The Aftermath Of Greed-Updates

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2012-05-13T14:37:00.000-07:00

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Could The Silver Price Rise To $200/oz?

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CMV - May 2012

2012-05-02T08:40:00.001-07:00

Hello World,

The Contrarian Market View Newsletter is now free.

Listen to my podcast explaining the changes in my podcast March 26th.

H. L. Quist’s
Contrarian Market View
Newsletter

Market Overview

Barron’s publishes its’ BIG MONEY poll twice a year, in the Spring and in the Fall. It reflects the responses of 125 money managers nationwide. 55% of the professional money managers responding to the Spring (April 23, 2012) poll call themselves bullish or very bullish on the outlook for stocks through the middle of next year. Only 14% are bearish or very bearish. The bulls expect the Dow Jones Industrials to rise by 6% through year end to 13,756 and add another 3% to reach 14,183 by mid-2013 or an approximate gain of 10% in the next 14 months. Here are some of the other key views from the BIG MONEY pros:

What will be the best and worst industries over the next 6 to 12 months?
                                Best        Worst
Basic Materials        4%        18%
Energy                       8%        11%
Financials                  31%        16%
Technology              31%        0%
Utilities                        3%        30%

What is your outlook for these asset classes?
                                  Bullish    Neutral    Bearish
US Treasuries            2%        17%        81%
Corporate Bonds        14%        53%        33%
US Dollar              43%        43%        14%
Real Estate                  41%        49%        10%
Oil                              29%        47%        24%
Gold                            5%        50%        44%

What will be the best performing asset class?
Equities        73%
Real Estate        10%
Precious Metals    7%

What will be the worst performing asset class?
Fixed Income        59%
Precious Metals    16%
Cash            13%

What is most likely to occur in the US in the next 12 months?
Inflation        52%
Deflation        4%
Stagflation        18%
None            26%

Will the Federal Reserve initiate Quantitative Easing in the next 6 months?
Yes        39%
No        61%

Who will win the 2012 Presidential election?
Obama    66%
Romney    34%

Although the above is a short list of questions that the professional money managers responded to what conclusions (and contradictions) can we glean from them?

1. US equities are the Sector to be invested in despite growing problems in the EU, rising interest rates, increased taxes, and the prospect of Barrack Obama will have four more years to undermine the Capitalistic system. CMV agrees that US equities – especially technology – should outperform all sectors up to that watershed moment in November. Beyond that, who knows?

2. CMV agrees with the BIG MONEY that rising interest rates off the present historic low levels will negatively impact the fixed income sector.

3. 52% of the respondents agreed that inflation would be most likely to occur in the year ahead but only 5% were bullish on gold. That infers that the Pros see little or no correlation between the loss of purchasing power and the prospect of higher gold prices. CMV does not agree.

One week later in Barron’s, after news that the US Gross Domestic Product (GDP) came in at a mere 2.2% vs. a more robust 3% in the fourth quarter of 2011, the sentiment suddenly took on a more bearish tone. Multiple references were made to the sudden shift in the economy last spring when CMV changed its’ view from bullish to bearish. Concerns of the “financial cliff” that the US faces with the expiration of the Bush tax cuts reared its’ ugly head. Investors must keep in mind that money managers have an inherent bias to a bullish outlook for equities and a bearish outlook for alternative investments. The money managers do not want to say anything that will motivate their clients to take money out of their accounts or seek alternative investments they don’t offer or subscribe to. CMV retains an open mind and takes a Contrarian view.

On April 24, 2012, a new government report indicated that Social Security, which pays benefits to 56 million Americans, will exhaust its’ reserves by 2033, three years sooner than estimated just a little over a year ago. The disability fund, which has been further depleted by fraudulent claims, will be broke by the year 2016. Given the recent reduction in payroll taxes which reduce income to these two funds, the next estimate will accelerate the time table when funds will be exhausted. Don’t call them “trust funds.” Congress violated that trust years ago when borrowed 100% of the money and gave recipients an IOU at near zero interest rates to provide the benefits. Congress has avoided the coming crisis in Social Security for 30 years. Don’t expect that to change until the “fit hits the shan” and the Federal government goes broke.

A recent front page article in the WSJ entitled “Stunned Home Buyers Find The Bidding Wars Are Back,” indicated that buyers are bidding up prices on residential real estate due to supply shortages. A chart indicating the changes in inventory and the months of supply available, listed Phoenix at the top where supply has dropped 43.5% in one year and a nation-leading low of only 2.4 months of supply is available. CMV saw this coming a year ago when we interviewed several companies that had accumulated large amounts of investor capital to purchase and re-model foreclosures. Meritage Homes Corp., a Scottsdale-based builder, just reported a 36% increase in orders for the last quarter vs. the previous year period. If mortgage lending standards ease and if appraisals change to reflect the new market dynamics, a robust boom could be underway this year. So much will depend on macro economic events, which are outlined below.

What you are about to read ranks near the top of the “it can’t be true” list but unfortunately it is true.

On Friday, April 27, 2012 Kimberly A. Strassel in her WSJ Potomac Watch column revealed the existence of President Obama’s “hit list” which CMV has called the “fecal scroll.” The President has recently posted on one of his websites, “Behind The Curtain: A Brief History of Romney’s Donors” and proceeds to shame eight private citizens who donated funds to his opponent. He described the donors as all having ‘less than reputable records’ and that “quite a few” have also been “on the wrong side of the law” and profiting at “the expense of so many Americans.” The President, who has the power of the IRS, the INS, the Justice Department, the DEA and the SEC has just put these names (with more to come) on “wanted” posters in government offices according to Strassel. The President and his minions of far-left radicals are using intimidation of the worst kind to scare the public into not contributing to Mr. Romney. You can assume that Strassel, the WSJ and any other writer (including CMV) who outs the President in an unfavorable light will also be targeted. Strassel says, “If Mr. Obama isn’t going to act like a President, he bolsters the argument that he doesn’t deserve to be one.” Amen.

Events That Changed Our Lives

Historians gather the facts of past events, dissect them, and offer us a meaningful picture of not only what occurred but relate the future impact that these events had upon our lives. Some monumental events and their outcomes weren’t assessed as such at the time and were recognized later. Others were so subtle they escaped the focus and the meaning of their happenstance which greatly impacted us and will continue to shape our lives.

The following is CMV’s historical perspective of past life-changing events in America with the intention of preparing you for a future event that could soon occur which will most certainly be a demarcation point in American history. Rarely do we have the opportunity to have insight to a future event and make preparations accordingly.

October 29, 1929 – The Stock Market Crash and The Great Depression

A limited number of insiders knew that the crash orchestrated by the Federal Reserve was coming and preserved their wealth while perhaps 98% of the population lost everything in the next few years. What no one knew was that the aftermath would last for 12 years. Franklin Delano Roosevelt (FDR) took office in 1933 and embarked on an all-out Keynesian New Deal of government intervention and spending that set a precedent for our present administration. By 1936 unemployment dropped from 25% to 15% and it appeared to most Americans that recovery was taking place as FDR easily won re-election. FDR, however, made a colossal blunder when he promoted a massive tax increase on the rich of 70% and by 1938 the country suffered a recession within a depression. Many historians, and certainly Progressives, fail to recognize or admit that the New Deal failed. Secretary of the US Treasury Henry Morgenthau accurately summed up the outcome in 1939 as follows:

Angry at the Keynesian spenders, Morgenthau confided to his diary May 1939: "We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong somebody else can have my job. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot." – The Journal of Economic History, Vol. 43, No. 2 (Jun., 1983) (quoted with reference in wikipedia).

December 7, 1941 – The Attack on Pearl Harbor

World War II ended the Great Depression. Within a year after the attack every able-bodied male over 18 and under 60 was employed in the military or, often like my father who had a rheumatic heart condition, were employed in defense industries. For the first time women left home for strategic jobs that had a lasting impact later on the American family, but few assessed its’ significance at the time. Few historians relate the influence that Winston Churchill (a distant cousin of FDR) had on getting a reluctant US population into the war. A strong case can be made that FDR “goaded” the Japanese into the attack and US intelligence knew it was coming. The Atomic Bomb ended the War but it also initiated an ever-present fear that influences us today. It was a Capitalist system and America’s unmatched work ethic and dedication that built the greatest war machine in the shortest period of time in world history. The inescapable lesson however, that we can’t ignore, is that when all efforts fail to revive the economy, a war can be the cure. Is the Mid-East next?

November 22, 1963 – JFK’s Assassination

Some historic events do not precipitate a change in our lives but mark a societal departure from the past. JFK’s assassination has been referred to as the “Death of Innocence” and it did mark a young generation’s rejection of moral and ethical mores of a past conservative period in time. The “Occupy Wall St.” movement has been gathering momentum for over 40 years and this entitlement mind-set will play a pivotal role in the breakdown in civil society that lies ahead.

August, 1971 – Richard Nixon’s Metamorphosis

This is one of history’s most subtle events that has dramatically changed the lives of All Americans. Your writer was returning from a weekend of water skiing and beach time with his family on that Sunday in August, 1971 when Richard Nixon made his historic-making announcement from the Oval Office. NO, it wasn’t his resignation. The President revealed that the US would no longer exchange US dollars for gold bullion at $35/oz with foreign governments. The world was awash in US fiat dollars and millions of ounces of US gold had already left Ft. Knox at the absurdly-fixed price of $35/oz. Anticipating that there would be a sudden devaluation of the USD the next day, Nixon also announced that he was going to institute wage and price controls on all US goods and services! It was important and thus memorable to your writer since we owned a number of rental properties and that meant the dreaded “rent controls.” Nixon proudly announced that he was now a Keynesian.

The USD did indeed decline – a resounding 7.5% but Henry Kissinger negotiated a deal with a reluctant Saudi Arabia to accept US fiat “petrodollars” in exchange for oil. OPEC, after accepting a declining USD for oil for 2 years announced on October 17, 1973 that they would no longer export their oil to the US. Every American was affected. Most had no clue what macro monetary events had occurred that created this crisis. The Deflation that followed ended the wage and price controls, but created enormous economic imbalances that led to the rampant double-digit inflation in the late 70's. Nixon is remembered for Watergate and his resignation. That event had little impact on our lives. Nixon’s metamorphosis to Keynesian economics began America’s road to serfdom. In 1971 the US Federal debt was a mere 38% of GDP. It is now nearly 100% and the USD has lost 80% of its purchasing power since then. A Federal debt and unfunded entitlements totaling $100 trillion are America’s Waterloo. This Administration’s plan to confront this issue will grossly impact every American except the uber-rich and it could destroy our middle class which is already teetering on the brink.

September 11, 2011 – The 100 Year Religious War Begins

The visible agony of this event re-awakened our psyche of the attack on Pearl Harbor 60 years prior. For a brief shining moment America was united once again but within six months it was apparent that we were no longer the nation of the past. For purposes here we will focus on the economic ramifications. The stock market crash of April, 2000 and 9-11 caused a significant reversal in consumer sentiment as fear dictated our reluctance to spend. An overt opportunity presented itself for the “Merchants of Debt” to create a vehicle that would drive obscene profits for the Banksters and the consumer-homeowner into bankruptcy.

October, 2002 – The Greenspan Plan

When Ben Bernanke, then Vice-Chairman of the US Federal Reserve Bank, gave his infamous speech in 2002 your writer knew a major Fed initiative was about to unfold. You should recall that Mr. Bernanke said there would never be a depression in this country (again) because the Fed has at its’ disposal a new technology called the “printing press.” If that didn’t work he offered, the Fed could drop $100 bills from helicopters to start a spending spree. The audience laughed but they should have cried. The Masters of the Universe (MOTU) on Wall St. knew (as your writer did) that it was time to get fully invested and thus began the Great American Re-Fi that affected just about every citizen not only in the US, but throughout the world. The powerful Troika of Wall St., Congress and The Federal Reserve created an unprecedented scheme that your writer determined by as early as 2005, was doomed to fail. Well documented in The Aftermath of Greed... and the sequel How To Profit From The Coming Inflationary Boom..., the Greenspan Plan was hatched on the assumption that:

    1. Real property values would not decrease more than 5%, and
    2. Interest rates would not increase.

A seriously flawed strategy. Your writer’s July, 2005 program to deal with the impending crisis was “Downsize Now and Securitize Your Future.” Few bought it, but everyone paid the price for not seeing the coming ‘aftermath.’

September 15, 2008 – Lehman Bros. Takes A Fall

The manic boom was long over prior to this date but when you had prominent CNBC hosts like Larry Kudlow saying, previously, that this event was a sub-prime real estate problem and the equity markets would not be impacted, investors bought into his and other’s “line” and the party continued a full two years beyond its true demise. The unfortunate legacy of this event, which will equal the Crash of ‘29 when it runs its full course, and its’ aftermath is:

1. None of the miscreants, including the instigator and author of the plan, have acknowledged their role in the devastation that has followed and none have gone to jail,

2. These MOTU and their abuse of power paved the way for election of a Marxist revolutionary who has succeeded in aggravating the problems plaguing America.

3. The Nation’s unsustainable debt bubble now allows for the devise of a desperate plan that will relegate the United States of America to a subservient status.

July 4, 2012 – EOAAWKI (The End Of America As We Knew It)

Numerous well-informed sources* are speculating that the US has already entered into an agreement with China that proposes to Re-Balance The Global Economy. The formal announcement could come as early as July. (Hence the arbitrary date of July 4th, chosen by CMV which may become to be known as DEPENDENCE DAY.) Whether it’s July or another date is not material. The principal significance of this currency plan is that it will mark the beginning of the end of the Western-Centric fiat money system, a system controlled and dominated by the British pound and the US dollar for almost two centuries. China has not, up to this date, been a member of this August “club” and is now prepared to take a prominent role in a new global monetary system. Make no mistake – it is the pending collapse of the European Union and the euro and the United States and the dollar that will elevate China and the BRICS (Brazil, Russia, India, China, and South Africa) to a prominent role in the global governance that they so desperately covet. We are witnessing, much sooner than experts had forecast, the transfer of wealth and military power from the West to the East. The CHINA ERA is about to begin.

Aside from the evidence CMV offers to you below (online references) what proof does CMV have that supports a new currency plan?

1. CMV broke the news a year ago that the BRICS (led by China) formed the Shanghai Co-Operation Organization for the purpose of trading amongst themselves without using the USD.

2. China, Russia, and India have been accumulating massive amounts of gold bullion ostensibly to back their currencies or a new currency.

3. Most of OPEC will not accept USD for payment of oil. Iran sells primarily to Russia, China, Japan, South Korea, India and the EU, and has circumvented the present western-controlled banking system.

4. On June 1, 2012, China opens the Pan Asian Gold Exchange (PAGE) to compete directly with the London Metals Exchange and the US COMEX. Gold will not be priced in USD at the PAGE.

5. The Chinese yuan is now, for the first time, available for trading in New York, London, and other major markets in order to compete with the USD, the euro and the pound.

In essence, there has already been a de-facto abandonment of the USD as evidenced above but at present the USD has not significantly retreated in the Forex Market. In general, what would happen if the USD loses its’ status as the world’s reserve currency or is one of the basket of five currencies that will take the place of the USD? CMV doesn’t know what is coming down, if anything, but the diminution of the value of the USD would mean:

1. The cost of imported goods will increase in price, which includes just about everything.

2. Americans could experience a significant increase in the cost of living (inflation) without a commensurate increase in income.

3. Interest rates could suddenly spike.

4. Bond yields could suddenly rise and their market value will fall. The present bond bubble inflated by 30 years of declining yields could burst.

5. US goods will be more competitive and manufacturing should increase creating more jobs. The US Administration will claim that this re-balancing program is good for the US and downplay the negatives.

6. Gold bullion and other precious metals should reach new highs within a relatively short period of time.

7. The demand for hard assets including real estate should increase despite the increase in interest rates similar to the period 1976 to 1980. US equities should increase in value until interest rates rise significantly.

This perspective by CMV is simply an attempt to give the reader a “heads-up” on what could occur. Be alert and look for the clues that a major change may take place. Unfortunately, we have a President whose ideology promotes the destruction of Capitalism and the reduced prominence of America on the world stage. The Global Re-Balancing Program corresponds with his goals. He must not be allowed to fulfill them.

James Davidson, strategicinvestment.com

Porter Stansberry, “China’s 5 Year Plant” stansberryresearch.com

Larry Edelson. Weiss Research, “The Great Betrayal of 2012" uncommonwisdomdaily.com

The Great California Exodus

The Opinion section of the April 21-22, 2012 edition of the WSJ featured the above entitled piece which was an interview of Joel Kotkin by Assistant Editor Allysia Finley. Kotkin is a leading US demographer and “Truman Democrat” who cites what is driving the middle class out of the Golden State.

Once the Mecca of ambitious and creative minds that fostered companies like Intel, Apple and H-P, the fastest growth entity now in the Golden State, according to Kotkin, is government and its’ product is red tape. According to the Tax Foundation, California has the 48th worst business tax climate and its’ personal income tax is highly progressive and is the third highest in the US. And, Governor Jerry Brown, like his mentor, Barrack Obama, wants to raise taxes on millionaires. The dynamic that will ultimately (soon) turn the California dream into a nightmare is that the State’s progressive policies are driving out the moderate and conservative middle class and its’ remaining constituents become even more left wing. Kotkin says, “the state is run for the very rich and the very poor and the public employees.” Nearly 4 million people have left the state in the last two decades. Kotkin says, “Almost all the major tech companies have moved stuff to Salt Lake City.” Apple just announced that it is building a $304 million campus in Austin, Texas and adding 3600 jobs there. The message for Barack Obama is that states without an income tax are experiencing much higher growth rates than the national average, but that fact will be ignored.

What Kotkin doesn’t mention is the business and family exodus to Arizona. A new mandate in California requires that a third of the state’s energy must come from renewable sources like wind and solar by 2020 and California’ current electrical costs are already 50% higher than the national average.    California companies can warehouse goods in Arizona at 50% to 75% less than in the Golden State. Comparable homes can be purchased in Arizona at about one-third the cost in the coastal area. Residential sales by California residents has been propelled with recent liquidity in the real estate market in certain California areas which is allowing the citizens to move. Commercial and residential Realtors should aggressively market to our western neighbor. Last summer the State of Colorado flew a plane up and down the beaches in California with a banner inviting residents to come to their state.

The most outrageous case of hypocrisy has taken place in the Bay area. Readers will recall the President’s hyper-promotion of “shovel-ready jobs” as an integral part of his massive stimulus bill. One such project was a $6 billion bridge from Oakland to San Francisco. The President and his legions of policy wonks crowed continuously over the jobs, jobs, jobs that this and other projects would create. The big day came and lo and behold the bid for the bridge was awarded to a Chinese firm! To add insult to injury the construction company imported Chinese labor to work the project. Bay area unions were incensed. Remarkably, the story broke on ABC by Diana Sawyer.

The President’s Slippery Slope

Peggy Noonan, who provides insightful sensibility every weekend in her Declarations column in the weekend WSJ, has two recent pieces that foretells that the President’s image as “Mr. Cool” is slip-sliding away. On April 1, 2012 Peggy opined that “Obama increasingly comes across as devious and dishonest” and is “an operator who’s not operating in good faith.”

To Wit:

The “shift,” Noonan says began on January 20th with the President’s mandate that agencies of the Catholic Church would have to provide birth-control services the church finds morally repugnant. Faced with a sudden and forceful blowback the President offered an “accommodation” that even his supporters found as devious. “Not ill-advised, devious” claims Noonan.

Then there was the open mic conversation with Russian President Dmitry Medvedev where President Obama said, he would have “more flexibility” in his negotiations with the Soviets once the election is over, assuming of course that he will be victorious. President Obama didn’t even bother to offer an explanation and joked about the incident during a later meeting. “It was all so.. creepy” says Noonan. Like, how many other off-the-record deals have been made.

Noonan’s point is that the President had about two years to form a bond with the broad electorate. He had a limited period of time to understand what the real concerns of the American people were which was a “looming financial calamity, unemployment, declining home values and foreclosures,” according to Noonan. The new President never understood our concerns. His ideas came from his “hermitically-sealed inner circle which operates with what seems in an almost entirely abstract sense of America,” Noonan wrote. So, the primary focus was on health care and alternate energy and the wasteful loss of billions of dollars to his most ardent contributors.

The net result is this, Noonan opines, “Something’s happening to President Obama’s relationship with those who are inclined not to like his policies. They are now inclined not to like him.”

Noonan’s even more compelling piece entitled “America’s Crisis of Character” appeared on April 21-22, 2012. A Gallup Poll completed that week indicated, that only 24% of the Americans polled feel we’re on the “right track” as a nation. That’s a historic low. Most would attribute that to a poor economy. Noonan believes, however, and CMV concurs, “People are finally worried about America’s character and what kind of adults we are raising.”

A few examples graphically illustrate that something is terribly wrong:

•   A tourist is beaten and robbed in Baltimore witnessed by a group of young people who are so busy taping it on their smart-phones that no one helps the victim. The youtube video not only displays the gruesome incident, it reveals the laughter of the young people.

•   Then there are the surveillance tapes of teenagers who swarm into stores, steal everything they can and run out. Numerous incidents occurring all over the country are referred to as “flash robs.”

•   The highly publicized General Services Administration’s (GSA) scandal of a lavish four-day conference in Las Vegas, should present a visual of not only wasteful spending of taxpayer money but the videos of GSA employees mocking and joking about being on the taxpayer’s dole. Not long ago government employees were considered as mindless bureaucrats and drones. Now they are “cool” – way too cool and decadent. There isn’t even a remote possibility that any of them think they have done anything wrong. The GSA doesn’t need to be reformed. It needs to be dismantled.

•   The US Secret Service was considered the “best of the best” as government employees. We all had the image of them as firm, athletic men, dressed professionally in black suits and ties who were tough and disciplined and most importantly of all, were prepared to take a bullet for the President. But this is the “Obama Era.” The agents in Columbia were dressed in t-shirts, wrinkled khakis and sweaters and looked like members of a dysfunctional college football team. While in Columbia planning for the President’s attendance at the Latin America Summit, the SS men invited 20 or more “working girls” to their hotel rooms. Fortunately for Americans who still care (and we’re a rapidly dwindling number) one of the hookers demanded an $800 payment for services. When the SS agent offered $30 a fracas broke out and the local police were called. Aside from the question of potential compromise of security, what this incident reveals is that people of strong moral character who make critical decisions involving national security is no longer a prerequisite for the job. On a minimum basis, you would think that SS agents would know how to be serviced secretly. These are the President’s men. They’re a reflection of him and the image is fading.

•   Closely associated with this incident but even more indicted is the LA Times story and picture revealing US troops in Afghanistan who posed with bloody body parts of suicide bombers. A US soldier who brought the pictures to the Times was “very concerned about what he said was a breakdown in...discipline and professionalism” amongst our troops. The US has ordered our young people to perform mission impossible in Afghanistan and the morale of men and women is deteriorating – rapidly.

In his books and ruminations for many years, your writer has often decried the decline of America’s moral and the ethical culture. It began in the 1960s but most young people and their parents welcomed the change as a liberation from the conservative and restrictive confines of our past. Progressivism has succeeded in destroying the character building teachings of prior generations and each decade and each generation that has followed has diluted America’s moral and ethical base. We’ve now arrived at what CMV has termed EOAAWKI – The End Of America As We Know It and the terrible consequences are at hand.

The Abuse Of Freedom Will Result In The Loss Of It.

Updates

The “Toxic Twins”

CMV has reported on numerous occasions of the running battle between the Obama Administration and Edward DeMarco who was appointed by this Administration as acting Chief of the Federal Housing Finance Agency (FHFA). DeMarco’s job was to preserve and protect the assets of Fannie Mae and Freddie Mac in the taxpayer’s interest.

Mr. DeMarco has been under enormous pressure from the Obama Administration to write down the principal on millions of home mortgages now owed by the “evil twins” or as the WSJ refers to them. – “The Toxic Twins.” The Democrats are determined to fire their hire or in the alternative, find a way to circumvent him. DeMarco maintains that FHFA’s research shows that if a borrower is in distress, writing down a mortgage can cost more for taxpayer’s than other loss-modification strategies. He also believes that economic models can’t capture the risks of moral hazard. In addition, about 80% of homeowners who are underwater continue to make their mortgage payments so why should taxpayers subsidize those who can afford to pay? And, of course, homeowners could stop making payments if they knew the government will reduce their debt.

Mr. DeMarco is steadfast but the US Treasury intends to make him an “offer he can’t refuse.” The Administration wants to use $20 billion in leftover Troubled Asset Recovery Program (TARP) funds to subsidize these write-downs. DeMarco appears willing to compromise given his “prospective” alternatives. Rather than use these funds to pay down the federal deficit you can bet mortgage reductions are coming and the losers are Americans who pay their mortgages on time.

The China Purge

The convoluted mystery of the apparent murder of British citizen Neil Heywood and the expulsion of former Chinese Chongqing party chief Bo Xilai gets dicier. Now it appears that Bo’s wife Gu, may have played a role in Heywood’s murder. Bo’s real problem appears to be his reactionary “Maoist” views and his ordered closing of Wal-Mart in his Province . Ironically, the government shut down any reference to the scandal on the internet providing evidence that totalitarianism is still alive and well in China. It appears that China’s internal security chief Zhou Tougkang, a member of the Politburo and a close friend of Bo, is also in the “cross-hairs” of party chief Hu Jintao. There’s no question that an internal purge is taking place in China and no one knows when and where it will stop. The impact on economic decisions is also in question. How does all this play out given the prospect of an anticipated US currency re-balancing program with China and the BRICS? Who knows, but in all probability Hu will prevail and economic considerations will trump the messy purge and the death of Mr. Heywood will remain a mystery. Where is James Bond when he’s needed?

Pink Slime

The beef industry calls the product “finely textured beef.” ABC News called it “pink slime” and the public promptly reacted by not buying hamburger and beef prices plummeted. As CMV has previously reported the massive and persistent drought in the southwestern US has forced ranchers to sell their herds because they couldn’t afford to feed them. Live cattle spot futures had risen to over $1.30/lb and feeder cattle to nearly $1.60/lb. Since the media-contrived-scare, future prices have dropped over 10% and McDonald’s and supermarket chains have stopped carrying hamburger with the additive. So, what is this seemingly grisly product? Finely texture beef begins as fatty trimmings of cow flesh from which the fat is removed, treated with ammonium hydroxide gas, then mixed with untreated ground-up cow flesh to reduce bacteria and create most of the hamburger Americans eat. As a result of the media scare one meat processing plant has shut down and another has filed for bankruptcy and hundreds of jobs have been lost. What has been gained? A short-term decline in beef prices which could have been orchestrated by those whose focus and bias is to convince the American public that there is no food inflation. On the positive side, a further erosion in the public’s confidence in the media.

Note: As CMV goes to press word comes that a case of Mad Cow Disease has been discovered in California. Health officials assured the public that there wasn’t a threat to the nations’ food supply. Cattle prices, however, took another plunge.

The Everyday Price Index

Closely related to the above distortion of fact is CMV’s persistent harp on the Bureau of Labor Statistics Consumer Price Index (CPI) which numbers are deliberately flawed to convince the public that there is no inflation. The American Institute for Economic Research (AIER) has developed its’ own index for consumer prices which it calls the Everyday Price Index (EPI). AIER maintains that food, fuel and prescription drugs are skyrocketing in price which the US Government ignores. Their EPI jumped 1.3% January and 1.1% in February which on an annualized basis is well in excess of 10%! For the same two months the government’s CPI increase was a minuscule 0.4%. By EPI’s measure, costs increased 8.0% last year vs. 3.1% for the CPI. As a forecast of things to come AIER thinks inflation could exceed 15% next year. That number doesn’t include the potential impact of the Global Re-Balancing Program.

* * *

Sector Overview

1. Cash & Fixed Income

During March we experienced a remarkable increase in yield of the 10 Year T-Note of almost 20% from 2.00% to 2.40%. April saw a reversal of this bias to higher rates when yields fell to 1.93% at month’s end. In part, due to the stream of disappointing economic data including the 2.2% GDP number, according to Randall W. Forsyth at Barrons’ who writes the Current Yield column. Forsyth points out that auto production added a full 1.00% to the GDP number and that would likely not continue. We need to keep in mind that the BIG MONEY poll, above, indicated that 81% were bearish on US Treasuries and 59% said that fixed income assets (bonds and utilities) would be the worst performing asset class. At some point selling short this Sector could produce outsized returns.

2. US Equities

The consensus after the markets excelled first quarter was that a correction was due in April and the cries of “sell in May and go away” were heard up and down the street. Then came the last week in April and blowout numbers from Apple (AAPL) ignited a fire under this Sector that restored about 2% to the losses posted in the 3 weeks earlier. What was also apparent was that the market was shrugging off bad news. As the rain in Spain was not mainly in the plain and Spanish government debt exceeded 6% and sovereign debt was downgraded by S&P, the market appeared to ignore the problems in the EU unlike last summer when US Equities were held captive to EU woes. Even corrupt corporate practices by Wal-Mart stores who ostensibly paid bribes of $24 million to Mexican officials in order to develop its’ operations south of the border didn’t get much downside traction in the US market except for Wal-Mart stock itself. Corruption at the corporate and political level is prospering in the US. As Alan Abelson so eloquently states in his “Up & Down Wall Street” column, “No matter what some denizens of Wall Street profess, principle, is not, and never has been, a synonym for principals.”

3. International Equities

There is so much to report here we can’t possibly cover it all. A few key issues:

ARGENTINA: President Christina Kirchner has “nationalized” the Spanish oil company YPF by expropriating 51% of the shares owned by Respol. Kirchner, called a “thug” by global observers, has resorted to the same Marxist bent as her predecessor husband who was at the controls when Argentina went broke in 2001 and defaulted on its’s sovereign debt. On the surface most observers believe that foreign capital will flee the country and hyper-inflation will again destroy the economy. CMV speculates that a new player, China, could enter stage left. Given the unknown, sell all Argentinian assets if you have any.

EUROPEAN UNION: Despite respectable earnings, 3 of Europe’s largest banks, Barclays, Deutsche Bank and Santander are bracing for trouble (WSJ, April 27, 2012). The first quarter was strong but there’s an economic slowdown and potential defaults ahead. The ruling party in Holland that is promoting austerity to remediate its’ fiscal duress, has collapsed. It also appears that Nicolas Sarkozy will surrender his control of France to a socialist who has run on an anti-austerity platform. There’s a schism in the EU. The German’s and the Nordic countries want austerity. They are now a minority going forward. No one wants to admit it but the EU and the euro could fail much sooner than later.

ICELAND:   Former Prime Minister Geir H. Haarde is the first and only political leader in the world to be brought to trial for his involvement in the global financial crisis of 2008. He was found guilty on one charge – neglect of his duties for not holding as many meetings as needed. The judges concluded that Haarde could have done little to change the outcome and he received no sentence. The Masters of the Universe remain undefeated. MOTU 256 - Taxpayers 0.

RUSSIA:   The Obama Administration’s State Department is ceding over eight islands in the Aleutians chain that are part of Alaska to the Russian government without any consideration of value. The area is known to contain oil but drilling is prohibited by the US. What will the Russians do? Drill baby drill! Another egregious abuse of executive power. It won’t stop until Americans stop him.

4. Hard Assets

The big news in this Sector is the President attempting to divert rising voter angst over rising gasoline prices from himself to someone else. As he asserted on April 17, “an irresponsible few” may be “illegally manipulating or rigging the energy market for their own gain.” Like so many other claims that this President, who now is being characterized as Pinocchio, has made, this assertion proved to be – let’s say disingenuous. John Felmy, Chief Economist for the American Petroleum Institute, explains, “If you argue that the price is artificially high because of speculation or manipulation, then you have a situation where the price is above the intersection of the supply and demand curves. If this is the case, then you should see inventory building up. And, they are not.”

Better yet a more revealing stat appeared in the April 27th edition of the WSJ that listed the average oil prices at which Persian Gulf governments have to receive for Brent Crude in order to breakeven.   Bahrain and Algeria have to receive over $120/BBL to breakeven. Saudi Arabia is $75/BBL and the lowest is Qatar at about $55/BBL. Oil prices aren’t going lower unless global demand falls off a cliff. Investors should have a stake in the oil patch.

5. Precious Metals

Gold as well as the entire Precious Metals Group (PMG) has been in a downtrend since the major break from the all-time high (in nominal terms) in September 2011. After hitting a low of $1525 in December 2011, there was a robust rally that almost reached $1800/oz by March. Then another sell-off that has created a wedge or flag pattern for the past 2 months ending with an uptick to the close of $1664/oz on April 27th. So, where do we go from here? Technicians say all pennant or flag patterns breakout when they narrow down to the end of the flag. Gold could breakout north or south. Dennis Gartman says that “Gold’s decade-long bull market is dead.” He’s said that before and offers no apology when Mr. Market proves him wrong. Alan Newman, who writes Cross Currents, sees the next move for gold will be sharply higher but cautions that the equity and gold market could suffer a correction before that happens. Jim Dines (The Dines Letter), the man who knows more about gold than Gartman would ever hope to, sees a major turn around in bullion and gold stocks in August. Jim has been right so many times, calling major moves in gold, rare earths, uranium and the equity markets, you have to be a fool to ignore him.

CMV marries the technical with the fundamentals. Fundamentally, the Global Re-Balancing Program will supercede all other factors which will take gold to new highs. The charts tell us that the move is not far away.

6. Commodities

As CMV has pointed out above, food inflation is poised to reach double digits (see page 12). By bar-b-que time this summer beef prices will resume their climb and the shortage could become critical. The US just sold the largest shipment of corn ostensibly to China and supply could become a major factor depending on this year’s harvest. All investors should have a stake in this Sector.

7. Real Estate

Please refer to our comments in Market Overview. CMV is comforted by the fact that our bold forecast that both the residential and commercial markets would improve considerably over the past year. Forgotten by most is the dire predictions made by Case-Schiller and other experts who didn’t see any improvement in absorption and prices for years to come. Being a Contrarian has its’ rewards. Our only error is that all the incredible economic events of last year delayed the current activity. We hope our view assisted you in your planning, marketing and investing.

8. Special Situations

We could reiterate last month’s view on this Sector and remain 100% accurate in our assessment. Gold and silver explorers are the most unloved, under appreciated and undervalued sub-sector in the market regardless what drilling results are released. The reality is that senior and junior miners must add reserves to their rapidly depleting underground supply of ore. It’s almost an axiom that the seniors will wait until the price of bullion rises to acquire reserves, when they could make cheaper acquisitions now. That day is coming. The time to buy the microcap explorers is when there’s no “love” in the air. Be a suitor not a seller.

A good case in point is Uranium (Ux). China is on the prowl to acquire large quantities of Ux from companies around the world and according to the China Daily the Chinese are looking to make acquisitions in Canada. As we reported last month China has 15 reactors in operation at present, 25 under construction and 50 more in the planning stage. Their appetite for feedstock is massive. They’ve already made acquisitions in Australia and Africa. CMV suggests that you subscribe to The Dines Letter to obtain his list of explorers that could be buyout candidates.

Call me at (602) 840-4117 to discuss strategic planning.

-- H. L. Quist

H. L. Quist Lecture - April 19, 2012

2012-04-18T08:20:00.000-07:00

Hello World,

H. L. Quist will be speaking at the regularly scheduled class at the Southwestern School of Real Estate tomorrow, Thursday, April 19th at 12:00 pm.

In addition to his popular and informative history of boom and bust cycles, Quist will discuss, for the first time, a MACRO ECONOMIC EVENT that could occur this summer that will greatly impact every American citizen. Based upon information from numerous reliable sources a new currency alignment is forthcoming that could dramatically affect the value of the US Dollar. This heads-up, advance notice is urgent for everyone.

The talk will be held at:

Scottsdale Camelback Resort
6302 E. Camelback Road
Scottsdale

There is a fee of $10 due at the door.

H. L. Quist will be available for personal interview after 3:30 pm.

Contact:
hlquist@cox.net
602-840-4117

CMV is now FREE! April 2012

2012-04-04T11:04:00.000-07:00

Hello World,

The Contrarian Market View Newsletter is now free.

Listen to my podcast explaining the changes in my podcast March 26th.

April, 2012

H. L. Quist’s
Contrarian Market View
Newsletter

S P E C I A L     N O T I C E
As of April 1, 2012 DJM Wealth Strategies, LLC, (DJM) a Registered Investment Advisor owned by David J. Matuszak has consolidated his operation with Dynamic Wealth Advisors (DWA) which is also a Registered Investment Advisor. H. L. Quist, who was licensed as an Investment Advisor Representative with DJM will become associated with DWA in the same capacity.

DWA manages portfolios through a network of independent financial advisors, including H.L. Quist, and also provides back office services to other independent registered investment advisors. DWA is based in Scottsdale and offers services to advisors and their clients throughout the U.S.

CMV recommends that you go to dynamicwealthadvisors.com website and click on Wealth Management Solution 360 and play the demo in the lower right-hand corner of the site.

While previewing SOLUTION 360 you’ll quickly determine that DWA offers a seamlessly integrated secure system that offers its’ clients a consolidated picture of a client’s needs on one site. In addition to the listing of all of your assets regardless whether they are held by Custodians for DWA, you can use SOLUTION 360 to store wills, trusts, deeds, insurance, tax returns and other documents that can instantly be recalled from a secured site. All assets are updated every evening.

For those of you who are subscribers to the CMV, and anyone else who wishes to receive the monthly newsletter authored by H. L. Quist, there will be no cost. All subscriptions pre-paid in advance will be prorated to the March 31, 2012 date. Refunds will be paid by check or processed through PayPal.

The Market Overview, Current Topics and Sector Analysis will remain the same. There will not be any specific stock recommendations. However, in order to assist those subscribers that relied upon these recommendations, H. L. Quist will offer management services for subscriber’s assets (if desired) for a fee with no minimum amount of capital investment. Previously, a minimum amount of $250,000 in capital investment was required.

Please contact H. L. Quist to discuss your personal situation.

For those who presently have assets under management by H. L. Quist, the transfer is seamless. All accounts will remain with Schwab Institutional as your Custodian and all accounts will retain the same identification number. In addition, all fees will remain the same. The only change is that DJM charged its’ quarterly fee in arrears. DWA charges in advance but will assess the second quarter fee in July and the beginning of each quarter thereafter.

We are confident that everyone will benefit from this change. Please call (602) 840-4117 or email hlquist@dynamicwealthadvisors.com if you have any questions.

Market Overview

Amidst all the angst, hand-wringing, and inflammatory political discourse, there was a “stealth” rally in the US equity markets in the first quarter which dumbfounded most market mavens. To wit: The Dow Jones Industrial Average gained 8.1% for the quarter to 13,212 and is only 7% from the all-time high of 14,164 on October 5, 2007. The S&P 500 rose 12% for the quarter to 1408 and the NASDAQ gained a whopping 18.7% for the quarter to 3091, which was the best start of the year for the index since the .com bubble began in 1991!

What is remarkable about this rally, however, is the lack of trading volume according to Vito J. Racanelli who writes The Trader column for Barron’s. He quotes Christopher Zook, the chief investment officer at CAZ Investment who says, “the first quarter was mainly ‘a seller’s strike. Nobody had reasons to sell.” Mutual fund flows still favor bonds as investors are still pulling money out of equities. This is a remarkable phenomenon and leaves an open questions: Can the market continue on this path for the remainder of the year? There is a “wall of worry” to climb. Here are a few holes in the wall to patch up.

The (or according to the President, My) Election

Barron’s predicts in its’ April 2nd edition that President Obama will be re-elected in November but the “thrill of his victory will be short-lived” because Republicans will retain control of the House and secure a 53-47 advantage in the Senate. The Barron’s staff sees this “stand-off” as a positive. CMV does not agree. Given an obstinate Congress, determined to hold new spending initiatives and big government in check, will encounter a President who will rule by executive order and circumvent Congress. The result, a Constitutional and Societal crisis equivalent to the Civil War. The potential impact on the financial markets – unknown. Markets, historically, have outperformed even at times of political turmoil.

The China Syndrome

James Grant, Editor of the Interest Rate Observer, recently interviewed on CNBC, said that the Chinese economy is in for a “very hard landing.” That’s the obvious. It’s the rumors of a coup, political upheaval and murder that has permeated the headlines, with ramifications that are not so obvious. Briefly, Bo Xilai, the former Communist Party chief of the City of Chongoing and a rising star angling for a seat on China’s nine person politburo working committee, was suddenly sacked by Premier Wen Jiabao and hasn’t been seen since mid-March. Neil Haywood, a British confidant of Bo, was found dead in a hotel room and authorities quickly cremated his body without an autopsy. Haywood worked for a British firm that gathered strategic information and was founded by former members of Britain’s intelligence service M-16. Rumors are rampant that Bo, who was intent on cracking down on organized crime and reviving the policies of Mao Zedong, was advocating a coup d’état. The political turmoil coupled with “economic fatigue” could result in a major capital spending program to diffuse the growing unrest. Missing in all the drama is the global and US impact of the Shanghai Cooperation Organization (SCO) reported extensively by CMV that has announced that all its’ members (principally the BRICS - Brazil, Russia, India, China and South Africa) will no longer use the US dollar in trade agreements and are planning to set up their own “World Bank.” The internet is also rampant with news that China and the US have reached an agreement on the devaluation of the USD which will have an immediate and profound impact on the US economy if true.

A significant bit of anecdotal evidence that China has hit the “wall” is Forex flows. The WSJ reported on March 27, 2012 that capital is exiting China. In the past 5 months yuan selling has equaled 200 billion ($31.7 billion). The reason? Expectations that the yuan will appreciate against the USD. A very explosive situation.

Municipal Meltdowns

Stockton, California, a city of 300,000 could soon become another of a growing list of municipal governments in the US to go bankrupt. Like many city and state governments, unfunded entitlement costs in Stockton demanded by employees and approved by the city council, are forcing officials into mediation with creditors and unions to reduce all benefits. Vallejo, California retired employees have seen their pensions cut by 70% . Nationally, the 50 states have promised their employees retirement health care benefits totaling $627 billion in future liability with only 4% of the cost funded. Unfunded pensions are estimated at $4 trillion. The sad part, these employees refuse to comprehend their future and why they won’t receive their benefits.

The Non-Budget

Missed by perhaps 99% of the US population was the fact that President Obama’s budget proposal for his last year in office was submitted to the House floor and the verdict was a resounding defeat 414-0. Fifteen Democrats abstained from voting on the measure that proposed to raise taxes by $1.9 trillion and increase the deficit. In contrast, Wisconsin Congressman Paul Ryan’s budget passed 228-191 last week that proposed to balance the budget in 6 years. Mr. Ryan’s budget has no chance in the Senate so where does that leave us? The US hasn’t had a budget for the past 3 years and will not have one for Obama’s four year term. The debt limit will be breached again and the lender of last resort (The Fed) will again continue to destroy the USD. Updates To Prior Topics

MF GLOBAL and The Missing Funds

The weekend edition of the Wall St. Journal (March 24-25, 2012) featured a shocking (but not unexpected) headline:

“Email Ties Corzine to Missing Funds”

CMV readers will recall that we have been closely following this story of the misappropriation of $1.6 billion in missing customer’s money which is in direct violation of Commodity Futures Trading Commission rules. You may also recall that MF Global’s ex-CEO Jon S. Corzine, testified before Congress that he never directed anyone to misuse customer funds. The House Sub-Committee will meet soon to review this case given this new contradictory evidence. Perjury anyone?

There’s a much bigger issue here. Since the stock market crash of 2008 and the revelation of the malfeasance and misdeeds of those “Masters of the Universe” (MOTU) documented by your writer in his book “The Aftermath of Greed,” it is quite apparent that the transgressors have escaped any personal penalties and disgorgement of their ill-gotten gains.

Franklin Raines, the former head of Fannie Mae “cooked the books” at the Government Sponsored Enterprise and paid himself and other officers huge bonuses on non-existent profits, exposed when the mortgage lender failed . He was never prosecuted and taxpayers are paying him over one million dollars a year in retirement income.

Angelo Mozillo, former CEO of Country Wide Financial, whose company originated and sold perhaps billions of dollars of fraudulent and non-qualified-applicant-loans to various institutions, was indicted on civil and criminal charges but was never imprisoned and Bank of America paid all of his fines and legal fees. It is precisely this lack of accountability that has caused the public and investors to lose trust in the financial system. In contrast, bank officers in Iceland who were at the center of the banking and systemic collapse of the economy after the sub-prime debacle, now face criminal charges and potential jail time and restitution.

Jon S. Corzine was, according to Charlie Gasparino at CNBC, known at GS as “Fuzzy” and it wasn’t because of his facial hair. Corzine was formerly the CEO of Goldman Sachs (pronounced “Sucks”). It’s time for the investing public to demand accountability and restoration of the missing funds – a simple “trimming” won’t suffice.

Goldman’s Muppets

Let’s assume for the moment that you are (or were) a premier client of Goldman Sachs (GS) and had, let’s say, $100 million or so managed by the Wall St. firm. It’s conceivable that you would be a bit chagrined to be referred to as a “muppet ” by those Masters of the Universe – particularly when the term is Wall St. lingo for “idiots.” That is exactly what was revealed to the New York Times by Greg Smith, a departing officer of the firm who observed that GS employees referred to their customers in such derogatory terms. In more damming and caustic phraseology, Smith said that the culture at GS was “toxic and destructive.”

To readers of CMV this isn’t exactly a ground-breaking discovery. For over 20 years your writer has referred to Wall Street’s number one market maker as Goldman Sacks (pronounced sucks) with tons of evidence that justifies the moniker. Smith has simply validated what many market mavens have known or experienced for years but have resisted the urge to tell all. Now, of course, a best-selling book and a film will soon follow that could eventually lead to the downsizing or dissolution of the company. Just desserts for these MOTUs whose rapacious greed played such an instrumental role in the collapse of the real estate market and the loss of trillions of dollars of America’s middle class assets.

Throw Them All out

In the January and February issues of CMV we featured the revelation, in Peter Shcweizer’s book with the above title, that 50 members of Congress traded actively in the stock market and made trades in companies that they helped oversee with their Committee Assignments. The following uproar has finally resulted in legislation to curtail Congress’ Insider Trading. The Stop Trading on Congressional Knowledge, or cleverly, STOCK ACT will get approved by the time you receive this issue of CMV. Actually, the prototype of this legislation was introduced over six years ago but was conveniently tabled until Peter Schweizer’s book raised the ire of the voting public. Before all of us celebrate however, the bill has been watered down to allow members of Congress to share information with hedge funds and financial services companies. The status quo remains intact for the MOTUs.

Frick & Frack

In February and March, CMV featured the ramp-up of oil and gas production in the US that, according to Byron King, could make the US oil independent and possibly an oil exporter due to the evolution of hydraulic fracturing of tight shale deposits. In March we pointed out that citizens as well as the Environmental Protection Agency were claiming that the hydraulic fracturing was threatening underground water supplies. A feature article appeared in the April 1, 2012 edition of the WSJ entitled “EPA Backpedals on Fracking.” The EPA, in a recent action, told a federal judge it withdrew an administrative order that alleged that Range Resources Corp had polluted water wells in a rural Texas County west of Ft. Worth. The Agency has also declared water safe in certain areas in Pennsylvania and Wyoming.   FRICK (the EPA) and FRACK (the oil companies) will be engaged in an ongoing confrontation for a long period of time over this issue. The choice of monikers seems appropriate. Current Topics

Real Estate

The major media outlets have begun to recognize what CMV forecast almost a year ago for the residential real estate market.

Barron’s (March 19, 2012) “Ready To Rebound”

Wall St. Journal (March 22, 2012) “Housing Shows Sign of Life”

In another recent WSJ article the writer indicated that the Phoenix market would lead the nation’s residential real estate rebound which has been evident to CMV and its’ readers for several months. A bit of anecdotal evidence supports our contention that the Phoenix Metro market is indeed well into recovery mode. Your writer’s spouse has been continuously active in residential real estate for over 30 years. In March, 2012 she presented a full price cash offer for a prospective buyer on a medium-priced home in Scottsdale only to discover there were four other offers on the same house. An urgency is occurring in the marketplace. Historically low mortgage rates with the prospect of them increasing and low property values with the advent of price increases have prompted buyers to get off the fence. The Phoenix Metro area (now over 6 million in population) has seen a drop in inventory of unsold homes from 60,000 to under 24,000 in less than two years – a decline of 42%. CMV forecasts that there will be a critical shortage of inventory in 2012 in our market. Builders are buying lots. New construction is underway. Hopefully, this phenomenon will spread to your market also.

Evidence that the bottom is in, in Phoenix, is the significant rise in the median home price. In August, 2011 it reached a 12-year low of $113,000. In February, 2012, the median was $124,500, a rise of 8% over a year earlier. CMV sees larger gains by fall.

On a national basis the WSJ reported on March 22, 2012 from the above article that “Sales of existing homes in January and February were at their highest level since 2007.” And the, “Decline in real estate prices has slowed its’ pace.” Most importantly the housing industry is adding to the nation’s GDP rather than being a drag on the economy. Job opportunities are opening up, up and down the industry food chain. Barron’s modest prediction was that home prices “could turn up by spring 2013.” CMV believes that Barron’s is well behind the curve. By fall Phoenix and other major markets will see price increases that will confound most experts.

As CMV has previously reported, the “Great American REFI” by Fannie and Freddie will also have a major impact on the market. Ted Canto at Academy Mortgage told CMV, when asked about his demand for REFIs, “I’m swamped. People are all over it.” Another company reported in their radio ad that they had $100,000,000 in REFI applications. The two taxpayer-owned GSEs have also announced that they are going ahead with plans to sell off packages of foreclosed homes to investors to be used as rentals. It is anticipated that these homes will be sold in lots of 5,000 to 10,000 to institutional buyers as well as hedge funds with a minimum bid of two billion dollars according to Bob Chapman who is Editor of The International Forecaster. Chapman believes that the sale of 250,000 to one-half a million homes to investors will result in the deterioration of home prices and prolong the agony in the real estate market. CMV does not agree. We see the opposite impact assuming that these homes becoming rentals and not for sale and the absence of inventory will propel home prices higher.

There’s a big of irony and angst here. One could assume that some of these packages could end up in the hands of the same investors who played a role in the sale of the tranches of toxic sub-prime debt that caused the market collapse in 2008. Barron’s estimates that some $7.4 trillion in homeowner’s equity was destroyed in the housing collapse. It hardly seems fair that most homeowners will only recover a small portion of this amount but then again FAIR is what you take your kids to. FAIR has replaced the Rule of Law.

The Myth Maker Meets The Myth Buster

Ben Bernanke, the Chairman of the US Federal Reserve Bank, is presently conducting a series of four lectures at George Washington University entitled “The Federal Reserve & The Financial Crisis.” Paul Brodsky, who has graced these pages with his acute insight in prior issues, has written a nine page critique that debunks Bernanke’s attempt to perpetuate Fed myths long held to be gospel by those who should know better. Paul and his partner at QB Asset Management, Lee Quaintance, said in their March, 2012 review titled “BB (Ben Bernanke) Gun”:

“...the lecture was woefully incomplete, diversionary and often times disingenuous...we think our anticipated macroeconomic outcome will be ignored and denied by public policy makers up until the time they are forced to adopt it and take ownership of it. The math and political expediency behind significant inflation, policy administered hyper-inflation and maybe even conversion to a new monetary system are too compelling to ignore.”

You may recall that CMV feature in its’ October, 2011 issue Brodsky’s call for the US government’s purchase of all privately held gold at $10,000/oz to establish a new credible monetary system.

A profound summary of Paul and Lee’s exposé of BB’s myth was well articulated as follows:

“Our business, as fiduciaries, is allocating capital based on relative value within the macroeconomic environment we see as likely. In our opinion Mr. Bernanke’s lecture last Monday perpetuated bad or unimportant data, implied impossible outcomes, and was quite self-serving in its conclusions. His description of history was incomplete, his extrapolations were baseless, and his arguments were quite weak. (Ultimately we believe Fed policy will migrate — or be suddenly reversed — to meet the consequences of its current policies.)

As we pointed out only a few weeks ago following Warren Buffett’s unsolicited gold comments, (“Golden Boy”), and in December 2009 following Nouriel Roubini’s assertion that a gold bubble was about to pop (“Roubini Rebuttal”), gold is simply money – a savings (not investment) vehicle, a means of storing purchasing power in a time of paper money dilution. That’s it. Central banks compete directly with gold ownership because they manufacture competing savings vehicles in the form of baseless paper money. For the past twelve years global wealth holders have been converting their savings in increasing amounts from paper media of exchange (or financial assets denominated in them) to gold and natural resources. Why? Because central banks must dilute the purchasing power of their currencies to de-leverage the global banking system.”

Over the past few years Americans have been bombarded with neologisms (newly created words) used by the Fed to diffuse and distract the American public from the more easily understood event and consequence of money printing. First, it was “Quantitative Easing” one and two. Then, it was “Operation Twist.” Now, we’re introduced to “Sterilized Bonds.” What in the world is this latest concoction of BB and his madmen linguisticians? The Wall St. Journal dutifully accommodates the Fed by defining these bonds:

“Federal Reserve officials are considering a new type of bond-buying program designed to subdue worries about future inflation if they decide to take new steps to boost the economy in the months ahead.

Under the new approach, the Fed would print new money to buy long-term mortgage or Treasury bonds but effectively tie up that money by borrowing it back for short periods at low rates. The aim of such an approach would be to relieve anxieties that money printing could fuel inflation later, a fear widely expressed by critics of the Fed's previous efforts to aid the recovery.” – March 7, 2012, WSJ by Jon Hilsenrath.

The bottom line is simply this: The US Treasury is running a cash flow deficit of about $5 billion a day and given the Administration’s recent budget proposal the deficit will increase in the years ahead. Who on earth will buy Treasury debt with the prospect of rising interest rates and ultimate hyper-inflation and default? The lender of last resort – the Federal Reserve. The US dollar has lost 97% of its’ value since the Federal Reserve Bank was established one hundred years ago. As Paul and Lee also conclude, the Fed must continue, at an accelerated rate, to dilute the purchasing power of our money to de-leverage our banking system and all of us are paying for it!

Sector Overview

1. Cash & Fixed Income: (Preservation of Capital & Income)
    During March there was a surge in the yield on the 10 Year T-Note from below 2.00% to 2.40% which rattled the fixed income markets as there was a perceived forecast of inflation. The USD rallied briefly on the increase then rates fell back to under 2.20% as the quarter ended and the USD slumped. Contrary to most market analysts, it appears to CMV that there is a growing momentum in the US economy that must manifest itself in higher yields in this Sector. Keep a close eye on the 10 Year T-Note as a true barometer.

2. US Equities: (Moderate Growth, Stability, Capital Gains)
    Please re-read the Market Overview to get a picture of the unexpected out-performance of this Sector in Q1. In a detailed 40-page report Goldman Sachs offered a ringing endorsement for US stocks calling for a once-in-a-lifetime opportunity for investors to switch from bonds into stocks. Goldman’s argument is largely based on valuation. CMV believes that the rally is liquidity induced and negative interest rates. This report is contrary to mutual-fund-flow data released by the Investment Company Institute which showed money still pouring out of US stock funds and into bond funds. This is one rare instance where CMV will agree with GS. The fear that rising interest rates will choke off the rally in stocks is unwarranted. The first time the S&P 500 hit 1400 in 1999 (which it did again on March 30, 2012) the 10 Year T-Note was at 5.70% – a far cry from the current 2.20% which Mr. Bernanke has assured us will remain intact until late 2014.

3. International Equities: (Aggressive Growth, Capital Gains)
    As far as the Pacific Rim (ex Japan) is concerned, all the focus is on China which we featured in the April 2, 2012 Podcast and the Market Overview on page 2. Hook or by crook, China will reflate its’ economy and the fears of revolution and economic collapse will be just a blip on their radar. China is experiencing its’ first taste of capitalism’s’ sweet and sour sauce but its’ positioning itself to ignite a fire under the dragon.

The EU is entering anew phase. The pain in Spain is mainly in the plain [sight]. The EU’s fourth largest economy is struggling to stay afloat and keep the rioters at bay. The ECB can’t bailout all the PIIGS. Although EU equities have performed well in Q1, continued problems in Spain, Italy and Portugal could mean trouble.

4. Hard Assets: (Aggressive Growth, Sector, Capital Gains)
    The big story in March for this Sector is the demonizing of speculators and the greedy oil companies that have manipulated the price of crude and caused higher gas prices. As we write, the President has called for the 59th investigation into collusion within the industry. No one in the US government wants to admit that the deliberate devaluation of the USD is the principal cause of rising gas prices and that situation is going to continue and accelerate if the China currency “deal” becomes reality. The Iran/Israeli nuke confrontation lies on the horizon and could be explosive.

5. Precious Metals: (Aggressive Growth, High Volatility, High Risk)
    This Sector took a significant hit in March for a number of reasons. Some are obvious and predictable. Others are subtle and non-transparent. First the obvious.

As reported on page 8 an unexpected surge in interest rates strengthened the USD and gold bullion and its’ sister metals declined. This is a direct correlation that has played out over the past 10 years. At some point in the near future there will be a bifurcation and Au and the PMs will rise despite the increase in interest rates. The extreme example, of course, was during the period 1976 to 1980. Au rose from about $100/oz to $850/oz while the bank prime rate rose from 8% to 21.5% by 1980. Could this happen again? Certainly. But there’s no guarantee.

An unexpected cause for bullion to decline was a strike in India. Gold sellers in that country closed all their shops to protest their government’s decision to boost levies on sales of all PMs. India doubled its’ import duty on gold to 4% and instituted a 0.3% tax on all gold sales. Approximately 300,000 proprietors and all their employees were impacted. India accounts for about 25% of global gold demand – 933 metric tonnes in 2011!

Another is the perception that the economic fatigue experienced in China would also result in a cut in that government’s purchase of Au. There has been no indication that that has been the case. CMV is of the opinion that the Chinese government would use the discounted price to add to their growing inventory.

Barron’s, in its’ Commodities Corner column, on March 19, 2012, reported that there’s a rising demand for Palladium and they expect to see a 20% jump in futures prices this year. About 50% of all Palladium production goes into making catalytic converters for cars and trucks as well as increased demand in electronics. Russia has been the world’s largest producer of PAL but rumors persist that either the mines there have exhausted their supply, or the Rooskies are withholding delivery for higher prices.

All of these negative factors are temporary. The global debasement of fiat currencies will, in CMV’s opinion, accelerate. The entire PM complex is destined to go much higher.

6. Commodities: (Aggressive Growth, High Volatility, High Risk)
    Despite a concerted effort by the Department of Labor Statistics, the Fed and the present Administration to convince the American public that there’s no inflation, the “inflation Jeannie” is out of the bottle. Agribusiness stocks have maintained their value despite the attempt to talk down prices. The major exception however, is cattle and hog prices. Live cattle, in particular, have plunged in price in March despite the fact that the drought in the Southwestern US has decimated herds. Observers and ranchers have to question the Department of Agriculture’s (DOA) recent report on inventory to control prices and the pink slime additive scare. In a somewhat related issue the DOA proudly reported that they had distributed the greatest amount of food stamps in history. Meanwhile, the Forest Service, also a part of DOA, asks the public, “Please do not feed the animals because the animals may become dependent and not learn to take care of themselves.” (CMV couldn’t mss this opportunity.)

A harbinger of things of come is evident in California where the Central Valley Project (San Joaquin Valley) recently announced that there would be a 70% reduction in the farmer’s water allocation for 2012 whereas the farmers received 85% of their allocation last year. Hundreds of thousands of acres will go fallow and an equal amount of farm workers will be unemployed. The San Joaquin Valley is the largest producer of fruits and vegetables in the Nation. We in the Western US can plan to see food prices escalate even higher as Nancy Pelosi revels that the Delta Wetlands and the smelt (fish) have the first priority call on the water from the Sacramento River.

7. Real Estate: (Aggressive Growth, Income, Illiquidity)
    Please refer to page 5 for a focus on this Sector. CMV took a bold contrarian position very early on this Sector and it has been rewarding. Who picked home builders a year ago? Barring events unseen at this juncture, we see residential sales and price increases outperforming all estimates in the Phoenix Metro area and general improvement throughout most areas of the country. By late summer we’ll hear the word “bubble” again in the Valley of the Sun.

8. Special Situations: (High Risk, High Potential, Capital Gains)
    At present there isn’t a more “unloved” Sub-Sector than gold and silver exploration companies. Many have reported exceptional drilling results but the market doesn’t recognize the value. Two things have to happen to change the stock price. 1) Gold and silver bullion needs to move toward their all-time highs, and 2) producers make an offer to buy the company or a portion of their property. Most senior producers desperately need reserves and are willing to pay a very high price for proven reserves in the ground. As the bullion price accelerates expect acquisitions to follow.

One Sub-Sector that flourished during the month was Rare Earth Elements (REEs). The US, Japan, and the EU have filed a complaint against China at the World Trade Organization over Chinese restrictions on shipments of raw materials including REEs. China has threatened a “backlash” instead of settling the rift. China presently controls 96% of the world’s REEs but the US has several advanced exploration companies that could become acquisition candidates. This is a Sector that commands your attention.

Another positive Sub-Sector with promising upside is Uranium (Ux). Barron’s in its’ March 22, 2012 Commodities Corner column reports that there are now 435 operating rectors world-wide, 61 under construction and another 162 are planned or on order. Supply of nuclear fuel (U3O8) is being depleted and demand now exceeds mine supply. Ux is now around $50/pound with estimates of $70 within two years.

The bottom line is that global natural resources are being depleted at an exponential rate. The recent video, “The Last 5 Minutes” that CMV shared with its readers should have been a real eye-opener. Lake Mead holds about 14 trillion gallons of water. If one drop leaked out in one second and the leak doubled every second, how long would it take to empty Lake Mead? 57 minutes! And, if you were in a boat on the lake afer 50 minutes had passed, you wouldn’t even realize the water level was declining. In the last 5 minutes the lake would go dry. That’s what will happen to oil, copper, uranium, gold, iron ore and most of the earth’s natural resources! Get it?

* * *
Introduction To The CMV

    A CONTRARIAN is someone who looks at things differently than the majority of people. That definition fits H. L. Quist and CMV perfectly. In market parlance when 80 to 90% of investors are certain that the market is going to continue upward, the contrarian heads the other direction. Conversely, when the news is about as bad as it can get, the true contrarian is usually on the ground floor buying. That’s what you can expect from H. L. Quist’s Contrarian Market View (CMV).

H. L. Quist’s Contrarian Market View Newsletter is available by request at no charge.

Disclaimer: This commentary is provided for informational and educational purposes only. The information, analysis and opinions expressed herein reflect our judgment as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation. All investments carry a certain risk and there is no assurance that an investment will provide positive performance over any period of time. Information obtained from third party resources are believed to be reliable but not guaranteed. Past performance is not indicative of future results. H. L. Quist is an investment advisor representative of Dynamic Wealth Advisors, a registered investment advisor. Mr. Quist offers investment advisory services through Dynamic Wealth Advisors. Dynamic Wealth Advisors is not affiliated with CMV and does not make any representations about the content of CMV's newsletters or provide any information or advice to CMV.

H. L. Quist
Investment Advisor Representative

hlquist@dynamicwealthadvisors.com

H L Quist recommends you watch this video

2012-03-13T12:51:00.000-07:00

Hello World,

Money Map Press released this video I found interesting enough to share with you.

Money Morning

To pause the video, click in the center of the box, as it does not have the usual controls one sees with internet video.

-- H. L. Quist

Free Preview of February 2012 CMV

2012-02-01T07:22:00.000-08:00

Hello World!

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

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

CMV Recommended List Market Results

                                                    YTD            52 Weeks
    The CMV Portfolio*            18.2%            14.0%(since 1/1/10)

Market Overview

The headline in the weekend edition of the Wall St. Journal expresses the consensus of most market observers and economists:

“U.S. Economy Picks Up Steam”
Fourth Quarter Growth Rate of 2.8% Is Fastest
In 18 Months, But Doesn’t Appear Sustainable

It’s like being dammed by faint praise. Or, like, there’s good news and bad news – which do you want to hear first. A 2.8% GDP growth rate (which is the first estimate that traditionally is the highest) is a considerable improvement over the 1.2% average for the first 3 quarters of 2011, but well below a 4% to 5% rate that would normally occur after a deep recession. The Wall St. Journal made a tell-tale observation.

The private economy was actually stronger than the GDP number above indicates because government “pulled” nearly one percent from the GDP. How could that happen? The massive $877 billion American Recovery & Investment Act (AARA) of 2009 and 2010 and other stimuli made growth in these two years appear larger than it actually was due to the combination of transfer payments and temporary tax cuts. Now, in response to the deficit spending of almost $4 trillion in the past 3 years, government spending is (at last) declining which, of course, reduces GDP.

There’s another distortion in the 2011 numbers that are cited by economists and analysts. There was a surge in inventory investment and companies rebuilding inventories after whittling them down when the economy began to weaken in late spring 2011. Stephanie Pomboy, who runs Macro Mavens and is a CMV favorite, indicates that a full 1.94% of the 2.8% GDP growth came from inventory build and that will not be sustained in 2012. Additionally, business capital investment on factories, machinery and computer equipment advanced only 1.7% last quarter vs. 15% in the third quarter. The simple reality is that business is afraid to overspend and is holding on to large cash reserves because of the uncertainty that lies ahead. No one wants to admit it publicly but business fears an Obama re-election and how negatively business will be impacted by more government. A BO defeat in November would set-off an explosive relief rally in the stock market.

The “January effect” in the stock market, has been positive with the S&P 500 up 4.7% despite weakness at the end of the month. With about 180 of the S&P 500 Index companies reporting, there have been 1:8 fourth quarter positive earnings surprises for each disappointing report. A more normal ratio would be 3:1 so corporate growth is slowing which is contrary to what most of the talking heads on CNBC and analysts have forecast. You may recall that CMV had forecast nine months ago that higher raw material costs would negatively impact earnings which was largely ignored by the experts.

The rare exception, of course, is Apple (AAPL) whose earnings were spectacular. The company had record revenues of $46 billion and net earnings of $13 billion for the fiscal quarter ending December 31, 2011. Net earnings were up over 100% YOY (the greatest ever for a US corporation!), and the company is sitting on $97 billion in CASH. CMV ponders: Why isn’t AAPL the target of the liberal left claiming that their profits are “unconscionable?” When Exxon and Goldman Sachs reported outrageous profits in the past, Nancy Pelosi and Harry Reid were calling for a corporate surtax on excess profits. Investigations ensued. Hearings were held. It’s easy to hate big oil. It’s equally justified to distrust Wall St. Greed. Goldman is no friend of CMV but the question persists. Could it be that Silicon Valley enjoys a warm spot in the hearts of the political left and curries their cash?

In its’ stated quest to achieve transparency relative to interest rates, the Federal Reserve declared its’ intent to maintain the current near zero Fed-funds rate “exceptionally low at least through 2014.” The Fed also indicated that it would retain the rate near zero as long as unemployment remains above the 5.2% to 6% level which is currently at 8.5%. What the Fed is telling us is that they don’t expect the US economy to improve much from its’ performance of the past two years and there will be NO inflation. CMV does not agree.

At the announcement the US dollar (USD) declined sharply and gold rallied smartly. Treasury Inflation Protected Securities (TIPS) sold at a negative yield. Mr. Market doesn’t agree with Mr. Bernanke. The Smart Money is betting on monetary as well as price inflation. CMV holds the position that current US leadership has taken a deliberate and calculated strategy to devalue the USD in order to attempt to pay off the $16 trillion of Federal Debt and another $100 trillion plus in entitlements with cheaper dollars. The event that will disrupt this flawed strategy will be the termination of the USD as the world’s reserve currency. Recent events foretell the dollar’s demise.

The OPEC countries in agreement with their oil import countries: China, Japan, India et al, have agreed to not price oil in USDs and not accept the once almighty dollar in payment for the oil (see Page 6). You’ll recall that CMV reported to you almost a year ago that China, Russia, India and a host of other countries had formed the Shanghai Co-Operation Organization (SCO) in order to conduct trade in currencies other than the USD. Once the global financial community acknowledges the demise of the dollar, devaluation will begin en-masse. The US will no longer be able to peddle its’ debt at a negative yield, and the Fed will open the dollar spigot and the flood of monetization will begin. It’s difficult to believe but Hyperinflation is our biggest concern and greatest threat. The Fed wants us to believe that it couldn’t possibly happen here.

“The Impending Undeclared Default Of 5 Major US Banks”
    In an interview on January 30, 2012 (http://www.ellismartinreport.com/node/181) with Ellis Martin, Jim Sinclair reveals that the International Swaps and Derivatives Association could make a determination this week on its review for default of European Sovereign Debt. Sinclair reports that 5 US banks own 97% of the Credit Default Swaps (CDS). CMV urges our readers to listen to this interview, and conduct your own further due diligence.

Robert Campbell, who publishes “The Campbell Real Estate Timing Letter” (Barron’s Up & Down Wall St. January, 30, 2012), believes that inflation adjusted home prices have to fall another 10% to 15% before they stabilize. He also warns that even after they stop declining, prices will bounce along a bottom for years before we see a bull market in housing. CMV emphatically disagrees. If that were to occur, the US would be a candidate for a full blown depression and Ben Bernanke has stated that won’t happen on his watch. Be sure to focus on our Real Estate Section (below) to get our Contrarian Market View.

Real Estate

In January CMV featured The Great American Refi – Part II, aka The Home Affordable Refinance Program (HARP 2), which proposed to offer refinancing to all Fannie and Freddie borrowers ($5 trillion in mortgages) regardless of how far underwater the loan may be. CMV has learned of more details of the program that is to be launched in March.

●   There will be no loan to value restriction.

●   Interest rates for 30 year fixed loans could be under 4% but subject to market conditions. The Federal Reserve announced on January 25th that they intend to keep the Fed Funds Rate and the Discount Rate at present historic lows until the end of 2014 which could influence rates favorably.

●   Eligible homeowners can only have missed one payment during the past year.

●   Closing costs will be minimal. There has been no indication that an appraisal will be required.

●   There is a differing opinion on verification of income which should be known soon.

●   Investor-owned properties will also be eligible. Discussions have ranged from 4 properties to 25.

●   There will be payment incentives to second trust deed holders to release their lien.

In early January, the Federal Reserve, in an extraordinary and unprecedented bold political move (dispelling the myth of the Fed’s independence) sent a 26 page “white paper” to Congress in what Chairman Ben Bernanke called a “frame work” to address the housing problem. On top of that, New York Fed President William Dudley called for Congress to provide bridge loans for jobless borrowers, more government-assisted financing, a new program for principal reductions for underwater borrowers and even suggested that Fannie and Freddie get into the rental housing business. What’s going on here?

Just as Congress used John Maynard Keynes as “intellectual cover” to justify the massive stimulus plans beginning with Barack Obama’s $877 billion American Recovery & Reinvestment Act (ARRA) in 2009, the Fed and Mr. Dudley are now providing the same cover for Congress to draft legislation to spend more taxpayer money to simulate the housing market. As the Wall St. Journal said in its’ Review & Outlook Column on January 10, 2012, “It’s impossible to defend the Fed’s rank electioneering as it lobbies for more political and taxpayer intervention in the housing market – just in time for the election campaign.”

Ponder for a moment the absurdity and consequences of HARP 2 given the Fed’s prior track record from 2002. Allen Greenspan’s Federal Reserve with present Chair Ben Bernanke (then the Vice Chair), conceived the first Great American Refi Program to stimulate consumer spending by driving down interest rates to (then) historic lows, fostered the manic real estate and refi boom by maintaining interest rates too low for too long, failed to rein in unscrupulous mortgage brokers like CountryWide Financial, New Century Financial and others that fraudulently created and sold toxic debt to the banks and then refused to intercede when the banks became over-leveraged in sub-prime debt.   In the short-term (past the November election) HARP 2, in CMV’s opinion, will succeed and create another boom that will inevitably lead to another crash and another opportunity for even more government. We’re in total disagreement with Robert Campbell’s Bearish view over the near-term.

We are all now witness to a Federal Reserve whose Board of Governors is dominated by Obama appointees that share his interventionist policies. In all probability by late summer, home builders, mortgage brokers, real estate agents and the entire real property food chain will be semi-euphoric. The apparent success of HARP 2 could be responsible for the President’s re-election particularly with real estate industry support. The question is, how durable will the boom be? It’s an issue that CMV will monitor on a daily basis. Stay tuned, but Profit Now!

There are other events taking place that are impacting the real estate market.

For the better part of a year CMV has been reporting to you about the prospects of a potential settlement between the Federal government, the states and the banks over deceptive foreclosure practices (robo-signing). A draft settlement with five of the country’s largest mortgage lenders in the amount of $25 billion has been sent to each of the states for signature. This settlement applies to privately held mortgages funded between 2008 and 2011 and not those held by Fannie or Freddie. Under the proposed deal:

●   $17 billion would go toward reducing the principal on homeowners’ mortgages.

●   $5 billion would be placed in a reserve account for various state and federal programs. Affected homeowners should get checks up to $1800.

●   $3 billion would go to help homeowners to refinance at 5.25%

●   Undisclosed is the amount the Federal government will take off the top for “administration.”

By itself this settlement probably wouldn’t have much of an impact on the market in 2012 but, in concert with HARP 2 and a multitude of other government programs, it will create a favorable buzz in the industry and stimulate sales of residential real estate.

The “Smart Money”, i.e. private-equity, hedge funds, institutional and wealthy investors also sense that a recovery is at hand and are piling on or in. A private equity fund, GI Partners of Menlo Park, California, is investing $250 million into Waypoint Real Estate Group with the intent to buy foreclosed homes at deep discounts and then rent them out to tenants. GI said they could increase their investment to one billion dollars if they’re successful and they can “scale it up to 5,000 to 10,000 homes.”

Proving that there’s always opportunity when there’s a disaster, a sub-sector of the real estate market has thrived. As people lost their homes and moved to smaller quarters, they have had to store their household goods. The big winners? REITS that are in the self-storage business. In fact, the Wall St. Journal reports that these specialized REITS had a total return last year of 35.4%. Extra Space Storage, Inc., which has 882 facilities in 34 states had a 2011 total return of 43%. As the economy recovers and renters become home buyers again, the trend should reverse.

The self-storage phenomenon was hatched in part by a reality TV show “Storage Wars” which follows investors as they bid on repossessed storage lockers in search of hidden treasure. Who would ever have “thunk it?”

There’s one aspect of the residential mortgage market and it’s implications that has escaped even seasoned real estate players – Mortgage Insurers. These companies provide protection to lenders such as Fannie and Freddie where the home buyer can’t provide a 20% down payment. In order to close a loan that would be purchased by Fannie or Freddie, the insurer guarantees, to the ultimate lender, the difference between the total loan amount and 80%. The problem simply is that virtually all the mortgage insurers are broke and can’t pay the claims.

For example: PMI, which the State of Arizona has prohibited from writing any new insurance, is currently paying off claims at $.50 on the dollar and covering the balance in “script” that Barron’s (January 16, 2012) says will likely be worthless. The stock in PMI has plunged 98%. Old Republic International (ORI) is in a similar fix. Other well-known names in the industry are MGIC Investment (MTG) and Radian Group (RDN) who are scrambling to raise equity to meet reserve requirements and pay claims.

Now, let’s connect the dots. In all probability most of the mortgage insurers will fail and lenders – say Fannie and Freddie – will have to report additional losses above the $150 billion now already accrued . The US Treasury is the Conservator and guarantor for Fannie and Freddie. The Treasury has no funds to feed the “evil twins.” So, how do the insurers and the lenders get bailed out? HARP 2! The Great American Refi. And, for all this to have any chance of working real property values must increase.   This is another short term fix that will inevitably lead to longer term consequences. The “Last Rodeo” will also play out in the real estate market, but ride the bucking bull before the bell rings and the clown appears.

The critical issue to this whole scenario is, where will the Refi money come from? We’re talking trillions! The Fed inferred on January 25 that they may resume “bond buying” if the situation warrants it. Don’t be surprised if the Fed soon reveals that it will purchase bonds of the bankrupt “evil twins” – Fannie and Freddie. You might even call it QE 3. Who else will buy the junk?

Updates

The following pieces are current updates to articles featured in past issues of CMV.

Chaostan – is Richard Mayberry’s (Early Warning Report) appropriate term for the Mid-East – the land of Chaos, principally Iran.

According to Edward Cody, who writes for the Washington Post, the European Union’s 27 members have formally banned the importation of Iranian oil on January 23rd and froze Europe based assets of the Central Bank of Iran. Sounds ominous in its’ potential impact on the Iranian economy already crippled by US sanctions. Typical of the waffling of the Socialist mind-set, the sanctions have “broad loopholes” including a six month delay before they go into effect and existing contracts for oil will be honored until July and come under review prior to May 1st to determine if more flexibility is needed.

Greece has been buying Iranian oil on credit and refines crude for the Balkan countries. Italy has been accepting oil as payment on loans it has made to Iran. More importantly, 2.2 million barrels/day of Iran’s oil exports are committed to China, Japan and South Korea. In defiance Iran again has threatened to block the Strait of Hormuz where 20% of Persian Gulf oil exports must pass. And, at present, the Iranian economy is in “desperate straits.” Their currency has plunged in value, inflation is rampant and the Iranians are attempting to convert their rials to euros, dollars or gold. (10 million rials for one ounce of gold!) If that weren’t enough, unknown sources are murdering nuclear scientists (as previously reported by CMV) and hacking into computer systems at the nuclear facilities in Iran. A perfect recipe for war. What will the “Allies” do if China and/or Russia enter the fray? Chaostan could truly become the land of chaos.

NOTE” As CMV goes to press high level meetings are taking place with the OPEC countries, plus Japan, China, India, and other oil importers. Their plan soon to be initiated is to no longer price oil in US dollars and not accept USD for payment. India will pay for Iranian oil in gold. China has entered into a currency swap deal with the United Arab Emirates. The USD as the world’s reserve currency is in its’ death throes.

Euroland Is Sinking

The metaphor is inescapable and by now almost redundant. The sinking of the cruise ship Costa Concordia off the coast of Italy depicts a continent that is also going under. The Concordia incident conjures up the tragedy of the Titanic nearly 100 years prior but with meaningful contrasts. But first, the similarities.

The passengers on both the Titanic and the Concordia were advised that “nothing’s wrong.” The Titanic, after all, was unsinkable and the Concordia was only 50' off-shore. As Bret Stephens in his Global View Column in the January 17, 2012 Wall St. Journal recalled, this ill-advised assurance was like the pronouncement made by European Council President Herman Van Rompuy in New York last fall who said that “Greece would never default, the eurozone’s financial position was not a serious cause for alarm, and that the main thing was to prevent further outbursts of market irrationalism.” In other words, the EU ship of state wasn’t sinking and all cries for help should be muted. When political leaders say we have no problem it means we definitely have a problem.

Contrasts in the two events are far more telling.

The pre-World War I era was all about Honor and Duty. A century ago in April, as the Titanic was in its’s “death throes” and all its’ lifeboats had been launched, Captain Edward Smith told his crew: “Men, you have done your full duty. You can do no more. Now, its’ every man for himself.” (Rick Lowry, King Syndicate). True to their Edwardian ideals, it was women and children first and a large majority of them survived and the men went down with the ship including Captain Smith and his crew.

In contrast, the Captain of the Concordia apparently abandoned his post and his ship very early after the accident occurred and hysteria ensued with men running over women to reach the life boats. We truly live in a different era. It has become “every man (person) for himself.” We’ve lost our sense of community and devotion to a common good, not to mention Honor and Duty. The US ship of state is also sinking. As Walt Whitman so poetically wrote, “O Captain! My Captain! Our fearful trip is done...”

Solar Storms

The January issue of CMV reiterated the warnings by NASA of the prospect for solar storms. On January 24th, the earth received a “glancing blow.” According to a Washington Post article by Brian Vastag,, “the Sun released an even more energetic blast of radiation and charged plasma over night that could disrupt GPS signals and the electrical grid.” For those in Canada and Scandinavia, residents witnessed bright aurora borealis in the sky. There have been reports of some disruptions in satellite or radio communications from this solar storm and NASA and physicists at the Space Weather Prediction Center forecast that the intensity of such storms will increase this year. Why not purchase an emergency world band radio?

Bank Lending

The constant drumbeat from politicians, economists and market pundits over the past three years has been that there won’t be economic growth until the banks start lending again. Now, for the first time since 2008 bank loans to companies and individuals has decidedly increased. At Citigroup, Inc., retail banking loans rose 15% from a year ago to $133 billion. At Wells Fargo & Co., commercial and industrial loans rose 11% to $167 billion at December 31, 2011. All told US banks increased their lending by $41 billion year over year.

No question, companies and individuals wanting to borrow and banks willing to lend is key to growth. It is also a key component that has been lacking for price inflation to occur. Given the constant and continued devaluation of the US dollar created by the Federal Reserve, the prices of goods and services have increased but most people don’t realize what is occurring. Lending on the other hand, creates the “fiduciary medium” that not only creates growth, it provides the fuel for inflation as the velocity of money begins to increase. Americans are about to experience a politically motivated confluence of these elements that will create asset as well as price inflation. Ironically, in its’ early stages, profit opportunities will abound. You’ll find some here.

American’s Oil Independence At Last?
On the surface you will find this hard to believe. Some will say it’s absurd.

●   By 2017 the US will produce more oil than Saudi Arabia.

●   The US has about one trillion barrels of (unproven) oil reserves in the ground.

●   By 2016 the US will become an oil exporter.

●   By 2015 the rebirth of American’s oil industry will create 800,000 manufacturing jobs.

Who is the source of this astounding information and claims?

Byron King is a Harvard graduate geologist and is the author of Outstanding Investments (www.agorafinancial.com), which has been ranked the number one investment newsletter for the past 10 years averaging 22% per year return by Hulbert Digest. CMV has subscribed to Byron’s oil report outlined here and his credentials warrant your focus and study.

Peak oil production through “conventional drilling” in the US maxed out in 1970. According to Byron, the convergence of domestic demand, coupled with new technology has led to the discovery of “unconventional” or “tight” oil. Geologists have known for years that underground shale deposits have held millions of barrels of oil and a massive amounts of natural gas but the oil industry lacked the knowledge and the equipment to extract the carbons at a reasonable cost. Now with 3-D seismic mapping, horizontal or directional drilling and hydraulic fracturing, discovery and production has opened a whole new perspective on fulfilling America’s energy needs.

Conventional drilling for oil utilized a vertical hole to a depth where a pump and underground pressure extracts the oil from a pool or porous formations. In contrast shale oil is trapped between layers of non-porous rock and requires fracturing using high-pressure water along with chemicals and sand to free up the oil A vertical well piping turns horizontal when it hits the shale formation and runs laterally up to 7,000 feet creating much more surface area to withdraw the oil. As a result, millions of acres all over the US are now open to oil production. You’ve probably heard of the Bakken Formation in North Dakota and Montana where unemployment is less than 3.5% and there are more jobs available than there are applicants to fill them. And, oil field jobs pay very well. A truck driver from North Dakota interviewed recently on CNBC was ecstatic revealing his new job paid $80,000 per year.

How does an investor capitalize on this burgeoning industry? You could try to identify speculative microcap companies that just might secure a land lease, drill a number of productive wells and sell out to a major at a nice profit. Or, Byron recommends major players who are exploiting the shale play in addition to their conventional production. One such company Byron recommends is Hess Corp (HES:NYSE). The company controls 900,000 acres of shale real estate in the Bakken area. In just two years, Hess, will get 50% of its production from shale oil and gas. In addition to North Dakota, Hess has recently secured prime real estate in eastern Ohio in a new hotspot, the Utica Formation. Currently HES is about $62/share and about $20/sh off its’ April, 2011 high. It pays a dividend of about 0.73%.

Most of the “unconventional” drilling also produces high quantities of natural gas (NG). Over supply of NG has resulted in the US price plummeting to historic lows as previously noted by CMV with our recommended SELL on UNG. In other parts of the world, however NG sells for 3 or 4 times the US price. The problem is, how can NG be transported without the use of a pipeline thousands of miles overseas? Again, technology provides a solution. By super cooling NG to a minus 260° it becomes a much safer and transportable liquid (Liquid Natural Gas – LNG). In a short period of time the US will become an exporter of LNG. In addition, the gas-to-liquids (GTL) technology allows NG to be converted into diesel fuel and other liquid fuels. What major oil company leads in the market of LNG? Byron recommends Royal Dutch Shell (RDS.B:NYSE). Shell is not only an exploration and production play, it’s a major refiner, chemical manufacturer and retailer. It also owns its’ own fleet of vessels to transport LNG. In addition to the prospect of capital appreciation, RDS.B currently pays about a 4% dividend.

A logical extension of the rebirth of the oil industry in the US is the well-services companies who pioneered the new drilling technology and service the wells. Byron, in his report, reveals the “trifecta” or the top three oil service companies in the world. In particular, King prefers Baker Hughes (BHI:NYSE) which at the time of this writing is about $49/sh. You should order Byron’s full report to obtain the other names in this Sector.

The final profit opportunity and integral piece to the rebirth of the oil and gas industry in the US is the pipelines that transport the fuels. These companies get paid to move the commodity not produce it and they’re not concerned with price fluctuations which can be significant. Most of these companies operate as Master Limited Partnerships (MLP) that are publicly traded like a stock on the major exchanges. The MLPs avoid corporate double taxation and distribute most of their income (90%) in the form of dividends to shareholders. The MLPs are a low-risk way to achieve a competitive return on investment plus capital appreciation. CMV has recommended Kinder Morgan Energy Partners, LP (KMP:NYSE), which has appreciated 40% since recommended January 2, 2010, and paid an average dividend of about 6%.

Byron King’s number one recommendation is Mark West Energy Partners, LP (MWE:NYSE) which has extensive NG gathering, processing and transmission operations in the Southwest, Gulf Coast and Northeastern US including he Marcellus Shale which will substantially, in time, increase the company’s revenues. At the time of the 2008 crash MWE shares sold as low as $10/sh and the stock is now around $50. The current dividend is about 5%. Byron reveals a number of other growth/income plays in his report. CMV encourages you to purchase the report for $49.

CMV is compelled to offer a rebuttal to Byron King’s claim that the US will be energy independent in about four years.

In a January 23, 2012 article in the Wall St. Journal, Tom Fowler says, “The increased domestic production isn’t enough to help the US achieve the elusive ideal of energy independence – the country is expected to consume more than 19 million barrels of oil and liquids a day by 2020.” Fowler goes on to say that production (including the shale oil) will only reach 10.5 million barrels per day by 2020. An increase from the low of 7.6 million barrels/day in 2008 prior to shale oil and far from equilibrium.

Who is right? Only time will tell but CMV believes that shale oil and gas will result in significant growth in specific acres in the US which will also feed into ancillary industries, trickle down and be a positive resource for growth and income in the US.

For young men who are amongst the 20% chronic unemployed, find a way to get to Dimmitt, Texas, DeSoto Parish, Louisiana, Dickinson, North Dakota or hundreds of other locations that desperately need workers. Accumulate cash and send a large portion of your pay home to your family.   Bring your own camper. There are few places to live. Your writer worked in an oil boom town 5 decades ago. Been there and done that!

There’s an enormous political irony to this story. We have a President in this country that prefers to throw billions of taxpayer money into failed solar and alternative energy deals that will, at best, result in minimal results while at the same time obstruct proven sources of energy (Ux Mining in Arizona, and the Keystone Pipeline) playing to his ideological left. The next environmental claim will be that hydraulic fracturing causes earthquakes and shale production will be halted to begin a lengthy study.

According to Keith B. Hall in the January issue of Oil & Gas Law Brief , injection wells like the Strategic Petroleum Reserve can produce earthquakes in areas that are prone to have them. Quakes caused by Hydraulic Fracturing, however, is less conclusive and are 3.0 or less on the Richter Scale. An even greater issue, however, may be the possibility that chemicals used in the Hydraulic Fracturing threaten the underground water supply.

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

Subscription box in in the left side bar here on the blog.

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-- H. L. Quist

The Ronald - Wealth DNA - Interview with H. L. Quist

2012-01-09T09:32:00.000-08:00

Hello World,

Ron Nawrocki says of this show:

"What's likely to occur in 2012?
We'll be asking our special guest H.L. (Buster) Quist to share some of his insights he just sent to his newsletter subscribers. And listeners get to hear his predictions at no charge, and can even ask questions during the show. We'll be focusing on the 3 E's that directly affect our portfolios: Economy, Elections, and Earning money. You may recall he was a guest on the Wealth DNA radio show in the fall of 2010. If you enjoyed that show, I know you'll be joining us and will be ready to take notes!
H.L.Quist is a economic historian, an expert on economic cycles, and author of 5 books and an investment newsletter. His most recent book is "How to Profit From The Coming Inflationary Boom And Avoid The Next Crash". H.L.Quist started his career in financial services, changed to real estate brokerage and development, and now he's back to managing money.
He's one of my key economic & financial advisors, so don't miss this show, and you'll want to invite a few good friends to join us!"

H. L. Quist on Wealth DNA Radio

Download the show here

This was an outstanding interview, share with your friends and family.

My books are also available as ebooks too.

http://www.lulu.com/spotlight/hlquist

H. L. Quist

Free Preview of January 2012 CMV

2012-01-03T04:21:00.000-08:00

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 exposé 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!

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

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-- H. L. Quist

For All Shareholders of Pan American Goldfields Ltd (MXOM)

2011-12-13T08:31:00.000-08:00

Hello World,

Special Bulletin from the Contrarian Market View

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

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

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

hlquist@djmwealth.com

HL Quist Leads Seminar Tomorrow - December 7th

2011-12-06T16:56:00.000-08:00

SPECIAL BULLETIN

Seminar Wednesday - December 7, 2011

Reservations Required

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

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

Please call Burt Sweetow at (480) 656-0017 for reservations.
burtandsusan@gmail.com

hlquist@djmwealth.com

Free Preview of December, 2011 CMV

2011-12-04T17:54:00.000-08:00

Market Overview

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

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

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

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

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

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

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

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

The Coming EU Implosion

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

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

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

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

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

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

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

Cities Robbing John Q To Pay Paul

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

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

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

Real Estate

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

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

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

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

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

A Monolith Crumbles

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

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

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

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

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2011-11-08T13:36:00.000-08:00

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

CMV’s Special Notice

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

CMV Recommendations Comparisons

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

Market Overview

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Who Stole America’s Gold From Fort Knox?

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

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

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

The story gets dicier.

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

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

There’s more to the story.

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

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

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

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

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

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

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

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

Occupy Wall Street

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

. . .

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

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

September 21, 2011

An Open Letter To Warren Buffet

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

Please Mr. Buffet – change your mind!

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

Athens, California

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

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

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

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

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

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

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

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

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

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

The rest of the newsletter is only available to paid subscribers and includes the portfolio of recommendations.
Subscription box in in the left side bar here on the blog.
"GREED" and "PROFIT" are now available for you iPad users.
You can also pay for the year's subscription to the CMV (just $99) plus receive both books free (USA addresses only) by clicking here for the paypal payment window link.
-- H. L. Quist

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

2011-10-19T05:08:00.000-07:00

Hello World,

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

http://www.politicsandpatriotism.com/podcasts/PnP_podcast_112.mp3

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

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

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

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

Free Preview of the CMV for October, 2011

2011-10-09T19:19:00.000-07:00

Free Preview of The CMV for September 2011

2011-09-03T09:30:00.000-07:00

Hello World,

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

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

Market Overview

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

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

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

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

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

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

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

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

● Consumer confidence has taken a significant drop in August.

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

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

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

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

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

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

Late News Flash

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

The Rating Game

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

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

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

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

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

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

“Un” Real Estate

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

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

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

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

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

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

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

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

The Debt Bubble

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

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

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

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

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

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

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

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

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

Riveting Riots

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

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

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

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

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

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

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

Why is this important to you?

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

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

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

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

The rest of the newsletter is only available to paid subscribers and includes the portfolio of recommendations.
Subscription box in in the left side bar here on the blog.
"GREED" and "PROFIT" are now available for you iPad users.
You can also pay for the year's subscription to the CMV (just $99) plus receive both books free (USA addresses only) by clicking here for the paypal payment window link.

-- H. L. Quist

Free Preview Of CMV For August 2011

2011-07-30T17:21:00.000-07:00

Hello World,

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

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

The comparative YTD results for July 29, 2011, and Total Portfolio return as of July 29, 2011, were as follows:

                                                       YTD                  52 Weeks
    The CMV Portfolio                      -2.10%                     +31.60% (since 1/1/10)
    Dow Jones Industrial Avg.        +4.90%    +16.00%
    S&P 500                                   +2.80%          +17.30%
    NASDAQ Composite        +3.90%           +22.30%

Market Overview

The global banking system and by proxy the worldwide economy is at a tipping point – a critical juncture. The US, Euroland, Japan, and now China are faced with versions of the same dilemma – too much private and government debt that can not be serviced and by extension, is unsustainable.   Japan has never recovered from its’ highly leveraged real estate and stock market collapse in the early 1990s. The US and Euroland avoided a systemic collapse of their banking systems and their economies in 2008 by creating massive amounts of liquidity through new debt that is now causing a predicable outcome. China’s National Audit Office revealed this past month that its’ banking sector is exposed to some $1.3 trillion in local government debt and as the WSJ remarked on July 7, 2011, “Investors fear those debts represent the tip of a default iceberg.”

Since 1974, the US and much of the world, has experienced 13 boom and bust economic cycles. Prior to the crash of 2008 all bust cycles resulted in a substantial write-down of non-performing debt. For example, after the highly leveraged commercial real estate boom and bust in the 1980s, Congress created the Resolution Trust Corp to take control and dispose of foreclosed properties. Once in place a substantial inventory of commercial real estate was liquidated rather quickly at huge discounts with a coincident write-off of mortgage debt. In many respects, developers, builders and investors relieved of their suffocating debt, had a fresh state and the markets rebounded quickly during the 90s. Instead of less debt, there’s more today and even more ominously the highly leveraged inverse pyramid of derivatives remain intact at over $600 trillion and growing!

Your writer attended a seminar at Arizona State University about 17 years ago after the 1990 crash. One of the principal speakers was the Chief Economist at a major bank. Your writer asked her;

“What will happen to all this unpaid debt?”

The economist replied:

“It will simply be absorbed into the system.”

Your writer persisted:

“How much can the banking system absorb?”

Agitated, she replied:

“I don’t think there’s a limit. It doesn’t matter.”

Bingo! That’s the bankers’ mind-set then and that was the strategy promulgated by Alan Greenspan in 2002. It didn’t matter how much debt the banking industry created. The “system” could absorb the losses. The banksters got it WRONG. They’ve exceeded the limit.

Debt is analogous to a mold or a fungus that’s embedded into the drywall of a home. Rather than remediating the problem, the owner wall-papers over it to hide the problem from the buyer. That’s what our politicians and banksters are doing. They’re printing more and more paper to cover up the fungus that will destroy the infrastructure of the economy and make its’ residents deathly ill. The US is the best house in a (global) neighborhood but it’s infested with mold. The “Gang of Six” are simply paper hangers. Another short-term fix that won’t remediate the problem.

Where is the cash going to come from to create $95 billion per month of Treasury debt previously provided by the Fed’s QE 2? Read and weep this interview with Stephanie Pomboy of MacroMavens in Alan Abelson’s “Up & Down Wall St.” column in the July 18, 2011 edition of Barron’s.

For example, one proposal Stephanie envisions is to require 401(k)s to hold a certain percentage of their assets in Treasuries at the risk of losing tax-free status. Another is encouraging public pension funds to fatten up the share of their portfolios given over to Treasuries. Still another is enticing companies to put a chunk of the nearly $1.9 trillion in cash "burning a hole in their pockets" into Uncle Sam's obligations, possibly as part of a deal for a tax holiday to bring home the huge cache of foreign profits sequestered abroad.
    The impact of such actions, she feels, is bound to be ponderable. Were public pensions to boost their allocation to Treasuries from the current 6% to 16% (pre-Alan Greenspan, 24% was the norm), Stephanie reckons it would mean something like $300 billion of government bond purchases. And that, she points out, would be "chump change" compared with the potential additions by individuals and corporations.
    As things stand today, non-financial corporations have $1.4 trillion in cash and a mere $48 billion in Treasuries. As for individuals and their 401(k)s, only $300 billion of total mutual-fund assets of $8.3 trillion are invested in Treasuries. All of which strongly suggests there's a mega-abundance of room for greater exposure to government debt.
    Creating demand for Uncle Sam's obligations—"whether by carrot or stick," Stephanie says—has the not-inconsiderable advantage of "allowing fiscal stimulus to continue without all the inflationary consequences of dollar debasement" that accompanied QE1 and 2. And then she quickly adds, in patented Pomboy fashion, "until, of course, this, too, goes bad."

Merchants Of Death

In my book “The Aftermath of Greed,” your author labeled the hucksters and mortgage brokers that originated sub-prime loans for companies such as Countrywide Financial, New Century Financial and the Wall St. Firms that packaged and sold the AAA rated mortgages to unsuspecting institutional investors, as “Merchants of Debt.” Motivated by greed and self-aggrandizement, these merchants pocketed 100s of billions in commissions, fees and mark-ups without any concern for the borrowers, ethics or the rule of law. Now, another group of ethically challenged opportunists have surfaced, invading the previously sacrosanct world of life insurance in order to profit at the death of an insured. Appropriately, these people are the “Merchants of Death.”

Viatical Settlements (VS) came into existence in the late 1980s. Originally, the concept of VS was based upon the premise that owners of existing life insurance policies who were elderly or insured owners who had a terminal illness who were in need of cash prior to death, could “sell” their policies to a VS company for an amount less than the death benefit and the VS company would continue making the premium payments until the insured passed away.

The longer the insured lived, the lower the profit to the VS company. Most insurance companies fearful that this practice would raise ethical and moral questions and could open the door for abuse and fraud, prohibited their agents from engaging in the sale of their client’s policies to the VS companies. The insurance companies probably couldn’t envision the extent of the fraud that would follow.

According to a July 9, 2011 article written by Leslie Scism in the WSJ, Esther Adler died in 2009 and her insurer, AXA Equitable, was on the hook to pay out a death benefit of $5,000,000. After her death, the insurer discovered that instead of having a $12 million dollar estate as listed in her application, Mrs. Adler had assets of less than $100,000 and lived on Social Security. Premiums were in excess of $300,000/year. Settlement Funding, LLC, had purchased the policy shortly after it had been issued and stood to profit enormously from Mrs. Adler’s death.

AXA Equitable attempted to void the policy from the inception date citing alleged fraud. The court ruled in favor of Settlement Funding, LLC, and AXA Equitable was forced to pay the claim , in part possibly, that the insurer failed to do adequate underwriting and it relied upon a financial statement that was a fake.

Based upon your writer’s 40 year experience in the life insurance business, it’s reasonable to assume that there was collusion in Mrs. Adler’s case between the insured, the agent and Settlement Funding, LLC.

There is a much bigger story here with deep societal ramifications for America. Just as insatiable GREED, a disregard for ETHICS, the ABUSE of privilege and power and the circumvention of the Rule of Law by those who devastated America’s middle class as a result of the sub-prime scam, these “Merchants of Death” demonstrated that this type of behavior not only has not been curtailed, it continues to thrive and has become “mainstream.” The motive is PROFIT. The MEANS is irrelevant. The consequences are INEVITABLE.

EOAAWKI
(End Of America As We Knew It)

America has lost its’ moral and ethical compass. Hacking, identity theft, insider trading and all forms of fraud is not only undermining our capitalistic system, it is destroying the fabric of our society. Corruption in government at the city, state and federal level isn’t isolated to Chicago and mob rule is hastening the bankruptcy of our political infrastructure. For those of us who grew up in the thirties, forties and the fifties, what was ethically and morally right or wrong was ironclad. There wasn’t a grey area. Progressivism changed America, its’ direction and its’ destiny. Our hope lies in the chaos that will soon envelop our country and the following catharsis that will mark the Rediscovery of America. (Read “Rediscovering America: Growing Up In The Forties” by H. L. Quist.)

Where Did The Jobs Go?

Other than the budget and the debt Sword of Damocles that hangs over our collective heads, no topic commands more attention than the discussion of JOBS. What American’s don’t hear, however, is how did we lose these jobs in the first place, and why most of them will never return. A little history is necessary.

In 1994, Robert Rubin, then the CEO of Goldman Sachs, became the US Secretary of Treasury. President Bill Clinton was faced with the prospect that he would not be re-elected principally because his party was responsible for the largest income tax increase in US history and rising inflation could make him suffer the same fate as Jimmy Carter in 1980. Enter the global market strategist Rubin who immediately declared, “We believe that a strong US dollar is in the nation’s best interest.”

Little did Americans know at the time that Rubin’s patriotic-sounding policy would begin the mass exodus of manufacturing jobs out of the US. Putting it simply, the strong dollar made US exports more expensive and made Chinese imports cheaper. The cheap (in quality and price) Chinese goods held inflation in check and by 1996, despite the sexual sideshow, the economy was humming and the President’s principal goal was accomplished. A perfect example of a short-term fix which, of course, led to a longer-term problem (unemployment) but by that time Clinton and Rubin were off to more fertile fields. (You’ll recall that the Greenspan liquidity-induced .com bubble burst just months after Clinton made his exit.)

Current reports indicate that there are 14 million unemployed workers today. A large percentage are casualties of the “strong dollar policy” which the current administration pseudo-advocates while the USD continues its’ devaluation. The U-6 unemployment rate (includes those who have been out of work more than six months) is 25 million or 16.2% of the workforce. The Bureau of Labor indicates that there has been a cut of 659,000 government jobs. Very little information is available as to how many of this number are state and municipal employees where these governments have had no alternative due to lack of income but to terminate employees. But that doesn’t account for the largest loss of all.

To CMV’s knowledge, there is no published number indicating how many jobs have been lost to TECHNOLOGY. The hard reality is that the massive technological revolution is creating huge numbers of casualties. An owner of a small business, for example, doesn’t need an assistant or a bookkeeper. He or she can do it all by themselves and probably more efficiently and effectively. Large corporations dramatically cut their staffs in 2008 and 2009 and then discovered that they didn’t need the laid off 10% to 20% in 2010 and 2011, despite the fact that their business rebounded sharply.

Some large corporations have just made a “restructuring” move to increase profitability. CISCO Systems, Inc. announced recently that it will lay off 6,500 employees, or 9% of its’ staff. 15% would be executives holding the title of Vice President or higher. CISCO, above all, would comprehend efficiency and productivity.

Going paperless has practically eliminated file clerks. Realtors, financial advisors, insurance agents and other professionals no longer need assistants and many no longer need offices and work from home. Of the 9.2% unemployed it’s possible that the rate, at best given an improved economy, could be reduced to 7.5% and the U-6 to 12%. In CMV’s opinion, the only factor that would change this outlook is a re-birth of the construction business. A DROID doesn’t hammer nails – as yet!

NOTE: The Myth Buster erred in his July 10, 2011 PODCAST. The Bureau of Labor’s birth/death model refers to newly-started businesses (births) as opposed to business closings (deaths) and not individual workers. Thanks to subscriber Kirk Fergus for bringing this to our attention.

European Banks Are On The Verge Of Collapse

This is the opinion of Sean Egan, President of Egan-Jones Ratings Co. (EJR), who was interviewed by Jack Willoughby in the July 18th edition of Barron’s as well as CNBC on the same day. EJR reinforced its’ reputation, by downgrading well in advance several years ago, the ratings of firms like AMBAC, CIT, Countrywide, General Motors, Indy Mac, Lehman Brothers, MBIA and New Century, which all experienced a severe financial crisis or collapse. The Philadelphia-based firm is a Securities & Exchange Commission-regulated rating agency whose customers pay for the research on other companies. In contrast, Moody’s, S&P, and Fitch are paid by the issuers of the securities they are rating as readers all too well recall in the sub-prime mortgage triple-AAA fiasco.

Much of the recent focus has been on Greece, and the European Central Bank (ECB) and the IMF’s resolve to continue to lend the country about $500 billion euros to prevent a contagion that would spread throughout all of Europe. In reality, Greece can only service 10% of that debt, according to Egan. The European bankers think that 30% of Greece’s debt will be “restructured.” Egan believes they’ll have to write down 90% ! The real problem, of course, is that soon Ireland and Portugal will find themselves in the same debt quagmire. If the trend does not reverse, Spain, Italy and Belgium will follow and there’s not enough euros or dollars to bail all of their EU brothers out.

So, why is this important to you?

1. US taxpayers contribute 17% of all the funds deposited to the International Monetary Fund (IMF). The IMF will continue to assess its’ member nations to cover its’ bad loans until Americans cut the umbilical cord.

2. As CMV reported in its’ July issue, five of the largest US money market funds have about 50% of their assets invested in debt of European banks which have considerable exposure to Portugal, Italy, Ireland, Greece, and Spain (PIIGS). Review the Prospectus of your money market fund ASAP.

3.The Federal Reserve Bank of the US (Fed) has swap lines with the ECB which guarantees bailout funds in the event of a contagion, while the US is faced with an enormous deficit and debit crisis of its’ own. In 2008 and 2009 Ben Bernanke “swapped” $580 billion with other central banks. What will the number be this time? Where will the money come from?

CMV has repeatedly said that we are all witnessing the end of the western-centric fiat money system. This is not about saving Greece. It’s about saving European and US banks. The global banksters have created an enormous mountain of debt that can not be serviced. Two questions remain?

1. When will the debt bubble burst? And,

2. Will the western-centric nations experience an inflationary blow-off (crack-up boom) prior to a contraction (deflation) or will global insolvency result in a 2008-type meltdown and depression?

The banksters have (in their view) only one solution. Print more euros (in violation of the EU charter) and more dollars and lend more money that won’t be repaid. At present, CMV’s call is rapidly accelerating inflation and the prospect of HYPERINFLATION.

NOTE: Read chapter six in “How To Profit From The Coming Inflationary Boom: And Avoid The Next Crash”, on ‘hyperinflation.’ If you’re prepared you can profit and survive. The best of both worlds.

The rest of the newsletter is only available to paid subscribers and includes the portfolio of recommendations.
Subscription box in in the left side bar here on the blog.
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You can also pay for the year's subscription to the CMV (just $99) plus receive both books free (USA addresses only) by clicking here for the paypal payment window link.

-- H. L. Quist

A Real Estate Anomaly

2011-06-14T09:10:00.000-07:00

Hello World,

Don't miss my newest youtube video - here on the sidebar or at my youtube page.

http://www.youtube.com/hlquist

A real estate boom has begun! Conventional wisdom says, the real estate market will not rebound for 3 or 4 years. H. L. Quist says, there is an anomaly occurring that has already created a boom and will drive real estate prices much higher in the next 2 years.

-- H. L. Quist

Free Preview of CMV for June, 2011

2011-06-01T09:01:00.000-07:00

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

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

The comparative YTD results for May 27, 2011 were as follows:

                        YTD                                                         52 Weeks
    The CMV Portfolio           - 2.54%*        +44.99%
    Dow Jones Industrial Avg.        +7.46%        +22.74%
    S&P 500            +5.84%        +22.19%
    NASDAQ Composite           +5.43%        +23.92%

* Realized gains in Silver and Gold shares in April are not reflected in this number. Current software does not credit any gains or losses on names that are sold YTD. CMV is attempting to find a new program that meets our needs.

Market Overview

Richard Russell's "Dow Theory Letters" which was first published in 1958, is the longest-running investor newsletter continuously written by the same person in the financial industry according to several sources. Given Russell's historic presence, world-wide recognition, and proven past track record, CMV readers should pay close attention to what Richard has had to say recently about gold:

"Gold-- The desperate battle to keep gold below 1500 continues. I watched the erratic action of gold near yesterday's close. I'm fascinated to see whether June gold can close above 1500 or whether the anti-gold contingent can manage to knock gold down (again) below 1500.
The action is now so blatant that it literally screams of manipulation. At its high yesterday, June gold sold at 1506.50. At yesterday's close, June gold was trading at 1498.10. It's almost embarrassing to watch the action. What we're seeing is the anti-gold crowd and the manipulators vs. the great primary trend of gold."

The battle about gold closing above 1500is that once above 1500, technically gold will be on its way to 2,000.And from there 5,000 will be the target. So 1500 is a psychological barrier that, from the bull's standpoint, must be bettered. But from the anti-gold crowd's standpoint, gold must be held (on a closing basis) below 1500.

The answer: As I see it, the primary trend of gold remains bullish. In due time, gold will gather the strength to close above 1500. The gold-bears will be defeated. It's only a matter of time.
The panic to buy gold will override everything else. It will be one of the greatest financial phenomena that most of today's investors will ever see. It will blot out everything else like a cloud blotting out the sun.

After the calm, comes the storm. We've been watching ten years of gold climbing amid an atmosphere of calm. The great gold tsunami lies ahead. It will be historic."

CMV believes this octogenarian has it right.

A Major trend , that the US and the global economy is slowing, may be developing in mid-May just as talk of a "double dip" occurred one year ago after the "flash crash." The Institute of Supply Management (ISM) index of leading indicators which gauges a broad cross section of the US economy, foretells of a slowdown. Goldman Sachs just issued a SELL recommendation on Intel (INTC) indicating that the demand for semi-conductors is waning.

In the retail sector the Gap reported a 23% drop in earnings citing increased raw material and labor costs. The Wall St. Journal article stated that analysts were "surprised" at the drop. Surprised? When the price of cotton had risen in 18 months from $.45/lb to over $2.00/lb the handwriting was on the wall but obviously some experts couldn't read the message. CMV reported months ago that bottom lines would be "squeezed" by raw material costs. Polo Ralph Lauren Corp. also reported a 36% drop in earnings which sent its' shares down 11% on May 25th. There are exceptions however. Limited Brands which owns Victoria's Secret just reported robust earnings. No wonder. Victoria's real secret is that it uses so little cotton in its translucent nighties that they were unaffected by the 300% rise in cotton!

In the casual and luxury sectors, Starbucks has priced its' favorite stimulant of choice, the latte, at $5/cup. Coffee beans have risen 164% in 5 years and management blames speculators. Jewelry retailer Tiffany reported an exceptional 25% gain in profit in their most recent quarter as the nouveau riche get richer. A unique phenomenon is occurring in consumer spending that escapes a pedestrian view. It appears to CMV that almost all increases in gross sales is coming from an increase in prices which distorts the amount of goods sold in YOY basis.

According to government officials, high gasoline prices, government budget cuts and weaker consumer spending has caused the economy to exhibit weaker growth in the first quarter than estimated. The US Commerce Dept. revised its' GDP estimate down to 1.8% for the first quarter of 2011. The final fourth quarter number for 2010 was 3.1%. Given the plethora of negative economic data, why isn't the stock market taking a hit? Bob Paisani on CNBC offered a remarkable insight. Traders are anticipating that despite claims to the contrary, Ben Bernanke will continue the QE stimulus this month. That's exactly what CMV stated in the last issue of CMV.

Just as it did one year ago the European debt crisis has festered again. Greece's band-aid fix, as forecast by CMV, didn't cure the problem and major surgery separating the Greeks from the EU will ultimately be necessary. One of the European Central Bank's (ECB) governors, Christian Noyer of France, labeled the call for a restructuring of Greece's debt a "horror scenario." Barely a year after receiving a $115 billion bailout from the ECB and the IMF, Greece is on the brink of a default, again. Then there's the remaining PIIGS (Portugal, Ireland, Italy, Greece & Spain). The problem can simply be reduced to this: The strategy of all of the central banks in the Western World is to inflate the debt crisis away. In order for that fix to work, the creation of more debt must produce at a minimum, increased growth and increased tax revenue. If a slowdown occurs, as anecdotal evidence indicates, the last resort is ominous in its result. The creation of more fiat money will ultimately lead to hyper-inflation and a ‘crack-up boom.'

What Europe and the US are beginning to experience is an "Inflationary Recession" or stated in another term "Stagflation." The worst of all worlds. Rising prices and stagnant growth. The Western World is reaching the tipping point. As CMV has stated previously, we're witnessing the beginning of the end of the western-centric fiat money system. More than ever you need to understand what is unfolding here and develop a strategic plan to survive financial Armageddon.

Paradigm Shift

Philosophers, futurists, analysts and writers often speak of Paradigm Shifts, Black Swans and use other obscure terms to chronicle macro economic events that most observers can't understand or, more importantly, can't quantify or relate to. But when a reliable, knowledgeable and trusted source says, that, "There is, in fact, a paradigm shift – perhaps the most important economic event since the Industrial Revolution, occurring" it behooves the reader to not only take notice but take action.

Alan Ableson, the erudite writer for Barrons' and a mentor to CMV, introduced his readers to Jeremy Grantham of GMO, LLC in the May 16th edition. GMO is an advisor and asset manager to large institutional and individual investors worldwide, with minimum investment capital of $10,000,000. His firm is paid big bucks by big players to be right. On the GMO website you'll discover Jeremy's recent posting entitled, "Time To Wake Up: Days Of Abundant Resources and Falling Prices Are Over Forever." The bottom line is that the world is using up natural resources at an alarming rate and "this has created a permanent shift in their value."

In particular, Jeremy says the global population which now numbers 7 billion will rise to 10 billion by 2100 (according to the United Nations) and this explosive growth, Jeremy warns, will "have eaten rapidly into our finite resource of hydrocarbons and metals, fertilizer, available land and water." Ableson adds, "Despite a massive increase in fertilizer use, the growth in crop yields per acre, has declined from 3.5% in the 1960s to 1.2% today." We should all revisit the Malthusian Theory advanced 200 years ago which forecast that the world would run out of food to feed the population.

A table accompanies Grantham's piece, which estimates China's share of world commodity consumption. Some notable numbers are:

Cement 53.2% Steel 45.4%
Iron Ore 47.7% Copper 38.9%
Coal 46.9% Eggs 37.2%
Pigs 46.4% Oil 10.3%

Back in the 60s and 70s when your writer was closely involved in agribusiness, farm products such as wheat was under $4.00/bushel, corn about $2.50/bushel and gasoline was about $.25/gallon. The grains have more than doubled and of course gasoline has skyrocketed. Grantham's point is that absent a global depression on the scale of the 1930s, these prices will continue to rise. This isn't a short-term supply / demand imbalance. This is a PARADIGM SHIFT. Commodity prices have reached a "new normal."

The Fed Myth Debunked
(By The Myth Buster)

Ever since the Federal Reserve Act was passed in 1913, the US Central Bank has assured Americans that it acts independently and its' monetary policy is not influenced by Congress or political pressure. David R. Kotak and Joseph R. Mason, in a Barron's article dated 5/23/11 assert that recent Federal Reserve Board appointments and new regulatory responsibilities under last year's Dodd-Frank law substantiate their claim that the Fed no longer acts independently.

It has been long assumed by most observers that the Fed's independence has been protected by the 14 year staggered terms of its seven governors. That veil of protection was eroded during the second Bush administration when Senator Chris Dodd (D-Conn) used his Chairmanship of the Senate Financial Committee to hold up the confirmation of two Bush appointees and the Board was short two governors during the worst financial crisis since the Great Depression. As a result, Fed watchers have no written record of any discussions held by the Board concerning the merger of Bear Stearns, the purchase of toxic bank debt or the failure to bail out Lehman Brothers. The Fed still operates with 5 governors.

Under the new Dodd-Frank law the Fed is to fund the as-yet-unspecified-activities of the new Consumer Financial Protection Agency, headed by an ultra-left Tzarist Elizabeth Warren, despite the fact that it has no oversight power over that agency. Kotak and Mason maintain that Congress will continue to use the Fed's balance sheet to fund various programs that circumvent the traditional appropriation process.

As a side note, you'll recall that it was the co-author of Dodd-Frank, namely Barney Frank, who publically declared in 2003 that Fannie and Freddie had no "explicit or implicit or no wink-‘n-nod guarantee" by the US Treasury that created a $160 billion loss for taxpayers. It should also be mentioned that it was Frank's demand that Fannie and Freddie adopt "quotas" that the "evil twins" make sub-prime loans to unqualified borrowers. Congress passed Dodd-Frank without the text of the regulations. We're about to discover what's contained in the Bill. Dodd and Frank were co-instigators of the financial chaos and are the co-authors of the law that governs the industry they corrupted. Gheez!.

A new threat has emerged which has promised to end this charade. Ron Paul (R-Texas) who is Chairman of the House Panel which oversees the Fed's activities has subpoena power and intends to "audit" the Central Bank. He could also introduce legislation to end the Fed as we know it.

The bottom line is that the Fed has been the key instrument in all of the 12 boom and bust economic cycles in the US since 1974 save the first one in that year, caused by the oil embargo. The Greenspan Plan in 2002 paved the way for the real estate bubble and subsequent collapse that has devastated middle class America. We're now experiencing the "Bernanke Bubble."

Read "The Creature From Jekyll Island" by Edward Griffen. You'll understand why the Fed myth has been debunked and why the Federal Reserve Act should be repealed.
The Oil Enigma

As CMV outlined in its' SPECIAL BULLETIN dated April 19, 2011, Goldman Sachs (GS) announced eight days earlier that they were selling all commodities and "demand destruction" would end the commodity rally. In particular, GS indicated that there would be a sharp decline in the price of crude oil. The market responded with a brief 15% decline in the price of crude, as well as a corresponding drop all across the commodity sector. Five weeks later (on May 24th to be exact) GS did a 180° reversal and took a bullish stand on oil. A Wall St. Journal article the following day said, "Goldman has a history of making influential recommendations to buy or sell certain commodities, including a 2008 call for oil prices to reach $200 a barrel that helped fuel the rise to record price levels that year."

No one, including the WSJ, bothered to ask the obvious. What facts changed GS's outlook on oil and other commodities in just five weeks? CMV has speculated that GS's announcement on April 11, 2011 was timed to placate the BRICS (Brazil, Russia, India, China and South Africa) who were demanding that the US "control" commodity prices and "stabilize" the USD. As an ancillary benefit, of course, traders profit from the movement in prices. They make gains on both bullish and bearish moves. A lawsuit filed by the Commodity Futures Exchange (CFTC) on May 24, 2011, accused Arcadia Petroleum of manipulating oil prices in 2008. The CFTC has more work to do.

Adding to the emerging murky oil picture is recently obtained information that has previously escaped the eye of the media and oil analysts.

Accoring to a May 22, 2011 WSJ article, the Prudhoe Bay oil discovery in Northern Alaska in 1968 (which is the largest oil field discovered in the US) gave birth to the famed Trans Alaska Pipeline which at its' peak in the late 1980s carried 2 million BBL of oil per day 800 miles overland to the Port of Valdez in just 3 days. Now, due to dwindling production on the North Slope, the pipeline only carries one third of the volume it once did and it takes 5 times longer to get to its destination. But decreased production is only the tip of the iceberg on the slippery North Slope.

As the flow of oil diminishes the freezing temperatures greatly enhances the chance of clogging which increases the risk of ruptures and spills. Ice crystals congeal wax which WSJ says "potentially turning the 48 inch pipeline into the largest tube of chap-stick in the world." The solution is two-fold. 1) Get more oil into the pipeline or 2) find a technological solution that would prevent the oil from turning into thick molasses. The Department of the Interior holds the key to increased production to solve #1. If a decision to issue new drilling permits are delayed long enough the pipeline would be forced to shut down. At that point, by law, the pipeline would have to be dismantled and a victory for the multitude of environmental groups who would gloat over its' demise while the price of crude would escalate.

Even more ominous is what is occurring in the Arabian Peninsula. Entitled, "Facing Up To The End Of Easy Oil," a feature article in the May 24th WSJ, Saudi Arabia became the world's largest producer of oil due to its' vast reserves of high-quality light crude. As the fields of "easy oil" begin to dry up the Saudi's are resorting to drilling for much heavier and thicker oil which is more difficult to recover and costs more to refine into gasoline. Wood MacKenzie, a Scottish energy consulting firm says, "The easy oil is coming to an end..." Other analysts say "peak oil" has been reached in the Arabian Peninsula and that Saudi Arabia has pumped out 50% of their reserves. The Saudi's have constructed giant boilers to pump steam into the ground in order to extract the heavy oil. The technological challenge and the cost of recovery however, pales in comparison to the growing Arab Spring revolution that threatens to disrupt production throughout the region.

One more unmentioned development that will directly and immediately impact the supply of US imported oil. Venezuela is the number four exporter to the US. America possessed one of the few refineries in the world that was able to refine the heavy-sour crude (high in sulphur) produced in Venezuela. Hugo Chavez has recently inked a deal with China which will finance a to-be-built specialized refinery with all the production going (surprise) to China.

The bottom line is clear, oil and gasoline are going to become short in supply and high in price. Refer to page 17 for suggested recommendations to deal with an inevitable outcome.

The International Malevolent Fund (IMF)

Dominique Strauss-Kahn (DSK) the head of the International Monetary Fund (IMF) recently dominated the headlines with his (alleged) sexual assault on a housekeeper in a plush New York City hotel. While most observers were focused on the sensationalism of the sordid event, they wouldn't connect the dots to a much bigger story. Namely, what is the IMF, what does this organization do and why is DSK's behavior a metaphor and a window into the clandestine activities of this powerful globalist organization?

In 2004 an insider, who was appropriately labeled an Economic Hit Man (EHM), told the compelling true story of how global organizations such as the World Bank, the Agency for International Development (USAID), the IMF and other entities have utilized taxpayer money to further empire building and funneling mega billions of dollars of profits to major global corporations. John Perkins was the EHM. The title of his book, "Confessions of An Economic Hit Man," is a tale that would rival any fictional espionage thriller. A must read!

Perkins says in his Preface:

Economic hit men (EHMs) are highly-paid professionals who cheat countries around the globe out of trillions of dollars. They funnel money from the World Bank, the U.S. Agency for International Development (USAID), and other foreign "aid" organizations into the coffers of huge corporations and the pockets of a few wealthy families who control the planet's natural resources. Their tools included fraudulent financial reports, rigged elections, payoffs, extortion, sex, and murder. They play a game as old as empire, but one that has taken on new and terrifying dimensions during this time of globalization.
I should know; I was an EHM.

Once you read this book you'll understand the metaphor. These "elites" have been raping the global landscape for years in the guise of assisting underdeveloped countries. But, in the end they indentured these countries to the extent that some of their economies fail, countries go bankrupt, chaos reigns and individual lives are ruined. (Think Greece.) Of particular interest to Americans is the fact that the US contributes 17% of all the funding to the IMF and it isn't very comforting to know that we're paying a $3,000/day hotel tab for IMF heavyweights like DSK who routinely use taxpayer money to live lavishly. Of principle importance is that the IMF could play a pivotal role in the new global monetary system that would replace the US dollar as the world's reserve currency.

A case in point would be the nation of Zimbabwe. An opinion letter written on November 12, 2009 by Thoms J. Hornes (Google: IMF/Zimbabwe) is entitled "IMF Contributes to Zimbabwe's Hyperinflation." Zimbabwe printed 21 trillion Zimbabwe dollars starting in 2005 to payback its' debt to the IMF which eventually caused an inflation rate in excess of one trillion percent per annum and devastated the country. The IMF's position is that Zimbabwe didn't enact the "macro-economic and structural reforms," recommended by the IMF concurrent to making the loans. (Neither has Greece!)

Just before the Zimbabwe economy collapsed in 2009, the nation's Central Bank was issuing a 1– trillion-dollar note! The actual note can be purchased today for about $5 (US) on e-bay. There are numerous lessons to be learned from this example of globalism and banking at its worst but few, if any, understand the implications for the US of a fiat money system that is in its death throes. In the meantime, DSK lives in a lavish $14 million dollar townhouse complete with gym, pool and other amenities at a cost of $8,500/day! These elites sure know how to spend someone else's money. That's the definition of a socialist.

A Real Estate Boom Begins!

It had to eventually happen. Only the timing and circumstance was delayed. The residential real estate market has sprung to life although most industry observers don't see or relate to the events that are occurring. CMV will limit its' comments to the Phoenix metropolitan area but these observations should be germane to many metropolitan areas in the US - except Detroit.

Investor Capital inflows are dramatically changing the landscape in the residential real estate market. After meeting with several successful market movers, property managers and getting industry feedback after your writer has spoken to five real estate groups in the past two weeks, an anomaly is taking place. Investors, anxious to buy residential property are discovering that bargain-basement prices for foreclosed and auctioned homes are rapidly disappearing and available inventory, particularly under $200,000 is rapidly declining. Banks are withholding REOs (real estate owned) from the market and refusing to accept short sales in anticipation of price increases. A principal with one company that buys homes, fixes them up and re-sells them, said that "the market is returning to par," meaning that an investor is now paying close to replacement cost for a home or condo that a year ago could be purchased at 50% of par.

The anomaly that has emerged is that the absorption is principally created by investors and not home buyers and a majority of residential users would prefer (or must) rent rather than buy a home. In some cases the monthly rental could be twice the amount of a mortgage payment. At some point this "spread" between ownership and rent will revert to the norm but for the intermediate term the return on investment (ROI) is attracting an inflow of capital from all over the world and it's the driver.

Several events are happening as CMV goes to press that could propel this market on an even faster track. The House Financial Services Panel has submitted the HOUSING & REFORM ACT of 2011 to Congress which will end the taxpayer bailout (if passed) of Fannie and Freddie and create five new "little" Fannies to replace the big fat one that failed. After a year of discussion and initial resolve to find a means to replace the "evil twins" without government guarantees, the proposed law, you guessed it, includes the full "faith and credit of the US government to back the mortgages" which will attract institutional money. The key, of course, is what will be the underwriting requirements and will renters qualify to buy? Stay tuned.

CMV has reported in numerous editions that the US Justice Department, the Attorneys General of all the states and the banks have been negotiating for months to reach a settlement on a fine to be paid by the banks for "improper mortgage-servicing practices " namely the "robo-signing" and other questionable practices that came to light last fall. The government has demanded a fine of $20 billion. The banks have offered $5 billion. CMV's guess is that the final figure will be around $10 billion. This settlement is to be paid to those who were wronged in the foreclosure process. What the amount will be that finally trickles down to the homeowner is anyone's guess. Will it be sufficient for a down payment to qualify for a FHA or Little Fannie loan? Just a thought. Politically, the present administration knows that they have to solve the real estate disaster before the 2012 election.

CMV forecasts that there will be a significant decline in residential inventory by the end of 2011 in Phoenix. Combined with the continued devaluation of the USD, there will also be a rush (and possible mania) to convert dollars to hard assets with real property prices reaching unexpected increased levels in 2012, unanticipated by even the most optimistic analysts and real estate experts. All this despite a "Shadow Inventory" of about 100,000 homes that could appear on the market.

On the other end of the financial spectrum, former Alaskan Governor and Vice-Presidential nominee, Sarah Palin, has bought a 8,000 square foot home in North Scottsdale, Arizona for $1,695 million. An investor, Ian Whitman, bought the uncompleted home a year ago from J. P. Morgan-Chase Bank for $800,000 according to tax records. Less completion costs, a high ROI in one year grabs the attention of both buyers, sellers, and investigators. This story will spread through the local real estate industry like a wildfire through range grass. It can (and will) change the psychology in the market place. Absent a collapse in the Muny Bond Market (quite likely) or a US Treasury default (not likely) this moment marks the beginning of a real estate boom in Arizona! You read it here first.

The rest of the newsletter is only available to paid subscribers and includes the portfolio of recommendations.
Subscription box in in the left side bar here on the blog.
"GREED" and "PROFIT" are now available for you iPad users.
You can also pay for the year's subscription to the CMV (just $99) plus receive both books free (USA addresses only) by clicking here for the paypal payment window link.

-- H. L. Quist

A Real Estate Anomaly!

2011-05-31T17:04:00.000-07:00

Hello World,

I just posted my video on youtube about what I see as a Real Estate Anomaly - a boom.

My contrarian newsletter offers investors my contrarian view of market conditions and the current economic and factors which impact the investor and small business owner.

You can subscribe through the link on the side bar here.

-- H. L. Quist

Free Preview of CMV Newsletter, May, 2011

2011-05-03T17:11:00.000-07:00

Hello World,

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

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

The comparative YTD results for April, 2011 were as follows:

                                                      YTD
    The CMV Portfolio            +   7.63%*
    Dow Jones Industrial Avg.        + 10.65%
    S&P 500               +   8.43%
    NASDAQ Composite            +   8.32%

* Realized gains in Silver and Gold shares in April are not reflected in this number.

Market Overview

To QE or not to QE? That is the question! Ben Bernanke’s soliloquy didn’t match the life-defining decision of Hamlet, but the immediate economic and career-defining significance of Ben’s June decision was eagerly awaited by an anxious audience on Wednesday, April 27th. The Shakespearean-looking Ben Bernanke said QE 3 will not follow QE2.

CMV, cutting through all the theatrics, poses a simple question. With the FY 2011 deficit of $1.5 trillion and the US Treasury requiring $5 billion a day in new money to keep the lights on at the Capitol, who, in the absence of the Fed creating $600 billion in six months, out of thin air, will step up and buy $900 billion or more of the bills, notes and bonds this year? And, what about that portion of the existing $14 trillion debt that has to be rolled over when the buyers elect not to renew? Certainly it won’t be the BRICS - Brazil, Russia, India, China and South Africa. They’re busy forming and funding reserves for the Shanghai Co-Operation Organisation that will not only compete with the world’s reserve currency (the USD) it intends to replace it. As a piece issued by the Daily Bell on April 9, 2011 stated, the Alliance of the BRICS:

“...has been watching the death throes of the American empire and is reacting by creating the groundwork for a post-American global construct. Following the recent BRICS summit on Hainan island in China, Brazilian Finance Minister Guido Mantega told the International Monetary Fund in Washington that the United States and other western countries were attempting to “export their way out of difficult economic situations” by printing money and driving down interest rates– which is the core principle of quantitative easing. It was clear that Mantega was speaking for the other BRICS nations in warning Washington that business as usual is approaching an end.”

A well-worn device utilized by the Fed and the Treasury could also run into a wall. To demonstrate to the world that the US Treasury has a plethora of suitors, a bond buyer bids at the Treasury auction and a sale is recorded and publicized. Three days later, the Treasury or the Fed repurchases the debt from the buyer under a pre-arranged Re-Po agreement. How long can this charade continue on the massive scale of financing and re-financing required? And, who would want to take on the ever-increasing risk with such a meager return? And, Mr. Bernanke assured us that interest rates will decline at the end of QE 2. We don’t have long to wait to find out how this tragedy ends. Hamlet, to those who don’t recall, met his demise in Act IV.

The US stock market discounting the “Perfect Storm” has rallied at the end of the First Quarter on positive earnings news provided by (in large part) QE 2. As of April 25, 2011, of the 137 companies in the S&P 500 who have reported earnings for the first quarter to date, 75% have exceeded their forecasts. According to Thomson Reuters, only 17% of their list of companies that have reported missed their targets. Early results indicate that higher raw material costs have yet to eat into earnings at this point. The VIX which measures market volatility reached a 52 week low of 14.30 on the index which usually indicates that the market could be poised for a major move. Unexpectedly, the initial estimate for the First Quarter GDP came in at 1.8% whereas 3% plus was anticipated. Also disturbing was the uptick in unemployment claims when most analysts expected a continued drop. The question is which way will the market move? A solid case can be made for north as well as south. Here’s what the experts say:

(Taken from Barron’s Mid-Year Big Money Poll)

Investment Outlook Through Year-End 2011
Very Bullish    2%
Bullish    57%
Neutral    30%
Bearish    10%
Very Bearish    1%

What Is The Major Risk To The US Economy?
Inflation        57%
Deflation        4%
Stagflation        25%
None of These    15%

What Will Be The GDP Growth This Year?
2.0%        7%
2.5%        25%
3.0%        36%
3.5%        22%
4.0%        7%

What Will Be The 10 Year Bond Yield At Years End?
3.0%        3%
3.5%        29%
4.0%        48%
4.5%        16%

All told this consensus of BIG MONEY fund managers forecasts a favorable environment for equities and a seemingly nonplused concern about:

1. The S&P downgrade of US Sovereign debt from “Stable” to “Negative.”
2. The absence of buyers for US debt (see page 1).
3. The move away from the US dollar as the world’s reserve currency (see page 1).
4. Japan’s critical need to repatriate dollars for yen to rebuild their country. (They own $886 billion in US debt).
5. The rapid rise in the real inflation rate far exceeding the official Bureau of Labor Statistics Consumer Price Index (CPI) of 2.1% and the prospect of severe inflation or hyper-inflation.
6. The prospect that there will not be a meaningful cut in the federal deficit.
7. The acceleration of chaos in the Mid-East, a disruption of oil production and gas prices reaching up to $5 / gallon this year.
8. Greece’s inevitable default (see page 5) and an EU monetary crisis.
9. The recent suggested alignment of Afghanistan with Pakistan and its Chinese ally which is intended to oust the US from Afghanistan prior to the scheduled 2014 date. Now that the US has found and executed the mastermind of 9-11, we should pack our bags and leave. NOW!

CMV envisions a confluence of many of these events within the next twelve months. What is an unsustainable trend must end. The question is, how and when?

The Fed’s Credibility Gap

Ben Bernanke’s press conference on Wednesday, April 27th, was as unprecedented as it was disingenuous.

The Fed Chairman said that the Federal Reserve will phase out its’ controversial program of pumping money into the financial system in June completing its’ $600 billion bond-buying program and would maintain its’ unprecedented microscopic interest rates for an undetermined period. Bernanke’s critics, CMV amongst them, weren’t impressed by the Chairman’s remarks because he failed to address when the Fed would tighten monetary policy in order to fight inflation that now, more than ever, is impacting manufacturers and consumers.

It appears that the Fed is more concerned about creating jobs than combating inflation. Never in its near 100 year history has creating jobs been a core of the Fed’s mission statement but it fits with the Administration’s populist rhetoric. Bernanke said inflation was ‘transitory’ and rising gas prices were merely the result of growing global demand and potential disruption of the supply of oil in the Mid-East. That’s where Mr. Bernanke becomes a tad disingenuous. Why? The Fed’s ultra-expansive monetary policy has triggered a massive sell-off in the US dollar and directly caused a rapid rise in not only oil and gas prices but an explosion of all commodity prices. As CMV has reported ad nauseam, the USD is (presently) the world’s reserve currency and all commodities are priced in US dollars. When the dollar loses value, it takes more greenbacks to buy the commodity. Mr. Bernanke should look in the mirror as one of America’s most famous philosophers (Pogo) did when he concluded, “We have seen the enemy, and he is us.”

Mr. B added mightily to his credibility gap when he and Treasury Secretary Tim Geithner said in unison, “Our policy has been and will always be...that a strong dollar is in our interests as a country.” The USD crashed to 73.12, a new low on this outrageous proclamation. As Mr. B was speaking, the price of gold and silver took off like a rocket demonstrating the market’s conviction that the Chairman’s credibility was “suspect.” As the WSJ states, “One mystery is how Mr. Bernanke can take credit for a rising stock market while saying the Fed has nothing to do with rising commodity and other asset prices.”

The Defining Moment – Haves vs. Have Nots

When Paul Ryan (R-WI) produced his budget to solve the fiscal crisis he was reported to have said:

”This is a defining moment.”

And, the battle for America’s financial future has been joined and the rules of engagement have been posted. In response to Ryan’s proposal, it was expected that the President would offer an outline of his views on spending and deficits. Instead, as penned by Daniel Henninger in the April 14, 2011 edition of the WSJ, what the President delivered “was an invitation to the gunfight at the OK Corral.” (Who is Wyatt Earp?)

The Ryan-GOP budget core goal is to reduce spending to 20% of the GDP. President Obama has targeted federal spending at 24% of GDP. When you realize that our nation’s output is at $14 trillion, a 4% spread is a ton of money, and guarantees a trillion dollar deficit for as long as the eye can see. As Henniger says, “Inside those four points, you can define and decide the nation’s future.” He’s referring to the future of Federal spending, the future of entitlement programs and the future of taxes. Our future.

The President’s cry to raise taxes on the rich resonates loudly with those who believe any family with joint income over $250,000 is rich. The unspoken reality is that this group could pay 100% of their income over a quarter of a million in taxes and it wouldn’t come close to curing the deficit. The individual income tax brought in 7-8% of GDP from 1952 to 1979 when the top tax rate ranged from 70% to 92% and 8% of the GDP in 1993 to 1996 when the top rate was 39.6%. The President wrongly believes and defies history when he figures that raising taxes on the rich would significantly increase the tax take and reduce the deficit. Franklin Roosevelt raised taxes to 70% on the rich during the Great Depression which was largely responsible for causing a second depression within the depression in 1936. Individual taxes have consistently remained in the 8% of GDP range but demagoging the mythical rich is a populist theme that garners votes from the masses.

The bottom line? The way to raise tax revenue going forward is to raise the real GDP. Government spending and increased taxes won’t do it. Free enterprise and less government will.

The reality? The bond market will refuse to fund the Obama budget. The net interest cost to service the Federal debt will exceed all the estimates and create catastrophic results.

The Vanishing Dollar

The March, 2009 low for the Dow Jones Industrial Average (DJIA) was 6,440 down from a high of 14,198 in October 2007. Currently it stands at about 12,400 and in “unadjusted” terms, the Dow has rebounded a smart 92% from the March 2009 low.

Before you make a toast to your good fortune and savvy, what if someone told you that your “real gain” was only 19.6%?

Larry Edelson’s April 14, 2011 edition of Uncommon Wisdom (e-letter@e.uncommonwisdom.com) lays out effectively how the persistent devaluation of the US dollar erodes value when measured against real money – Gold. This is a critical exercise because you presently have and will continue to experience the loss of purchasing power going forward in all the goods and services you buy.

Suppose that at the end of 2001 you had (theoretically) invested $10,000 in the DOW which was equal to 10,000 on the DJIA. Gold was approximately $263/oz at that time. $10,000 would have purchased about 38 oz of gold bullion. At the end of 2007 when the DOW was close to its’ all-time high of 14,000, its’ equivalent in dollars would have purchased about 13 oz of gold. At the March 9, 2009 low at the bottom of the crash your investment would have purchased only 7 oz of gold since bullion had almost tripled and the DOW had crashed 50%. (In 1980 there was a 1X1 ratio. Both the DOW and Gold were 850.)

Theoretically today your $10,000 investment in 2001, in DOW terms, is worth $12,400 – a 10-year gain of about 24% – and up a seemingly robust 92% from the March 9th low. Observe however, what the dollar has lost in purchasing power. The DOW at 12,400 will only buy the same amount of gold in ounces as it did when the DOW was almost 6,000 points in dollars higher than it was in March, 2009. In “real money” terms, your gain since the market low in 2009 has only been 19.6%, when the value of real money has doubled to $1500/oz. The DOW will only buy 6.7 oz of Gold at present.

Assessing real estate values in terms of real money is equally as dramatic. At the market high in March, 2007 the median home price was $262,000 equivalent to 346 oz of gold. Today’s median price is $156,000 and in nominal terms has lost 40% of its value. However, in terms of real money the median home price has fallen 69%!

People often say, “What difference does it make if the dollar is devaluing?” Now you know the answer. Now you know why it takes so many more dollars to buy gasoline, groceries and all the stuff you need to live. Gold is not only a hedge against your loss of purchasing power, it is “real money.”

The Big Fat Greek Default
(The Wedding Is Over)

It has been a year since the financial travails of the PIIGS (Portugal, Italy, Ireland, Greece and Spain) aroused the awareness of the world. A bailout was arranged by the EU and IMF at the eleventh hour to avoid default and the angst subsided – for the moment.

What has elapsed since has been ignored by the media but bears mention here for the significance of the aftermath. The problem is not Greece’s solvency but its’ governance or, lack of it. Takis Michas, the international secretary for Greece’s new Centrist-Liberal party (the Democratic Alliance) writes in an op-ed piece in the WSJ:

“The country is at the mercy of militant activists who are inspired by the various factions of the hard left. The heaviest hitters are Greece’s Communist Party and the Anarcho-Stalinist Coalition of the Radical Left ... their followers have taken to harassing citizens and destroying public property – even taking over whole villages ... The real Greek disease is the contempt for the law and the political failure to combat it.”

Greece, the birthplace of democracy and the ancient model for world governance, is on the verge of collapse. The government workers refuse to participate in an “austerity” program so Greece can reduce its’ deficit and stabilize its society.

The lesson to be learned by Americans is that these mobs number only 13% of the population but as Michas says, “The problem, rather, lies with the political and ideological passivity of the parties that do represent Greece’s broader middle class.” Mobocracy is spreading throughout the globe. The blight has already infected America and its’ goal is to preserve their entitlements without regard to fiscal reality. If we remain the passive silent majority, the radical left will destroy America as we knew it and ironically, they will lose the most.

ROUND TABLE APRIL 29th, 2011

On April 29, 2011 “Face Off On The Future,” a round-table discussion was held at Gainey Ranch and almost 100 people attended this event. The principal speakers were Elliott D. Pollack, the well-known economist and CEO of his own economic and real estate consulting firm in Scottsdale, Arizona, Fletcher Wilcox, V.P. of Business Development for Grand Canyon Title Agency, Inc., in Phoenix, Arizona and H. L. Quist, the author of CMV and expert in boom and bust economic cycles.

Mr. Pollack gave a very effective snapshot of the national as well as the Arizona economy. His command of the numbers backed up with power-point graphs was enlightening. He said, “You might not like what I’m going to say but the hard data supports what I’m about to say.” The most revealing conclusion that Elliot noted as far as Arizona is concerned is that “no one is showing up.” After the recessions in 1980-82, 1990-92 and 2001-02, the Arizona economy recovered quickly, largely due to the fact that Phoenix and Arizona had a significant increase in net population and growth. Mr. Pollack used the well-worn phrase, jokingly, “It’s different this time.” Go to:
www. arizonaeconomy.com which should have his entire presentation on his website this week.

Fletcher Wilcox is a numbers guy and he had all the recent real estate stats that revealed that residential sales hit 10,000 in March. The following is from the introduction of his presentation.

For only the fourth time ever in a month residential sales were over 10,000 this March. The three other months of sales over 10,000 were June 2004, June 2005 and August 2005.

Single family detached sales were 8,350 or 84% of the 10,000 sales. Seventy-seven percent of all single family sales were under $200,000. Single family sales under $50,000 were 862 with 90% purchased with cash.

Overall, 46% of the single family sales were purchased with cash, 26% with a conventional loan, 23% with an FHA loan, 4% VA loan, and 2% with other financing.

Phoenix led all cities with 2,024 sales. This was a 19% increase in sales over March 2010. The cities with the highest percentage increase in sales in March 2011 over March 2010 were San Tan Valley with a 66% increase, Tempe at 39% and Maricopa at 38%.

When combining all residential sales 43% were lender-owned sales (REOs), 19% were short sales and 38% categorized were neither a short sale nor a lender-owned sale, though many of the sales in the other category were recent lender-owned sales that were fixed and flipped.

The single family rental market remained hot with a 1.5 month supply of single family rentals in Greater Phoenix.

You can reach Fletcher at: fwilcox@glta.com

H. L. Quist exposed the Federal Reserve’s “credibility gap” expanding on Ben Bernanke’s first press conference. Most of the “gap” is noted in this issue of CMV. The Myth Buster reminded the attendees that even in an “End of America As We Knew It” scenario, there is always opportunity. Two young entrepreneurs in California raised $100,000 in 2006-2007 and shorted sub-prime debt. They walked away with $10 million dollars when 98% of all investors were wringing their hands. A CONTRARIAN MARKET VIEW can be very rewarding.

The rest of the newsletter is only available to paid subscribers and includes the portfolio of recommendations.
Subscription box in in the left side bar here on the blog.
"GREED" and "PROFIT" are now available for you iPad users.
You can also pay for the year's subscription to the CMV (just $99) plus receive both books free (USA addresses only) by clicking here for the paypal payment window link.

-- H. L. Quist

Round Table Registration - Last Chance To Sign Up!

2011-04-25T05:23:00.000-07:00

Hello World,

I am participating in a Panel Discussion on April 29th at Gainey Ranch Golf Club in Scottsdale, Arizona and want to invite you to attend.

Registration is in process, but time is running out to ensure your seat at this lively discussion. A delicious continental breakfast is included in the inexpensive registration fee.

Deflation? Recession? Hyper-Inflation? Stagnation? Inflation? -- A panel of leading experts will give you their bottom line opinions! Elliott Pollack, Fletcher Wilcox, and H. L. Quist will provide a lively discussion on the concerns of business owners/investors. Adequate time will be provided for audience questions.

Friday, April 29, 2011
8:30AM—9:00AM Continental Breakfast
9:00AM—11:00AM Round Table
Gainey Ranch Golf Club
7300 E. Gainey Club Drive
Scottsdale, Arizona 85258

RSVP ASAP to ensure your seat

Cost::$25.00/Person

Checks made payable to:
H. L. Quist and
Mailed to: Kas Baird
c/o Grand Canyon Title
10607 N. Hayden Rd., F-102
Scottsdale, AZ 85260 by April 15th,
Or
Pay by credit card at the link below
https://www.paypal.com/cgi-bin/webscr?cmd=_s-xclick&hosted_button_id=SR58Y9JWQXZ9A

Be sure to indicate the number of persons attending by updating your information on the payment page.

Questions? email hlquist at djmwealth dot com

-- H. L. Quist

Round Table Registration - Reminder

2011-04-19T06:28:00.000-07:00

Registration for Round Table - Time Is of the Essence.

2011-04-12T07:53:00.000-07:00

Hello World,

I am participating in a Panel Discussion on April 29th at Gainey Ranch Golf Club in Scottsdale, Arizona and want to invite you to attend.

Registration is in process, but time is running out to ensure your seat at this lively discussion. A delicious continental breakfast is included in the inexpensive registration fee.

Deflation? Recession? Hyper-Inflation? Stagnation? Inflation? -- A panel of leading experts will give you their bottom line opinions! Elliott Pollack, Fletcher Wilcox, and H. L. Quist will provide a lively discussion on the concerns of business owners/investors. Adequate time will be provided for audience questions.

Friday, April 29, 2011
8:30AM—9:00AM Continental Breakfast
9:00AM—11:00AM Round Table
Gainey Ranch Golf Club
7300 E. Gainey Club Drive
Scottsdale, Arizona 85258

RSVP by April 15th to ensure your seat.

Cost::$25.00
Checks made payable to:
H. L. Quist and
Mailed to: Kas Baird
c/o Grand Canyon Title
10607 N. Hayden Rd., F-102
Scottsdale, AZ 85260 by April 15th,
Or
Pay by credit card at the link below

https://www.paypal.com/cgi-bin/webscr?cmd=_s-xclick&hosted_button_id=SR58Y9JWQXZ9A

Be sure to indicate the number of persons attending by updating your information on the payment page.

Questions? email hlquist at djmwealth dot com

-- H. L. Quist

Free Preview of CMV Newsletter, April, 2011

2011-04-02T17:40:00.000-07:00

Hello World,

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

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

The comparative results for March, 2011 were as follows:

                                                              YTD
    The CMV Portfolio                 + 5.04%
    Dow Jones Industrial Avg.        + 6.41%
    S&P 500                                + 5.42%
    NASDAQ Composite             + 4.83%

Market Overview

Early in March, The Myth Buster (TMB) was interviewed on radio station WEKZ in Monroe, Wisconsin, about 20 miles from Madison, the recent center of America’s universe. Scott Peterson, the host of “The Morning Mess” asked TMB, “We’re so embroiled in this controversy, can you give us a sense of what is happening in our country? You’re good at seeing the big picture.”

In a macro sense what we are seeing is the result of a breakdown in our nation’s infrastructure – social, political and economic, which has been evolving for over 50 years. A confluence of the destruction of all of these sectors coming together at the same time has created a state of chaos. Since Wisconsin was my birthplace, the interview made TMB reflect on his childhood and in particular the role of our teachers and our educational system in the forties and the fifties.

Our teachers, in this bygone era, were the ultimate ‘gate keepers’. Most of them must have deemed it their responsibility and in fact their mission in life to not only educate their students but to mold them into good citizens who would become the future of America. Building character was one of the primary objectives of our teachers. Lying was admonished by instant peer humiliation – “liar, liar your pants are on fire.” Cheating and particular cheating on tests was cause for expulsion from school. As students we respected our teachers and all adults always responding, “Yes Sir” or “Yes Ma’am.” We may not have like the administration of their rule of law but we conformed to it. When our teachers reported our miscues of behavior and deficiencies to our parents, they, in most cases, supported our teachers and administrated their own form of punishment at home. The message to us was always clear and unambiguous. RIGHT was RIGHT and WRONG was WRONG. Grey was not an option.

Truant Officers constantly combed the ice cream parlors, soda shops, pool halls and theaters for miscreants who were playing hooky. TMB’s high school principal, a short but sturdy man and a graduate of West Point, was an authoritative figure who possessed a big stick but in my recollection, never had to use it. Our teachers, coaches, and administrators molded us into good citizens and most of them thrived upon the satisfaction that their mission was accomplished despite their financial sacrifice.

So, where are we now? A high percentage of high school students can neither read nor write. Students are murdering students, students are shooting teachers, teachers are having sex with their students and teachers are cheating on tests to secure more funding. Education, has hardly “progressed” in the past 50 years. When and why did it all go wrong? Since TMB has experienced and witnessed it all, he’ll offer this insight.

While interviewing a former high school coach for a history of the school, the coach said, “In the fifties, you kids tried to do everything we asked you to do. In the sixties, the kids questioned everything we asked them to do. In wasn’t enjoyable anymore and I quit teaching and coaching.” Our West Point principal was offered a position as head of a new high school which he refused in the late 50s saying, “My day is over – times are changing.” What was the “change” that these two educators saw as early as the late 50s and early 60s?

Students became “empowered.”

Remember “Black Board Jungle” and other films that made heros out of teens who challenged teacher and parental authority? And, when teachers pointed out that Johnny was having problems in school, the parents sided with their kids deflecting the blame on the ‘system’ that wasn’t flexible enough to meet their child’s special needs. The POWER was initially transferred from those that rightfully administered it to the students and parents who abused it and the educational system that served the nation so well for 200 years begun to crumble. Perhaps, in part, a response to this transfer of power in the sixties, was the National Education Association and The American Federation of Teachers, which have empowered themselves to the extent that the issue now is all about them – not the students.

As children of “The Greatest Generation” (those born in the late 1920s and 30s), we (including your author) contributed to not only the decline in our educational system but the End Of America As We Knew It (EOAAWKI). How? My generation did NOT insist that the system that fostered and molded us, must continue. We abandoned our heritage and each generation that has followed has denigrated and diminished it more. America now has reached the breaking point. We desperately need a catharsis – a cleansing and a rebuild of not only our educational system, but America’s entire infrastructure. That should be OUR mission and that is our hope.

PROFITS, PRICES & PROBLEMS

Corporate profits (now at historic highs) amongst the S&P 500 companies were about 8.2% during the last quarter of 2010 and the third consecutive quarter above 8% according to S&P data outlined in the March 26/27, 2011 edition of the Wall St. Journal. US corporations have bene running lean – minimizing payrolls and cost cutting, but according to many experts, that favorable environment will end when earnings are reported for Q1, 2011 at the end of March.

Why?

Decreasing margins due to increases in raw material and commodity prices as noted by CMV in March. Profit margins tend to be “mean-reverting” – meaning that when they’re at extreme levels as they are presently, they will revert to the mean. During the past 15 years the average profit margin is 6.1% so a reversion is due. For example, Nike just reported that gross margins have dropped 1.1% and the stock dropped 9.5% with their report. The S&P GSCI Commodity Index has jumped 14% this year alone which has pushed the Producer-Price Index (PPI – Wholesale price index) up 1.9% in February which is a “whopper.” As reported later in CMV, supply disruptions will only aggravate the situation.

Wholesale food prices alone rose a record 3.9% in February, the highest since 1974, which CMV has continually reminded its readers, was the beginning of the highest inflationary period in the US since the Civil War. Wholesale energy prices gained 3.3% during the same month reflecting the turmoil in the Middle East. Despite all these indicators pointing north, economists like Paul Ashworth at Capital Economics say, “With an unemployment rate that’s still near 9%, there isn’t going to be much domestically created inflationary pressure.” Some readers might find this statement comforting. CMV doesn’t.

Another area that’s off the inflation radar is the rapid rise in drug prices despite pressure on the drug companies to reduce them. In 2010, the average price increase was 6.9% according to Barclays Capital which followed an increase of 6.8% the year prior. Some popular drugs have increased double and triple this amount. Plavix is up 13.2%, Liptor 12.4%, Gleevec 20.9% and Benicar (for high blood pressure) an incredible 29.3%. Not to worry, Obamacare will resolve the problem.

Every week Barron’s interviews a prominent analyst or asset manager. CMV found Lawrence C. Strauss’ interview with Stephanie Pomboy, President of Macro Mavens, enlightening and timely. Pomboy is “dubious about the strength and durability fo the recovery...so, absent some kind of dramatic change in the consumer’s willingness to borrow or a dramatic increase in job creation, I just don’t see the ingredients for a durable recovery.” Stephanie goes on to say:

• “But it is almost laughable to think that the Fed can tighten in this environment.”
• “It is delicious in its irony that, in a way, the QE is really the driver of this commodity bubble...nevertheless, I see continued QE inflating this commodity bubble to a point that something breaks...I view commodity price-inflation as really a major margin squeeze for the corporate sector...”

Asked what trades make sense, Stephanie opined:

• “I would be long hard assets, including gold and Treasuries...”
• “I would play by selling or being underweight small-cap stocks.”
• “I would be looking to short the financials again. I think we’re going to have some mortgage mayhem.”

Stephanie supports CMV’s macro view. Inflation without real growth. She really nails the crux of the issue when she indites Fed monetary policy:

“The problem is that we serially try to inflate our way out of these problems, rather than taking the pain and letting the economy actually cleanse itself.”

Thanks, Stephanie. You’re a Doll!

THE MOST DANGEROUS MAN IN AMERICA – TAKES CENTER STAGE

The September, 2010 issue of CMV depicted George Soros as “The Most Dangerous Man in America.” You may have brushed off the warning just as 99% of the American population would, placing little import to his impact on you, your investments and your future. This “wizard behind the curtain” so described in The Myth Buster’s March 22nd Podcast, has taken stage center to reveal his plans to “Remake The Entire Global Economy” acceptable to, of course, George Soros.

Thanks to Dan Gainor, a Boone Pickens Fellow and Media Research Center’s Vice President for Business and Culture, whose article appeared on the Fox Forum, we have advance notice that Soros intends to re-organize the entire global economic system. On April 8th, a group that Soros has funded with $50 million will bring together about 200 academic, business, and government policy leaders to form a “multilateral system” where America is a subservient player. All the participants have one thing in common – they are all bought and paid for by George Soros.

It isn’t difficult to find global support for such a grandiose scheme when this man has given more than $7 billion to “open society foundations” and funded 1200 organizations such as MoveOn.org, the Center for American Progress and other far-left America and capitalist-hating organizations, according to Gainor. Soros was also the largest contributor and most singularly responsible person for the elevation of a totally unknown Senator from Illinois to the Presidency – beholden to his benefactor. NEVER underestimate Soros’ power and determination. He gloats at the chaos he has created – deliberately.

Speakers and supporters of Soros at this conference will be:

• Paul Volker, former chairman of the Federal Reserve Board,
• Economist Jeffrey Sachs, a recent recipient of $50 million for his UN Millennium Project which advocates significant tax increases on US citizens to pay for leftist policies.
• Joseph E. Stiglitz, a former senior VP and economist of the World Bank and Nobel Prize Winner in Economics who is opposed to ‘free markets.”
• Rob Johnson, a former managing director of Soros Fund Management who, during the fiscal crisis in the US, called for the resignation of all the top executives of all the major banks.

In Soros’ mind re-organizing the world order will also involve the United Nations and of course, increasing the US financial responsibility there and at the same time diminishing our influence. If there was ever an opportunity to check out of the UN and cancel their lease in NYC, now is the time.

How could this “takeover” effect all of us? Some of CMV’s observations:

1. America’s power and sovereignty will be undermined thus accelerating the dumming-down of our country. (Go to Soros’ Open Society website and read his objectives.)

2. A new global currency scheme would terminate the US dollar as the world’s reserve currency and would result in a massive devaluation of the USD.

3. A re-making of US capitalism in the form of centrally-managed international capitalism, (A marriage of Capitalism and Communism which, three years ago, The Myth Buster coined as “COPITUALISM”)

4. Despite the support of numerous corporate elites, most true entrepreneurs embodying the American spirit, should revolt at the prospect that their opportunities to work hard and succeed will be undermined for the benefit of a society dependent on government.

5. The prospect of a “turf war” between the Soros group and the present Banksters and Masters of The Universe on Wall St. looms large. CMV has consistently taken the position that the inevitable global monetary crisis would be utilized to precipitate the New World Order. The remaining question will be, who is IN and who is OUT? Is the recent action taken by the FDIC against the former top executives of Washington Mutual and their wives for illegally moving cash and houses to shield the assets from legal claims a portent of things to come? Who of us wouldn’t champion that action? That’s precisely why Soros will get support.

Soros and his followers are advocates for Social Justice through the re-distribution of wealth. His “open society” envisions a world where 95% of the population are Proles (proletariat) and the elite 5% Inner-Party have all the wealth and power. Revisit George Orwell’s 1984. Corruption is everywhere and the corrupt are in control.

March Madness – Washington-Style

The Obama Administration has a new plan to cure the 22.5% of all mortgage holders who find themselves underwater or have negative equity in their homes. It’s madness. But, why not, it’s March.

The plan is to force the nation’s banks, namely Bank of America, Wells Fargo, and JP Morgan Chase, et al, to cough-up a fine of $20 billion that would be re-distributed to prospective voters who are underwater, prior to the November 2012 elections. This “settlement” is for the banks “unfair and deceptive business practices” that would also open the door for additional litigation by the homeowners at a later date. The Attorney Generals of each state has the Administrations’s settlement proposal on their desks. This proposal plus HAMP and all the other loan modification programs have only succeeded in giving “homeowners the false hope that they can stay in homes they can’t afford, delay foreclosures that are probably inevitable and prevent prices from finding a bottom” according to an OPINION piece in the WSJ.

What is possibly more noteworthy here (more MADNESS) is that this settlement is the brain-child of Elizabeth Warren, the Harvard Professor who is now the head of the new Consumer Financial Bureau, that intends to dictate the allocation of credit to the nation’s banks. As a vivid example of how this administration bends the law to suit its’ own agenda, the Frank-Dodd Act required that this new agency be approved by Congress. When it became clear that Congress would deny its’ approval, President Obama gave Ms. Warren the unprecedented position to report directly to him and Treasury Secretary Tim Geithner to not only start the agency but receive funding without consent and without a budget! In case you haven’t received the message, Madness prevails and the rule of law is near terminal.

The President and his gang of leftists have taken the position that any modification of Social Security in order to reduce the deficit is off the table in budget talks. You can anticipate that anyone who questions that stance will be demonized. Unknown to Americans it was reported on March 22, 2011, in the Arizona Republic that the Social Security Disability Fund (SSDI) will run out of cash in a couple of years. Here’s one reason why.

Puerto Rico has emerged as one of the easiest places in the US to qualify for disability benefits. In 2010, 63% of all applicants there won approval of their claims – four points higher than New Jersey and Wyoming. 9 out of the top 10 zip codes for disabled workers receiving benefits can be traced to Puerto Rico. Total disability recipients have ballooned from 6.6 million in 2000 to 10.2 million in 2010. What we undoubtedly have here is a massive abuse of the system and corruption within the federal employees who administer it. The Obama Administration announced that it was sending a team to Puerto Rico to investigate the matter. It’s reassuring to know that our taxes are judiciously appropriated. What the ‘beneficiaries” – yes, that’s what they’re called – don’t realize is that the fixed monthly payments will continue each month but within a couple of years they won’t buy anything.

Is China On The Verge Of Collapse?

In a recent must see video on “Dateline” narrated by Gillen Tulloch who resides in Hong Kong, he exposes China’s “Ghost Cities” that will absolutely dumbfound the viewer. More importantly to CMV, what does this revelation mean to the global economy?

Tulloch, with film crew aboard, toured 10 newly constructed cities that, for the most part, are uninhabited. Imagine, if you can, a modern city of shopping malls, high rise office buildings and apartments that are vacant! Tulloch reports that there are an estimated 64 million vacant apartments/condos in 16 of these “Ghost Cities” that were built to accommodate millions of people. Only one problem. The Chinese can’t afford to live there. He says this represents the greatest real estate bubble the world as ever known.

The average high-rise condo costs roughly $70,000 to $100,000. Buyers must pay 50% down and pay off the balance over 3 years. (Now that the US is fazing out Fannie and Freddie we could export their expertise to China.) Tulloch interviewed one homeowner who, living in ghetto-like conditions in the shadow of the high rises, makes $900/month and would never be able to afford the luxury of the condo. Demand for the units is virtually non-existent.

The viewer is also able to preview the South China Mall which was billed as the world’s largest, anticipating 70,000 shoppers per day. Visible in an interview is one sole toy shop owner who revealed that he made one sale that day but most days he never has a customer. The interview ended abruptly as the police forced Tulloch and his film crew to leave the mall.

What does this all mean in the global scheme of things?

1. These 16 massive projects created an incredible development boom that employed perhaps hundreds of thousands of workers who now are mostly unemployed. A sea of discontent is rising in China which could challenge the autocracy.

2. These projects greatly distorted China’s GDP numbers and raises the question, who were the developers? Who is responsible for the construction loans? How are the banks recognizing these loans? Sources indicate that the Chinese banks (owned by the government) utilize “creative bookkeeping” and their published numbers will never reflect financial reality. And China is trying to become a member of the Bankster’s New World Order?

3. The global perception is that China’s economy is booming and that the threat of double-digit inflation and rising interest rates and increased banking reserves are being initiated to slow the economy when the possibility exists that the threat may be a colossal collapse of their centrally-managed economy. This event, if it should occur, would be a game changer. (Remember the Soviet Union in 1998?)

Japan, of course, has different challenges of it’s own but the fallout from the earthquake has created unexpected disruption in the global supply chain. Japan produces 60% of the world’s computer chips. Cypress Semiconductor can’t finish its’ product line with the limited output from Japan. Its’ stock (CY) dropped 25% after the earthquake). General Electric and Boeing are also faced with a shortage of parts made in Japan. Even Toyotas manufactured here in the US require certain parts that can’t be shipped from their home country. Toyota also has been impacted by its’ inability to get rare earth elements from China for its hybrids.

At this point in the Re-Flation Cycle, the US has experienced a Fed induced Asset Inflation Boom and as reported last month the advent of Price Inflation. Add to this mix the prospect of a supply disruption and a supply-demand imbalance, the traditional text book definition of inflation becomes an onerous reality.

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