Savaging The American People

INTERNATIONAL FORCASTER by Bob Chapman..April # 4

U. S. MARKETS

The March budget deficit grew 24% to $73 billion from 3/03, increasing its first half fiscal deficit for 2004 to just under $300 billion. Last year’s full deficit was $374 billion.

The March core CPI was up 0.4%, the highest since 11/01. Energy prices were up 1.9%. The CPI was up 1.7% over the past year. We clock it at just above 8%. That sent the ten-year note to 4.40% and we see the 30-year mortgage rate at 5.72%. In the last three months, the CPI is up 5.1%. By yearend, we see the 30-year mortgage rate at 6 1/4%. In 2005, we see 7 1/4% to 7 1/2%. These figures could accelerate and if they do and we were to see 6 1/2% to 7 1/2% by yearend, the collapse will be colossal over the next four yeasrs.

This is why Sir Alan Greenspan, the bubble master, wants all those poor unsuspecting souls to use adjustable rate mortgages. The MBA says, weekly mortgage activity fell 22.1% for the week ending 4/9/04 to 788.6 from 1,012.9. The Refinancing Index fell 30.7% to 2,861.5 from 4,126.7. The Purchase Index of new loan requests for home purchases fell by 9.5% to 432.2 from 477.5. March’s annualized inflation rate is 6% and wages were dropping 0.7%.

As you are well aware by now the CPI does not accurately measure consumer prices due to the imposition of hedonic pricing. It should reflect annual inflation of over 8%. Not only is it used to deceive the public and investors, it is all used to cheat Social Security retirees, pensioners and those on Medicare and Medicaid. That is because politicians cannot keep the promises they have made to constituents. This is all simply a fraud. This leads to the fraud of the productivity miracle and it serves to assist in suppression of interest rates. The way CPI inflation is expressed has profound implications for every American, particularly retirees and probably is the greatest fraud ever perpetrated on the American people.

As house prices climb to stratospheric heights CPI only assumes that everyone rents. Rents have declined in a number of major cities 4 to 6 percent and that is what is picked up in the CPI, not housing prices. Rents are lower because government has arranged for Fannie Mae and Freddie Mac to give houses away to those who cannot afford the mortgage payments. That is ok, because when a couple of payments are missed they are tacked onto the end of the loan. That gives the fraud additional life. The use of rents, rather than house values, is very important because housing makes up 32% of the CPI. Rents are totally irrelevant when 69% of Americans own their own homes.

This concept of course defies logic, which has been a common occurrence in Washington for many years. In furtherance of this fraud, the BLS at the request of the Bush neo cons wants to implement an Expenditure-Chain Weighted Index based on partial usage of a product or service.

They also want to change the weighting as prices change. They, of course, want to add in substitution. Weightings on expensive items fall and those on cheaper items rise. This substitution would of course cause the CPI to reflect lower prices. In addition, a lower CPI allows for lower interest rates, again cheating the public and particularly retirees who receive next to nothing for their savings, again lowering their income. You should let your elected representatives know that you know that you are being cheated and if something is not done to change it, they will not be there for the next term.

Yet, another cover up begins. Elitist Paul Volcker, former Chairman of the Fed, will probably head the special commission set up to investigate the giant Iraq-oil-for-food scandal. Saddam Hussein made over $10 billion through illegal oil deals of which some $2 to $3 billion was kicked back to the Kofi Annan family. The investigation will last for years, the money won’t be returned and no one will go to jail.

Spending money you do not have is an addiction just like alcohol and drugs. Americans are making less and spending more as thousands of jobs are outsourced every day. Can you imagine retail sales rising 1.8% in one month? What happens when interest rates rise and you cannot get any more money out of your perpetual money machine, your home? Well, you know the answer and that event is close at hand. As interest rates rise and capital dries up, the Fed will use its other devices to keep the economy afloat and they have already begun in anticipation of higher rates. Over the past month, M-3 has shot up $100 billion. Annualized that is over $1.2 trillion a year.

This is the only alternative left to the fed and they will use the creation of money and credit until we have an inflationary blow off. That also means the dollar will fall even though interest rates have been increased. Markets still do not see the inflationary implications. We do and if you own bonds or bond funds sell them. They are going down in value. In addition, asset inflation will spill over from commodities into goods and services, which will front run price inflation in a second stage. What you see now that few are able to see is that inflation will come in at least two waves.

The accompanying flood of money and credit will not keep interest rates from rising further. Bonds, stocks and real estate will fall along with the dollar. At this point all currencies will fall against gold. All these tactics will not increase growth; they will just temporarily stave off the inevitable again. We will have 1923 in Weimer Germany again. The war is also finally affecting the stock market. Deaths rise every day, it is a Vietnam type quagmire, and more troops are being sent in as John Kerry calls for a draft. The negatives are all there. Take advantage of them.

The ten-year Treasury note is headed for a test of 4 5/8%. That level will be broken and when it is it will signal the official end of the real estate bubble. You have just seen the ten-year yield rise from 3.65% to 4.45% in less than a month, which tells us the elitists are bailing out. Homes under normal conditions do not have great liquidity. We are approaching normal conditions and we are headed for reasonable and normal interest rates. We have already begun to see a substantial drop off of refinancing and a small drop off in buyers. Both will accelerate further as the year wears on. The descent into ARMS, now at 29% of mortgages, will quickly fall into disrepute.

Nearly 30 year ago NYC almost went bankrupt. In May 1975 the city’s bonds stopped trading. The US Treasury market and the dollar could soon be tempting the same fate in an equivalent financial crisis for similar reasons. The difference is that none of the elements that enabled New York to overcome the crisis is available to the US government. In NYC’s case business, trade, unions and foreign leaders played an important part. Most of all international financial markets played an important part. Today, we have Japan and China holding up the US economy by financing US deficits. Foreign bankers are not going to finance US debt forever.

A bipartisan agreement has to be reached now to cut the budget deficit to manageable levels irrespective of who our next president will be. There has to be reform in entitlement programs, increased national savings with much higher interest rates, reduction of reliance and dependency on foreign capital and energy conservation to reduce US reliance on foreign natural resources. This structure is nowhere in sight. It could come into being after November’s election, but that could well be too late.

Electronic tagging of prisoners serving less than four years is being used to allow prisoners early release to ease prison overcrowding. This is a panic decision as prison numbers have reached 75,000. The only prisoners eligible for release under the home detention curfew scheme are those who are not at risk to harm the public.

During the past ten days in Iraq over 80 mercenaries from the US, Europe and South Africa have been killed. Some 80 allied occupation personnel are dead as are almost 1,000 Iraqis. George W. Bush and his neo cons are hiding these other losses from the US public for political reasons.

Thursday we were served up another piece of bad news and the “Plunge Protection Team” bolted into action. Jobless benefits rose to 360,000 for the previous week, which were 30,000 more than the previous week.

We observed the Fed interfering in the ten-year Treasury market trying to hold down the yield. They have to be desperate. Professionals and some investors are finally coming to realize the PPI and CPI releases are total fabrications. They have both become irrelevant and meaningless. This is why gold is suppressed. If gold is not rising then the inflation figures must be correct, so the thinking goes. If gold is suppressed it is easier to manipulate interest rates. This is what we get from all of the controlled biased media and it is wrong, but the elitists own the media. This charade will end just as the silver manipulation is coming to a close.

War is created to deflect economic failure. America is fully at war and fully deployed and any expansion of war has to be accompanied by a draft. War is very profitable for a minority in the economy, but can be important in buoying an economy. If the war were terminated, the economy would get a quick shock downward. War will continue, our children and grandchildren will be murdered, and the deficits will swell and gold and silver will hit new highs as the dollar falls lower.

We mentioned we could see the hand of the fed in the ten-year Treasury market in a yield suppression operation. We now believe the Japanese are again in the market doing the Fed’s work for them. They are the buyers. We will know for sure when the next set of figures are released on foreign investment in the US. As of late the yen has been falling and if it reaches 110, it is very bullish for gold. Now that officially annualized inflation is 5.1%, which I reality is closer to 10%, bonds will fall and yields will rise and the Treasury and the Fed will incur more debt and print more aggregates. Over the past 12 months, the Fed has persuaded foreign central banks to purchase $262.2 billion of US government securities, while the Fed added only $327 billion.

Those complicit foreigners own $1.1 trillion of our treasury’s paper. Just over the past six months, foreign central banks’ holdings are up 48.3%. This is to spread the misery concept, or share the losses. That means the Fed is in the process of printing money again as the foreigners slow down. Either way it is very inflationary and good for gold.

Corporatist fascism is our future. We know that because J. P. Morgan Chase and Bank One have unveiled an $800 billion pledge to provide lending to minorities and illegal aliens who do not normally qualify for loans in low-income areas over the next ten years. These are special loans with no qualifications to people just because they are black, brown or yellow.

The theft of SUV’s and extended-cab pickups is endemic in the southwest for transporting large loads of illegal aliens and drugs over the Mexican border. Experts say the majority of vehicles stolen, some 58,000, in 2002 in Arizona were taken by Coyotes or illegal aliens. Since last October the Border Patrol has seized 2,650 vehicles used n smuggling. The biggest over the border area is the Takono O’odham Nation where police said last year that 7,000 vehicles were abandoned. They even steal U-hauls to ferry over people and drugs. For this you can thank our politicians in Washington and particularly George W. Bush.

As we predicted the latest Freddie Mac 30-year mortgage rates have moved up from 5.79% to 5.89% with the 10-year US note at 4.35% down from 4.45%. The 15-year rose to 5.23% from 5.12%. The MBA said refinancing applications fell 31% last week and purchase activity was off 9.5%. Overall, combined applications dropped 22.1%. The refinance share of mortgage activity decreased to 50.4% of the total applications from 57.1%. ARM’s share rose to 29.4% from 28.8%. Federal Reserve bring on those helicopters!

Lo and behold, our treasury has discovered that none of our major trading partners have manipulated their currencies in a way that would require retaliation. They slightly scolded Japan. As you can see, our government is a professional lying machine.

Predatory lending by Chase, Bank One and Wells Fargo and other institutions cost consumers $16 billion a year. State laws policing these greedy banks are causing banks higher operating costs, which they are passing on to customers.

The Bush administration has decided to delay passports with a biometric indicator used when entering the US. That lets 27 countries off the hook as we predicted. The demand was for a digitally encoded record of the bearer’s face and, possibly, an iris or finger print identity check. The plan was put on hold because travel industry experts in both Europe and the US say it will cause major chaos at airports and have a very negative effect on tourism.

Arizona has stopped outsourcing work to foreign countries. Telephone inquiries, 19,000, from state welfare and food stamp recipients were being routed each month from Arizona to Mexico and India. Forty-one states have been outsourcing; Arizona is paying $30 million for welfare and food stamp services under a seven year contract that expires in September and 4% of those calls go abroad.

Fed Governor Ben Bernanke says US banks are making it easier and cheaper for legal and illegal aliens to send money back home. He also said he wasn’t particularly concerned about inflation raging out of control because there is still plenty of excess capacity in the economy to hold prices down.

Mr. Bernanke is either stupid or totally out of touch with reality. Inflation is already 8%-10%. He was quite proud that foreigners had sent $90 billion out of the country last year; $14.5 billion of which went to Mexico. He said it cost much more to send these funds prior to banks getting involved. He is right, but he fails to tell you 60% of the funds being laundered by the banks was illegally earned by illegal aliens. Banks are no benefactors and shouldn’t be painted in that light.

Last week Japanese buying suppressed yields on government paper. The two-year bill ended at 1.99%, the five-year note at 3.37%, the ten-year note at 4.34% and the 30-year at 5.17%.

ABS issuance was $7.5 billion and year-to-year it is $160.27 billion, up 21% from 2003.

M-3 declined $12.6 billion, but for the year, it is up $217.8 billion, or 9.2% annualized. Checking deposits declined $26.3 billion and savings grew $35.9 billion. Total bank credit fell $13.2 billion to $6.156 trillion during Easter week. Bank credit is up $270.6 billion during the first 14 weeks of the year, or 16.1% annualized. Real estate loans were up $16.9 billion and they are up $113.4 billion year-to-date, or 19% annualized. Fed foreign custody holdings of Treasury’s, agency debt rose $4.3 billion; year-to-date is up $113.6 billion, or 36.9% annualized.

Rep. Richard Baker, (D.LA), wants to eliminate federal subsidies to Fannie Mae and Freddie Mac that are widely perceived as an implicit federal guarantee of too big to fail. He chairs the House Financial Services Committee on Capital Markets, Insurance and GSEs. He said another serious Wall Street scandal could have serious repercussions for financial markets at a time when some investors were just reentering the market.

In Manhattan in the first quarter, the average apartment price rose $220,000 from a year ago. Brooklyn was up 18%, Queens 10% and Staten Island 14%. Consumer prices in NYC rose 3.2% in the last year, almost double the 1.7% nationwide.

The wild reflationary boom has caught the attention of the bond market, as it should, although the Fed goes on its merry way without a care in the world. We are guessing at August for an interest rate hike, but there are no indications that the Fed will comply with our prognostications. The last two times around the Fed was nine months to a year or more behind the curve and now in all three instances the lowering of interest rates are totally out of control. Remember these words, they will go down in financial history. The result has been strong growth and heightened price and inflation pressures in the US and throughout the world. GSE assets have risen from $630 billion to $2.75 trillion.

Then there is the massive explosion of derivatives to $200 trillion. We can remember back in 1994 a broker asked, is that $130 trillion in derivatives actually real? Today’s unprecedented liquidity excesses feed many bubbles throughout the world and systemic risk is simply out of sight. The Fed in their political and conspiratorial machinations has caused a massive and endemic credit bubble since 1990 unlike anything seen in financial history and they have spread pending financial catastrophe throughout the world.

The resuscitation of 1994 was large, but look at this comparison. Home mortgage debt increased 5.8% in 1994 with a 3-year expansion from 1992-94 of 18%. In 2003, growth was 12.8% with a 3-year increase of 40%. Are you getting the gravity of the situation? And, 1992-94 had no bubbles. There was no surge in ARM’s, no interest – only loans, no 110% financing and few sub-prime loans. They had 20% down and no down payment assistance programs. This time the Fed has been far too long at the trough. When they begin to tighten there will be financial and economic thunder and lightening. They cannot avoid 1994’s problems.

The deleveraging of the bond, stock markets and real estate will be a 10-point earthquake. The last thing the Fed will do is begin deleveraging, which will extrapolate the damage into a five-year nightmare. Raising interest rates in quarter percent increments or baby steps is not going to cut it. A soft landing is totally out of the question. The 10-year note will have gone from 3.65% to 7 3/8% minimum. That is almost a 3 3/4% increase in interest rates over a coming two-year period. Real market interest rates are just beginning to bite and as we go forward they will turn markets and the value of assets upside down. The Fed will continue the liquidation as long as possible because the real aim of the elitists is irretrievable damage to the American economy; damage enough to get them to accept world government. Credit and monetary creation that causes bubbles are unpredictable, in as much as there are difficult times even though we know what the end result will be.

This time timing is even more difficult with simultaneous booms running in the US and Asia. Commodity demand and speculation will last another six months to a year compounding the inflationary picture. There are vast pools of speculative money available for such speculation, which were never available before. Over the past week you got a taste of the volatility we face in gold and silver markets in the year’s ahead. It has only now just begun. It is going to be a jungle out there and it will be every man for himself. The dynamics will be like nothing ever before seen in financial markets. That applies not only to gold and silver, but also to all parts of the markets.

The dollar will eventually, as we have predicted, go down in flames. It will no longer be the world reserve currency and, of course, the elitists will conveniently rediscover gold, after they have re-bought all they can get their hands on. You will see things that will astonish you. Do not forget the Fed and the administration are programmed to fail. It is part of the New World Order scenario. We are purposely having all these events happen to simultaneously bring about chaos.

George W. Bush is a control freak. Everything about the man is defensive, arrogant and self-justifying It is a shame the American public is so stupid. They just do not have the ability to realize George is a sociopath and psychopath. If we gave you the polling statistics on what American’s believe regarding Iraq you would be incredulous.

All of Bush’s press conferences are scripted, before hand all questions are submitted, and Bush is given a list to call for answers. Thus, all he gets is questions he can answer and they are softball questions. That is how a corporatist fascist media is handled. George is a dummy working for his controllers in the background.

We do not have enough troops in Iraq, so our servicemen are being extended another 3 to 6 months, as the Pentagon prepares the draft. As we said before conditions within the military are poor. Extended enlistments have killed morale among even hard-core units. We expect only 40 to 50 percent to reenlist. The draft is on its way so you contact every senator and representative and tell them you do not want it passed.

In the meantime, unless you want your children to return in body bags you had best make alternative plans for them. Contact us and we will give you our ideas. As we told you previously Kerry is also for the draft, so either of these illuminists is all for killing your kids for profit. These children will be sent to a country that now hates Americans worse then they hated Saddam Hussein.

The Fed’s research division said it was concerned about the exposure of broker-dealers to Fannie Mae and Freddie Mac, the mortgage finance providers that are among the biggest users of interest rate derivatives. If Fannie or Freddie collapsed, these dealers could be wiped out due to concentration. Even though dealers hedge or, lay off part of their action, they remain exposed to interest rate volatility because they need to rebalance their hedge positions when market conditions change. One of these days there will be that special untoward event and then the bottom falls out.

The US Mint is studying coinage alloys in response to metal prices in its most comprehensive review in almost 60 years.

A rising number of people are using home-equity loan money or refinancing cash to speculate in the stock market. The NASD has said again they are concerned about it.

One hundred of the nation’s defined-benefit pension plans made 19.6% last year on assets of $69.9 billion. They have gained back 12% of the surplus assets lost over the past three years. The funded ratio of plan assets to liabilities recovered at the end of 2003 to 88.5%, from 82.3% for 2002, 2001 was 101.8%, 2000 was 124.4% and 1999 was 129.9%. Employer contributions increased $22.2 billion in 2003, $33.8 billion in 2002.

Again, the IMF has warned that US budget deficits could seriously damage global growth as interest rates rise throughout the world. It is calling for a 50% reduction in the debt.

We now live in a world of make believe. Our President and our government tell us the most outrageous lies and make people believe what they say is true. We brought Iraq freedom and that is why a year after the mission was accomplished we have almost 800 dead Americans, including mercenaries, and well over 10,000 causalities. That is freedom as the “Sunni’s and Shiites unite to kill our people, some liberation. We wonder how long the rest of the world is going to continue to be inconvenienced, so that Americans can live beyond their means. What the US has done financially is no longer a burden or inconvenience, it is dangerous.

America is about to take down the world financial system. What passes for terrorism is really no longer a valid excuse, because the world knows the bombings are put up jobs. The world is not going to fund American profligacy forever. You ask what can Americans do. Thomas Paine said, “It is the duty of the Patriot to protect his country from its government.”

The noose is about to be tightened again to rob you of more of your freedom. Domestic terrorism is what the government says it is. You break any law and you are automatically a terrorist or money launder. You cannot win in court, so you cop a plea to a lesser charge because you know there is no justice left in America. This is the result of living under tyranny. You only learn of government transgression by reading the alternative press, such as the IF, otherwise you are really in the dark to what is going on. Unfortunately, the only way to solve this problem is to either remove the standing government or leave the country.

As America and the world heads toward financial and economic disaster, debt builds to dizzying heights. Fundamental economic laws are forgotten and replaced by the nostrums of the moment. Inflation has just moved up to 9% and we are fast approaching the 13% of 1980. With that in mind you can see the gold suppression starkly. We should already be at $840 an ounce. Among other reasons war is a distraction to mask economic woes.

We told you this was coming four years ago and 2 1/12 years later it began. It will continue for a long time to cover up the economic and financial malfeasance of our elitist leadership. In just three years consumer debt, not counting mortgages, is up 17% to $2.2 trillion. The dollar rally is over and $1.29 on the euro will be tested again and broken. That will be accompanied by higher interest rates and from then on gold and silver will climb and the market, bonds and real estate will fall.

After our Supreme Court declined to hear a lower court decision regarding a Canadian real estate company, all believed the issue was ended. Not so, NAFTA heard this and another case, under what they call international law, which of course doesn’t exist. Thus, NAFTA will rule to overturn our laws as they recently did in a Mississippi court case, leaving the US government potentially liable for hundreds of millions of dollars.

Any Canadian or Mexican company that has not been fairly treated can appeal usurping our entire judicial system. This spells the end of American judical independence and begins rule by foreign laws. This is a fundamental reorientation of our constitutional system. If Congress had known that there was anything like this in NAFTA they would have never voted for it. Congress would have discovered it if they had read it which they did not. This is another strong reason why we must exit NAFTA, WTO, free trade and globalization. If we do not we will be destroyed.

In another violation of states' rights, the federal government wants to strip the states of the ability to regulate insurance. This would give the federal government even more power over the individual and not bring lower prices. It would destroy the McCarran-Ferguson Act of 1945, just as they destroyed the Glass-Steagal act, which allowed corruption to flourish to our unprecedented degree on Wall Street. What the federal version does is sacrifice consumer protections in the name of efficiency. Of course, the insurance companies want federal regulation so they will not have to deal with a number of states and that they can raise premiums. Insurance wants to do what banking has done, loot the public in a bigger way. Incidentally, all insurance is, is a vast bookmaking operation.

We brought up the issue of wrongdoing settlements recently. In the Putnam Fund fraud, they paid $110 million to the SEC and the State of Massachusetts, which was split evenly. Of course, no one went to jail because elitists are not allowed to go to jail. The SEC allocated $10 million for shareholder restitution. The other $50 million the SEC has is to go to helping shareholders. What a laugh. It is going for more lawyers and more staff to extend their empire. Screw the shareholders. Of course, the most corrupt state in America, Massachusetts, has put the money into the state’s general fund to buy votes and be stolen as usual, and screw the shareholders. This readers is government in action, abject corruption.

The federal Highway Administration has awarded a contract to develop a 5.9 GHz RFID system to cut road fatalities in the US by 50%. Mark IV Industries, Raytheon, Sirit and TransCore supply the systems to develop dedicated short-range communications (DSRC). It will issue alerts to drivers about impending intersection collisions, rollovers, weather related road hazards, or warning a driver that his vehicle is going too fast. It will replace systems such as E-Z Pass.

Transportation Security Administration Officials repeatedly lied about the development of the passenger-profiling system known as CAPPS II. American Airlines disclosed that it had shared more than a million passenger itineraries with four government contractors. This was the trial run. TSA wants to rollout CAPPS II by yearend and check passenger information such as date of birth and home telephone numbers against commercial and government databases, all in the name of foiling terrorists. This, of course, violates the privacy act and everyone’s constitutional rights, but our fascist government could care less.

Again to prove there is no inflation we bring you the following. According to the College Board, tuition at four-year public colleges and universities rose 35% between the 2000-2001 and 2003-2004 school years. The increase was 21% higher at private colleges and 16% at two-year public institutions.

George W. Bush and his neo cons purged over 8,000 pages of Iraq’s 11,800-page dossier on weapons before passing it on to the 10-permanent members of the UN Security Council. These omissions were a material breach of the latest UN resolution on Iraq. This is simply another classic piece of arrogance under the cover of security.

Our President is sending not 15,000 more troops to Iraq, but 50,000. His excuse to the troops was that they were the only thing that stood between Americans and grave danger. Yes, and we all believe in fairy tales.

Juan Cole, a professor of history at the University of Michigan says more than 1,000 Iraqi professionals and scholars have been assassinated since the US-led war began over a year ago.

The average computer is packed with hidden software that can secretly spy on online habits, a study has found. It has become so pervasive that lawmakers re looking into ways to prevent it or regulate it. The Spy Audit by Earthlink found 29.5 million examples of spyware. Some are included in the license agreement and some are not. The most common spyware is in Adware.

They send back data on surfing habits. There are 300,000 of the more serious system monitors and Trojans uncovered. These are a real threat for identity theft or system corruption. People concerned about what might be lurking on their machine can download software to disinfect the computer. An example is SpyBat.

Bob Woodward, in his new book, “Plan of Attack” says a secret deal was made with Saudi Prince Bandar bin Sultan to lower oil prices prior to the November election. Considering all the lying Bush and the neo cons have done we believe the story has merit.

The IMF has again warned the US Fed to prepare the global economy for an interest rate hike to avoid financial market disruption both domestically and abroad.

Ten million dollars ($10m) was spent on over-age eighth graders in NYC in an attempt to help them pass last year, 78% of the 1,537 students in the Eight Plus program failed the state English exam in 1/03. That was significantly worse than the 66% of eighth-graders flunking that exam last year. The math scores were even worse, 83% of the 1,694 students taking that exam last year failed, which is 3-points worse than 2002. The Board of education no longer automatically promotes 8^th graders to the 9^th grade who are 15 years old. Now get this for maligned logic, school chancellor Joel Klein is spending $10 million more to keep the program going. 21,000 students of last year’s eighth-graders are over 15 or 25% of the class.

While on the Geneses Communications Network Roundtable recently we were asked if Condoleezza Rice reads the IF. We said we hoped so. The reference is to her comments predicting possible terrorist attacks before the November election. As you will recall we predicted the same a few months ago, but we named the cities and said, it would be a suitcase nuclear attack or biochemical attack. She wasn’t as specific. She probably doesn’t want to give away their plan, just let the public know it is coming. They are laying the groundwork for martial law and no election.

The SEC continues to favor the mutual fund industry over the investor. When Richard Shelby, Chairman and member of the Senate Banking committee asked SEC Chairman William Donaldson whether new mutual fund reform was needed he said, “I believe there’s no need at this juncture.” The funds have stolen billions of dollars from the public and he believes no legislation is needed. This same SEC protects every major brokerage house, investment banking firm and every elitist and elitist firm in America. Yet, they have unlimited resources to attack small brokers and brokerage houses and financial letter writers. They stop trading in stocks of perfectly good companies. The stock never trades again and the SEC is happy.

These are standard criminal types that cause millions of investors to lose billions of dollars every year. This is callous and arrogant disregard of the American investor. The fund industry committed massive fraud and has done so for at least 50 years. They are totally unethical. How do we know? We were in the brokerage industry for 28 years and owned our own firm. We were put through hell and they re still trying to put us out of business. These elitists just do not get it. And, of course, none of their illuminist friends ever goes to jail. The House passed the Mutual Funds Integrity and Free Transparency Act by 418-2, but you would never know it.

These people, the SEC and the fund and brokerage industry, are nothing but white-collar thugs. After all that has happened Mr. Donaldson expects us to believe no changes need to be made. This industry needs drastic reform because 95 million American fund investors are being screwed. Worse yet, the Senate Committee is bought and paid for, went along with Donaldson. This is incredible. Shelby said, “We must also be sensitive to the current political environment, in which I believe it will be very difficult to pass a bill. I fear that if congress undertakes a complicated legislative effort, then the SEC initiatives will be caught in limbo and investors could be harmed. We must allow the SEC to move forward in an expeditious manner.”

Constituents before you vote Shelby out of office make sure he is treated with a hot poker. If given its way, the SEC will do nothing. Their leader has already told you that. The SEC has refused repeatedly to pursue real criminals. In the fund fraud case, several fund industry professionals told them what was going on and they did nothing, nothing. The SEC has supported new federal legislation to limit the enforcement powers of state attorneys general in prosecuting securities violations. As a matter of course, the SEC ignores widespread criminal behavior in the big brokerage houses and funds. The SEC, like the Bush neo cons, is totally out of control. Our Executive, Judicial and Congressional branches are inhabited by bought off, lying, greedy scumbags who share the same philosophy as the SEC. How can anyone believe in and invest in such a corrupt system.

If it weren’t for the collusion of other central banks the Fed and the Bush administration would not be able to affect their unstable and extremely risky attempt to re-float the US economy. That is especially true concerning Asia. Japan holds $1.2 trillion in official currency reserves, which is over 80% of the world’s total reserves and is almost triple Asia’s holdings of $766 billion existing at the end of 1998, at the peak of the Asian financial crisis. Japan holds $827 billion and China $440 billion accounting for 59% of Asia’s reserves. Taiwan has $226 billion and Hong Kong $124 billion.

China and Hong Kong hold $790 billion, which is just below Japan’ holdings. Dollar denominated assets make up 73% of the world’s total official holdings of foreign reserves. That is double America’s 30% share of world GDP. As we noted several times before, private sector inflows into dollar-based assets has all but stopped and Asia has picked up the slack, which makes for a very unbalanced global economy. Asia is carrying the US and its unsustainable investment bubbles, while the Asian consumer is not really participating. All of Asia, due to this absence of local demand, has pursued external demand focused growth strategies.

The dollar is control to this strategy. This Asian approach provides support to the income short saving deficient and overly indebted American consumer. If Asia was not doing this US interest rates would already be 2% higher. There is no question world central banks have created a monster, which we talk about every week. That has been abated by tax cuts, deficit spending and the creation of over $8 trillion over the past three and a half years by the Fed and its subsidiaries Fannie and Freddie. This free money available at 1% has created 9% inflation. Asia is buying dollars to keep its currencies from rising. They can export cheaply to the US and then lose the gains as the dollar depreciates.

Japan is buried in dollars, China is overheated from dollars, and now China cannot cool off its economy as inflation races ahead. Globalization has brought what will end up being financial chaos. The pundits tell us debt isn’t important. Well we have news for them, it is important. The interdependence of globalization means all countries can collapse simultaneously instead of some surviving. These idiots talk about capital flows, which is the logic of the newest paradigm. It is akin to Sir Alan’s bogus productivity miracle that never happened. We have had 10 years of lies and deceit by those in high places.

We have witnessed the biggest con game in history. They believe the dollar is invincible and they are about to find out gold is the only real money. We are again in a boom bust pattern and the bust is shortly about to take place. The Fed and other central banks are not reckless. They are trying to do just one thing, keep the economy afloat irrespective of the method until they are ready to trash it. The wars are to cover the financial and economic collapse, but the end game is to relieve 95% of the world of its wealth, especially Americans. When that is accomplished, they will present America and the world with the magic elixir, which is world government.

This is what this is all about and 95% of the world’s inhabitants do not get it because it is too diabolical to the average decent mind. That is why the financial disequilibria is so profound. That is why the propaganda and misinformation has put everyone asleep. The Asian banks are complicit, but they probably do not realize what is going on either. Be patient, next year the bottom will begin to fall out, war will spread, your children and grandchildren will be drafted and gold and silver will reach new heights.

New York times economist-columnist Paul Krugman says what we are saying, “My calculations keep leading me to a 10-year note rate of 7% and a mortgage rate of 8.5% with a substantial possibility that the numbers will be even higher. Current rates are about 4.3% and 5.8% respectively; you can see why the IMF is worried about financial market disruption.” Paul says 7% because over the past 20 years the average yield on the 10-year note has been 7% with a mortgage rate of 8.5%. This is good logic. The problem is this isn’t average.

The situation we are in is extraordinary. We are in the worst financial mess in history and most certainly in the last 150 years. They talk about inflation premiums. Inflation is 9%. Based on that the 10-year note should be yielding 11-12%. Can bond owners be that misinformed? They must believe everything they hear on CNBC. How can bondholders overlook the fact that the structural budget deficit will be 4% of GDP this year, which is double the average for the past 20 years? The same is true for the current account deficit. The IMF is warning Mr. Greenspan and the public that interest rates soon have to rise. Where was the IMF six months ago when we needed their advise?

We are starting to see the casualties of inflation. Kraft Foods saw first quarter earnings fall by 33% thanks to higher commodity prices.

What is going to happen to auto sales when interest rates rise 2 to 3%? Cash rebates, low-interest loans and other incentives averaged $2,379 per vehicle in March, up 6.4% from a year ago. Even Toyota and BMW are offering incentives. GM’s Cadillac and Oldsmobile offered $4,339 and $4,322 followed by Ford’s Lincoln at $4,094 and Chrysler at $3,977. The average new vehicle sales price in March was $25,024 up 5.2% from a year earlier. Financing is up to 6 to 7 years. Chrysler groups incentive spending rose 21.7% from last year, GM’s climbed 1.4% and Ford 8.8%.

Median home prices are starting to fall for the first time in a decade. During the first quarter, median prices fell in almost 25% of the Dallas area residential districts. Throughout north Texas, home prices are off about 2%. It still only takes 11 weeks to sell a house.

Visa says in 2003 debit cards surpassed the use of credit cards with volume of $1.48 trillion, up 17%. Credit card volume was up 5% to $1.45 trillion. Those using debit cards are those who paid their credit card balances every month.

If the Fed decides it cannot raise rates because it will collapse the credit structure and the economy, then the market will do so anyway. When you hear the Fed cannot raise rates it is true to an extent, but the market will rule, not Sir Alan Greenspan. If the Fed were ever to cut rates immediate chaos would ensue in all financial markets.

CIA front AOL is at it again reading our e-mails and blocking any messages that contain links to sites AOL doesn’t like or want you to see. AOL has a list of links that it does not want its subscribers to visit. We recommend everyone leave AOL.

On Queen Hillary Clinton’s latest one-week vacation to the exclusive Tryall Club in Hanover, Jamaica her entourage occupied 40 rooms.

Word reaches us that the Cleveland office of the Tennessee Department of Human Services is giving non-citizen resident aliens voter registration cards from the county election commission, which would permit them to vote in the upcoming Presidential Election. Politicians just cannot help themselves.

Customs officers are concerned that their hard work to provide data for the system has been wasted and that the systems promise of greater national security has been compromised. The primary line of customs officers that foreign students encounter at airports, seaports and borer crossings currently does not have direct access to the Student & Visitor Exchange Visitor Information System, which allows officials to scrutinize foreign students and scholars closely in the hope of weeding out potential terrorists. College officials are exasperated. They have worked thousands of hours and spent millions of dollars and created new positions to comply with SEVIS and the system isn’t being used.

Immigrants filing to apply for US citizenship will now pay $320 a $60 increase. Residency, or green card, application fees will rise to $315 and work permits will cost $175. There is a backlog of six million waiting to be accepted.

Hospital Corp says, due to increasing numbers of people without insurance coverage, non-paying ER patients increased 18% and overnight stay patients 14% in the first quarter. HMO’s are having trouble collecting bills. Insurers are increasing co-pays and rejecting drug claims.

We call out to Asia to save us from our elitist neo con overlords, please sell your US Treasury paper and drive the dollar down so the madmen running our government can be defeated. Force our interest rates and expose the phony recovery for what it is – a liquidity borne scam. In doing so you would also save us from the machinations of sir Alan Bubbles Greenspan. He has buried the American public in debt.

Mr. Greenspan’s Tuesday speech was another non-event. We learned that deflation was no longer an issue. That is an understatement with inflation at 9%. That moved the 10-year note rate from 4.36 to 4.47, which now prepares the yield to attack 4.625%. If that breaks we will soon see 5 1/4% and 6 1/4% mortgage rates.

We can expect August to be the interest rate rise month. The 10-year note is now trading at 4.50%, up from 3.65% just a few weeks ago. No currency in history has ever been systematically debauched as the Fed has done with the dollar and not had it result in inflation reaming its ugly head.

The market has broken technically at 10,300 and the “Plunge Protection Team” is struggling to keep it afloat as it participates in the plunge in gold and silver by attacking the shares. The interest rate bonus is gone it is a new game. The consumer is tapped out and so are their credit cards. Costs and wages are headed in different directions. The carry trade, in bonds is beginning to unwind and that could carry the 10-year straight through 4.625% and take it to 5 1/2% and mortgages to 6 1/4%.

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Observation from a subscriber:

Here’s a curious observation I had the other day. I was watching the movie Enemy of the State (circa 1998), starring Gene Hackman and Will Smith and noticed a very curious coincidence(?). I don‚t know if you have seen the movie, but it‚s based on the premise of increasing the surveillance capabilities of the U.S. government, much like the "Fatherland" security act. The man that plays the director of the government agency represents the evil side of the surveillance society.

In the movie Will Smith ends up with a tape that captures the director involved in a murder. During a scene when Smith & Hackman are searching for the identity of the man in the tape, they discover he is the director of the secret agency. Hackman reads the director's bio, which includes his birth date of "nine-eleven".

I thought it was ironic that in this movie that parallels the events of today the epitome of the surveillance society was born on "nine-eleven". Hackman didn’t say September 11th; he read the birth date as "nine-eleven". Just a coincidence??????

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Statistics

Now we have outrageous retail sales growth, which along with outrageous employment growth means higher interest rates. Building supplies sales accounted for about half of the retail sales gain. The Department of Commerce estimates US retail and food services were $333.0 billion, an increase of 1.8% from February and up 8.2% from March 2003. Building equipment and garden supplies were up 20.8% from 3/03 and sales of food services and drinking places were up 11.1% from 3/03. General merchandise was up 0.3%, gasoline up 0.8% and up 3.9% year-to-year. Auto sales were up 2.1% due to heavy incentives.

The excellent first quarter sales gain by 3M up 10% and PG 20% were due to foreign exchange speculation. The trade deficit for February was $42.1 billion, off 3% from January. In the year ending 1/12/04, the Baltic Freight Index increased 531% and in the final 43 days, the increase was 287%. Every time we look at the CPI we are enraged at the arrogant effrontery of the government.

In March, we get growth of .04% just in the core inflation and you have energy up 1.9%, natural gas futures are rising and they have them falling. Beverages were up only 0.2% and 1.5% over the past three months. Beef and veal are down 2.5%, as cattle futures rose 7%. Housing is up .03% only due to a rise in hotel and lodging rates. They have used cars and trucks down 0.1%, yet auction prices are up 1.7%. What they have done and continue to do is despicable and criminal. The Fed’s financial obligations ratio, which includes debt services as well as rent, auto leases, property taxes and homeowners insurance, is 18% of disposable income, which is a record level.

Since 1973, living standards have fallen. It takes two incomes to buy what one income bought previously. Today, with $68,000 in household income, 75% is spent on fixed mortgage payments, childcare, health insurance, cars and taxes. That figure was 54% in 1973 with a $39,000 income. BIS allocates medical care at 6.074% of CPI, yet healthcare spending is 15% of GDP. All we see and hear is demagoguery and lies. What we have now is a financial banana republic. If the Fed finally raises rates in July or August, inflation will be bad.

If they wait for September or December, inflation will be far worse. Even waiting for August would put gold well over $512.00 and put oil at $45.00 a barrel. Manufacturing in the Philadelphia region expanded as their index rose to 32.5 from 24.2 in March. The index was at a ten-year high of 38.8 in January. The Fed expanded the repo pool from an average of $28 billion to $40.53 billion last Wednesday so the “Plunge Protection team” could protect a falling Dow. Visetron will cut 600 jobs.

Housing starts for March were up 6.4%. We just saw initial unemployment claims rise by 30,000 unexpectedly. We wonder if that was engineered to keep the ten-year note from testing 4 5/8%. The elitists intend to put a college education out of the reach of all except the rich. Of course, under the Kerry college tuition plan, you can serve as an intern or come home in a body bag for a tuition. Tuition costs are up 12% in the past 12 months.

March industrial production fell 0.2% and capacity utilization fell to 76.5% from 76.7%, the first decline since June. Production is up 3.4% over the past 12 months versus 0.8% in February and 0.7% in January. In the first quarter, production rose at an annual rate of 6.6%, the fastest growth since the second quarter of 2000. Manufacturing output was unchanged and utility output fell 2.3%. The March Empire Manufacturing Index rose to 36.05 and prices paid hit a record 56.2.

The Future Index fell to 48.9 from 53. In NYC, the mid-town price of apartments is up 21% year-to-year in the first quarter. Homes in Baltimore were up 20% last month, the biggest jump in five years. The volume of federally backed reverse mortgages for seniors more than doubled to 12,848 between October and February versus 2003. Housing starts in March nationally were up 15.2% from 3/03 and up 29% from pre-bubble 3/97.

Permits were up 15.3% from 3/03. Homes under construction were up 17% from 3/03 to the highest level in 25 years. Retail sales were up 8.2% in March, the largest increase in a year. Countrywide Financials March Average Daily Application Volume of $2.455 billion was the strongest since laet July. Total fundings were up 25% from February to $32.3 billion.

Purchase applications were up 42% from February and 39% from a year ago. Refi fundings were down 32% year-to-year. ARM fundings were 43% of the total with volume up 38% from 3/03. Home equity fundings were up year-on-year and sub-primes 111%. Sallie Mae expanded assets by a record $8.7 billion during the first quarter to $73.3 billion, a 54% growth rate. Total assets were up 44%.

The University of Michigan’s Preliminary Index of consumer sentiment fell to 93.2 from 95.8 in April. Production fell 0.2% in March, the first decrease in 10 months. Sovereign Bancorp is cutting 350 jobs in its merger with Seacoast Financial Services. Apartment vacancy rates in Boston fell from 5.2% to 5.1% from last year.

From August to March rents fell 3%. The average for a one-bedroom in an older building was $1090 last August and last month it was $1067. Massachusetts has lost 216,800 jobs since early 2001. If you need cheap rent, try a North End studio for $775. The largest US tax preparers, H&R Block, said fees increased 5.7% year-to-year. Wisconsin lost 1,600 manufacturing jobs in February.

Fitch has forecast global economic growth at 3.6% this year, up from 2.8% earlier. It cut its EU forecast from 1.8% to 1.6%. The SEC is investigating Novastar, Ciena is cutting 425 jobs. Sixty-eight percent of investors are bullish presently. Interest rate sensitive stocks make up 25% of S&P stocks so as rates rise the entire S&P 500 will struggle. Of the $2.3 trillion increase in consumer debt over the past three years, 44% is tied to short rates (home equity loans $385 billion, adjustable rate mortgages $300 billion and installment debt $320 billion). This variable type exposure is held by those least likely to be able to handle any increases in debt service. Gasoline prices are up 2.7 cents over this past week to $1.813 a gallon. That is $0.9 higher than last year. When adjusted for inflation in 2004 dollars, the highest price for gasoline was $2.99 a gallon in March 1981.

March consumer goods production fell $7 billion or 0.4%. Durables fell 0.5%. Capacity utilization for crude goods fell to 84.2% from 84.5%, semi-finished fell to 78.8% from 79.3% and finished fell to 72.4% from 72.5%. New homes are moving into oversupply, rates are rising and builders keep right on building. Guardian Life’s Feds Index, which tracks companies under investigation by the federal government, was up 60% in 2003.

Commodities

Oil futures fell after an industry report pointed to increased supply levels. The API said crude stocks increased 10.4 million barrels for the week ending 4/9/04. The energy Department then reported a gain of only 3.2 million barrels of oil. That is some difference and we wonder if API figures were rigged or are they just stupid. The Energy Department said gasoline supplies rose 1 million barrels, and distillate stocks declined by 2 million barrels.

Thus, for this year, lumber prices are up 35% from a year ago. Aluminum rose to an eight year high on the LME as inventories fell. Demand is up 4.7% this year. Silver dropped from $8 to $7 in two sessions and was off 12% for the week. GSCI was only off 0.6%. Crude gained 2%.

OPEC raised the forecast for 2004 upping use 230,000 B/P/D to 26.17 million B/P/D. They expect China to increase use strongly. OPEC estimated world oil inventories rose by 1.38 million B/P/D in the first quarter of 2004 following a 710,000 B/P/D rise in the whole of 2003. Cartel production rose in March by 370,000 B/P/D, led by a 445,000 B/P/D jump in Iraq’s output as it opened next export outlets. Output for the 10-OPEC members with quotas fell by just 75,000 B/P/D to 25.9 million B/P/D – some 2.4 million B/P/D above the formal ceiling in place in March.

State-owned Chinese company, CNPC, is planning to start building a pipeline from Atasu in central Kazakhstan to Alaskankov on the border with China this summer, with construction scheduled for completion by late 2005.

Russian crude exports by pipeline hit a fresh record for the second month running in March, driven by substantial Black Sea shipments and increased loadings at Primorsk. March exports to non-CIS destinations reached 4.07 M/B/D, up 5.8% on the month and by 21% over 3/03.

US imports of Russian crude sank to around 8,000 B/D in January, down by 13,000 B/D in December and down 91,000 B/P/D. The fall is the result of high freight rates and tanker delays in the Turkish straights. Delays are still going on although not as bad as previously.

Of all the commodities, the one we believe is an absolute lock for higher prices is oil. The world’s biggest producer, Saudi Arabia, sits in the middle of a cauldron of trouble. It is certainly not inconceivable that conflict could envelop the entire Middle East. Even if the world economy goes into recession oil usage will not drop appreciably. The US consumes 22 million barrels of oil a day with a population of 285 million people. The Asian region, which as grown appreciably recently, only uses 20 million barrels a day with a population of 3.6 million people.

We do not see Asian demand dropping appreciably. Recent reports reflect a peak in Saudi Arabian oil production. In addition, Saudi Arabia is in a very volatile situation, having had a quadrupling of population since 1970 and falling incomes since 1980. The country is a powder keg. World oil production could peak in the next five years. We are also very likely in a long-term upward commodity cycle. If that is so and our research is correct, you will want to be long oil and gas shares for some time to come. Our ability to find a worthy junior exploration company has yet to bear fruit so we’ll stick with our long time favorites, Apache (APA-NYSE), Anadarko (ARC-NYSE) and Encana (ECA-NYSE).

We reported on this sometime ago and now it is official. Chile, the world’s biggest supplier of copper, proposed a charge against mining companies’ sales to insure Chile benefits from its mineral wealth. If passed, most foreign investment in the country will stop. They want 3% of gross sales if operating margins are over 5%. How very short sighted.

Shell is Britain’s biggest corporate scandal in 20 years. Shell ha admitted a three-year plan to deceive its shareholders. They deliberately overstated oil and gas reserves for several years. These elitist corporate criminals could be charged criminally, which is a novelty.