% to 9 7/8%. That would mean, as it did in the 1989 to 1992 period, that real estate in the 30 hot major markets would fall 40% to 70%. Debt is ten times higher today than in that previous timeframe, which means the correction could be even worse than that.
The question now is what is Sir Alan Greenspan going to do to the economy before he leaves? There is no indication that in the next 100 days that he is going to reduce money and credit. We believe he’ll raise interest rates to 4 1/4% or 1/2% prior to his departure at the end of January. We expect a continuing of the current Greenspan policy. That means the intention is to lower rates in the second half of 2006 to neutralize recession. If they do that we’ll go into hyperinflation as many lose their homes and many enter bankruptcy. Of course, gold and silver will soar. They have no other option. They cannot cut money and credit creation. Even if they did the Fed would monetize debt, which is immediately inflationary to keep the ship from sinking. The economy has already softened with the additional assist from Katrina and Rita. Yes, we’ll get a 1/2% increase in two of the next three FOMC meeting. They’ll be more scandals and our president may well be impeached. They’ll be indictments and more corporate and Wall Street scandals to add to this witches brew. Sell stocks, real estate and bonds. Short the market, be in short-term Treasury paper, if you have to be there and have the bulk of your assets in gold and silver related assets and commodity based stocks, such as copper, oil and gas.
Christy Watts, who was Chief of Contracting at the US Army Corp. of Engineers (USACE), told a Congressional committee that Halliburton regularly threatens government officials who complain about contracting abuse. Halliburton habitually violates contracting regulations and demands employees conceal it from the public. She described a culture of fear and intimidation designed to protect Halliburton’s bottom line.
Ms. Watts told the committee, “One point I need to make very clear: in my 18 years of contracting, I had never, with any other company except Halliburton, been treated in such a demeaning and intimidating manner.” “When pointing out to Halliburton personnel their contractual non-compliance, I was threatened verbally and physically intimidated for performing my job.” She was telephoned in the early hours of the morning by Halliburton officials throwing temper tantrums and screaming at her for awarding contracts to competitors.
Watts is a self-described Republican, who voted for George W. Bush in both presidential elections. She said the Halliburton abuse occurred in the Clinton years as well.
Her superiors are contemptuous of government. USACE views contracting professionals as a drag on their ability to do as they want and that is loot the system. If a contracting officer speaks out against abuse, “they can expect to be terminated.” When she left USACE they demanded a settlement agreement, which banned her from contacting the US office of Special Counsel. She said the USACE is rife with evidence of fraud, waste, abuse and corruption.
Another USACEE whistleblower, Bunnatine H. Greenhouse said relatively the same thing. Her allegations of contracting abuse are being investigated by the Justice Department and the Pentagon’s Inspector General. After she complained to Congress she was demoted. That shows you how arrogant these crooks are.
This shows you that elitist corporations do anything they want. Corporations now run our government and they do not care what the people think.
For many months the Dow has been trading in a tight range. At the end of last week the Dow was off 8 of 10 days. The down days have been on much heavier volume than the up days. This is classic distribution. We are also now starting to see lower highs and lower lows. We are now well below the 200-day moving average. The S&P that had held rather firmly is now leading the market down. Charts on retail, real estate, housing and banking have all turned down dramatically. The chart on Wal-Mart that makes up 1.5% of the US economy looks like a dog’s breakfast. As well, keep in mind for all intents and purposes, the US doesn’t produce much anymore and housing and banking are dominating the economy. Their charts are plunging as well. Take a look at Fannie Mae, which we have on our short list – it is a catastrophe. Everything is in place for the market to go lower.
America is swimming in debt and there can only be one outcome and that is painful economic and financial readjustment. All you complacent Americans out there are in for a rude awakening. We will go down through 10,000 on the Dow like it isn’t even there, and at 9,450 to 9,500, they’ll be some support, but it will be transitory. During 2006 the market will again test 7,268. We believe it will be broken with a bottom somewhere between 4,200 and 6,200. That should disembowel most of the pension plans.
John Bolton, America’s Ambassador to the UN, predicted that efforts to expand the Security Council would fail. There are 15 nations now represented on the panel and there are those who would like to see it expanded to 25 or 26. The fiver permanent members are the US, Britain, Russia, China and France, and 10 non-permanent members that serve two-year terms and cannot block resolutions. Japan has teamed with Brazil, Germany and India in proposing a 25-member council. Wal-Mart’s proposal to open a bank has sent shock waves through the banking community, especially among small banks. Their initial thrust is an application with the FDIC for an industrial bank, which will process debt and credit cards for its 3,500 US stores. That would save Wal-Mart processing fees. The number of complainant letters to the FDIC set a record at 1,100. What Wal-Mart wants to do is open a branch bank in each store. Congress wants the FDIC to hold hearings. We do not see how their application can be turned down.
Refco processed 654 million derivative contracts for the fiscal year ended February 28, 2005, more than the total traded on the Chicago Board of Trade, the Chicago Board Options Exchange or the New York Mercantile Exchange. During that period global futures market volume rose 31% to $1,144 trillion according to the BIS.
As we have explained often before, the Refco problem is not only with its client accounts but also with their commitments to other brokers. If Refco goes broke no one gets paid. The problem we are looking at is systemic in nature and there is no question there will be default caused by fraud.
We often compared the last recession of 1989-92 to today in the sense of real estate values and debt.
The US comptroller tells us U.S. long-term debt is $43 trillion, or $350,000 for each full time worker. Since the beginning of this year American consumers have no savings and have credit card debt of $9,200. Household debt is now more than 20% of disposable income. We have a current account deficit approaching 7% of GDP. Our government prints money to finance the deficit and consumers and corporations fall farther into debt. As America lives far beyond its means, the Bush administration cuts taxes, while fighting a perpetual war in Iraq. That will soon cost $7 billion a month. We believe Japan will continue to fund US debt as will England. The rest of the central banks we are not so sure about.
Our country is in huge trouble economically, financially, socially and politically. That means investing in America and the dollar by foreigners is going to get more expensive. Lenders have to get paid to assume rising risk and that means long-term interest rates have to go higher and that means the end of the real estate boom that has made more than 50% of the economic gains over the past five years. The changes are underway and there is no way anyone can stop them.
The US runs the Internet and it has no plans to relinquish that control. Our government promised in the late 1990s to slowly give up control of the servers, but that hasn’t happened and isn’t about to happen. Other nations want it controlled by the UN. The question is, which is worse? In mid-November the issue will be discussed at the UN’s World Summit in Tunisia as we reported recently. As you all know, the Internet has already been politicized. The government for years has blocked transmissions, arranged for e-mails and text not to be delivered and have been responsible for sites being shut down.
You don’t find American corporations more reprehensible than Halliburton. They are hiring third-world nationals and hiring them to work in Iraq for $1.56 an hour, while most Americans hired are making $80,000 a year and upward. That is 12-hours a day 7-days a week. These virtual slaves come from the Philippines, Nepal, Pakistan, India, and Turkey. These people work for contractors for Halliburton and Bechtel - that is why there is no work for Iraqis. This is a layered system that not only cuts costs for the prime contractors, but also creates an untraceable trail of contracts that clouds the liability of companies and hinders comprehensive oversight by US contract auditors. In addition, it is impossible to tell how many US or foreign nationals are working in Iraq. The menial wages paid to these people from third world countries working for mostly American contactors may be the most significant factor in the Pentagon’s argument that outsourcing military support is far more cost-efficient for our government and their contractors who hire these slaves. These workers live and eat like animals in 120-degree heat. They have neither safety equipment nor protection from incoming mortars or rockets. They originally are hired to work in Kuwait or other Middle Eastern countries and then are pressured to go to Iraq. They make up 35,000 of Kellogg, Brown & Root’s 48,000 workers in Iraq. For the menial pay they receive many are killed in mortar attacks or are shot. You might say they are expendable. A little over a year ago 12 Nepalese cooks and cleaners were beheaded by insurgents. Nepal has since banned its citizens from working in Iraq.
September’s CPI was up 1.2% with energy inflation at 2%. That was less than expected and there could be higher gasoline prices early in October, a layover from September. In October, car prices will be higher. There is no question September was understated and October will be as well.