The Aftermath Of Greed-Updates

H L Quist to Be Guest on "Wealth DNA Radio Program" - January 11, 2016

2016-01-06T08:27:00.001-08:00

Hello World,

The Myth Buster's 2016 Forecasts:

Social, Technological, Economical & Political
What's Differesnt? The FUTURE Isn't What It USED to Be!

"We are looking forward to having you as a guest on the Wealth DNA Radio Show." --Ron Nawrocki (The Ronald) host of Wealth DNA Radio Program

H. L. Quist, Guest
Monday January 11, 2016
9:00 AM in Arizona (8:00 AM Pacific time)

Call-in with Questions: +1-917-388-4162 or Click to listen online:
http://www.blogtalkradio.com/boomerandbabe

Callers:

"Submit your questions during the live show in the chat window or call in to the number above."

Listen to the archived shows at your convenience at www.WealthDNA.us.

"The Wealth DNA Radio show airs every 2nd & 4th Monday of the month, helping 1 million people become millionaires ... and we hope you join us!" -- Ron

. . .

You can reach H. L. Quist / The Myth Buster at:

hlquist at cox dot net

and follow his podcasts at:

http://hlquist.libsyn.com/

Freedom's Phoenix Interviews The Myth Buster!

2015-12-10T10:23:00.001-08:00

Hello World,

The Mythological Bird is being Revived from its' Ashes

DESCRIPTION:

Shane Krauser, who hosts the popular and thought provoking talk show sponsored by the web site FREEDOM'S PHOENIX , interviews H L Quist(aka The Myth Buster). The show focuses on social, political, economic and technological current events that highlight Buster's expertise. On the program Buster introduces to the audience the "Uberization of Money" or peer to peer funding that only days later was used by the San Bernardino terrorist to borrow $28,000 that he never intended to repay.

Other topics include: The deliberate destruction of the global middle class, the rape of Europe, the non-election of 2016, the IMF approval of the Chinese yuan as a reserve currency and the prospect of the collapse of several global banks. You won't want to miss this program.

-- H. L. Quist

Link To Program:

H. L. Quist Seminar - September 17, 2015

2015-09-01T09:53:00.005-07:00

Hello World,

           H L QUIST SEMINAR

H L Quist will be conducting his regular CE Continuing Education class at Southwestern School of Real Estate on:

   Thursday September 17th at 12:00PM
   The Scottsdale Camelback Resort
   6302 E Camelback Rd, Scottsdale, Az.

In addition to the class outline on "The Coming Inflationary Boom" Mr. Quist will also discuss a number of current and cogent topics that could impact all markets of interest to Realtors and investors. Some of the topics are:

-Will the sell-off in the stock market continue? How will it impact real property values?

--How will continued currency devaluations and a meltdown in China effect our markets?

--How will the Federal Reserve combat the threat of Deflation?

--Will the IMF introduce a new world currency in October? How would that impact the US Dollar and real estate?

Mr Quist will allow sufficient time for your questions. There is a $10 fee to the school for non-real estate attendees.

Call 602 743-8800 for reservations.

Prospect of a New World Currency

2015-07-06T10:25:00.001-07:00

Client & Investors:

The Myth Buster has presented the prospect of a new world currency to its' listeners for the past two years.

I thought that this billboard located near the Hong Kong airport brought the coming reality that this may occur into focus. The apparent target date is October this year. Continue listening to The Myth Buster for updates. The potential devaluation of the US Dollar if this event takes place is crucial to all of us.

H. L. Quist (The Myth Buster)

H. L. (Buster) Quist will be conducting a Real Estate CE Credit Course on Thursday, May 14th

2015-05-07T17:10:00.003-07:00

Hello World,

H. L. (Buster) Quist will be conducting a Real Estate CE Credit Course on Thursday, May 14th, Noon to 2:30 p.m at Southwestern School of Real Estate.

The class will be held at the Scottsdale Camelback Resort, 6302 E Camelback Road, Scottsdale.

Realtors and investors will learn how the present global currency wars could have a material impact on all asset classes. Major changes in the US and global economy could take place this year and Buster's insight and knowledge should be very informative to attendees. You do not need to be a Realtor to attend this seminar and there's a nominal fee charged by the School.

You should call 602 840-4117 to reserve your place at this seminar.

This will be Mr. Quist’s last Real Estate course until October.

Alert For Upcoming Podcast

2015-01-30T16:14:00.000-08:00

My Listeners:

You should receive my Myth Buster Podcast today. This is critical information to anyone who has an interest in telecommunication, cellular and wireless businesses. New challenges made by GOOGLE and cablevision could present interesting opportunities for users and investors. If you have any questions after listening to my program please call me at 602 840-4117.

H L Quist

http://hlquist.libsyn.com/

January 12, 2015 - 9 a.m. - Reminder - Mr. Quist on Wealth DNA Radio Program

2015-01-09T16:09:00.001-08:00

Hello World,

Here is the link for the radio show, this coming Monday. You can use this link to set a reminder for yourself, listen live, or if you miss the program, you will be able to access it in the archive.

This program is a must listen for those in Real Estate or interested in real estate.

http://www.blogtalkradio.com/boomerandbabe/2015/01/12/ron-nawrocki--wealth-dna

H L Quist to Be Guest on "Wealth DNA Radio Program"

2015-01-08T13:04:00.002-08:00

Hello World,

From Ron Nawrocki (The Ronald) host of Wealth DNA Radio Program

What Will 2015 Bring?

   The Wealth DNA radio show is dedicated to helping you increase your wealth, as well as educating savers & investors. The beginning of every New Year is a great time to reflect on what transpired last year, and prepare for what's likely to happen in the upcoming 12 months of your life. The easiest prediction to make is that recent trends will continue for another year. It's much harder to foresee turning points, especially those the majority of investors say won't happen. So what happens to your portfolio and income if you stay the course and some of these turning points occur? Very likely you'll lose money, or miss out on some great opportunities to earn far more.

      Our returning guest H.L. Quist (aka the Myth Buster) has an excellent track record of predicting these turning points by following many trends & connecting seemingly unrelated events. Given his track record in predicting market cycles, what questions would you want to ask him? Are you excited or worried about the dramatic decline in oil prices? Depending on where you live you may be concerned about the buying power of your local currency, since some Central Banks are slowing down their printing presses while others are investing in more paper, ink, and asset repurchases. What would happen if your portfolio if both the 6 year bull market in equities & 35 year bull market in bonds suddenly reversed? What hedges do you have in place?

      This show should be at or near the top of your New Year priorities, and during the hour we just might suggest a few more priorities! So if you've lived to see 2015, don't miss this show ! Grab a cup of coffee, or glass of wine and join the conversation …

       Monday January 12, 2015
          - 9:00 AM in Arizona (8:00 AM Pacific time)
          - and every 2nd & 4th Monday

Call-in with Questions: +1-917-388-4162 or Click to listen online:

http://www.blogtalkradio.com/boomerandbabe

Submit your questions during the live show in the chat window or call in to the number above. Listen to the archived shows at your convenience at www.WealthDNA.us. The Wealth DNA Radio show airs every 2nd & 4th Monday of the month, helping 1 million people become millionaires ... and we hope you join us!

H. L. Quist to Discuss Real Estate On Radio Show - January 12, 2015

2015-01-06T15:28:00.000-08:00

Hello World,

Mr. Quist will be on "Wealth DNA Radio Show" this coming Monday, January 12, 2015 at 9 a.m. Arizona time (11 noon EST, 8 AM PST, 5 PM Continental Europe).

Ron Nawrocki (The Ronald), is the show host and is happy to have Mr. Quist on his program again. (See links below for archived shows featuring Mr. Quist.)

My interview with Ron will focus on real estate and how a bull market in this sector could be created by the International Monetary Fund (IMF) becoming the new Central Bank of the World. It's a must listen to program for those who seek capital appreciation of assets.

H L Quist

Click on this link at 9 a.m. Monday, January 12th to listen in live.

http://www.blogtalkradio.com/boomerandbabe

The show website is:

https://www.facebook.com/WealthDNA?sk=app_252592148167853

Prior Appearances of Mr. Quist on the show:

http://www.blogtalkradio.com/boomerandbabe/2014/01/13/ron-nawrocki--wealth-dna

http://www.blogtalkradio.com/boomerandbabe/2012/01/09/ron-nawrocki--wealth-dna

http://www.blogtalkradio.com/boomerandbabe/2010/10/25/wealth-dna--ron-nawrocki

. . .

If you miss the live show, we will be posting the archived link in the following days here on this blog, or you will be able to find the link later at:

https://www.facebook.com/WealthDNA?sk=app_252592148167853

H. L. Quist Seminar - December 11, 2014

2014-12-04T07:43:00.005-08:00

Hello World,

H L Quist will be conducting his regular CE Real Estate Class at Southwestern School of Real Estate on:

Thursday December 11th at 12:00 PM
The Scottsdale Camelback Resort
6302 E Camelback Rd
Scottsdale

In addition to the class outline on Cycles & Trends in Arizona Real Estate, Mr Quist will also cover a number of current and cogent topics that will have a decided impact on real estate as well as all financial markets. Realtors as well as investors will be anxious to hear his forecasts for 2015. Some of the topics are:

• The sudden plunge of the price of crude oil and its' impact on our economy.

• A review of James Rickard's new book "The DEATH of MONEY: The Coming Collapse of the Global Monetary System"

• How "Monetary Reset" could elevate real estate & equity prices to new highs for the next 3 years.

Mr Quist will allow sufficient time for your questions. There is a $10 fee to the School for attendees. Please call 602 840-4117 for reservations.

IMPORTANT NOTICE - Seminar, Scottsdale, Arizona

2014-09-08T06:06:00.000-07:00

Hello World,

H. L. Quist will be conducting a seminar at the Southwestern School of Real Estate on Thursday September 18th at 12:00PM Noon.

In July 2005 Mr. Quist and the Southwestern School held a special seminar to alert Realtors and investors to an inevitable and devastating crash in the equity and real estate markets which proved to be accurate. Mr. Quist is NOW forecasting another major financial crisis precipitated by the crash of the US dollar. Given that Mr Quist has forecast almost every major boom and bust cycle since 1987, Realtors and investors should benefit from this two and one-half hour presentation and discussion. There is a $10 fee by the school for non-Realtors attending the seminar.

The seminar will be held at the Camelback Scottsdale Resort at 6302 East Camelback Road, Scottsdale. Please call 602 840-4117 if you plan to attend.

--H. L. Quist

Mr. Quist to Conduct Real Estate Seminar May 15, 2014

2014-05-06T13:04:00.001-07:00

H. L. QUIST SEMINAR

    H. L. Quist will be conducting his monthly CE Real Estate Class at Southwestern School of Real Estate on:

Thursday May 15th at 12:00PM
The Scottsdale Camelback Resort
6302 E Camelback Rd
Scottsdale.

    In addition to the class outline on Cycles & Trends in Arizona Real Estate Mr Quist will also a cover a number of current topics that will have an impact on real estate as well as all financial markets.

    . China's economy will exceed the US this year and its' impact on interest rates

    . The corporate exodus from California

    . Is America's biggest lie about to be revealed?

    . What Social, Political and Economic changes are inevitable?

There is a $10 fee for all attendees. Please call 602 840-4117 for reservations.

H. L. Quist invited as guest on Wealth DNA Radio

2014-01-10T17:37:00.002-08:00

Hello World,

H. L. Quist will be the guest of Wealth DNA host Ron Nawrocki, Monday, January 13, 2014 at 9 a.m.

Among the topics to be discussed:

"what's Out - what's In" or "what's Hot - what's Not" for 2014

http://www.blogtalkradio.com/boomerandbabe/2014/01/13/ron-nawrocki--wealth-dna

Mark your calendar and tune in.

H. L. Quist

H. L. Quist Presents -- The Experts! October 17, 2013

2013-10-10T09:24:00.000-07:00

H. L. QUIST PRESENTS
THE EXPERTS

H. L. Quist will be conducting a two and a half hour seminar in conjunction with his regularly scheduled Real Estate CE course on:

Thursday, October 17th at 12:00 p.m.(Noon)
Scottsdale Camelback Resort
6302 E Camelback Road, Scottsdale

Mr Quist will feature the current economic and market outlook based upon his recent attendance at the Casey Research Conference that includes such outstanding analysts as:

● Bud Conrad who has an MBA from Harvard Univ in Economics

● James Rickards who is the author of "CURRENCY WARS"

● Lacy Hunt who is the former Chief Economist of the Federal Reserve Bank of Dallas

● Andy Miller who is the CEO of Realty Funding Group in Denver

● David Webb who is the founder of Origin Investments

Webb revealed how the US Uniform Commercial Code has been revised to enable creditors to seize customer financial assets to preserve the banking system as depositors in Cyprus experienced

This is a must-attend seminar for those who want these expert's insights into what's ahead in 2014 for the financial and Real Estate Markets.

Seating is limited. Call 602 840-4117 to reserve your place.

Southwestern School of Real Estate requires a $10 fee for attendees.

-- H. L. Quist

H L Quist to Lecture at Real Estate School in Scottsdale, June 20th

2013-06-03T11:56:00.002-07:00

Hello World,

H. L. Quist will be speaking at the Southwestern School of Real Estate at 12:00 p.m. (Noon) on Thursday, June 20th.

Of particular importance to Realtors and Investors is the prospect of significant market changes as a result of Federal Reserve Policies, which could have a major impact on interest rates in the near future.

There is a fee of $10 for all non-CE Credit attendees. Seating is limited.

Call H. L. Quist at 602 840-4117 to reserve your space.

Email questions to:

hlquist at dynamicwealthadvisors dot com

Southwest School of Real Estate is located at the:

Scottsdale Camelback Resort
6302 North Camelback Road (NEC 62nd St and Camelback)
Scottsdale, Arizona

-- H. L. Quist

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 Southwestern School of Real Estate and does not make any representations about the content of any information or advice to H. L. Quist/The Myth Buster.

Interesting Times - JPMorgan's Gold

2013-04-26T13:59:00.003-07:00

Hello World,

This article is a must read.

JPMorgan's Eligible Gold Plummets 65% In 24 Hours To All Time Low

If you are not receiving my podcasts, be sure and sign up to receive email alerts when a podcast is released.

H. L. Quist - The Myth Buster Podcasts

-- H. L. Quist

H. L. Quist Personal Appearance

2013-01-11T08:35:00.003-08:00

H. L. Quist will be teaching a Real Estate CE Class at Noon, January 23, 2013 for Southwestern School of Real Estate.

In addition to his perspective on trends and cycles in Real Estate topics of interest will include the recently passed American Taxpayer Relief Act (Fiscal Cliff), recent changes in Fed Monetary Policy, the Federal Debt Limit and other critical issues.

The 3 hour seminar will be held at:

Scottsdale Camelback Resort
6302 East Camelback Road
Scottsdale, Arizona

You don't have to be a Realtor to attend. There will be a $10 fee for all attendees.

Call 602 840-4117 to reserve a spot.

-- H. L. Quist

CMV December 2012

2012-12-05T06:18:00.000-08:00

Hello World,

The Contrarian Market View Newsletter is now free. (Some parts of the newsletter do not display well on the blog - to see the complete newsletter sign up at the Yahoo Group site (below).

Visit my podcast site for weekly updates from The Myth Buster

INVESTORS: To access current and prior newsletters, join my yahoo group.

SPECIAL NOTICE:

It is with extreme regret that we will end the publication of the Contrarian Market View with this issue.

Most of you do not see or believe what is about to unfold in America and specifically the control of all media. Any day the House of Representatives will attempt to pass HR 2471 which will allow the Federal government to access and read all online communication without a warrant. In our opinion all conservative media including FOX News, talk shows such as Rush Limbaugh, Mark Levin and a host of others and all newsletters including CMV will be pressured and harassed to silence their dissenting voice.

Our focus will now be 100% committed to managing assets for our clients and attempting to find financial security in an extremely challenging environment. If we can assist you in your planning or need additional information, please contact me.

Good luck and God Bless you and your family and God Bless the United States of America.

Market Overview

First and foremost CMV must and will unequivocally admit to its error in forecasting President Obama’s “landslide loss” for re-election. In retrospect we were reluctantly swayed by the unequivocal convictions of Carl Rove, Dick Morris and the Rasmussen polling organization whose accuracy in past presidential elections was unrivaled. It’s near unimaginable that Mitt Romney would garner 3 million less Republican votes than John McCain recorded in 2008. Here’s one reason why.

Terry E. Branstad, the Republican Governor of Iowa, stated convincingly that his state (though the polls projected an easy Obama victory) would post a victory for Mitt Romney. Branstad said (to paraphrase) “I know every county in my state and the enthusiasm and turnout for Romney will make Iowa a red state.” The Governor was wrong. What happened? In CMV’s opinion the state’s Ron Paul supporters did not vote for the Republican candidate. You’ll recall that Ron Paul secured about 33% of the primary vote in Iowa and Paul scored impressively in other states also. To Paul supporters Romney wasn’t a Conservative and they stayed home. You also may recall that Ron Paul was completely ignored at the Republican Convention and none of his ideas were included in the platform. Additionally, Republican corn farmers, who have profited by the ethanol alternative energy plan favored by the Obama Administration voted for the President. Equally noteworthy is that it appears that a large bloc of the senior sector also did not vote for the Republican candidate, which in our opinion will come back to haunt those who rely on Medicare.

The bottom line, in our view, is that Democrats of all stripes, banded together despite their philosophical and ideological differences, to win the Presidency.   The Republican s nitpick and are too narrowly principled to win. Barrack Obama is a Democrat in name only and his vision for America won’t be shared by a large percentage of the Democratic party within two years. Maybe Paul’s supporters had it figured out. Let Obama destroy American Exceptionalism and the economy and even the masses will clamor for Conservative change.

A good example that supports the above is the noteworthy story of Hostess Foods, the maker of Twinkies (which we used to buy for $.02 in the 40s), Devil Dogs, HoHos snack cakes and Wonder Bread. As one pundit put it, “Hostess was eaten by a parasite.” The company, unable to reach an agreement with one of its unions, has decided to liquidate and lay off 18,500 employees rather than endure another strike. Hostess posted sales of $2.5 billion in 2011 but lost $341 million due to labor-rule burdens that included $52 million in workman’s compensation claims in 2011. The company has 372 collective bargaining agreements and is required to maintain 80 different health and benefit plans, 40 pension plans and had a mandated $31 million increase in wages and health care for 2012. Hostess simply faced an inevitable collapse and they chose to sell their brand names while they had value. As cited below, this dire picture of entitlement over-burden will also include state and municipal employees all over the US. The Mercer Company, which is one of the largest employee benefit firms in the country, says that of 1500 S&P companies reporting, there is $617 billion in under-funding in company pension plans. Millions of Americans, union and non-union, are not going to receive what they expect to receive at retirement but most refuse to see it. The long-term implications are ominous.

Although all the signs surround us, very few observers have factored in even more dire implications also. The WEATHER. According to the Department of Agriculture’s Drought Monitor, most of the farm producing Plains States are experiencing a severe drought as CMV has previously reported. Despite the fact that this area has been through this before, those who contend that man-made climate change has caused this condition, need only to see Ken Burns’ “The Dust Bowl” a 4-hour documentary just released Thanksgiving week. From 1931 to 1939 there was virtually no appreciable rain in an area from the Dakotas south to eastern Colorado, New Mexico and the panhandles of Oklahoma and Texas and east to Nebraska and Kansas. A confluence of events at the turn of the 20th century including the Homestead Act, World War I, mass immigration from Europe, land speculators and “briefcase farmers,” the plains, lush in native buffalo grass, became the target of dry land farming. The invention of tractors and the high demand for wheat resulted in hundreds of millions of acres to be tilled which destroyed the deep root system of the native grasses and set the stage for one of the most incredible and catastrophic events in American history – The “Dust Bowl.”

When the rain stopped and the winds blew, the top soil became airborne. Clouds of billowing dust a mile high and hundreds of miles wide made night-time out of daylight. Arizonans will recall the “Haboob” of 2011 that engulfed the Phoenix area. In 1937 the “Dust Bowl” had such an event 79 times and each was more powerful. An ecological and human disaster followed. Adults and children died from dust-filled lungs and the Great Depression was the final blow that devastated farming communities throughout middle America. John Steinbeck’s “The Grapes of Wrath” fully grasped the tragedy caused by man’s greed and nature’s wrath. World War II and the cyclical change in the weather ended the crisis. But, this not the end of this story.

Much of this area is now irrigated farm land and water has been provided by one of the nation’s largest natural underground aquifers called the Ogallala. Over the past 60 years, however, drawing water has reduced this water supply 50% according to Burn’s documentary. Experts have indicated that the aquifer will be essentially dry in 20 more years.

As CMV has reported numerous times the allotment of water to the San Joaquin Valley in California, which provides a substantial portion of America’s fruit and vegetables, has been severely curtailed. Add to the loss of production there to the prospect of the eventual loss of the Ogallala to the plains and we have a prescription for a food shortage that will impact everyone. In the 1930s the “Okies” set out for California. Where will our farmers go in the future? What have you done to guarantee a food supply for your family?

. . .

In a decided shift in tone, there are a number of positive factors that all of us can be thankful for on this Thanksgiving Day. The following is brought to you from Wells Capital Chief Investment Strategist, Jim Paulson, via Gene Epstein’s “Economic Beat” in Barron’s.

●   From an October 2009 high of 10.0%, the unemployment rate has declined to 7.9%

●   The labor force is steadily rising despite the fact that 3.8 million potential male workers are unemployed.

●   Consumer confidence has returned to a 5 year high of 82.7%. Normal is 90%

●   Housing activity is improving and housing starts in October were 42% higher than a year ago.

●   The stock market may finish its fourth consecutive year of positive returns but the S&P 500 Index remains 11% below its’ October 9, 2007 high.

●   A revision to the third quarter’s GDP growth is expected to show a much stronger pace, close to 3%.

The Fiscal Cliff

One pundit wrote that anyone who mentions the word “cliff” ought to pay a tax. The continual discussion is getting laborious but there’s more to this tax and budget expenditure issue that you would glean by the talking heads on TV. The editors of the WSJ provided the best insight in their “Review & Outlook” section November 15, 2012.

The President has declared that “the math tends not to work” when he asserts that closing tax loopholes wouldn’t provide enough revenue for a budget deal and raising tax rates would produce more government revenue. The WSJ says that the President is being disingenuous. For one, capping all deductions at $50,000 for all taxpayers would produce $749 billion in extra revenue over 10 years. Reducing the cap to $25,000 would raise an additional $1,286 trillion and as Mr. Romney proposed reducing the cap to $17,000 would raise tax revenue by an additional $1,747 trillion. These estimates were produced by liberal economists at the Tax Policy Center. In comparison, Mr. Obama’s proposal to raise taxes on capital gains, dividends and income above $200,000 would yield only $823 billion over 10 years or a piddling $82 billion per year when the deficit has been running over a trillion a year for the past 4 years. The obvious question is, why is Mr. Obama so insistent on raising tax rates now when more revenue can be raised by reducing deductions? The WSJ concludes: “He really doesn’t care if there’s a budget deal this year that avoids the cliff.”

The President’s position set in concrete is that any budget deal must raise $1.6 trillion in tax revenues which is twice the amount he agreed to with House Speaker John Boehner last year. And, there will be absolutely no cuts to Medicare, Medicaid and Social Security. Basically it is a deal the Republicans can’t approve so we will all fall off the “cliff,” there will be a recession next year and the Republicans will be to blame. The WSJ maintains that “the President is playing a game of political chicken with the economy,” and they conclude:

“We’re beginning to think he (Obama) wants to go over the cliff this year.”

For the sake of argument let’s say there was an agreement to raise tax revenue by $1.6 trillion over 10 years by virtue of increasing the tax rates on the wealthy and there was an additional $1.6 trillion increase in revenue from limiting deductions for all taxpayers. That would total $3.2 trillion over 10 years or $320 billion per year. Here again with the deficit running over one trillion per year for the past four years there would still be a $700 billion shortfall per year going forward. With 10,000 people retiring every day and all entitlements rising parabolically the deficit would widen. The increase in the interest on the federal debt alone will approach a Trillion dollars a year.   Those type of numbers will NOT quell the angst in the financial markets and a decided downturn in the economy in 2013 could be unavoidable. And, no mention has been made that the total federal debt limit of $16.4 trillion has already been breached and by law the US Treasury can not exceed that limit (the President just proposed that any debt limit be removed).

CMV recalls the mantra of this Administration. “Don’t let a crisis go to waste.” It’s Obama time. It’s time for “revenge” as the President stated just before the election to his delirious supporters. Revenge against the wealthy. Now is the moment that he can “fundamentally change America” by destroying Capitalism. Obama is the agent for change and the Trilateral Commission and their 39-year goal to create a totalitarian state is at hand. Mitt Romney had to be defeated. He wasn’t a member of that elite group that will soon offer all the Americas and the EU the New World Economic Order that will rescue all of us from the coming economic chaos and despair.

Real Estate

In Phoenix and some other areas of the US, there is almost an euphoria growing in the residential real estate market as the number of sales and the rise in median home prices are gaining momentum. In contrast, however, when the financing sector of this market is examined, storm clouds are gathering ominously on the horizon.

With the election over, we now discover that the Federal Housing Administration (FHA) is insolvent. As of the Federal Government’s fiscal year ending September 30, FHA’s liabilities exceeded its’ assets by $16.3 billion according to a WSJ piece dated November 20, 2012 and the gap could balloon to almost $100 billion in a worst case scenario. In 2009, the WSJ predicted that this day would arrive but the Journal was soundly rebuked by the then FHA Commissioner, David Stevens who said that the WSJ was “just plain wrong” and “I can say undoubtedly that the FHA fund is playing a key role in the housing recovery and poses no immediate risk to the American taxpayer.”

As most of us observed, FHA was aggressively expanding its’ loan guarantee program to prop up home prices in 2007 to 2009 when the market was crashing. While this helped the Obama Administration politically, it arguably prolonged the recovery by failing to let prices find a bottom.

With about a trillion in loan guarantees outstanding, the WSJ reports the percentage of loans that are now seriously delinquent and expected to reach a total of $70 billion in claims are: 25.82% of FHA’s 2007 loans, 24.88% of 2008 loans, and 12.18% of its’ 2009 loans. This is precisely what happens when government responds to political rather than market incentives. The other more pervasive problem is that there is no personal accountability and the losses are simply passed on to taxpayers. And, here’s where the rubber hits the road. As CMV reported last month, approximately 700,000 FHA borrowers will now qualify for new financing in 2013, after a three-year wait following foreclosure plus an additional 1.6 million in 2014. Where will the money come from? U NO WHO!

Typical of an irrational and delusional government agency, the FHA believes that they can rebuild their reserves by principally increasing their premiums for mortgage insurance. They’re already raised premiums three times over the past two years from 0.9% of the loan amount to 1.15% one year ago and to 1.25% in early 2012. The proposed new rate will be 1.35%. On a $300,000 FHA loan where the borrower makes a 5% down payment, the insurance premium will be approximately $347.00/month. In the past, mortgage insurance premiums would be waived after certain conditions were met. Just recently the FHA announced that it will no longer offer waivers and the borrower will pay the premium for the life of the loan. We calculate on a $200,000 loan with a P&I payment of approximately $910/month, the FHA mortgage premium would be about $200/month or 22% of the P&I payment before the new increase. We could be at the point where the premiums are prohibitive, but since the government is the lender of last resort, what options are there? That gives us a perfect segue to Fannie and Freddie.

At the height of the presidential election campaign, Americans were told by the Treasury Department (in a press release entitled “Further Steps to Expedite Wind Down of Fannie Mae and Freddie Mac”) that the Treasury would reduce the Government Sponsored Enterprises (GSE’s) portfolio of loans by 15% / year. Recent reports indicate, however, that the two GSE’s are not shrinking in size and Fannie Mae, in particular, is expanding. Fannie had 5,800 employees in 2008 when it was taken over by the government and as of early 2012 it had ‘bulked up” to 7,000 employees. Rule #1 – Bureaucratize never downsize.

When the US Treasury bailed out both GSE’s, part of the deal was a cap on the mortgage assets that they own. Fannie was permitted to own $729 billion as of December 31, 2009. Fannie’s current balance sheet, however, lists $2.9 trillion in mortgages. The un-admitted policy is simply this: The Federal Government and the Obama Administration, through its agencies FHA, FNMA, FRMC, VA and the US Department of Agriculture Rural Loan Program, wants to control the residential housing market and the question of profit and loss or solvency is not an issue. This model fits perfectly into the redistribution scheme because the highest taxpayers will carry the bulk of the burden.

Aside from the above, a new trend is being established in the residential market. Like the “olden days” and during tough economic times like The Great Depression, families are re-gathering under one roof. Households could now consist of grandparents, their children who own the home and the jobless grandchildren who have returned home. Lennar, is one homebuilder marketing one multi-generational model as “Next Gen–The Home within a Home.” Pulte Group surveyed 1,000 homeowners and found that 72% of them who had aging parents living with them plan to renovate or buy a new home. The next step is communal living for survival.

The (Unknown) Clinton Legacy

All US presidents, at least those since World War II whom we have observed and studied, have sought to achieve their place in history and create their own legacy by accomplishing great things while they are in office. Some have tried to repair their damaged image after they have left the presidency.

Richard M. Nixon’s term ended in disgrace with his resignation. Despite his efforts to ameliorate his image later in his life, his legacy has been relegated to re-opening America’s relationship with Communist China. Jimmy Carter’s legacy was foiled by an out-of-control inflationary economy that morphed into stagflation coupled with our US Embassy employees held hostage for 444 days in Iran. Carter’s concerted effort for the past 32 years to recast himself as a statesman and a peacemaker has fallen woefully short to recast his legacy.

To most observers Bill Clinton has overcome his darkest hours of impeachment to become, not only one of America’s most popular presidents, but has enhanced his legacy during the past 10 years. To CMV, however, Clinton left an indelible imprint on the Office of the Presidency of the US that has profoundly impacted not only the Oval Office, but our entire society and culture. This “legacy” is not found anywhere in Bill Clinton’s bibliography. It is a CMV original. It is unknown – until now.

Last spring CMV observed the PGA Tour’s Humana Challenge Golf Tournament in Palm Desert, California, which was formally known as the Bob Hope Classic. This tournament, sponsored by Humana Corp. (The health provider) bills itself as a partnership with the Clinton Foundation dedicated to build healthier lifestyles.   Clinton, known in the past for his workaholic 100 hour work weeks while subsisting on junk food, had a quadruple by-pass surgery in 2004 that probably prevented a heart attack. He reportedly is now vegan and his Foundation is active in Haiti, Africa, Latin America and Europe to improve health and living conditions. A laudable and worthwhile endeavor.

What struck us as remarkable, though, was how the Golf Channel reporters covering the Tournament, as well as the media in general, “gushed” over the ex-President. No words were adequate or flowery enough to describe the outstanding character and the goodness of this man whose dedication to the various areas of extreme poverty was almost Mother Teresa-like. Long forgotten was the dark side of the 42nd President of the US and what provides an ironic twist to the ex-President’s legacy.

William Jefferson Clinton won the election in 1992 with only 43% of the vote thanks to a 3-way split of the electorate between Clinton, George H. W. Bush and Ross Perot. The first baby-boomer president entered the White House despite the baggage of numerous scandal-ridden events that dogged him. There was the BCCI bank money-laundering scheme, the Mena, AK drug smuggling ring, Trooper-gate where state troopers ostensibly arranged for the Governor’s trysts, as well as Whitewater, a real estate promotion gone bad. As the “boy” Governor of Arkansas, he acquired the nick-name of “Slick Willie” which was not in reference to his hair-do. All the myriad of alleged misdeeds, however, would pale in comparison to what would occur in the first few months in 1993 while President of the most powerful nation in the world.

Buried and long forgotten is the shocking and mysterious death of Deputy White House Counsel Vincent W. Foster in July, 1993, barely 6 months into the new Administration. Foster, who was a childhood buddy of Clinton dating back to grade school in Hope, Arkansas, later became a partner with Hillary Rodham Clinton in the Rose Law Firm in Little Rock. Prior to his White House appointment, Foster was intimately involved in all the Clinton’s dealings including Whitewater and knew where all the “skeletons were buried.” He was attempting to complete the tax returns for Whitewater and draft the President’s Blind Trust at the time that his body was discovered in Fort Mercy Park near the White House – a victim, according to the FBI and the Office of the Independent Counsel, of a suicide.

Not so say a number of reliable sources. The Western Journalism Center hired 3 competent investigators who concluded that Foster’s death was “inconsistent with suicide” and that the White House Deputy Counsel did not die in Fort Mercy Park. In Failure of Public Trust, written by John Clarke, Hugh Turley & Patrick Knowlton (who was a key witness) concluded that Foster’s death was a cover-up. Accuracy in Media also did an exhaustive study of the death and autopsy photos that show a possible second gun shot wound to Foster’s neck.

There is probably no other president with such a clouded past as Bill Clinton but it was the Lewinsky affair that specifically qualifies this “Teflon Man” for this unknown though dubious legacy. For those of us who attended grade school and high school in the 1940s and 1950s, lying, cheating and stealing were absolutely verboten. Any one of these infractions (sins) would expose any of us to peer ridicule and possible expulsion from school. Was there anything more humiliating than “liar, liar your pants are on fire?” Bill Clinton, 10 years younger and a product of the rebellious sixties, grew up in an era where Progressives determined that character-building teachings were old-fashioned and out-of-date. When he faced perhaps 100 million or more American viewers on nationwide TV that day in January, 1998, he said:

“I did not have sex with that woman, Monica Lewinsky.”

The President was strong, forceful and angry as he pointed his finger at all of us and lied about his affair with Ms. Lewinsky. It was as if the President was chastising all of us for falsely accusing and pre-judging him as guilty of an adulterous affair that created an unwarranted crisis in the country.

So, what is the point of this discourse?

Bill Clinton lowered the bar not only for future presidents but he also re-wrote the code of conduct that had previously shaped the character of all of America’s youth since the founding of the Republic. The fact that Clinton was impeached by the House of Representatives for lying under oath and obstruction of justice, but acquitted by the Senate, sent a clear message to all America that lying was not a sin and not an issue in the governance of the nation. What has followed in the past 12 years is an unprecedented breakdown in the rule of law, fraud, unethical behavior and corruption which has permeated the realm of politics, business and social discourse. Corruption will continue to escalate under the current Administration and undermine all aspects of our society and will inevitably culminate in the collapse of our economy. Truth and American Exceptionalism has died. A rebirth can only occur when the present groundswell towards Marxist Totalitarianism is soundly rejected and Americans return to the moral and ethical values that gave birth to this once great nation.

Updates

Illinois the “Un-fixable”

CMV recently wrote of the State of Illinois’ coming financial crisis which has now been validated by an opinion piece in the WSJ on November 11, 2012 with the above title. The Commercial Club of Chicago, a business group, wrote that, because the November elections did not bring in lawmakers willing to push for real reform, the State’s $200 billion debt now threatens education, health care and basic public services. The group also concluded that the State’s unfunded pension liability of $95 billion is heading for a “meltdown” and the crisis has “grown so severe” that it is now “un-fixable.” And, get this. The State currently has $6 billion in accounts payable past due for 6 months! The Illini are deadbeats.

Illinois has become the poster boy of things to come in many areas of America. A not so shining example of what happens when corruption becomes the rule of law and its’ citizens firmly believe that their jobs, pensions and health care will continue unabated and are guaranteed. The Greek tragedy will be repeated in the streets of Chicago. CMV’s inference that the State could be bailed out by its’ “favorite son,” the President, was seconded by the WSJ which said, “More likely is that the politicians keep abdicating and will hit up President Obama for a Federal bailout.”

Note: The Obama Administration has already funneled $100's of billions to Illinois, California and other blue states that has not been budgeted or accounted for.

The College Debt Bubble

You may recall that CMV wrote feature articles (December, 2011 and August, 2012) on how the various student loan programs (that have added up to one trillion dollars) have subsidized the building of massive “monoliths” called colleges and universities across the nation. Hard evidence that this era is over and the repercussions that are about to unfold are illustrated in a WSJ feature article (November 23, 2012) entitled, “The Cost Of Dropping Out – Millions Struggle With High College Debt and No Degree.” The following dropout numbers are jaw-dropping. One Washington, DC study found that 58% of the 1.8 million borrowers whose student loans became due in 2005 hadn’t received a degree and 59% of those students were delinquent or in default. A college degree in the past was considered to be a ticket to the middle class and financial security. Now, there are 1.9 million unemployed college graduates plus those that never completed their degree and the ramifications are ominous. What are some of the possible outcomes?

●   The present student loan debt bubble has now burst and most of the trillion will never be repaid. We expect that the President will “forgive” a large portion of the debt.

●   As part of this Administration’s redistribution scheme US taxpayers will incur the losses.

●   Universities and colleges will be forced to downsize even though the Federal government may adopt a free tuition policy.

●   The traditional model of awarding credits based upon classes and hours attended will change to a “competency-based” approach, favoring students who must work while going to school.

●   More students will earn degrees on-line and at community colleges avoiding high tuition costs and student loans.

Sub-Prime Debt Goes Prime Time

In a previous issue CMV brought to your attention that financing for new auto sales was about to rise dramatically. An update supports our previous report. Auto lending was the fastest expanding segment of consumer debt in the second quarter of 2012, totaling $750 billion. In particular, demand for loans to buyers with sub-par credit commanding higher interest rates is nearing pre-recession (2009) levels but lenders are gearing up for more. GM just announced that it had purchased the international operations of Ally Financial, Inc., after the company abandoned auto lending 6 years ago. Banco Santander SA, the Spanish bank which is reeling from the EU debt crisis, is raising $6 billion for its’ US consumer finance unit to make auto loans enticed by the profitability of the secured debt. In CMV’s opinion the auto manufacturing and auto lending business is headed for the same head-on crash that it first experienced in the early 90s when the real estate market tanked and again in 2008-09 when the fit hit the shan. Lending to non-credit worthy buyers in the past two periods and again currently creates an illusion of demand which allows the auto makers to churn out record volumes of new cars that keep their union employees fully employed. No one seems to be concerned about the defaults and repos that will inevitably occur. Our personal borrow-to-spend economic growth model is deeply flawed based upon a short-term fix strategy and to hell with the consequences. Our government economic growth model is print and pretend and portends a hyper-inflationary “crack-up boom” is near at hand.

The Chinese Are Coming – (They’re Already here)
CMV has repeatedly reported on the Chinese inroads to the US including the US Fed’s authorization to allow Chinese banks to enter the US and also acquire US institutions. Now, the Chinese are entering the US energy market. The town of Medicine Bow, Wyoming, population 300, will be the target for an advanced facility that will convert coal to gasoline and would hope to capture and re-use carbon dioxide that would otherwise be emitted into the atmosphere. China Petrolchemical Group, an arm of the state-owned Sinopec Group, will spend about $2 billion and create up to 2,300 construction jobs and 400 full-time employees. The company did not reveal how many of the employees they would import from China as they have on other projects but they did say that they would purchase steel from China to keep costs down. They also indicated that they would establish retail gas stations in the US in a few years. What chance do you think there is that the Obama EPA which is committed to killing all fossil fuel development, will deny a permit to Sinopec?

A Real James Bond Was Murdered

Neil Heywood, a British consultant, tooled around Beijing in a silver Jaguar with “007" on his license plate and created an air of intrigue as he seemed to have a direct connection to Bo Xilai, a big-time Communist (now ex) party leader. Most observers in China though that Heywood was a fraud until the aspiring “007" met his untimely death and a real clandestine mystery began to unravel. It turns out that Heywood was connected to the British secret spy agency M16 and that he reported Xilai’s secret activities to the British government. The police investigation revealed that Bo was plotting to undermine the ruling politburo and the investigation also revealed his self-dealing and corrupt practices. Bo’s wife, Gu Kailai, who was often referred to as the Jacqueline Kennedy of China, was found guilty of poisoning Heywood. Other than the intrigue, this story, which we have followed for almost a year, indicates that there truly is a power struggle in China and all is not well in the country that aspires to be number one.

Sector Overview

1. Cash & Fixed Income

The normal seasonal trend of outflows of funds from treasuries to equities could reverse this year due to the threat of the FISCAL CLIFF and a desire for investors to seek the safe-haven of bonds. Scott DiMaggio, Director of Global-Fixed Income at Alliance-Bernstein says, “Even if we don’t go over the cliff, some of the policies that come out of it can still be pretty negative for stocks.” Some experts who are pessimistic about a favorable resolution of the tax and budget issues, see a fall in the 10 Year T-Bond to 1.2% from the present 1.7% yield. We don’t have long to wait.

There’s a rather unsuspecting outcome that could also impact the treasury market. Under Operation Twist, the Fed has been funding its’ long-term Treasury purchases with proceeds from the sale of short-term debt that has kept the 10 Year and long-term mortgage rates low. Problem is, the Fed is running out of short-term Treasuries to sell. To keep buying them in 2013 the Fed would likely need to create new bank reserves thus expanding the amount of cash in the financial system and increase the size of the Fed’s balance sheet thereby increasing the prospect of inflation. In addition some Fed officials have expressed concern that the Central bank has become such a big player in Treasuries and mortgages these markets could become illiquid and stop functioning properly, according to a November 23, 2012 article in the WSJ. The bottom line is simply that the US can’t continue to run deficits of $5 billion per day to infinity. The October, 2012 budget deficit was $122 billion up from $98 billion in October a year ago.

2. US Equities

10 Stocks Account For 88% Of S&P 500 Earnings Growth
    Morgan Stanley's US Equity Strategy team led by Adam Parker just published their 2013 outlook for the stock market. They're calling for the S&P 500 to end next year at 1,434.
    The massive research note included a lot of interesting information about the stock market including this: just 10 companies are accounting for 88 percent of all of the earnings growth in the S&P 500 this year.
    For 2013, the sources of growth are expected to be much more diversified with the top 10 names driving just 34 percent of growth.
    Still, the biggest names will play a big role next year. "Notably, Apple, Bank of America, Microsoft, GE, and Google are forecasted to be one-quarter of the entire S&P500’s earnings growth in 2013."

The above chart (in full newsletter on Yahoo Groups site) speaks volumes. All of those 10 names are large cap or mega cap companies and the potential upside for appreciation of their stock price is limited by virtue of their capitalization. During the past year they have benefitted from the Risk Off sentiment and have been a safe haven for investors. AAPL recently has been an exception. Good earnings but a significant drop in share price. One of the great ironies in the US equity market, given the Risk Off sentiment, is the lack of fear. The Chicago Board of Options Exchange Volatility Index or VIX has been benign. The VIX is an index calculated from the prices that investors are willing to pay for options tied to the S&P 500's stock index. As investors become nervous they pay more for the options therefore driving up the value of the VIX. The VIX closed at 15.14 on Friday, November 23rd which is remarkably 5 points below its’ two-decade historic average of 20, while at the same time $9 billion exited ETFs and mutual funds the week ending November 23rd. Some experts feel that this is a sign of complacency and a warning that there could be volatility ahead. An unlikely favorable resolution of the FISCAL CLIFF could spark a rally and likewise a stalemate could cause a sell-off.

3. International Equities

What a mixed bag! It’s a matte of the good, the bad and the ugly. First the good.

Most investors probably wouldn’t consider Pakistan and the United Arab Emirates (UAE) as an investment opportunity in emerging markets but as Reshma Kapadia, who writes for Barrons’ and has stated in her November 19, 2012 column, the MSCI Pakistan index is up 20% this year and the MSCI UAE is up 21%

China’s picture has been bad but that could be changing. The country’s manufacturing index showed its first expansion in 13 months indicating a turnaround for the Chinese economy. The WSJ also reports that China is likely to loosen its’ monetary policy now that inflation pressures have begun to recede. However, Byron King at the Daily Resource Hunter, reports that Chinese citizens are taking $50 billion a month illegally out of the country.

The ugly is one of the most beautiful and promising countries in the world. We should all cry for Argentina. As Mary Anastasia O’Grady reports in her AMERICAS column in the WSJ (November 19, 2012) “Argentina Runs Out of Other People’s Money.” President Christina Kirchner, who was re-elected to a second term in 2011, had based the country’s economic model on a $100 billion default in debt, a weak peso, protectionism, confiscation of private property, capital controls, broken contracts and high taxes. In other words, other people’s money. Now, the economy has a negative GDP, inflation is at 25% annually and rising taxes have angered the Porteños. And, Ms. Kirchner wants to amend the constitution so that she can run for a third term. To add to her and the country’s woes, a US judge has just ruled that Argentina must immediately pay its creditors (mostly in the US) the nation’s 2001 default which had been restructured to pay $.33 on the dollar. Why is this important to you? The US is following the same path to destruction as Argentina and most of the Socialist/Marxist countries in Latin America and Europe. The politicians promise the masses to lift their standard of living but never deliver and worst of all, they bankrupt the country and impoverish the masses.

4. Hard Assets

You’ve read the headlines. The US is likely to surpass Saudi Arabia as the world’s largest oil producer as early as 2020. (If our vision is a perfect 20-20.) Even the Paris-based International Energy Agency (IEA) believes that the global energy map is being re-drawn. Analysts believe oil production in the US will increase from the 18 million BBL/day now to 23 million by 2020. Overlooked by those on the left is that these results have been accomplished by new technology made possible by private risk capital and not government subsidies (i.e., Solyndra). It also wouldn’t have occurred if the industry wasn’t able to drill on private or state land free from the Feds and the EPA. Energy independence, first articulated during the Carter years and virtually unattainable until fracking and horizontal drilling was developed, is now coming under attack and could come undone.

The Sierra Club and other environmental groups are demonizing fracking as they have coal and natural gas. These groups simply despise all fossil fuels and are determined to stop their development. The Feds and their heavy-handed arm of authority, the EPA, have been consistently losing court cases on grounds that fracking endangers the water supply and is hazardous. The Feds are now employing a new approach. They are set to attempt to over-ride state law and prohibit the states from leasing their lands to oil and gas companies. If they are successful energy independence will again be unattainable. And, no one is asking the cogent question. If you eliminate all the fossil fuels for the production of electricity, how will demand be met? Have you purchased a portable generator yet?

5. Precious Metals

As gold and silver continue to trade in a rather narrow range waiting for a break-out, numerous events are occurring that investors probably haven’t encountered that support the bullish prospect for the PMGs.

1. The Federal Reserve and financial writers and analysts constantly report that the Fed owns 261.5 million ounces of gold (8100 tons) currently valued at about $450 billion. Walker F. Todd, a former Federal Reserve Bank attorney and now a Research Fellow at the American Institute for Economic Research (AIER) wrote a letter to the Editor of the WSJ which dispels the myth that the Fed owns this horde of gold. He states that under the Gold Reserve Act of 1934 (when FDR confiscated all privately owned gold from US citizens) the Fed transferred legal title to its former holdings to the US Treasury at an official price then of $42.22/oz. The Treasury issued non-transferable gold certificates to the Fed to pay for the gold – about $11 billion. If the Fed claimed the gold, its’ claim would be the smaller number. This information is critical going forward because there are those who believe that the Fed could escape the eventual accounting consequences of its’ QE by marking up the value of the official price. As CMV has said repeatedly, the real problem comes when the Fed attempts to deleverage its’ balance sheet. Rapidly rising interest rates.

2. Turkey recently acknowledged that it had exported $10.7 billion of gold bullion in the first 9 months of 2012 vs. $1.5 billion in all of 2011. It appears that $6.4 billion went to Iran in exchange for natural gas. Iran provides 18% of Turkey’s needs for natural gas but is restricted by US and European sanctions from receiving US dollars or euros. Turkey is paying in gold. Another bit of evidence that gold has become real money, given the out-of-control inflation in Iran, the gold is greatly benefitting that country.

3. There remains a major disconnect between the price of gold bullion and the price of the mining stocks as pointed out by Tatyana Shumsky in the November 26, 2012 WSJ. She graphically illustrates that the SPDR Gold Trust shares have had over a 100% gain since 2009 whereas the NYSE ARCA Exchange Gold Bugs Index is essentially flat. Investors have favored bullion ETFs over the miners which contributes to the divergence. One aspect Tatyana fails to mention is that many of the senior producers pay a nice dividend based on these depressed prices. $2,000/oz gold and $40/oz silver will change these dynamics and the change could come much sooner than people think.

4. CMV reported last month that the Bank of International Settlements (BIS) had mandated that gold be considered a Tier I asset on the balance sheets of all banks making it equivalent to cash effective January 1, 2013. Previously, gold was a Tier III asset and was valued at 50%. In a surprise announcement the US Federal Reserve and the US Treasury, notified its member banks that they did not have to comply with various rules promulgated by the BIS. As of this writing we do not know if this announcement applies to the gold rule or not. Unlike European banks, only the 5 major money center banks, if any, hold gold bullion as reserves. All banks, however, would have been able to accept 100% of the value of bullion as collateral.

5. As CMV has reported previously, the labor strikes in South Africa are causing an increase in the prices of platinum and palladium. Demand for platinum this year will exceed 2011 by 400,000 oz., according to Johnson Mallhey a metals consulting firm. Platinum has risen in price from around $1,400/oz in August to close at $1,586/oz on November 20, 2012. There is about 15 months of inventory available but strong auto production, if it continues, will shorten this period.

NOTE: There was a sudden correction in gold of about $22/oz on November 28, 2012. Reasons given by Bullion Desk and others was that the prospect of the break-down in negotiations to avoid the FISCAL CLIFF. That doesn’t make much sense when the stock market rallied the same day.

6. Commodities

CMV has subscribed to McMaster Online for many years to get a feel and a direction of this market which they dissect every day. Here are a few highlights from McMaster’s November 29, 2012 report:

●   The Continuous Commodity Index is over-bought. New recent low 11/28. New recent high 11/27. New 33 year high 07/03/08.

●   Lumber has broken out to a 5 year high on 11/28 to $340/thousand board feet in response to home construction.

●   Wheat is approaching $9/bushel as consumption has exceeded production in 6 out of the last 8 years.

●   Corn is approaching $7.50/bushel and reached a new recent high on 11/28. Corn-based ethanol has supported US corn prices using 8.5 billion bushels in 2012.

What is important to note here is that key commodities are moving higher while the US economy is in a deflationary trend. All the attempts by government to manage the economy is leading to supply and demand imbalances. CMV sees commodity inflation as a trigger for wage and price inflation in the near-term future.

NOTE: The current union demand that McDonalds double the minimum wage to $15/hour.

7. Real Estate

Please refer to page 5 for CMV’s overview of this Sector.

8. Special Situations
A. Gold & Silver
    The explorers almost without exception have been beaten down to the point where many of their share price is less than cash in the bank. CMV can’t think of any other Sub-Sector where the “Risk Off” sentiment has impacted share price so dramatically. We are reminded of the period in 1990-1992 after the real estate market crashed and all the markets were depressed. Explorers were pennies per share and there was little or no volume. Being the Contrarian with pessimism at its’ peak, we bought a mix of explorers. January 1993 was the turning point and suddenly Au jumped from $325/oz to over $440/oz within 6 months and the microcaps as well as the senior miners rose parabolically. The current market reminds us of that point in time. We are expecting a breakout from this oversold position within a couple of months.
B. Platinum & Palladium
    Please refer to page 15 (5.) for an overview.

C. Rare Earths
    A feature article authored by Rhiannon Hoyle in the November 13, 2012 edition of the WSJ presented a very bearish outlook on this Sub-Sector. He quotes Tim Dobson, Managing Director of Kimberly Rare Earths of Australia who says, “All of a sudden we have 400 years of rare earths being drilled out. Smaller projects just aren’t viable anymore. The impact on prices of certain REEs has been significant. For example, a kilogram of lanthanum oxide used in oil refining and hybrid vehicles now sells for $13 a kilo vs. $110 a kilo a year ago. The Chinese, who still control 90% of the world supply, have cut production drastically which may have an impact on prices.

D.   Uranium
    The Ux spot price has dropped from $44/lb in October, 2012 to $42 on November 26, 2012, hammered by the supply-demand cycle that effects all commodities. In a November 26, 2012 article by David Sterman for the Financial Advisor web-site, the author maintains that “The phase of declining prices of Uranium appears set to change.” He says that rising demand and falling supply are going to push Ux higher. The spot price has risen $2/lb in the past week. Specifically, Sterman says that Russia’s agreement in 1993 to supply decommissioned warheads for the US expires at the end of 2013 and US nuclear plants are now seeking alternate sources.

E.   Oil & Gas
    Please refer to page 14 for our overview on this Sub-Sector.

F.   Potash
    With world population rising, arable land decreasing, and demand for higher quality diets, the need to maximize the efficiency of farmland is absolutely necessary. Potash is the key ingredient for fertilizer. The coming food shortage as related above makes this Sub-Sector more necessary than ever.

G.   Graphite, Vanadium & Beryllium
    A recent research and development project for the development of the next generation rechargeable batteries using graphene with lithium iron phosphate materials hold much promise. The batteries will be targeted for automobiles as well as mobile electronic devices.
    Vanadium is a chemical element and is a hard silvery gray, ductile and malleable transition metal that was long used for strengthening steel as well as preventing oxidation. Its’ role as a new-age metal used for the mass storage of energy has opened huge opportunities. Imagine a battery as large as a house to replace a power grid when it breaks down.
    Beryllium is another new age metal that has newly discovered application for a wide range of industries such as custom precision optical systems for defense, aerospace, laser, medical, process control and metrology.

If you want to learn more, please give me a call at (602) 840-4117. At a time of crisis there’s always opportunity.

H. L. Quist Conducting Real Estate Class November 15th

2012-11-08T16:05:00.003-08:00

Hello World,

H. L. Quist will be conducting a Real Estate Class at the Southwestern School of Real Estate at 12:00 p.m., Thursday, November 15, 2012.

The talk will be held at:

Camelback Scottsdale Resort
6302 East Camelback Road
Scottsdale, Arizona.

In addition to his discussion of Boom and Bust Cycles, H. L. Quist will focus on how the election could impact all the markets.

Pre-registration is required.

Call H. L Quist at (602) 840-4117 or email hlquist@cox.net, to reserve a place.

There is a $10 fee payable to Southwestern School of Real Estate to attend.

CMV - November 2012

2012-11-04T15:30:00.001-08:00

Hello World,

The Contrarian Market View Newsletter is now free. (Some parts of the newsletter do not display well on the blog - to see the complete newsletter sign up at the Yahoo Group site (below).

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Market Overview

In the 67 years since the ending of World War II both political parties have shared power with little significant extreme changes in economic conditions during the various administrations, save two. During the Presidency of Jimmy Carter (1976-1980), the US experienced the worst inflation the country had seen since the Civil War. Three years of a double-digit rise in the Consumer Price Index (CPI), a prime rate of 21.5% and residential mortgage rates of 16% or more led to a severe recession and stagflation by 1980 at the end of Carter’s one-term Presidency. The other is the current Presidency of Barack Obama where unemployment reached almost the same level as it did at the end of Carter’s Administration and out-of-control budget deficits of nearly $5 trillion in 4 years bringing the total unimaginable Federal debt to an unmanageable $16 trillion. As we’ve been reminded over and over again the blame for this fiscal catastrophe rests with the prior Republican Administration but future historians and bipartisan economists will simply record the numbers which will speak for themselves.

The Carter and Obama Administrations have a number of characteristics in common. Namely:

●   Centralization of power and control in the hands of the Federal Government.

●   Subscribe to the flawed theory that Keynesian fiscal and monetary policy advocating deficit spending will create economic growth and reduce unemployment.

●   Increasing estate and income taxes on the wealthy are necessary to balance the budget and promote equalitarianism.

●   Increasing entitlements and benefits for lower income citizens and the poor will end poverty and social injustice in America.

●   Both Carter and Obama are pawns of a global elitist organization known as the Trilateral Commission that was organized by Zbigniew Brzezinski and David Rockefeller in 1973 to create a “New International Economic Order.” This August group which lists 87 members from the US plus 337 from other nations plans to utilize the current US and global financial crisis to destroy what remains of our national sovereignty and subvert the US into the governance of the United Nations. (Every President of the US elected since 1973, with the exception of Ronald Reagan, has been a member of the Trilateral Commission. At this moment a search can’t reveal whether or not Mitt Romney is a member.)

●   Both President Carter and Obama had inept foreign policy which led, in part, to disastrous attacks on US embassies in the Mid-East and ultimately played a major role in their defeat for a second term.

There’s more, but CMV has made its’ point. As Yogi Berra reportedly once declared, “When you get to the fork in the road – take it.” We’ve now passed that fork. Does America continue on the current path to the left or reverse its’ direction to the right? An Obama victory on November 6th would have created a pre-determined economic catastrophe that would end our sovereignty, make us wards of the United Nations, and foster a “nanny state” where free enterprise and freedom can’t co-exist. Fortunately, Barack Obama and his minions of collectivists will suffer an ignominious defeat and Mitt Romney and Paul Ryan will be faced with the arduous task of rebuilding America.

Unfortunately and surprisingly, Wall St. doesn’t concur with CMV’s outlook on the election. Here are the results of Barron’s Fall 2012 Big Money Poll of 131 institutional investors:

●   Who will win the 2012 Presidential Election?
    Obama    74%
    Romney    26%

●   Which candidate would be best for the economy and the stock market?
    Obama    17%
    Romney    83%

●   Describe your investment outlook through June 2013.
    Very Bullish    2%
    Bullish    44%
    Neutral    27%
    Bearish    22%
    Very Bearish    5%

The polling concludes that an Obama victory would be decidedly negative for the economy and the stock market but 46% say they’re bullish, which appears to CMV to be contradictory. Wall St., however, always sees the cup half-full despite any looming storm. Here are some other forecasts that re-enforce this point.

●   Larry Fink, CEO of Black Rock, the world’s largest asset manager, says the Fiscal Cliff and the ongoing problems in the Eu will cause a Recession in the US in the first quarter of 2013.

●   According to Lombard Street Research, going over the Fiscal Cliff could result in a potentially disastrous 5.2% reduction in GDP but they do not expect that to happen.

●   One vocal critic who wished to remain anonymous opined to Barron’s, “Bernanke and Co. now risk damage to both the dollar and the Fed’s own balance sheet. This is the biggest mis-allocation of capital in the history of mankind.”

●   BCA Research thinks that Romney could win the popular vote but Obama the electoral college. They also believe that a possibility exists for a tie in the electoral vote which then would result in a Republican-controlled House to determine the victor.

Imagine, if you can, months of lawsuits, recounts and turmoil and renewed uncertainty and its’ effect on the economy. CMV concurs on the prospect of a tie in the electoral vote which would have to be negative for the equity market. CMV will repeat itself. This is the most significant election in the Nation since Abraham Lincoln.

Real Estate

The good news in this market has confounded experts as well as pundits who maintained that a rebound in the housing industry was years away. Robert Shiller, one of the industry’s most visible and prominent experts on a national basis said a year ago that a significant improvement in home building was at least 5 years from occurring. One of Arizona’s most recognized experts maintained in April, 2011 that no recovery in the residential housing market was in sight because, “No one was showing up” – meaning there was no net immigration of people into the state. What happened? Why did these experts miss the dramatic turnaround in this industry?

Investors

Over two years ago your writer met with several companies that were acquiring single family homes, restoring them and renting them out to tenants who, in most cases, couldn’t qualify for financing to purchase. Early in this game one company was making acquisitions at auctions and direct sales at a price below “Par” or as much as 50% below replacement cost. About the same time, your writer spoke to the Arizona Real Estate Investor’s Association (AZREIA) and observed an extremely motivated and successful group of individual entrepreneurs who had the courage and insight to pursue this opportunity, which validated our forecast. Surprisingly, however, few seasoned real estate professionals truly saw what was occurring. One Realtor commented during a speech your writer was delivering, “Yes, but these (investors) aren’t real sales.” What the professional and the experts missed was three fold:

One, investors were motivated by double-digit yields of 10% to 15% when other investments produced little or no return.

Two, investors were motivated by the security of a hard and secure asset in a dynamic growth area (Phoenix), and

Three, the unexpected liquidation of inventory of homes on the market (which was over 60,000 at the time) plus the “shadow inventory” reduced the total inventory to less than 25,000 in less than two years.

Now, of course, supply can’t meet demand and prices are accelerating at almost warp speed. Realtors are upset because their traditional home buyers can’t buy a house at a reasonable cost. Investors have the dilemma that there are no bargains and the stream of investor capital is pouring in from Australia, Canada, United Kingdom, the EU, US Hedge Funds and Ltd Partnerships, which is a harbinger of things to come.

On a national basis here is some supporting data from the October 18, 2012 edition of the Wall St. Journal. Single and multi-family construction is now running at its’ highest level in four years at a seasonally adjusted rate of 872,000 units in September. That’s up 15% over the past August and 34.8% over September last year. Michael Feroli, the chief economist at JP Morgan/Chase & Co., said that the current pace could add two percentage points to the Nation’s GDP which struggled to finish at 1.3% in the third quarter. New building permits, a barometer of future construction, rose 11.6% also the highest level since 2008. The highest area in the US is the Western Region where new building rose 20.1%. The best of the west is Phoenix which leads all sections of the US in sales and new construction.

The National Association of Realtors (NAR) reported recently that existing homes were selling at a seasonally adjusted annual rate of 4.75 million units, up 11% YOY. Inventories, NAR reported, were 20% below a year ago and is the lowest since 2005 and represents about a 5.9 month supply. More importantly, the median home price has risen 11.3% YOY to $183,900, according to NAR.

One factor that has led to the surge of single family homes is the return of buyers who suffered through foreclosure but now are eligible for financing. The WSJ referred to these buyers as “boomerang” buyers. According to Moody’s Analytics, there are about 729,000 FHA mortgage holder households who were foreclosed upon three or more years ago who are now eligible to apply for a FHA mortgage. That number, Moody’s says, will grow to 1.5 million by the first quarter of 2014. These numbers do not include former mortgage holders of Fannie and Freddie or commercial banks. Given historically-low mortgage rates, accelerating demand and low inventories, the real estate inflationary boom forecast by H. L. Quist in his “How To Profit From The Coming Inflationary Boom: And Avoid The Next Crash” has already become a reality in 2013 and could continue subject to the election, the fiscal, monetary and regulatory cliff and the prospect for economic chaos spelled out below.

Amidst all the growing euphoria in the real estate world there’s always underground activity that follows the scent of money. You’ll recall that in March, 2012, five of the nation’s largest banks (Ally Financial, Inc.; Bank of America Corp.; Citibank, Inc.; JP Morgan/Chase & Co.; and Wells Fargo & Co.), agreed to a $25 billion settlement over charges that they had improperly processed foreclosures. To date, the states have received $2.5 billion of the total, but only one billion of that amount has been designated for some type of homeowner aid while another billion will go to the states general fund according to an October 18, 2012 feature article in the WSJ. In California, Democratic Governor Jerry Brown opted to put the state’s entire $410 million payout into existing state obligations over the objection of State Attorney General Kamela Harris, also a Democrat, who said the funds should go to distressed homeowners. As readers of CMV are well aware, the LeftCoast is broke and has been feeding from the federal trough for the past four years. High Noon is at hand and there’s no Gary Cooper to save the state. Arizona isn’t innocent of “fast fingers” either. Jan Brewer, a Republican (who possesses a prominent and notorious finger herself) along with the legislature chose to divert nearly one half of the state’s bounty from the $98 million settlement to the state coffers.

Another underground caper was recently revealed by Catherine Reagor who is the Arizona Republic’s guru on real estate. Her October 10, 2012 column states that in late July almost 300 Fannie Mae foreclosed homes in Metro-Phoenix were “quietly” purchased for $34 million in a cash deal by the Ltd Partnership called SFR 2012-1 US West based in Pasadena, California, which turns out to be an entity created by Fannie Mae. The buyer nor the prices paid for the homes has not been disclosed. Taxpayers have been subsidizing both Fannie and Freddie to the tune of over $150 billion over the past four years. A little transparency from the “evil twins” would be appropriate. The two Government Sponsored Enterprises (GSEs), which were fraught with fraud and insider dealing subsidized by you-know-who, were a major contributor to the sub-prime fiasco.

Which Cliff?

Most of the discussion today pertains to the expiration of the “Bush Tax Cuts” that will expire on January 1, 2013, which will result in income tax increases for all taxpayers in almost all brackets. This event has been dubbed the “Fiscal Cliff” and we are constantly bombarded with images of the family automobile with all of us seated inside driving off a cliff. As unnerving as this may be, there are, in CMV’s perspective, three cliffs facing us on the road ahead. In addition to the Fiscal, there is the Monetary and the Regulatory. A brief summary will provide you with a more complete picture of what we face.

Fiscal:

Without going into much detail the marginal tax rate will increase the most for the lowest bracket up to $17,400 for married joint filers from 10% to 15%. For those earning between $17,401 and $70,700, the marginal tax rate will remain at 15% and the higher three brackets up to $388,350 will see an increase of 3%. Those joint filers over $388,350 in taxable income will experience an increase from 35% to 39.6% or a 4.6% increase in the marginal tax rate.

President Obama has proposed extending the “Bush Tax Cuts” to those whose income is under $250,000 and has threatened to veto any tax bill that will not increase taxes on those earning over $250,000. Congressional Republicans want the “Bush Tax Cuts” extended for all taxpayers citing that most small businesses in the US are “S” Corporations and pay at the personal rate. Increasing taxes in a weak economy, the Republicans argue, is an Rx for disaster.

Most observers, however, fail to realize there are other tax increases that affect everyone. The 2% Social Security (FICA) will be reinstated. The 3.8% health care tax will apply to all taxpayers and the Medicare tax on individuals will increase from 2.9% to 3.8%. As a salaried employee your share of the Medicare tax will increase from 1.45% to 2.35%. The highest earners could see their effective tax rate rise from 35% to 44.3% and when state income tax is added the tax will approach 50%. Bruce Watson, who writes the tax section of AOL’s Daily Finance blog, estimates that the average family will see their taxes increase from $1,550 to $6,400 per year.

For investors and savers the tax increases are much more onerous and will have a decided impact on the financial markets. Taxes on passive income (dividends and interest) will increase from 35% to 43.4%, including the healthcare tax. The long-term capital gains tax will increase from 15% to 23.8% including the healthcare tax. For the wealthy who have accumulated a sizeable estate, the increases are confiscatory or should we say “redistributory.” The lifetime exclusion for estate and gift taxes is now $5,000,000 for an individual and $10,000,000 for both spouses. The excess over that amount is subject to a 35% tax. If the present law doesn’t change the lifetime exclusion will revert to $1,000,000 and the tax rate will increase to 55%. Many small family businesses, farms and ranches will have to be liquidated to pay these taxes or be encumbered by a first lien to the IRS for a long-term payout.

Monetary:

The current Federal Debt ceiling, which was bitterly debated and reset a year ago is $16.394 trillion. At present the debt is about $16.300 trillion and the limit will be breached just after the election. Another rancorous debate is about to occur and the Republicans vowed last year not to increase the ceiling unless commensurate spending cuts were included. If President Obama is re-elected and the Dems retain control of the Senate, the Monetary Cliff could precipitate a US Treasury default and an onerous and catastrophic re-rating of US debt.

Regulatory:

Most Americans will not have this third leg of a wobbly stool in mind when trying to deliberate the uncertainties that lie ahead. Jim McTague, who writes his DC Current column for Barron’s (October 22, 2012) adds clarity to a foggy picture. He says that “CEOs are keeping an eye on the Federal Register where final rules from government departments and agencies are announced and published after passing through the bureaucratic pipeline. Post-election, the Environmental Protection Agency (EPA) alone could wreck havoc on the economy with a flood of new mandates that will cost businesses hundreds of billions of dollars.” He adds that there are 620 rules in the EPA pipeline just 3 years into the Obama Administration. One rule, McTague writes, would declare large swaths of the US “closed for new business,” until emissions are reduced to meet lower caps. In one study 351 power companies including 150 biofuel producers seeking new building permits were turned down because they couldn’t meet new mandates. A coal-fueled power plant on the Navajo Indian Reservation near Farmington, NM, and 2 others that serves a four state area, have announced that they will shut down soon. The Obama Administration is determined to kill the coal industry but doesn’t have an alternative to meet energy demand. The Navajos will lose 1700 jobs and $500 million in revenue.

Lisa Jackson’s EPA, despite numerous losses in court actions throughout the US, has raised the bar to an outrageous level. Her agency has taken an action to not only expand the EPA’s authority, it plans to prevent an Alaska gold and copper mining project from development, prior to the firm’s submission of their plans for government approval. The Pebble Partnership has spent a decade and $132 million exploring what would be the largest mine in North America, which should be reviewed and permitted by the US Army Corps of Engineers. Mrs. Jackson’s EPA wants to supercede the Corps. A district judge in Alaska has ruled that the EPA’s view that it could “unilaterally modify or revoke” a Corps permit “at any time” was a “stunning power for an agency to arrogate to itself when there was no mention of it in the statute.”

The bottom line? Given four more years, the Obama Administration, utilizing the fiscal, monetary and regulatory cliff could absolutely destroy the US economy. What most Americans don’t realize is that it is a deliberate design of the Trilateral Commission and its pawn, Barack Obama. We’ve only had a preview of how the President plans to “fundamentally change America.” If re-elected the Trilaterals and the President will have “mission accomplished.”

Note: On October 25, 2012, The Daily Caller reported that Mark Levin’s legal group, Landmark Legal Foundation, has filed suit against the EPA to force the agency to publically disclose what regulations it intends to implement after the presidential election. This action confirms CMV’s position that these regulations have the power to effectively destroy the US economy.

Big Brother

Your writer first read the novel “1984" by the British visionary George Orwell, in the late fifties while in college. To the average American reader then, who enjoyed unbridled freedom, the prospect of an all-powerful, all omniscient and all controlling government seemed absurd and too “futuristic” to be believable.   Your writer, however, had the opportunity to spend a considerable amount of time with Russian athletes (then the USSR) in 1959 and discovered first hand how Orwell was able to create his vision of the future of “Big Brother is Watching You,” modeled after Josef Stalin’s brutal totalitarian state.

This personal experience should be interesting and insightful. As a member of the US Track & Field Team that competed against the “Rooskies” (as we called them), my roommate (world record javelin thrower Al Cantello) invited our two competitors to dine with us one evening in Philadelphia. They soon pointed out to us that we were being followed by their police. When your writer became too “friendly” with a female member of the Russian team, another official quickly interceded. After the meet was over your writer proposed a vodka toast to his opponent. He refused the drink knowing that Big Brother was watching. There were no “defections” during this “Friendship Meet” between the world’s two most powerful nations. The political tension then was as thick as molasses and equally as sticky. In short, the USSR was an “Orwellian” state.

Fifty years later, the United States of America, is rapidly approaching a police state and the diminishing individual freedom is done all in the name of protecting us from our enemies and criminals. The Patriot Act passed in 2001, began an unprecedented intrusion of governmental power and invasion of privacy which no longer exists. 80% of the automobiles sold in the US now have “event data recorders” (EDRs) that record all our driving habits in case of accident. Google, Twitter and Facebook users have willingly provided in-depth personal details of themselves, stored in a server somewhere to be recalled by anyone. In 1949, Orwell envisioned “telescreens” which were “two-way” and Big Brother could observe all their citizen’s moves. Today we have “robo cops” and cameras everywhere to track our every move. Marketers know all your personal proclivities and shopping habits and target their products to us. Within a short period of time, the Federal government will know everything there is to know about us, will be able to pick us out from a crowd with facial recognition technology and will know where we are or where we will be at any time. CMV is only touching the surface here as technology complicitly and compliantly provides data to a government that desires to control every aspect of our lives.

Note: CMV would like to acknowledge and thanks James Dines (The Dines Letter) for his recollections of George Orwell’s “1984" and its’ application to 2012. We are certainly riding the same wave.

Technological advances are becoming a powerful weapon for our offshore enemies also. Iranian hackers have stepped up a campaign to disrupt financial institutions and recently specifically targeted Capital One Financial Corp. and BB&T Corp. The attack carried out by a group that calls itself Qassam Cyber Fighters has a super sophisticated program known as itsknoproblembro and has been successful at disrupting services at US financial institutions and plans to unload further attacks on an ongoing basis. These attacks could be in retaliation for US and Israeli cyber attacks on Iranian nuclear facilities which has probably been successful in delaying the production of a nuclear weapon.

The Low tech attacks are also continuing. In mid-October Quazi Mohammed Rezwanul Ahsam Nafis tried to detonate what he thought was a 1,000 pound car bomb outside the Federal Reserve Bank of New York, aiming to destroy the US economy. His mistake was in trying to get assistance via the internet and he recruited an FBI agent who posed as an al Qaeda facilitator. There’s just a little irony here. There’s a greater chance that the Fed will destroy itself and the US economy given the Fed’s 100 year pursuit of a flawed monetary policy than it being bombed by terrorists.

CMV would be derelict in its’ responsibility to its’ readers if we didn’t mention the attack in Benghazi, Libya on the US Consulate there. Even if you read major publications, you would have missed “it” because it wasn’t ‘newsworthy’ to most of the print media. Recent revelations indicate that as early as two hours after the attack began, emails from State Department were sent to US intelligence officials as well as the White House situation room, reporting that the Consulate was under attack. The Islamist group Anar Al-Sharia was responsible and they also planned an attack on the US Embassy in Tripoli – five days before the US Ambassador to the UN was publically saying that the attack was a public protest in response to a video. Three requests were made by the endangered Americans and the CIA and State Department reportedly denied assistance. A heavily redacted copy of one of the emails appeared in the October 25th edition of the Arizona Republic. On a minimum basis President Obama, US Ambassador Susan Rice and Secretary of State Hilary Clinton deliberately deceived the American people and for some yet unknown reason, tried to cover up this catastrophic event that left our Ambassador and three other Americans dead. The truth, unfortunately, won’t be told until after the election, if ever. This event should be the tipping point for America to rid itself of a President whose interest is not in the Nation’s best interest.

Sector Overview

1. Cash & Fixed Income
    Treasury yields were basically locked in their pre-QE 3, pre-Fiscal Cliff range of concern as the 10 year finished at 1.75% near the end of October, and the 30 year at 2.91%. Despite large inflows into bond funds BofA Merrill Lynch sees a rotation out of bonds in 2013 and that 37% of surveyed fund managers would sell bonds to buy equities.

A major focus has been on Municipal Bonds and the potential loss of their tax-exempt status as part of the debate over deficit reduction and tax reform. The Obama Administration takes the view that since the wealthy are the prime beneficiaries of these tax-exempt bonds this exemption should terminate on existing as well as new issues and the interest income should be taxable. There is also in the mix a discussion about eliminating federal interest payment subsidies for Build America Bonds (BABs) which have prevented potential municipal bankruptcies over the past four years but added hundred of billions to the Federal liability picture.

BABs have also allowed a few states to avoid financial Armageddon. Take Illinois as a leading example. The State’s debt per capita is the highest and its’ credit rating is the worst in the US. Illinois is ‘essentially insolvent’ and can’t pay its’ bills much less contribute to the State’s pension fund that has an unfunded liability of $85 billion. A recent teacher’s strike was settled giving union members a 15% increase in pay. The State can’t pay current salaries much less the new benefits. Sometime after the election you can expect headlines depicting the fate of the State. CMV wagers that the Obamas won’t retire to Illinois next year which is a model of failed Obamanomics.

2. US Equities
    It had to happen. CMV has been citing for months that higher raw material costs and reduced revenues would “squeeze” earnings and lower equity prices. Our supposition is that QE 3 has supported the market beyond fundamentals and the time period when prices should have been negatively impacted and a correction should have taken place. The Dow Jones has dropped four out of the last six weeks down 2% for the week ending October 26th but remains up 6% YTD. The S&P 500 has outperformed the Dow up 2% YTD. A number of major highly visible companies such as Apple, Amazon and Caterpillar had disappointing earnings and others like DuPont and Xerox lowered their outlook going forward into 2013. Even Chipotle Mexican Grill, despite a 20% increase in earnings, saw their stock sell off 20% one day in mid-October. As of October 22, 2012 one out of every five S&P 500 companies had reported their earnings. Only 42% have seen third quarter revenue surpass analyst’s estimates which is the worst since early in 2009.

Jeff Clark points out in his October 23, 2012 “The Growth Stock Wire” that the Volatility Index (VIX) has broken out to the upside and appears to indicate rising volatility. He also says that the S&P 500 Index shows a topping pattern which often signals the end of a bullish trend. What the equity market really needs first is a positive resolution of the election which will remove some uncertainty.

We May Have To Wait A Lot Longer For The Corporate Earnings Rebound
    After third-quarter earnings reporting, during which profit growth is expected to turn negative for the first time since the financial crisis, most Wall Street strategists were hoping that the worst would be over, setting up for a nice rebound in Q4.
    As it turns out, however, the negativity coming through so far in corporate guidance for fourth-quarter earnings is nothing short of "stunning," says National Bank Financial economist Matthieu Arsenau.
    As the chart below shows (Chart available in full file on Yahoo Groups), the ratio of negative earnings preannouncements to positive preannouncements for Q4 is at an all-time high: – Business Insider

3. International Equities
    Since there are few opportunities in China, the Eu and other foreign markets (with the exception of Russia) and since this is the political season, CMV will focus on Latin America. Mary Anastasia O’Grady, who writes her Americas column in the WSJ every week, is an expert on Venezuela, a model of how a Marxist government can destroy an economy and impoverish the very citizens that it swore to support.

Henrique Capriles Radonski, the 40 year-old governor of the Venezuelan state of Miranda and his enthusiastic supporters, had fully expected to unseat Presidente Hugo Chavez, who has ruled the country for 14 years. The results however, showed that the Marxist leader had won another 6 years term by a wide margin of 11%, whereas polls showed that Radonski was ahead by four percentage points. How could this happen? The fact that Mr. Chavez had seized control of television and radio stations and the owner of the only independent station had to flee to the safety of the US, might have had something to do with the outcome. Chavez’ control of the voter rolls could have been another contributor. The rolls list at least 10,000 names between the ages of 111 and 129 and a total of 19 million eligible voters whereas there were only 11 million in 1999. The state-owned oil company, which is the country’s largest employer and government employees were required to supply a thumb print and a signature with their vote which may have influenced their choice of candidate. Venezuelans have “voted” themselves more inflation (now 20%) and price controls, a shortage of food since Chavez confiscated all the farms and production has fallen 30%, a 28% decrease in oil revenue, since the state confiscated all production, and a crime rate that has seen 155,788 murders since el Presidente took office in 1999.

Ms. O’Grady’s column shows a picture of Barack Obama greeting Hugo Chavez at the Fifth Summit of the Americas in Port-Of-Spain on April 17, 2009. Is this a portrait of things that could come to fruition in the US in the next four years?

Contrary to the picture in Venezuela and a number of other Latin American countries that have become totalitarian states, Brazil is far outpacing the US economy. James Davidson, who writes the monthly newsletter “Strategic Investment” and who has authored Brazil is the New America: How Brazil Offers Upward Mobility in a Collapsing World, has also established 3 companies there. He is very bullish on the country. Today Brazil is the world’s largest exporter of five major crops, the third largest producer of aircraft, as well as railcars, machine tools, footwear, and a host of other products. After being ravaged by hyperinflation and political corruption in the 1980s, Davidson believes that a conservative banking system gives Brazil the same business and investment opportunities that existed in the US in the late 1960s. (www.strategicinvestment.com)

4. Hard Assets
    Somewhat lost in the presidential debate is the fact that US oil production now just about equals that of Saudi Arabia. The US Energy Department estimates that US oil and biofuels production will equal 11.4 million BPD in 2013, just below the Saudi’s 11.6 million BPD. We use 18.7 million BPD so we’re still dependent on foreign imports. A combination of increased production and improving fuel efficiency of the Nation’s cars and trucks indicate that imports could be cut in half by 2020.

Adding to this positive picture is the production and supply of natural and shale gas which is also responsible for increasing the production of “tight oil” trapped in shale. The US has such an abundance of natural and shale gas (that can be produced and marketed in the US at $2.66/thousand cubic feet), that it can be exported and sold as Liquid Natural Gas for two to three times domestic cost. Daniel Yergin, who is Vice-Chairman of IHS, a global analytics company, says that 1.7 million jobs have been added since the shale gas revolution has started and that could rise to three million by 2020. There is one major obstacle, however. The “Green Lobby” is opposed to all fossil fuel production, including gas, which was also lost in the debates.

5. Precious Metals
    You may recall that we saw a BUY signal on August 22, 2012 when gold (Au) broke out of a trading range from about a June low of $1,525 to a high of $1,625. From $1,625 it moved smartly to just under $1,800/oz early in October and retrenched to $1,700 before closing at $1,712 on October 26th.

Silver (Ag) followed the same pattern from $28/oz on August 22nd to a high of $35 the first week in October. Both Au and Ag broke through their 50 day moving average, which now rests at $1,730 for Au and $32.87/oz for Ag.

Why the correction? If we’ve learned anything during the past 14 months, uncertainty creates a flight to US Treasuries which strengthens the USD and lowers the PM Group. The fear of a fiscal and monetary crisis has not moved Au and Ag north. If we knew, however, that taxes were going to increase and even though that would be GDP negative, the uncertainty would be removed and all markets including Au and Ag would respond and find their real value in the marketplace. On a larger scale, if we knew that Barack Obama would have four more years, most of CMV readers would consider that a multi-tiered negative but the markets would react more definitively. CMV and others see this event as very bullish for the PM Group despite being negative for US equities.

On June 18, 2012, the US Federal Reserve and the Federal Deposit Insurance Corp. (FDIC), circulated a letter to US banks that proposes to harmonize US regulatory capital rules with Basel III, promulgated by the Bank of International Settlements which is the world’s central bankers bank in Basel, Switzerland.   Basel III is an international accord that tells a bank how much capital it must hold in reserves to establish the banks solvency and stability as a result of the recent banking crisis. This letter proposed that US banks now consider gold bullion as a Tier I asset which means that it would increase its’ weighting to 100% rather than 50% as a Tier III asset. This puts gold on an equal basis with any reserve currency or government bond. In simple terms, gold has returned to its’ former status as real money. This could be one of the principal reasons why China and central banks around the world are accumulating massive amounts of Au. In a recent internet recording Brian Hicks, the publisher of “Wealth Daily,” forecasts that gold bullion prices could double due to “Basel III” after January 1, 2013.

Collectively, central banks around the world, plus the International Monetary Fund (IMF) report that they own about 23,349 tonnes of gold which at today’s price represents about $1.3 trillion. Eric Sprott of Canada’s Sprott Asset Management says that central banks have been a massive unreported supplier of physical gold and that their gold reserves are negligible today. He says, “ ...a large portion of the Western Central banks stated 23,000 tonnes of gold reserves are merely a paper entry on their balance sheets – completely un-backed by anything tangible other than an IOU from whatever counter-party leased it from them in years past. As this stage of the game, we don’t believe these central banks will be able to get their gold back without extreme difficulty, especially if it turns out the gold has left their countries entirely.”

Add to Sprott’s analysis, the distinct possibility that some of the gold bars stored at Fort Knox have proven to be gold plated tungsten and we’ve got the potential of one of the most explosive frauds in world history and that the stated supply of bullion is in question.

Keep tuned.

6. Commodities
    This entire Sector has languished due to one major factor – China’s appetite for everything from the metals to food products has been starved due to the country’s planned and unplanned slowdown. One example tells the story – iron ore.

Through 2011, China’s steel production grew at an annual average rate of 16.5% according to Barrons’ Commodity Corner (October 29, 2012). This compares to this year’s 1.7% rate. China’s steel production accounts for almost 50% of all production worldwide, so the country’s economic slowdown has sent the price of iron ore plunging from a high in 2011 of $190/tonne to $87/tonne this September. China has recently announced a new stimulus program which includes massive infrastructure spending. If China’s plan comes to fruition, the price of iron ore as well as most all base metals like copper, lead, nickel, zinc et al will follow. The resurgence of home construction in the US will also add to the demand for copper and lumber.

7. Real Estate
    Please refer to pages 3-5 for CMV’s extensive overview of this Sector.

8. Special Situations
    This Sector, which primarily features microcap stocks focused on natural resources, is the victim of the “risk off” sentiment but should be the beneficiary of a breakout to the upside once the political and economic uncertainty is resolved.

A. Gold & Silver
    The exploration companies are the most beaten up of any equities, some losing as much as 90% of their value in the past year despite the fact that most of them have proven resource in the ground. James Dines says in his August The Dines Letter, The precious metals should end their consolidation within a few weeks and then turn up. In fact, we are turning increasingly bullish on the beaten-down Toronto Stock Exchange, if only because everybody is so deeply pessimistic on mining stocks.   Jim’s track record is unparalleled. CMV agrees.

B. Platinum & Palladium
    Despite the fact that labor strikes have curtailed the production of these two metals in South Africa and available supply has plummeted, prices of platinum have fallen to a 6 week low due to the economic outlook in the EU and the reduction in the demand for autos. 30% of all platinum production is for catalytic converters to reduce auto pollution. Another factor is that rising labor and production costs and lower prices are severely effecting the bottom line of the South African miners. If prices don’t trend higher some of the mines could close which would reverse the metals trend.

C. Rare Earths
    China’s largest REE producer announced on October 25th that it had suspended production in an effort to shore up plunging prices of these elements so critical to the electronics industry. China has about 30% of the REE deposits but accounts for 90% of the world’s production and their “centralized government management” effects the entire world. The US is coming closer to the production of REEs which will begin the end of China’s monopoly.

4. Uranium
    Jim Dines introduced your writer to the most ignored and unloved energy source in the world (uranium) when its’ spot price was $7/LB in 2002. Within a couple of years U3O8 rose dramatically to $140/LB and the penny uranium stocks rose parabolically. That won’t happen again but the Fukushima nuclear power plant disaster has created some value in this Sector which has been over-sold. China is building a whole new generation of nuclear reactors anticipating their inability to meet their energy needs while the rest of the world debates the issue and runs the risk of the lights going out in the near future.

5. Oil & Gas
    As CMV has stated in our Hard Asset Sector (page 11) this industry has been the one bright light both in the increasing demand for workers as well as investment opportunity. Microcaps drilling for oil and shale gas in the US have produced outsized returns. Of particular note are new developments in the Bakken Formation in Montana. A Romney victory will spur development on Federal lands which should present additional opportunities.

6. Potash
    Fertilizer is one of the key opportunities in the commodity Sector. The failure of this year’s corn crop has reduced current supply to a mere 50 days and will cause farmers to plant considerably more acreage in the 2013 crop year. Corn requires a great deal of nitrogen because its’ yields are much higher per acre than those of soybeans or wheat. This is another sub-Sector that is a long-term hold.

7. Graphite, Vanadium & Beryllium
    These “new age” metals have also suffered from the “risk off” sentiment that has negatively impacted all of the Special Situation sub-Sectors. In late October, however, the stock of one of the micro vanadium companies doubled on the market’s recognition of the vital role this metal plays in the mass storage of energy and steel production. Online you can hear an interview with Ron McDonald the former Canadian Secretary of International Trade, who has become a spokesperson for the vanadium industry. Another key component is that the world is now reliant on the supply of vanadium from such unreliable sources as China, Russia and Venezuela. There is now a proven resource in the US that will be North America’s only primary producer of this marvelous metal.

Demand for graphite for just one market – EV cars – will exceed supply by the year 2020, but its’ role in ion batteries will result in a critical shortage before that date. Graphite’s sister component graphene has more application as it is 200 x stronger than steel and so thin it can be transparent. A Canadian microcap just received a Preliminary Economic Assessment (PEA) of its proposed graphite mine that would have a pre-tax net present value of $246 million and a 32% pre-tax Internal Rate of Return (IRR).

Beryllium is now being tested for its technical and commercial viability for use in custom precision optical system for the defense, aerospace, laser, medical, process control and metrology industries.

If you want to learn more, please give me a call at (602) 840-4117. At a time of crisis there’s always opportunity.

H. L. Quist Speaking Engagement

2012-11-02T07:10:00.002-07:00

CMV -- October 2012

2012-10-02T13:11:00.000-07:00

Hello World,

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Market Overview
CMV can not recall a period in our economic and political history (which spans over 50 years for your editor) where such an opaque and convoluted picture confounds the investor. We take pride in making sense out of nonsense, clarity out of confusion and reason out of rhyme. In short, our value to you has been to connect the dots and offer you a vision of what the future holds. We face history-making challenges in the months and years ahead. Our hope is that our experience is begetting wisdom and we all will find security in an un-secure world.

As we near the end of the third quarter of 2012, US stocks are nearing all-time highs and most money managers are sitting on double-digit gains thanks, in part, to central banks that have flooded their markets with cheap money. According to a WSJ article (September 24, 2012) some managers are considering taking profits and sitting out the remainder of the year. At Brown Brothers-Harriman, the firm’s mutual fund BBH Core Select is up 18.4% YTD and G. Scott Clemons a chief strategist for the firm says, “the market has gotten ahead of itself,” and we’re booking some profits. The DOW is up 10% at 13,437 and is close to its’ all-time peak of 14,164 set in October 2007. The S&P 500 Index is up 14.6% YTD and has gained almost 30% over a year ago when the fit hit the shan and we experienced the most volatile equity markets in recent history.

Michael Santoli, in his column Streetwise in Barron’s (September 24, 2012) cautions investors against complacency. Pointing to the double-digit gains YTD, he reports that bullish sentiment exceeds the bears by 30% and is a clear warning sign that the equity markets are overbought. The driving force behind this move, of course, is the maxim, “Don’t fight the Fed,” which at present is purposely bullish for stocks. Investors and money managers are assuming that the Fed stimulus (QE 3) will work its’ magic and the market will continue higher. But, it may not. (Read Paul Brodsky’s assessment page 7). That possibility has led Alan Abelson to pen his outlook in his Barron’s column “Up & Down Wall Street” (September 24, 2012) asking, “Headed For A Blowout?” One of Abelson’s undisclosed savvy sources believes that the Fed’s action on top of an already over bought market will pave the way for a “blowoff ending to this phase of the rise.” Abelson also warns that high-frequency trading (HFT) could exacerbate the downturn and turn it into a rout.

One of the prime examples of an activity that contributes to the convoluted economic picture is, believe it or not, auto sales and loans. An August 14, 2012 WSJ headline reads, “A Green Light For Car Loans.” At the end of the second quarter, auto loans will total $725 billion which is 5.7% above a year ago and the highest level since the first quarter of 2009 when auto “repos” became one of the nation’s few job opportunities. Tim Lentz, the chief executive at Toyota Motor Corp., said “The banks are getting into auto loans because they have the money. We are seeing more sub-prime, which is good.”    Those few words are a harbinger of things to come. Memories are so short. Lending to unqualified borrowers was the “killer app” five years ago but the bankers always justify their underwriting on the premise that “it’s different this time” – It Is Not.

The WSJ piece by Neil Shah indicates that borrowers are taking out loans as long as 72 to 84 months which means, of course, that most buyers are immediately underwater on the loan as soon as they drive off the lot. General Motors just announced that it has made a bid for Ally Financials Inc.’s international operations. You may not recall that it was GMAC, the predecessor to Ally, that GM used to fund its’ sub-prime auto loans during the pseudo real estate boom just five years ago. The volume of auto loan securities (packages of loans) this year is about 30% above 2006 pre-crisis levels. But, all the auto industry sees is an annual projection of 14.1 million units and it could care less how many loans could go bad and how many cars are repossessed. They miss the macro point.

There’s another insight into the automobile industry that is possibly a CMV exclusive. GM (Government Motors) has tooled up to meet what they perceive to be this burgeoning demand for cars. They say that the average car on the road is 11 years old and demand will continue for years at this level. GM overestimated demand and didn’t grasp the fallout from the sub-prime home and auto loans in 2007 and will repeat the same mistake. Add to this that GM is tooled up primarily to meet the demand of its union workers for full employment and not the market. CMV’s forecast is that GM will be bankrupt again. That’s what occurs when you have central planners running a business and a government.

Then there’s the “Fiscal Cliff” which is not the same precipice where granny meets her demise in the Mediscare ad. This one is the metaphor for the fallout from the consequences of the Budget Control Act of 2011. The Bush tax cuts and automatic spending cuts will expire on December 31, 2012 unless the president and/or Congress intervenes. You’ll recall that Congress and the president failed to reach an agreement on a plan to cut the budget deficit by $1.2 trillion over 10 years last year. If no action is taken, the tax rates will rise to where they were on Bill Clinton’s watch and there will be deep cuts in defense and 1,000 other government programs including Medicare.

David Kelly, global strategist for JP Morgan funds says that “neither side has the guts to let this happen” but CMV is of a mind that the present administration would welcome a crisis, and given another four years they’ll play hardball . Angst over this issue is sufficient cause to roil the markets.

Closely related to the above is business owner sentiment. The 340,000-members of the National Federation of Independent Business (NFIB) compiles an Optimism Index as reported by its members each month. It’s meaningful because small businesses account for nearly one-half of all private sector GDP and more than half of all private sector employment. According to Gene Epstein’s article in the September 17, 2012 issue of Barron’s, the August index was 91.2 up from a low of 82.0 at the bottom of the recession in 2009. That compares to the lows of a little over 80.0 during the recessions of 1974-75 and 1980. The August reading is trending down about 2.0 points from its’ 2012 high of 93.0, which NFIB attributes to:

●   Fear about the future.
●   Uncertainty over economic conditions
●   Uncertainty over government actions.

Other concerns are fears of taxes, soaring federal debt and the potential cost of ObamaCare. Small business is the true engine of growth and employment in this country. It’s impossible to imagine an economic recovery from this sector who have been told that “they didn’t build it”(their business).

Morgan Stanley has just produced the chart below that indicates that global export growth has collapsed which ties into the recent report from Fed-Ex on the decline in their shipments. The fall in the Baltic-Dry Index of ship cargo supports the conclusion that not only are China’s exports slowing dramatically, all trade is plunging towards the level of January 2009. It begs the question, what is the catalyst that will reverse this trend?

One indicator that we can all relate to is the recent action by Bank of America to lay off an additional 16,000 employees prior to year end. On a local basis, our nearby branch has closed all drive-up windows and has upped most checking account fees 20% or more. We expect a large percentage of branch offices in the Phoenix metro area to close by the end of the year as BofA transitions to virtual banking and personal relationship with the giant will cease to exist. The bank’s acquisition of Countrywide Financial is the main cause and the bank just settled another massive lawsuit. It has paid $2.43 billion for claims it misled shareholders in its’ purchase of Merrill Lynch.

In looking at the global macro picture one has to be cognizant of the amount of pure ANGER that now is running rampant throughout the world. The Muslim Brotherhood has succeeded in inciting its’ brothers to a level of rage that may result in an all-out war in the mid-east and could result in an attempt to wipe Israel off the map. Our President refers to the coming storm there as a “bump in the road.” A road to nowhere? A riot recently in a Chinese electronics factory triggered unrest amongst 2000 workers that left 40 people injured and hospitalized. 5000 police were called to the scene which could be replicated elsewhere as worker discontent spreads throughout the country. The Chinese magic dragon is going “puff.” In South Africa miners went on strike which resulted in deaths of hundreds of workers precipitated by demands for increases in pay and benefits. South Africa only 10 years ago was the leading producer of gold and platinum in the world. Today it is only a remnant of its’ former self despite the rise in prices.

In the US, we see a microcosm of anger every day. The continual harangue, foul language, and absurd behavior by our politicians and public figures has made civil discourse virtually impossible. It is any wonder that our children have no respect for parents, teachers and authority of any kind and resolve their issues with guns and fistfights in full view of citizens who have no desire to intervene? We’re a society that is at a tipping point and has a government at present that neither has the resources nor the will to change the inevitable course of events. We’re not experiencing a bump in the road. We’re at the fork in the road. Do we choose a turn to the right or continue to the left? We’ll know in five weeks but that won’t be the end of the anger. A crisis looms ahead and a catharsis will follow that will save America from the enemy within. Freedom will be lost before the nation realizes what we once possessed.

The Obama Myth - Debunked

On his August 26, 2012 podcast, The Myth Buster, (the alter-ego of the editor of CMV) reviewed the New York Times best seller The Amateur, written by Edward Klein. It is important to first establish that the author is not a “right-wing ideologue”, whose sole purpose is to defame the president. Klein is the former editor of the New York Times Magazine, the former foreign editor of Newsweek and the author of a number of books on the Kennedy family including The Love Story of Jack and Jackie Kennedy.

Klein interviewed about 200 people for this book, who have been close to the president. Ironically the title of this book was provided by Bill Clinton who said, “Barack Obama is an amateur.”

Here are a few of Klein’s observations:

●   The president is inept in management and governance. He has no executive sense.

●   The president does not learn from his mistakes.

●   The president blames his problems on those he disagrees with.

●   The president disregards old friends that are no longer useful to him.

●   The president is thin-skinned and has the wrong temperament to be a chief executive.

●   The president is more like Richard Nixon than his idol Franklin Delano Roosevelt. He’s an introvert, dismissive, paranoid and is prone to self-pity.

●   The president doesn’t enjoy his job. He clings to his narcissistic view of the Presidency.

In one of the most revealing scenes in the book, Klein interviewed Steven Rogers, an African American who made a fortune in business before becoming the Grund Family Distinguished Professor of Entrepreneurship at Northwestern University’s Kellogg School of Management. Rogers contributed funds to the then senatorial candidate to pay off Obama’s unpaid un-successful run for Congress. Rogers made a request that Obama speak to his students after he was elected. Despite numerous calls to the Senator to set a date to speak to the students, Barack Obama did not respond. Rogers recalled Obama’s promise and the money he contributed. Obama’s reply? “Come on man, you should know better when politicians make promises.” Rogers replied, “You’re a dirty, rotten mother-f... what kind of shit are you trying to pull? F... you, you big-eared mother-f...” A year later, Obama finally spoke to the students. Rogers concluded, “What you have with Barack Obama is a lack of character.”

Read this book. As the publisher says on the inside flap, “You will never look at Barack Obama the same way again.”

Another critical insight into the man who occupies the oval office is Dinesh D’Souza’s documentary film “2016: Obama’s America.” This film was produced by Gerald Molen, who owns an Academy Award for “Schindler’s List.” (Your editor has met with Molen who has reviewed a screen-play adapted from a story written by your editor.) The film has had a wide showing through the AMC Theater chain which is now owned by the Chinese to the chagrin of Hollywood. Bill Goodykoontz of the Arizona Republic reviewed the film on August 31, 2012. Your editor responded as follows:

Bill Goodykoontz reviewed Dinesh D’Souza’s documentary 2016: Obama’s America in the August 31, 2012 Arizona Republic. “2016 a well-made but flawed Film.” The film was not flawed – the subject (Obama) is flawed. Goodykoontz should read “The Amateur” written by a fellow journalist Edward Klein, former editor-in-chief of the New Your Times Magazine. In one of Klein’s interviews with a former strong African-American supporter of the President in 2008, the author discovered one (of many) critical flaws. After the president failed to deliver on a promise to his supporter, the supporter told Klein, “What you have with Barack Obama is a lack of character.” Equally incisive, it was Bill Clinton who referred to the President as the “amateur.” Barack Obama is over his head as the occupant of the most powerful office in the world and contrary to Goodykoontz’ piece, the President’s “psychology and motivation” are the most informative feature of the film. Obama’s flawed ideology is not well-known to voters. – H. L. Quist

The point of this experience is that few Americans in 2008 had any knowledge of this man and the meaning of his message – “In 5 days we’re going to fundamentally change the United States of America.” Your editor knew Obama’s background and driving ideology and correctly labeled the candidate as a Marxist in his book How To Profit From The Coming Inflationary Boom. Despite the plethora of revelations and anecdotal evidence that has demonstrated the president’s vision for America, it appears that the nation may give this president four more years to finish the job he was “ordained” to do. Contrary to popular perception, however, this would not be a victory for the Democratic Party. This is no longer the party of FDR, Truman, JFK or Bill Clinton. This is the Obama Party. Daniel Hennniger of the WSJ writes (September 13, 2012):

The systemically alienated Obama Party more resembles the ancient anti-capitalist syndicate movements of continental Europe...an Obama victory wouldn’t just be a defeat of the GOP. It would be a defeat of the post World War II Democratic Party. And they know it. The progressive left has always wanted to put democratic liberalism over the cliff for decades. This is their best shot to get it done.”

The cold hard reality is that the president, once ensconced in the oval office for four more years, will revert to his ideological goal to fundamentally change America and any serious effort to create more jobs and grow the economy will be forgotten with unfilled promises. It will take decades to repair not only the economy but the Democratic Party.

The Game Of FLOG

FLOG is golf spelled backwards. Golfers endure a bit of self-flagellation so the term has relevance. But there are more important considerations worthy of a financial newsletter.

On the surface golf is, like other sports, enjoying a pinnacle of success as evidenced by the recent Fed-Ex Cup National Championship and the Ryder Cup. But, further investigation reveals that the sport that once boasted that 35 million Americans who considered themselves golfers (or floggers), is in steep decline and its’ causes are worth analyzing.   The nation’s Mecca of golf, Phoenix, is a microcosm. The City owns and operates six golf courses. Once self-sustaining, since 1999 the courses have accumulated a $14.8 million operating deficit according to a recent report summarized in a September 5, 2012 article in the Arizona Republic.

The report cites that while the number of golf courses in Maricopa County has increased from 153 to 214 since 1990, the main cause of the deficit is the significant decrease in the number of players. No numbers of the rounds played was provided. The City is now considering a number of options including closing several courses and turning some into parks. Floggers are outraged but no one has ever accused those who chase a little white ball as being sane. CMV would like to offer some observations which are a picture into America’s future.

Muny Golf (public golf courses) is a venue for all citizens but especially working class Americans. (Your editor has enjoyed Muny Golf for over 50 years and could play anywhere.) As the average household income has shrunk from $54,932 per year in 1999 to $50,054 in 2011 (a drop of 8.9%) and unemployment is really more like 16% not 8%, many former players simply don’t have the time or money to take a half day off to enjoy this pastime. Many of the self-employed find themselves working on Saturdays. Golf is extremely time consuming, the equipment and fees are expensive and families must make choices. Golf has been eliminated from millions of American’s schedules. There is more at work here.

During the real estate bubble from 2003 to 2008, billions of dollars were invested in “trophy” golf courses – private and public, some built at outrageous costs of $2 million or more per hole, that required green fees of $200 per round or more and a maximum number of players just to meet debt service. Many of these exclusive venues are now bankrupt and are desperately competing for players at Muny rates and have captured Muny players.

The Professional Golfers Association (PGA) to its’ credit, through the 1stTEE Program, is introducing this character-building sport to young people nation-wide in hopes that kids will continue the incredibly rich tradition of the game. Going forward, however, the public’s enthusiasm for the game is going to wane and the dismal prospect of an Obama economy will take its toll. Sponsors are going to be more reluctant to guarantee escalating tournament costs especially for the Woman and Senior events and ultimately the player’s purses will begin to decline. A $10 million prize (Annuity) to the winner of the Fed-Ex Cup is a bit over the top, but strangely the nation’s number one flogger, who plays more golf than any other president, hasn’t cast aspersions on the wealthy players, although they can expect much higher taxes.

Stagflation Now?

Readers should recall that CMV has referred to the incomparable expertise of Paul Brodsky of QB Asset Management who has graced these pages numerous times. To your editor he truly is, all humor aside, the smartest guy in the room when it comes to trying to get a handle on US monetary policy. Paul’s September missive is aptly entitled, “No Pretense.”

QB’s analysis since 2007 has consistently forecast economic outcomes that most experts have considered unlikely. They were then, and today, proven accurate:

●   Significant and ongoing monetary inflation.
●   Policy-administered currency devaluation.
●   Substantial global price inflation.
●   An eventual change in how the 40 year old global monetary system is structured.

What the Federal Reserve and the Obama Administration would like us to believe (especially prior to the election) is that Quantitative Easing (QE 1, 2 and now 3) will create economic growth. In Brodsky’s opinion, there is “no correlation linking base money growth to sustainable real output growth.” He goes on to say that, “base money inflation may ostensibly bring forward the time [shorten the time] until a new credit cycle can begin, such a policy raises global resource pricing coincidentally. Resource providers have the incentive to raise prices immediately, yet there is no such market driven incentive among consumers to increase borrowing.” The bottom line? QE debt monetization will not provide economic stimulus which is exactly what’s happening as the third quarter GDP numbers will demonstrate. (Second Quarter GDP has already been revised down to 1.3% from 1.7%.)

What will be the outcome of Bernanke’s (and the global central banks) QE policy? Global Stagflation – which is “stagnant or contracting global real output coincident with substantially rising prices of commodities and rising input costs of finished goods.” The worst of all possible worlds. Somewhat similar to the early 1980s with the exception that interest rates were at historic highs then and savers had the benefit of 15% Treasury and CD yields to live on.

The solution to the dilemma faced by all the central banks and especially the US Federal Reserve, is the eventual need to collateralize their currencies. Given this recent massive expansion of the base money supply at $40 billion/month to the end of 2014, the US Shadow Gold Price will rise from Paul’s estimate a year ago of $10,000/oz to about $15,000/oz. You will recall that the Brodsky Plan would require that the Fed acquire all the outstanding gold from US citizens with newly-printed dollars which would stabilize the value of the USD by de-leveraging the monetary system. Bernanke and this Federal Reserve will be loathe to implement this solution until their “one-trick pony” takes its’ last gasp.

Editor’s Notes:

Tyler Durden at ZeroHedge.com says that in addition to the $40 billion per month in the Fed’s purchase of mortgage-backed securities, it will also buy $45 billion per month in US Treasuries therefore the Fed’s balance sheet will balloon from $2.8 trillion currently to $4 trillion by December 31, 2013. If this doesn’t disturb you (and your children) you simply do not understand the problem and you are not prepared for the consequences. Do not hesitate to call me if you need more insight into this critical topic.

Updates

Healthcare

You may recall that CMV advanced a potential solution to the healthcare crisis that looms ahead under ObamaCare. We advocated a Two Tier Healthcare System in our August issue. John C. Goodman, who is the President of the National Center for Policy Analysis and author of Priceless: Curing the Health Care Crisis, wrote an op-ed piece in the August 15, 2012 WSJ entitled “Why The Doctor Can’t See You”, in which he stated, “The demand for healthcare under ObamaCare will increase dramatically. The supply of physicians won’t. Get ready for a two-tier system of medical care.” CMV had no knowledge of Mr. Goodman and his position on this key issue. It is comforting to your editor to know that our observations have merit.

The Code of The West

Your editor’s book How To Profit From The Coming Inflationary Boom: And Avoid The Next Crash introduced the reader to James P. Owen who, motivated by the financial industry’s loss of ethics and moral compass, wrote several books dealing with the issue that has become a plague in America. His latest book is Cowboy Values: Recapturing What American Once Stood For,

In the September 22, 2012 issue of the WSJ an article by Holly Finn featured Owen and the impact he has had introducing his cowboy inspired program through his Center for Cowboy Ethics and Leadership to students of all ages. Finn’s piece was, in part, highlighted by the recent scandal at Harvard University where 125 students were under investigation for cheating in a class entitled (we’re not making this up) “Introduction to Congress.”

Ethics and the Code of the West should be mandatory in all schools but the progressives will prevent it from happening. When someone in the future pens the Rise and Fall of The Great American Empire, the root cause will be the breakdown of ethics and the rule of law.

Mediscare

The persistent TV image of a Paul Ryan look-alike throwing grannie in a wheel chair off a cliff is just one of the despicable ads by the progressive leaning group – The Agenda Agency – that attempts to portray the Republicans as the enemy of all seniors who will see their Medicare benefits severely slashed if the Romney-Ryan ticket wins the election. As CMV reported the “mediscare” tactics have backfired when it was revealed that it is ObamaCare that actually slashes $716 billion from Medicare.

Now comes the revelation that the organization that was ostensibly the most ardent advocate for seniors, the American Association of Retired Persons (AARP) was in fact working against its’ constituents to pass ObamaCare.

Thanks to the investigative journalism of the WSJ’s Kimberley A. Strassel (Potomac Watch, September 21, 2012) the ugly truth is that the AARP was one of the strongest lobbyists for ObamaCare that not only slashes $716 billion from Medicare, it strips seniors of choice of coverage and sets the stage for rationing (CMV August 2012). AARP did this despite an overwhelming majority of its’ 37 million members age 50 and over who were opposed to the healthcare bill. Strassel reported that 71 pages of e-mails show that AARP management was taking “orders” from the Administration to keep its’ board ‘inline’ and pledging fealty to “the cause.” Many former key AARP officials involved in this charade now work for the Obama administration.

Sector Overview

1. Cash & Fixed Income

The Treasury market is having a difficult time trying to determine what direction the economy will take after Ben Bernanke’s open-ended QE 3 program was announced. Initially after the details were revealed yields rose and bonds lost value. After the brief euphoria wore off and the equity market weakened, rates declined and bonds rallied, with the 10 Year T-Note finishing the month with a yield of 1.64% which signals economic deceleration and recession.* Be sure to focus on our review of Paul Brodsky’s outlook on the US monetary dilemma that will dictate the direction of this Sector in the future. Another factor is the election. CMV is of the opinion that if the president is re-elected, the fixed income market and US Treasuries in particular could sell off big time as rising interest rates in the future would likely puncture the massive bond bubble.

*Editor’s Note: This trend reversed on September 27th on news from China and the EU.

2. US Equities

CMV has adequately covered this Sector in MARKET OVERVIEW. As we go to press the market is showing signs of weakness and the election and events in the EU and China will be a key factor going forward.

3. International Equities
It’s becoming painfully evident that the China economy and society is experiencing considerable duress. The riot at the Hon Hoi Precision Industry Co., which is the world’s largest contract maker of electronics products for such clients as Apple, Inc., and Dell, Inc., illustrates that Chinese manufacturers are wrestling with increasing demands from angry workers and declining revenues. There have been previous problems at this facility which employs 79,000 workers which has experienced numerous suicides in its’ workforce, falling to their deaths from the roof of the plant. Demanding 60 hour work weeks and poor working conditions appear to be the root causes of the problem. China’s Shanghai Composite Index has fallen about 67% from its’ October 2007 peak and the question remains whether or not the recently announced government infrastructure stimulus plan will work, or is a collapse eminent. See the chart on the next page (not visible on blog - join the yahoo group to view charts).

An anomaly has occurred in SE Asia. Indonesia’s economy is expanding at a 6.4% pace but stocks are up just 5% YTD even trailing the MSCI Asia ex-Japan Index. Real property prices are booming and the minimum wage is rising faster than inflation. Little known to investors, Indonesia is rapidly becoming a hot-bed for gold mining with more discoveries made there in the past couple of years.

As CMV goes to press, anger and riots are breaking out in Greece – again. The Greeks simply do not get it. When the EU finally cuts the umbilical cord, government and union jobs and salaries will stop. When the Soviet Union suddenly collapsed in 1998 unemployment skyrocketed and workers salaries and benefits stopped. The treasury was out of rubles. There even was a 6 to 9 month period where the Soviet military wasn’t paid! There is this grand global misconception that all governments including the US will have the funds to pay salaries, pensions and entitlements. Countries can go bankrupt and can’t borrow anymore. History is replete with examples. Next in line? Venezuela. Hugo Chavez, another Marxist, has destroyed the economy but he’ll probably win re-election because Chavez controls all media in the country.

4. Hard Assets

In August we reported that strange things were happening in the oil patch. Things have become even stranger. Given Bernanke’s QE 3 and the prospect for a disruption of supply of oil from the mid-east, the stage was set for rising crude prices. Suddenly however, the price of oil and gasoline began to fall. First, Saudi Arabia announced that it would increase production to make certain that there would not be a supply disruption to the US and secondly, the Administration announced that it would tap the Strategic Petroleum Reserve here in the US. Bingo! Crude prices immediately began to decline to below $90/BBL. You don’t suppose that the coming election had anything to do with lower prices, do you? That unforgettable photo of Barack Obama bowing to the King of Saudi Arabia also comes to mind but surely that can’t be a factor?

Military intelligence from a number of un-named and confidential sources indicate that Israel is preparing for war with Iran and other Arab countries. CMV believes that an OCTOBER SURPRISE could be eminent. If Russia and China come to the support of Iran, Egypt and others, the situation could become very ugly – quickly. Despite the president’s ‘intervention’ the price of crude could skyrocket.

Natural Gas has also been on a roller-coaster. After declining in early September to around $2.80/BTU it suddenly reversed direction and again exceeded $3.20/BTU as we write. Copper and the base metal complex initially rallied when Bernanke waved his magic wand but as the China Syndrome worsened, this Sector also took a hit. (See #7 Commodities for reversal.)

5. Precious Metals

There was a remarkable anomaly in the Precious Metals Group (PMG) over the past 5 months unrecognized by analysts. You may recall that it was August 22, 2011 when gold (Au) reached its’ top in nominal terms at $1,921/oz and that’s the specific day that it broke from its’ double top formation and began the steep decline to the $1,550/oz area by the end of the year. There was little movement during the first eight months of 2012 and Larry Edelson of Weiss Research called for Au to break its’ 2011 low and plummet to $1,420/oz or lower. As late as August 14 this year, Au was range bound at $1,580/oz. Suddenly, however, the sentiment changed. Moved by Bernanke’s QE 3 subtle verbiage, Au broke out and by August 22, 2012 Au reached $1,680/oz and rocketed to about $1,780/oz as we write. So, August 22nd was a bellwether day. It just happened to be your editor’s 50th Wedding Anniversary which means little to the reader but was a double entendre for your editor and spouse.

CMV’s key inflection point was $1,640/oz which was our BUY signal. Remarkably, James Dines (the Original Gold Bug) sent out an Investors Warning Bulletin on August 22nd predicting that gold and silver upside breakouts would launch an assault on their previous all-time highs. See Chart on next page (join the yahoo group to view the charts on the CMV).

Silver (Ag) followed its’ big brother and also broke out from a morbid trading range. On July 1, 2012, Ag was only $26.40/oz. Taking the lead from Bernanke, Ag soared to about $35/oz by August 22nd. Rumors in the commodity pits indicate that JP Morgan-Chase Bank could be indicted for its role in manipulating the silver market as reported by CMV for years. It has been reported by Eric Sprott (Sprott Asset Management) and others that the stated supply of silver bullion in warehouses simply does not exist. It this lid blows off, Ag could skyrocket. Sprott calls for $150/oz within a year whether the JPM scam is revealed or not.

Jim Dines and CMV are on the same wave. That’s understandable since we’ve regarded Jim as a mentor for over 40 years. As the third quarter is about to end the winds and the putrid oder of DEFLATION strikes our senses. The sudden drop in yield of US Treasuries and the consolidation in Au and Ag are indicators that the markets are reversing from commodity inflation to contraction. Dines and CMV agree on a critical point. The threat of DEFLATION will ramp-up the printing presses even more and there will be, as Dines says, “the sudden eruption of INFLATION in the coming rush to unload dollars.” In other words, don’t take the “head fake” the market is giving us (prior to September 27th). Dines adds “Printing even more money during a deflation leads to a ‘surprising’ eructation of hyperinflation and remember later that we were the first ones to obstreperously have used that word...” Sorry Jim, CMV has used the term for three years but we won’t quibble with our mentor.

6. Commodities

September 27, 2012 marked the first uptick since July in this Sector represented by the MSCI All-Country World Index. The S&P GSCI gauge of 24 commodities gained one percent on this date on bets that China would do more to stimulate its’ economy which would increase imports of raw materials. The Shanghai Composite rallied 2.6% on the news that China’s central bank added 365 billion yuan ($58 billion) to its’ financial system. At present, CMV is taking the position that all the global stimulus will accomplish what all the bankers and politicians want – asset inflation.

7. Real Estate

CMV readily admits that our forecasts for a residential real estate recovery was a bit premature but our vision has been realized. In late September the S&P Case Schiller 20 City Index reported the strongest gains since 2005 with home pries rising 5.9% YTD. In Phoenix Case Schiller reported that home prices have recovered 14.4% from the trough (low) in September 2011, but local experts report higher gains. CMV first reported almost two years ago that investors were aggressively buying foreclosures in the $100,000 price range and we’ve seen strong activity rapidly move up the “food chain” since then. Remarkably, according to the Cromford Daily Observation, there were 60 luxury homes over $1,000,000 sold in Maricopa County in August and the “shadow inventory” of these higher priced homes mow represents only a 15 day supply. As a result, home builders are buying lots and cranking out homes. The shares of homebuilders have more than tripled on average since their 2009 low. In its’ last quarter Lenmar Corp. sold 3,222 houses, up 20% YTD. In CMV’s opinion two psychological factors are also contributing to demand. One, buyers and investors are getting “anxious” feeling that they may have missed an opportunity, and two, the fear of US dollar devaluation is driving money into hard assets. The residential real estate market is telling us that the asset inflation boom has begun. There is now a growing opportunity to repair devastated balance sheets and get ready for the next crash. Stay tuned. Timing will be everything.

8. Special Situations

This Sector, which features mostly microcap stocks, remains out of favor and requires patience for those who are already in this space and opportunity for those who are seeking potential outsized gains in the months ahead. Let’s take each Sub-Sector and try to put each in its’ perspective:

Gold and Silver

The reality is that both of these resources are rapidly diminishing (as CMV has reported), grades are lower and costs of the miners are escalating. The mining companies need larger amounts and higher grades of proven ore in the ground. CGA Mining was just acquired for $1.1 billion to expand the buyer’s resource. The miners have to project their needs 10 to 20 years out in the future to remain viable. The risk in the explorers is that their efforts don’t turn up a deposit that is large or rich enough to warrant a buyer’s interest. CMV sees a rapidly approaching time when there will be a mad rush to acquire proven deposits.

Platinum & Palladium

We reported earlier that one of the world’s largest platinum miners in South Africa, operated by Lonium PLC, had been shut down by striking miners who were demanding a triple increase in wages.    This is the mine where 34 protestors were killed last month. Platinum and palladium are not only precious metals, they are also a critical component in catalytic converters for automobiles to prevent exhaust pollution. CMV sees a situation here that will ultimately result in the failure and closure of some of these mines and the principal production will come from Russia.

Rare Earths

Jim Dines (The Dines Letter), who was also the original REE BUG, said in his September letter that “...there also should be a resurgence in the Rare Earths...” China still controls 95% of the world’s supply but the US has two companies that soon will be able to supply domestic manufacturers. These shares have rebounded nicely.

Uranium
Investors continue to ignore the fact that annual mining supply can not meet demand and contrary to perception the number of nuclear reactors will grow world-wide and the price of U3O8 will accelerate. The use of coal is in rapid decline. Natural Gas is on an uptrend and energy needs can’t be met by solar, wind and other alternatives.

Oil
New technologies and new opportunities are expanding in the Bakken Formation in Montana.

Potash

CMV foresees a food shortage aggravated by the drought in the mid-west and increasing demand. Demand for fertilizer both for the next season and beyond are very bullish for this product.

Graphite, Vanadium & Beryllium
Please refer to our July issue for a snap shot of these “new age” materials. Here are some recent and exciting developments. A US microcap has filed a patent application for a “vanadium oxide purification process which will allow the refinement of the element for use on electrolyte for mass storage batteries.” Picture a battery as large as a house that can serve as an alternative or backup energy source for an electrical grid serving a large population. The company has the only vanadium mine in the US.

In just one growing market for EV automobiles, demand for graphite and graphene will exceed all supply produced globally by 2020.

Copper alloys and high performance beryllium aluminum castings are providing new uses for nuclear power, automotive, oil and gas, electronics and aerospace.

If you want to learn more, please give me a call at (602) 840-4117. At a time of crisis there’s always opportunity.

CMV August, 2012

2012-08-11T19:20:00.000-07:00

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SPECIAL NOTE:   Due to vacation schedules there will be no September CMV – the CMV will resume with the October 2012 issue.

Market Overview

“Everyone Wants To Go To Heaven But No One Wants To Die.”
– Anon

That’s clever and it might even evoke a wry smile but, what the heck does it mean? Here’s an example that supports CMV’s often controversial, but introspective, view of the world.

Greece is a nation that has so burdened itself with debt to sustain the lifestyle and the comfortable retirement of its’ citizens that it faces a collapse of its’ democratic form of government, its’ economy and its’ society. Few Greeks however see the inevitable outcome and won’t sacrifice their expectations necessary to survive.

Similarly, there are municipalities and state governments in the US that have discovered the profound validity of Anon’s philosophy. Stockton and San Bernardino, California are the most recent municipalities that have filed bankruptcy, along with 25 other cities in the US. Their burden of “heavenly” entitlement or legacy costs has exceeded their ability to meet these contractual obligations.

As these cities and states grapple with the inevitable there remains the hope that the President will win re-election and that Uncle Sugar will continue to fund these benefits and no one will have to die. Ultimately, of course, the Federal government faces the same reality that it can’t continue to fund its’ obligations also but to most, heaven can wait.

Friday’s (August 3rd) jobs report from the Bureau of Labor Statistics (BOLS) indicated an increase of 163,000 additions from July’s 64,000. The markets in the US rallied sharply on the news ignoring the fact that factory jobs decreased by 25,000 last month and BOLS added 377,000 jobs as a “seasonal adjustment.” It is generally acknowledged that approximately 200,000 new jobs must be created to reduce unemployment which now stands at 8.3%, David Rosenburg (Barron’s August 6, 2012), who is Gluskin-Sheff’s Chief Economist, says the report was a “head fake” and calls it “disingenuous.” CMV believes we can expect BOLS to issue more disingenuous reports in September and October leading up to the election.

Despite the reliable Economic Cycle Research Institute’s (ECRI) forecast that the US will soon be in another recession, the DOW gained 217 points on Friday (August 3rd) to hit 13,096 up 7.19% YTD. The S&P 500 rose 25.99 points closing at 1,391 up 10.61% YTD. The NASDAQ Composite was up sharply by 58.13 points ending at 2,968 and 9.81 points higher YTD. It is interesting to note that the S&P all-time high of 1,422 is just 2.3% above Friday’s close. Based upon the S&P’s price/earnings (PE) multiple and the expected 12 month earnings, the PE is now a little over 13 times. The market usually stalls when the PE reaches 14. With the S&P within 2% of its’ all-time high, and closing in on 14X, the index is at a critical juncture. Will there be a breakout to new highs or will it fail? Much depends on GODOT. (Taken from the Broadway play “Waiting for Godot” which in CMV’s production the lead role is played by Ben Bernanke. GODOT is a pseudonym for God.)

The Fed at it’s recent Open Market Committee Meeting concluding on August 1st, failed to intervene or provide any stimulus in the form of QE 3 that would (ostensibly) juice the equity and commodity markets. You will recall that GODOT (Mr. Bernanke) created Quantitative Easing #1 and #2 as well as Operation Twist #1 and #2 with mixed results. Yes, we enjoyed higher stock prices but we also endured higher gasoline and food prices. So if, as ECRI forecasts, the US economy is slowing and a recession is at hand, what does GODOT do? Some pundits claim GODOT is out of bullets and any more intervention would be ineffective. In the play, GODOT never arrives and the actors are left waiting. Is it deja vu all over again?

There’s another key actor in this global economic play; Super Mario (Draghi),the President of the European Central Bank (ECB). Last week he said the ECB “will do whatever it takes” to save the euro. The markets in Europe and the US both rallied. A week later Super Mario declared that the ECB “may do whatever it takes” to save the euro and the markets tanked. Appropriately, Super Mario has become the NATO man – No Action Talk Only. So, it appears that the Western world and to a large extent, the Eastern, are anxiously awaiting the NATO man and GODOT. In CMV’s opinion, these two actors will be forced to “show” and resort to the printing press and further dilution of their fiat currencies. Bill Gross, the world’s largest bond manager at PIMCO said on August 1, 2012:

“Unfair though it may be, an investor should continue to expect an attempted inflation solution in almost all developed economies over the next few years and even decades. The cult of equity may be dying, but the cult of inflation may have only just begun.”

It has become abundantly clear to CMV that all the previous attempts at stimulus have not created growth in GDP which is precisely what is fundamentally required to increase job opportunities and increase tax revenue. We’re not economists but it seems that when the level of federal debt exceeds 100% of GDP, growth of 4% or greater becomes near impossible. When the federal government has to borrow $.40 out of every dollar to meet its’ cash flow needs and offers its’ citizens a near-zero return to invest in its’ debt securities we are reaching a stalemate. The prospect for a change in the direction of the economy is based upon an illusion which is not a strategy. Read Real Return Investing, on page 9 carefully.

The Coming Confiscation

America is about to face financial Armageddon and our country and its’ citizens are totally unprepared to meet the crisis that looms ahead.

The first of the 78 million baby boomers are turning age 66 this year and are eligible for full Social Security (SS) benefits and Medicare. Most Seniors buy into the myth that there’s a $2.7 trillion trust fund to guarantee their SS income for life. The inescapable truth is that the federal government has spent all of these funds to pay the nation’s bills for decades and the funds in trust are only IOU’s from the US Treasury. And, the Treasury owes bondholders $16 trillion and has to borrow new money just to pay interest on the debt.

In the January 2012 edition of CMV, we revealed the astounding growth in Social Security disability claims and the abuse or gaming of the system that is taking place. In June, 2012 the Bureau of Labor Statistics (BOLS) reported that private employers added 80,000 jobs for the month which was extremely disappointing and caused a sell-off in the US stock market. Incredibly, also in June, 85,000 workers filed for total and permanent disability. In the 3 year period from June 2009 to last month over 3.1 million employees have gone on Social Security Disability which nearly doubled the number of recipients up to that period. As CMV disclosed, the Social Security Disability Fund is separate from the Old Age Survivors Insurance (OASI) fund cited above. Due to the excessive number of disability claimants the fund will be depleted within two years. Where will the money come from to continue these payments? It’s the same dilemma that will soon appear for retirees also. There are only two sources – taxpayers and money printing. CMV believes that the checks will continue to beneficiaries but there’s a catch that virtually few of these recipients has even considered possible. Each check received will become worth less and less and less until they become worthless. Just like pensioners experienced in the Weimar Republic in Germany from 1921 to 1924.

The rise in the cost of Medicare and Medicaid with the advent of the Boomers, will begin to accelerate exponentially and faster than the growth of the Gross Domestic Product (GDP). Since 1997, the Medicare law required that payments to physicians were to be cut. These cuts have been included in the budget (except for the past 3 years where there was none) but Congress has “modified” the requirement each year and the reductions haven’t taken place. That makes the Congressional Budget Office’s (CBO) numbers misleading and grossly understates the problem. Medicare is now 3.7% of the GDP and should more than double in the next 20 years. Add to that Medicaid and all the other entitlement programs and they will eventually consume most of Federal revenue. Congress prefers to target a future date for this to happen which is of little concern to them. They have kicked the can down the road never considering that the road would end.

The critical question that affects ALL Americans is, where will the money come from to meet the promises that the US Government has made to its’ citizens? The following is not what you would expect to learn.

Three years ago in your writer’s book, How To Profit From The Coming Inflationary Boom And Avoid The Next Crash (Yes, there was an asset inflationary boom in 2009 and 2010), the subject of a source of capital to meet the voracious government appetite was addressed. The except from page 23 was as follows:

    Daniel D. Show offers a glimpse into America’s new collectivist mind set and the prospect for the governments takeover of private retirement accounts. The Administration and the House Committee on Education & Labor have heard a proposal by Teresa Ghilarducci, Professor of Economic Policy Analysis at the New School for Social Research in New York, to eliminate tax breaks (thus increasing tax revenues) for 401(k), IRA’s and similar retirement plans and convert them into Guaranteed Retirement Accounts (GRA) managed by the Social Security Administration. – Offshorefinancialsolutions.com - also Review & Outlook online at Wall St. Journal November 14, 2008 — http://online.wsj.com/article/SB122662401729126813.html

Private pension assets held in IRA’s 401(K) and other plans represent the largest untapped sources of capital in America. What Ghilarducci says here is that the American public is too ignorant to manage their own money and therefore the Federal government is a better source and can guarantee retirement income. What this form of “Confiscation” would not provide is protection against the inevitable devaluation of the US dollar and erosion of the retiree’s purchasing power, as cited above. CMV believes, on a minimum basis, these private accounts will be required by mandate to invest a large percentage of these assets in government debt securities. The Japanese government initiated this requirement a number of years ago. If Barrack Obama wins re-election, it may be wise to consider terminating your plan(s), pay the taxes in 2012 and continue managing these assets outside a qualified tax-deferred vehicle. CMV would also suggest that you discuss this matter with your CPA and consider your tax consequences and potential penalties before making this important decision.

The following adds credibility to the above. The California Public Employees Retirement System (CALPERS) is the largest public employee pension plan in the US which hardly means its’ the best managed. CALPERS 0.57% return over the past 5 years is, in part, responsible for the fact that the plan is about 25% underfunded which means that it may not be able to meet the obligations of its retirees. The California State Senate has just passed a bill that would expand the CALPERS system into the private sector. Huh? State lawmakers want to extend their mis-managed plan to all businesses in California with more than 5 employees! As Thomas G. Donelan, the editor of Barron’s, points out in his June 25, 2012 editorial, California workers might be gratified for this opportunity to pool their pension assets with CALPERS if not for their secondary role as taxpayers. He says, “As such they are already on the hook for pensions promised to several million public workers, using money that doesn’t exist.” If you haven’t connected the dots, this is a desperate move by the State to create a new source of cash into the fund so they can push the inevitable shortfall down the road. Our public pension plans are becoming Ponzi schemes. Can you imagine what an impact a 30% to 40% decline in stocks and a prolonged bear market would have on CALPERS and other retirement funds?

The CMV Healthcare Solution
In response to requests from our readers, a few who claim to be amongst the intellegencia, CMV will offer its thoughts on one of the most pressing issues of our time – HEALTHCARE. It is and has been our long-held position for over 20 years that any program managed by the Federal Government, any single payer system or any one shoe fits all type of system is doomed to fail and make what is today a looming nightmare an outright financial and human catastrophe. First, a look at the numbers.

The July 7/8 , 2012 edition of the WSJ had a feature article by Janet Adamy and Tom McGinty entitled “The Crushing Cost of Care.” The numbers below were provided by the Congressional Budget Office (CBO) which is, ostensibly, unbiased – if there is such a thing today.

Seniors, naturally, are the sickest of all Americans and account for the vast majority of all healthcare spending. In 2009, according to the CBO, the top 10% of all Medicare beneficiaries who received hospital care accounted for 64% of the program’s hospital spending. In 2011, Medicare’s net expenditures totaled $480 billion or 13.5% of ALL federal expenditures. The CBO projects that Medicare costs will grow at an average increase of 5.7% per year through 2022 and will equal 16.2% of ALL federal budget expenditures at that time. A further breakdown shows that 6.6% (1.6 million) of Seniors who received care in their final year of life accounted for 22.3% of total hospital expenditures! The obvious conclusion? Limit the benefits for Seniors in their final years. Obamacare plans to cut $575 billion from Medicare over 10 years, and if you are age 70 or over, and you need a heart or kidney transplant, hip replacement or another form of expensive procedure the Independent Payment Advisory Board (IPAB), a 15-member committee, whose purpose is to ration care, will decide whether or not your procedure is acceptable. Those over age 70 can expect to receive ‘comfort care’ and little, if any, extensive procedures.

On July 4, 2012, President Obama named Dr. Donald Berwick from the Harvard Medical School as his Healthcare Czar. Dr. Berwick was knighted by the Queen of England for his support of Britain’s National Health Service that is well-known for its’ rationing of care.

Additional “rationing” is likely for Medicaid patients also. Over-looked by most observers, the Supremes (Supreme Court) voted 7 to 2 ruling that the Federal Government could not penalize states that refuse to enroll millions more of low-income people in their existing programs. The State of Maine, for example, immediately moved legally to drop 20,000 Medicaid recipients from the state’s rolls including 19 and 20 year olds to save $10 million over the next year. Wisconsin, Alabama, Texas and other states are expected to follow. Doctors are refusing to take patients because they can’t afford to treat them. The Federal government currently contributes around 57% of the financing for Medicaid programs for the states, but sets restrictions on how the money is used. A legal confrontation between the financially-strapped states and the Department of Health & Human Services is bound to ensue. Depriving possibly millions of low-income people from healthcare may save the states precious dollars but it certainly doesn’t address the critical issues of offering care to everyone.

So, what is CMV’s solution?

A Two Tier Healthcare System

First, we should all recognize that there is a segment of our society that can’t possibly pay for their healthcare or pay premiums for insurance but they must have access to care. An expansion of the current free Medicaid program would be Tier 1.

Second, we should all recognize that there is a segment of our society that can afford to pay for their healthcare (self-insure) or pay premiums for health insurance. These citizens would be eligible for Tier II.

One system can’t serve both segments of our society. Here’s why. As the Federal government continues to reduce its reimbursement to doctors, hospitals and all healthcare providers, those facilities and professionals, who are presently at the top end of the scale, will be forced out of the business. How many doctors will pursue a profession where their education costs $250,000 or more, and results in earning $70,000 or less per year? What hospital will make $100s of millions of capital investments in new facilities and the latest equipment with a continued reduction of reimbursement? Why spend billions in research when no one can afford the treatment? The best and the brightest of our young people will find another career and in a short period of time our entire healthcare system will be on a par with third world healthcare. Ironically, in retaining TIER II, TIER I patients could receive better care. Unfortunately, the Obama Administration’s goal is to eliminate all profit incentive in the healthcare system which will guarantee a reduction in the quality of care and the number of providers when more are desperately needed.

A recently revealed survey of physicians on FOX News (July 10th) indicated that 83% of the doctors polled would leave their professions if Obamacare is not repealed. A two-tiered system could prevent that. [The study polled 699 participants of the group “Doctor Patient Medical Association.”]

Equalitarians and the PC crowd will reject the Two Tier System out of hand because it’s not equal, fair or is socially unjust. The alternative is a nation gone bust where competent, high quality healthcare will be found in another country.

Obama’s Imperial Presidency

This is the title of Kimberley Strassel’s Potomac Watch column that appeared in the July 5,2012 edition of the WSJ. The Myth Buster covered this revealing and timely piece in his Podcast on July 8th. If America wants an insight into what President Obama’s second term may look like, they only have to know how he governed during the past three and one-half years. Strassel says, “Mr. Obama has granted himself unprecedented power.” She adds:

“Mr. Obama proposes, Congress refuses, he does it anyway.”

There is a short summary of various issues and how this “Imperial President” changed the outcome to fit his ideology and his political objectives:

    Law                Result            Presidential Mandate
●   The Dream Act        Congress Rejected        Executive Order
●   Medical Marijuana        Congress Wouldn’t Repeal    Justice Department Won’t Prosecute
●   Defense of Marriage Act    No Congressional Repeal        Justice Department Won’t Defend
●   No Child Left Behind        Congress Change Failed        Department of Education Waivers
●   Cap & Trade            Congress Wouldn’t Pass        EPA Intervenes
●   Union Card Check        Congress Wouldn’t Pass        Stacked National Labor Relations Board
●   New NRLB Members        Senate Wouldn’t Confirm        Declared Recess & Appointed
●   Internet Regulations        Congress Wouldn’t Pass        FCC Ruled Unilaterally
●   Fast & Furious        House Held Justice in Contempt    Executive Order Stalemate
●   General Motors Bailout    Bond Investors Subordinated    Over-ride Contract Law
●   States Clean Up Voter Rolls    States Prohibited            Evoked Voting Rights Act
●   States Fracking Rules        No Federal Jurisdiction        New Federal Authority
●   War in Libya            Congressional Consent Required    No Consent Obtained.
Based upon the above and given an unimpeded four year additional term, what can Americans expect from this second-term President? Supported by a Justice Department that’s clearly above the law of the land, there will be a teutonic shift in the balance of power where Congress will be irrelevant and impotent. The Rule of Law which has made the United States of America the premier jurisdiction to do business in all of the world will continue to fracture and will become a haven for crony capitalists and our version of the Russian oligarchy. What escapes our media is that Venezuela, Argentina, Bolivia and other Latin American countries have become Marxist totalitarian states that in short order will soon collapse – again. For those with a short memory, the Argentine economy collapsed in 2001 and the country defaulted on all its’ sovereign debt owed to US banks. Geez! Maybe that’s the plan for Obama’s America! The present $16 trillion of Federal debt which will explode to $20 - $25 trillion over the next four years, will never be paid in full. That would fit perfectly with this Administration’s goal to lesson America’s power and image in the world and destroy the Capitalist system.

Capitalism Under Fire

Charles Murray has penned a feature article entitled “Why Capitalism Has An Image Problem” in the July 28/29 edition of the WSJ. It is both timely and instructive because it shapes the essence of the current presidential race.

Murray, unafraid of over-stating the case, says:

“...Capitalism is the best thing that has ever happened to the material condition of the human race. From the dawn of history until the eighteenth century, every society in the world was impoverished, with only the thinnest film of wealth on top. Then came capitalism and the industrial revolution. Everywhere that capitalism didn’t take hold, people remained impoverished. Everywhere that capitalism has been rejected since then, poverty has increased.”

In America today, in what was the most successful nation in the history of mankind, “capitalist” has become an “accusation” according to Murray. The “creative destruction” that is the essence of the system is now seen as evil and anyone who is successful and rich is so because that successful entrepreneur made someone else poorer. Mitt Romney, whose tenure at Bain Capital clearly established him as a successful capitalist, has been branded by the left as an enemy of the people and a person who hadn’t done anything to deserve his wealth or money. The demonization of Romney has been the tactical strategy of the President and his campaign staff that’s effectively changing the argument that capitalism is not the answer to America’s economic malaise.

To build their case, the Progressive and Marxist left only has to point to those capitalists on Wall St. whose rapacious greed destroyed the residential real estate market early in the last decade and impoverished a large section of America’s middle class. CMV has written extensively on those “Masters of The Universe” (MOTU) which was a cabal of Wall St., banking, government and political participants who carried out this coordinated scheme that, in retrospect, had to be deliberate, or on a minimum basis, careless and reckless. The MOTU became the “enablers” who created a perfect environment for candidate Obama and his leftists to exploit the evils of capitalism and the outcome was inevitable. That same argument is being made today and it resonates loudly with those that can pin the blame on someone else for their failure and look to government to provide for their success.

Murray states that capitalism must repair its image. All of us must reinforce the virtue of success and that capitalism is the economic expression of liberty. The challenge is ominous. This basic concept is no longer acceptable in most of our schools nor in many American homes. It isn’t sufficient just to point to the death of democracy in Greece or the failure of European socialism. Mitt Romney, to be successful in November, must borrow the Reagan message of American (and its’ capitalist system) as the “shining city on the hill.” Rumor has it that Reagan’s hologram will introduce Mitt Romney at the Republican Convention. This “appearance” of President Reagan would be spooky but memorable and perhaps a film clip of the former President’s 1980 question “Are you better off today than you were four years ago” will be adequate.

A friend sent me a quote from one of America’s foremost novelists and philosophers who wrote this piece over fifty years ago.

“Watch money. Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion — when you see that in order to produce, you need to obtain permission from men who produce nothing — when you see that money is flowing to those who deal, not in goods, but in favors — when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you — when you see corruption being rewarded and honesty becoming a self-sacrifice — you may know that your society is doomed.” —Ayn Rand

Real Return Investing

Paul Brodsky, who has graced these pages several times, is a principal in QB Asset Management (qbamco.com) and an author of what CMV believes is the most articulate synopsis of macroeconomic issues as well as the Federal Reserve System and the overriding monetary problems that the Fed has created. Brodsky has also offered up a practical and relatively simple strategy that would solve the current “global balance sheet - centric malaise brought about by the end of an almost 40 year global credit cycle.” Here are some concepts that you need to grasp.

●   Both creditors and debtors are starved of base money (currency in circulation and bank reserves held at central banks) with which to service debt.

●   Conventional monetary and fiscal policy responses seeking higher growth and more efficient spending cannot work.

●   Credit money is created (in the fractional reserve banking system) and is all money in existence that is not base money.

●   US bank deposits held domestically and abroad total about $20 trillion while base money is $2.7 trillion. The gap separating credit money deposits from base money defines systemic leverage.

●   The significantly over-leveraged banking systems and a highly indebted public is currently pressuring monetary authorities to de-leverage credit money by creating more base money. As money creation is less disruptive (in the short-term) than credit deterioration base money inflation is most likely to continue which is the purpose of this exercise.

You may recall that CMV summarized Brodsky’s solution to the Fed’s present dilemma by monetizing gold. The US base money now is approximately $2.7 trillion. The US gold bullion supply (reportedly) is about 8300 metric tons. If you divide the total base money supply by the gold supply the Shadow Gold Price (SGP) would be $9,961/oz. Since the credit crisis of 2008 and the rapid expansion of the Fed’s balance sheet to $2.7 trillion the SGP has ballooned from about $3,000/oz to nearly $10,000. The only way (other than through massive credit de-leveraging) that the Fed can avoid the accelerated devaluation of the USD and historic inflation is for the Fed to monetize gold to stabilize the USD. The Fed would tender for all privately owned gold near the SGP of $10,000/oz and would purchase the gold through newly issued Federal Reserve Notes which would flow to the banks in the form of new net deposits. This would be a discrete monetary event and a simultaneous de-leveraging. The USD would then be pegged to the new price of gold.

Assuming the Fed continues its’ present policy of expanding base money, what options does an individual have to preserve and protect their purchasing power and secure their future? Brodsky recommends:

Treasure

That’s TREASURE, not Treasuries! He’s citing fine art, rare property and gold. Treasure does not have to have any functional utility. It needs to be scarce, have ongoing demand, easily verifiable and portable. The wealthy investor, Leon Black just exchanged $120 million of devaluing dollars for a painting by the artist Edvard Munch entitled “The Scream.” Not many of us could attend a Sotheby’s auction and bid on such a piece but we could acquire rare stamps, baseball cards, historic items and the like. Real property in key locations is not portable but will always have real value. In the late 1970s when monetary and price inflation were out of control, and home mortgage interest rates ballooned to 17%, investors were purchasing real property to convert their currency to hard assets. Future activity could be more dramatic as interest rates are at historic lows and the small investor would utilize leverage.

We believe that this exercise and Brodsky’s expertise should make the reader focus on the anomaly that lies ahead and that there is a solution.

2016: Obama’s America

Gerald R. (Jerry) Molen is an Oscar-Winning film producer whose credits include “Rain Man”, “Minority Report,” “Twister,” Schindler’s List,” and “Jurassic Park.” His latest film is what Molen terms an “educational documentary” entitled “2016: Obama’s America (Love Him, Hate Him, You Don’t Know Him)” . The film was just released and hit the theaters July 27th.

Much of the factual data in the film is based upon the research compiled by author Dinesh D’Souza for his book “The Roots of Obama’s Rage” which has quickly become a best seller and has touched off a massive controversy. Molen said in a recent interview by Jay Fernandez of “Indiewire” when Fernandez asked if movies can be an effective art form; “I think so. I don’t think there’s anything more powerful than the visual image...like “Schindler’s List” that had a great impact on society.” Molen’s objective is to educate the public whom he believes doesn’t know Obama’s background or what his hidden agenda is for America if he should gain another term. Asked by Fernandez if Steven Spielberg, a strong Obama supporter and a close friend of Molen’s would be invited to a screening, “Absolutely.” Fernandez followed up, “Would he (Spielberg) want to see it?” Molen laughed and said, “I don’t know.”

There’s a “Quist Twist” to this story. Your writer has met with Molen and the Oscar-winning producer has reviewed a screenplay of “The Future Isn’t What It Used To Be” taken from a novel by the same title, written by your writer. Ironically, this time-travel story takes place in the year 2053 after America has suffered from financial collapse and is in chaos. A coincidence? Our concern is that given Hollywood’s proclivity to rabidly support the radical left, that Molen’s stature will considerably slip and he will be ‘black-listed’ in Hollywood. As we write, an all-out effort is being made to prevent this film from showing in theaters across the US.

We’ve not had an opportunity to review Molen’s film. Do everything you can to find a theater that will run the film and invite all the people you can reach to see it. America didn’t know who this President was as a candidate in 2008. The story is now being told accurately and effectively. No excuse this time. Get ready for the “October Surprise.”

Updates

The Heretical Banker – Break Up The Big Banks

Sanford Weill just disavowed the work and ambition of his lifetime. This banking giant, who built Citigroup through a myriad of acquisitions including Travelers Ins. Co., in 1998 and who led the industry’s lobbying effort to repeal the 1930s Glass-Steagall Act which prohibited commercial banks from doing investment banking, stated recently on CNBC that “what we should probably do is...split up investment banking from banking.” The banking industry was in shock when Weill added, “I am suggesting that they be broken up so the taxpayer will never be at risk...mistakes were made.” This coming from a man who enlisted the help of President Bill Clinton and Fed head Alan Greenspan to repeal the Act in 1999 that was the major obstacle to the banks taking aggressive and leveraged speculative positions, which gave the nation the sub-prime debacle. Weill stepped down as Chairman of Citi in 2006 and sold his stock back to the mega bank for $47/sh. Two years later the stock had lost 90% of its value. Maybe, just maybe, Weill’s conscience forced him to admit it all was a mistake. Now, we’ve got Dodd-Frank which, like interest, compounds the problem and the taxpayers remain at risk.

The Banksters Strike Again

The Student Loan Marketing Association (SLM Corp), more commonly known as Sallie Mae, was a Government Sponsored Enterprise (GSE) formed in 1972 to provide loans principally to college students. Sallie has been about as successful as its’ GSE cousins Fannie Mae and Freddie Mac but little fanfare has focused on another taxpayer bailout that’s about to transition from the problematical to the absurd. Here’s why.

There is now approximately one trillion dollars of student loan debt outstanding and about 90% of it is federally (read taxpayer) guaranteed. The remaining $10 billion are private loans. In July, the newly-created Consumer Financial Protection Bureau issued a report concluding that Congress should consider allowing borrowers to discharge their private student loans through bankruptcy. What’s coming, of course, is a change that will also permit Sallie Mae borrowers to utilize bankruptcy to discharge their debt thereby making US taxpayers liable for the balance due. First the President and Congress cut student loan interest rates by about 50% and now he’s telling young voters that he’s making it easier for them to avoid repayment at all.

You may recall that CMV labeled those large institutions of higher learning as “Monoliths” in discussing the Penn State debacle. No one (that we know of) has made the correlation of the creation of these “Monoliths” with Sallie Mae. Since the advent of Sallie in the early 1970s, the cost of a college education became affordable to a huge number of students who otherwise couldn’t have afforded it. That is what was intended. As attendance swelled however, so did the size and influence of the colleges which inflated tuition costs at an annual compound rate of nearly 8%. Now, this college debt bubble is imploding and the “Monoliths” will be forced to downsize and the borrowers will be offered a reprieve. The hard reality is that most of the trillion dollar debt will never be paid and the lessons of Econ 101 won’t be learned. The “Monoliths”? Enrollment will start to plummet as young people will go on-line to get their education. Someone moved the cheese – again.

NOTE:

SLM Corp was a publically-held corporation that originated and serviced student loans as a Government Sponsored Enterprise (GSE). It was, in effect, a middle man which earned substantial fees and paid outsized compensation to its’ officers and principals and had little or no risk as loan losses were absorbed by US taxpayers.

Political Correctness

Congressman Trent Franks (R-Az) serves on committees charged with oversight of the President’s Cabinet members and their agencies. He recently signed onto five letters to the Inspector General of five different federal departments charged with National Security, asking them to look into concerns over the Administration’s noticeable and demonstrable shift in policy towards the militant Islamist groups known as the Muslim Brotherhood. Here are a few cogent paragraphs from Franks’ letters:

“The Muslim Brotherhood network within the United States became publicly known during the 2008 Holy Land Foundation trial (the largest terrorism finance trial in U.S. history) where the evidence showed that the Muslim Brotherhood's goal in North America is, in their words, to ‘destroy Western civilization from within,’[1] which their own writings have said includes establishing an advisory presence inside top U.S. institutions. The Brotherhood has also identified 29 groups in the United States as ‘our organizations and organizations of our friends.’ (Reference the government's evidence in the Holy Land Foundation Trial, N.D. TX (2008), specifically "An Explanatory Memorandum for on the Strategic Goal for the Group in North America ," and see United States v. Holy Land Foundation et al. (No. 09-10875)(2010). For a partial list of exhibits, see http://www.txnd.uscourts.gov/judges/hlf2.html)

“The letters to the Inspectors General provide many examples that merit concern. First, the Department of Homeland Security granted a secret security clearance to Mohamed Elibiary, a man who had expressed support for Holy Land Foundation trial defendants. Mr. Elibiary also was reported to have been a featured speaker at a conference in honor of notorious radical Islamist Ayatollah Khomeini. The Obama Administration placed Mr. Elibiary on the influential Homeland Security Advisory Council, where he advises on information sharing within the intelligence apparatus.

“Also of concern was the State Department's grant of a visa – in violation of federal law – to Hani Nour Eldin, a member of the Egyptian terrorist group, Gamaa Islamiya. The leader of this group is Omar Abdel Rahman, better known as the ‘Blind Sheik,’ who is now serving a life sentence for his involvement in terror plots including the 1993 bombing of the World Trade Center. Eldin was subsequently given access to the White House itself, where he reportedly pled for the release of the Blind Sheik from U.S custody. Egypt's Muslim Brotherhood President Mohammed Morsi, openly supported by the Obama State Department, is also calling for the release of the Blind Sheik.

“Other examples include meetings held by the Attorney General and other senior Justice Department officials with representatives of unindicted co-conspirators named in the federal prosecution of the Holy Land Foundation terrorism-financing conspiracy. Preeminent among these was one of the largest Muslim Brotherhood affiliated organizations in the United States: the Islamic Society of North America (ISNA).

“Heightening these concerns was the refusal by the Attorney General to proceed with the prosecution of three of the Holy Land Foundation’s unindicted co-conspirators – ISNA, the Council on American Islamic Relations (CAIR) and the North American Islamic Trust (NAIT). The Attorney General failed to pursue this prosecution in spite of the fact that the record from the Holy Land Foundation trial obviously supported proceeding with the prosecution of the unindicted co-conspirators.

“To collaborate in this administration's political correctness and pretend that these issues are not real is to potentially put innocent lives at risk in the pursuit of preventing anyone from feeling uncomfortable.

“In spite of these examples (representing only a small part of my reasoning for signing the subject letters), the Obama Administration has announced that it will now engage with the Muslim Brotherhood, stating it is in Washington’s interests to deal with parties “committed to non-violent politics.”

“Somehow, the Obama State Department has failed to notice decades of history whereby Hamas, the Palestinian branch of the Muslim Brotherhood, has violently killed and maimed innocent Israeli, Palestinian, and American civilians. What is even more startling and tragic, is that this carnage continues under the watchful eye of this Administration.

“I am not sure which should alarm America more, this Administration’s seeming blindness to the violent and extremist nature of the Muslim Brotherhood, or the Administration’s willingness to overlook it in the name of political correctness.

Political Correctness (PC) has become one of the most dangerous, destructive and insidious concepts or mandates ever to be conceived. PCers portend to preach tolerance as the centerpiece of their philosophy. What’s occurred, however, is that it has bred complete Intolerance of those who disagree with any notion or cause promulgated by the PCers! If you agree with Mr. Franks you are not a concerned US citizen – you are an Islamaphobe or racist. CMV suspects that there’s something more sinister at work here.

In our (informed) opinion, there is a deliberate policy of this Administration to undermine the American culture and foment unrest. The Muslim Brotherhood makes absolutely no attempt to hide its’ goals and its’ intent “to destroy Western Civilization from within.” PC gives the perfect cover. Its’ been almost 3 years since Major Nidal Malik Hasan went on his pre-mediated rampage at Fort Hood and killed so many Americans. PC allowed it to happen and just maybe it will exonerate him.

Chinese Checkers

You’ll recall that CMV reported on Larry Edelson’s (Uncommon Wisdom) report from Shanghai that an agreement had been made by the US Government and their counterparts in China whereby the Chinese would allow their currency, the yuan, to rise and the US Dollar would decline. It now appears that 1) Edelson’s assessment was wrong, or 2) the Chinese have changed their minds.

In a feature article in the World News section of the WSJ (July 26, 2012), the Chinese have reversed their strategy. After two years of trying to boost the value of the yuan vs. the USD (making their exports to the US more expensive) the Chinese yuan has fallen 1.1% vs. the USD this year after rising 4.7% against the USD last year. Premier Wen Jiabao said in mid-July, “The task of promoting full employment will be very heavy and we must make greater efforts to achieve it.”

CMV cynically suggests that now that the Chinese have secured major concessions from this Administration (allowing Chinese banks to locate in the US, trade US Treasuries directly, etc.) they will renege on any previous arrangement or maybe there wasn’t a currency deal after all. Bottom line – the Chinese are going to do what is in their best interests and there’s very little this Administration can effectively do about it.

Proliferate Ponzis

Despite the fact that Charles Ponzi invented the scheme that bears his name almost 100 years ago and died penniless in 1949, the gallery of his copycats continues to grow. CMV reported on perhaps the greatest Ponzi con man of all time, Bernie Madoff, but followers continue to proliferate. We reported on our personal experience with MF Global and Jon Corzine who has successfully avoided any unpleasantness in his scheme because he has friends in (very) high places where corruption reigns supreme and there’s no recourse to curtail it. On August 1, 2012, the trustee in the MF Global case announced that customers of MFG would recover about 90% of their capital that was supposedly secure from Corzine’s fingers. Your writer sold his claims against MFG 3 months ago for 90% of the value of the accounts so our buyer/investor will absorb more loss than we did.

Most of you have not heard of Robert Allen Sanford whose recently collapsed Ponzi of $7 billion earned him a sentence of 110 years, or one Russell Wasendorf, Sr., who owned Peregrine Financial Group, a commodity brokerage firm, in Cedar Rapids, Iowa. $225 million in customer money is missing in this true Ponzi because all the bank records and customer statements have been ‘manufactured’ by Wasendorf for 20 years! What is remarkable about this man is that he married, attempted suicide and has his scheme uncovered all in the same week! Ponzi schemes end abruptly.

What is further noteworthy here is that these Ponzi’s are a definitive sign of the times. People desperately want to get rich quick. They ignore the obvious potential flaws because they have little patience and as a result are a perfect mark for the con man. Expect more Ponzi schemes to proliferate in the future.

The largest Ponzi in mankind’s history, however, is our Old Age & Survivorship Insurance system – Social Security. Payments to retirees, the disabled and the widows and orphans will be dependent on new money from new participants to sustain itself and its’ unsustainable when there is only 1 payee for every 2 receivers. In all probability all those paying into the system now who are under age 30 will never receive anywhere near their projected benefits. UNLESS, the system is changed.

Sector Overview

1. Cash & Fixed Income
    Incredibly, in mid-July, US Treasury auctions produced all-time record low loan yields for all two, five and seven year notes and the 10 year T-Note fell to 1.38%! Within a week the yield re-bounded to 1.54% and the 30 year rose to 2.63% from 2.55%. While low rates have been great for corporate elite borrowers it hasn’t done anything for small businesses and most importantly, nothing to create growth. What we’re experiencing, in CMV’s opinion, is that low rates are no longer the elixir to stimulate the economy and have been absolutely devastating to savers which has also contributed to lower GDP. Bernanke’s one-trick pony is no longer in the race.

Evidence that the above is true is the fact that the US Treasury Dept. plans to offer floating rate securities, its’ first new product in 15 years, to attract investors. The new product won’t be available for another year and will be a two-year note. In another development, the Federal Reserve expressed deep concern over the big “repo market.” The Fed sees a need to rein in a $1.8 trillion market that allows Wall St. Banks to fund their trading business using investors money market funds held by companies like Fidelity Investments and Federated Investors, Inc. HELLO! Think Jon Corzine and MF Global. Chances are investors aren’t even aware that this practice exists.

CMV is of the opinion that Treasury yields are going to rise and the US bond market will be the next bubble du jour. We’re getting close to the time to hedge this risk and short this market.

2. US Equities
    We’re experiencing the “dog days of summer” but maybe it’s best to let “sleeping dogs lie.” Despite the fact that many traders are on the beach or in the rarified air of high country, the US market has been remarkably resilient. As reported above, the S&P 500 is with 2% of its’ all-time high and given all the uncertainty in the EU, the Congress, the Fed, the election, and the “fiscal cliff,” it is indeed remarkable that there hasn’t been a correction. Traders needn’t be at their desks however. High Frequency Trading is on automatic which has an enormous influence on the market. Just as long as the algorhythms don’t decide to sell. CMV sees a number of issues that could be positive SHORT-TERM for the US equity market.

    1. A favorable resolution of the EU debt crisis.

    2. A favorable move by the Federal Reserve that could stimulate the “risk on” trade.

    3. A Mitt Romney victory in November with a Republican controlled Senate and House.

CMV is of the opinion that the US equity market is going to be challenging in 2013 and beyond. We believe that all investors should consider a professionally managed hedged portfolio. Our advisory services with Dynamic Wealth Advisors include an investment manager with a 14 year track record using a hedging strategy. We would be pleased to discuss your situation to determine how a strategy such as this could help accomplish your objectives.

3. International Equities
    We haven’t discussed Latin America for quite some time and dramatic changes have occurred there which are noteworthy. Brazil is a case in point. In 2010 the Brazilian GDP clocked in at 7.5% growth, consumer demand fueled inflation was double digit and the central bank’s policy rate was over 12%. Billions of foreign capital poured into the country fueled by Brazil’s vast natural resources including the largest discovery of oil offshore in the Americas. Now Brazil is the victim of its’ own success.

The middle class, which went on a spending spree, binging on new luxury cars, electronics and vacations now find themselves deeply in debt and the economy has fallen like a rock. GDP has plunged to 1.5% (similar to the US), the bank rate has declined to 8.00% and policymakers are searching for an answer as things could get worse. The spotlight on Brazil is indicative of a global slowdown that has spared virtually no one. There are few opportunities in this Sector at present.

4. Hard Assets
    Strange things are happening in the oil patch. In March, West Texas Intermediate Crude Oil (WTIC) was about $110/BBL. When the global economy turned south, demand decreased and WTIC fell to $77/BBL in June. Suddenly crude is at $92/BBL as we write despite little improvement in the demand side. Inexplicably gasoline has risen $.24/gal in the US and as much as $.40/gal in some areas like Florida which is up 9% and Michigan up 12% for the month. There’s a little irony here. These two states are swing voter states that presently have the President leading in the polls. It’s no secret that this Administration is dead set against hydrocarbons and is doing everything it can to restrict domestic production. It appears that the recent price increases are coming back to bite the President where it hurts the most.

CMV remains bullish on the oils and is particularly wary of an October surprise in the gulf.

Natural Gas (NG) has been the big winner in this Sector. In April, 2012, NG was under $2/BTU after a mild winter left supply at a historic level, 6% higher than normal. Suddenly the market changed as one of the hottest summers on record created a massive increase in electric power for air conditioning and utilities switched power from coal to NG. NG rose 50% to over $3/BTU in a couple of months, and one expert sees $4 by next year. This proves one of CMV’s core Contrarian beliefs. When any commodity reaches a historic low in price something always occurs which changes the dynamics of that market.

5. Precious Metals
    CMV believes that we’ve arrived at the point of maximum pessimism and bearish
sentiment in this Sector. The Contrarian sees an enormous buying opportunity not unlike September, 2001 when gold was at about $275/oz., just prior to 9/11. The major difference then vs. now is that the downside risk then was negligible. The principal risk then was that the price of gold would remain range-bound and would see little or no appreciation and there were plenty of pundits who forecast just that result. For 11 years it has gained every year and outperformed every Sector. At $1,620/oz today there is an unmistakable downside risk but the following experts believe the upside potential justifies the risk.

●   The Daily Wealth Trader says that the global race to devalue currencies will push investors into gold.

●   Steve Sjuggerud first recommended gold in his June 2002 issue of True Wealth and since he wrote that piece gold has gone up 11 straight years. He agrees that gold now is at “maximum pessimism.”

●   Jeff Clark in his S&A Short Report says gold is approaching a short-term buy signal.

●   Eric Sprott of Sprott Asset Management forecasts $150/oz silver within two years.

●   John Doody who writes Gold Stock Analyst believes that silver will have greater gains than gold and has launched a new newsletter focusing on silver.

Most of these analysts have a PM bias. What’s important is that there’s a large number of non-gold bugs who also see the upside.

6. Commodities
    On July 24, 2012 the droughtmonitor.uni.edu/ produced a color-coded map of the US depicting drought areas of the country from D0 Abnormally Dry to D4 Exceptionally Dry. It looks like someone had burned a hole in the middle of America’s bread basket. Corn, wheat, soybeans and almost all crops have been severely impacted. Corn can be found in just about everything we consume which historically was priced at $2.50 to $3.00/bushel and is now over $8.00 and no one knows what the final production number will be but it could be catastrophic. Ranchers and farmers are liquidating their herds of cattle and hogs because they can’t afford to feed them. Prices for beef and bacon are relatively cheap because of the current liquidation but will rise next year. Chicken has already increased in price and has depressed earnings at Buffalo Wild Wings and other “chicken stores.” Shortages and price increases of basic food products could be, coupled with devaluation of the USD, a trigger point for inflation at a level that could be devastating to the consumer. There are a number of commodity investments that may exploit this situation. We offer portfolios with investments in this area and would be pleased to discuss if they may be appropriate for your portfolio.

7. Real Estate
    CMV recalls that approximately three years ago Larry Silverstein, who is rebuilding the World Trade Center site in New York City, was interviewed on CNBC and proclaimed that the demand for office space at WTC far exceeded supply and several million square feet had been committed. He started construction on WTC #3 in mid-2010, which was intended to be 80 stories containing 2.5 million square feet. Construction has stopped at 8 stories recently because there are no tenants. WTC #4 was halted at ground level because zero percent was leased and WTC #4 is just 51% leased. WTC #1 being developed by the Port Authority of NY and NJ and is 55% leased. The principal reason given that demand for office space has evaporated is that Wall St. financial firms, traditionally the reason to build, are downsizing, 1) because of the economy, and 2) margins are shrinking as the industry faces tougher regulations. There is a trend in our business to become independent of the major firms and operate on-line rather than in luxurious quarters. The cheese has been moved again. Silverstein’s over optimism failed to assess the public psyche. Who in the hell wants to be in a high rise at WTC?

In a different context there’s a niche market in commercial properties for users and their agents. Tenants are becoming owners of their properties. The Small Business Administration is funding the acquisition of office and retail space for occupant owners. The buyer puts up only 10% down payment and the SBA guarantees 50% of the loan and the originating bank provides the remaining 40%. JP Morgan/Chase and Bank of America are very active in this market and the number of these loans has soared. This program is termed the SBA 504 plan. It is designed for businesses that have less than $5 million in revenues and less than 500 employees. Tenant/owners are discovering that their payments in many cases are much less than rent. Commercial brokers take notice.

Catherine Reagor’s Real Estate column recently in the Arizona Republic, has cited RL Brown and Greg Burger’s “Phoenix Housing Market Letter” forecasting new homes sales in 2012 of 10,000 vs. 7,100 last year. They predict that 14,000 new home permits will be issued this year and 16,000 next year. This compares to 64,000 permits issued in 2006. These increases are in line with CMV’s assessment of the market going forward. We’re heading into a future that has no precedent in American history. It is not only difficult to forecast but even harder to develop a 3 to 5 year plan.

8. Special Situations
    This Sector, which features mostly microcap stocks, is the most ignored, unloved and beaten up of any market. Almost without exception the stock price on most of these names followed by CMV are lower than they were after the Lehman Bros. failure and market crash of 2008. All are in the Natural Resources Sector. The sub-Sectors include:

1. Gold and silver
2. Platinum and Palladium
3. Rare earths
4. Uranium
5. Oil
6. Potash
7. Graphite, Vanadium and Beryllium

1. James Dines (The Dines Letter) who was the “first gold bug” in the 70s, says that precious metals are searching for a bottom which he predicts might occur “around August.” It’s August.   A breakout above $1,640/oz in Au and $30/oz in Ag will attract capital to the Sector. As bullion prices increase the Senior Miners will respond first, then the Juniors and last the Explorers. The highest risk and reward should be realized in the Explorers.

2. Platinum and palladium will principally track auto sales worldwide which are now in decline. Strong sales have been supported by sub-prim auto debt. Remember 2007?

3. Jim Dines reports in his July 20, 2012 newsletter:

“...China continues its’ stranglehold on Rare Earths...because they will be required for critical growth industries of the future: cell phones, military missiles, hybrid and electric vehicles, clean-diesel, auto catalysts, super magnets for wind turbines, computer hard drives, phosphor-LCD, plasma and digital music players.” In fact, Dines says, China is stockpiling REEs for the next uptick in demand and higher prices. The Dines Rare Earth Index is down about 60% from its’ 2011 high.

4. Uranium (Ux) U3o8 price is currently at $49/LB down about $8/LB since May. Despite the Fukushima nuclear accident in March, 2011, the demand for uranium exceeds supply and the deficit is expected to grow. Established producers represent one of the best long-term holds in the resource Sector.

5. We’ve stated the case for oil on page 17 above. All investors should have an allocation in this Sector. The majors are paying around a 5% dividend which beats the heck out of Treasuries.

6. Potash is a sleeper and given the short and long-term fundamentals with the coming food shortage fertilizer will be in high demand, and higher prices are baked into the drought.

7. CMV reported extensively in the July issue on these “new age” metals. If you need an update please call.

Just a reminder that there will not be a September issue of CMV because our staff will be on vacation. We’ve deliberately made this issue extensive in both depth and length in hopes that it will fill the void.

Coming In The OCTOBER ISSUE:    The October Surprise!

If you want to learn more, please give me a call at (602) 840-4117. At a time of crisis there’s always opportunity.

-- H. L. Quist

Podcasts

2012-07-15T07:43:00.000-07:00

Hello World,

If you have not heard my recent podcasts catch the latest one today (Sunday, July 15th) and prior ones at the podcast link.

H L Quist - The Myth Buster Podcasts

We will be on vacation for 2 weeks, so check out the podcasts and look for us to return the weekend of August 11th. Be sure to listen to today's podcast for information on the CMV.

-- H. L. Quist

CMV, July 2012

2012-06-27T19:58:00.000-07:00

Hello World,

The Contrarian Market View Newsletter is now free.

Visit my podcast site for weekly updates from The Myth Buster

H. L. Quist’s
Contrarian Market View
Newsletter

Market Overview

Every six months Barron’s conducts a survey from 10 members of its’ RoundTable who are recognized as experts on the equity and bond markets. The shift in their outlook from January to June is remarkable and foreboding. Eight of the panelists were bullish to very bullish as 2012 began but their mood as changed, as reflected by the title of Lauren R. Rublin’s, Barron’s, June 11, 2012 feature “Caution: Sharp Turns Ahead.” Here are a few of their consensus views:

●   The “investment legends” on the panel are worried about the state of the world, in particular Europe, where sovereign debt woes could lead to more bank failures and mounting investment losses.

●   The panel is concerned about China’s slowing economy.

●   The experts are also concerned about the so-called fiscal cliff of automatic tax hikes and spending cuts that will take effect in January 2013 unless a lame duck Congress rescinds them.

●   Most of the Pros expect the Federal Reserve to launch a third round of quantitative easing in an effort to juice the economy and rouse the job market but they don’t expect QE to be successful.

What is remarkable here is that with the exception of Felix Zulauf and Marc Faber, most of these panelists are normally perma bulls. They make their home with firms that manage assets and certainly don’t want to take a position that would discourage or dissuade investors from keeping their funds under their management.

CMV has consistently relied upon Felix Zulauf, who is President of Zulauf Asset Management in Zug, Switzerland, for not only his view from abroad, untainted by Wall St. incest, but he is one of the few who is not afraid to tell it as he sees it. Anyone who calls Zug home must be unvarnished. Grab yourself a stiff drink. Here’s what Felix says, which is not too different from January:

●   “The industrialized world is burdened by a calamitous mountain of debt. In the next 12 months, the financial system is at risk of collapsing.”

●   “I expect the disintegration (of the EU) to begin in the second half of this year.”

●   “In the past 10 years the notional value of derivatives worldwide has grown from $100 trillion to almost $800 trillion...It is a dangerous situation.”

●   “China won’t be able to save us as they did in 2009. Most US-focused investors might not understand it as they see (US) corporations doing well.”

●   “The potential exists for a broad-based nationalization of the credit system, capital controls and dramatic restrictions on financial markets. Some might even be closed for some time.”

●   “I also continue to recommend buying gold if it breaks below $1500. That could lead to a shake-out in the $1300's, but gold will offer protection in the coming years because it is true money.”

●   When asked if there was any opportunity in equities, Felix replied, “Only on the short side.”

Downright sobering, but do not ignore what Zulauf has to say.

One of the barometers to support Zulauf’s views is the precipitous drop in oil prices. Brent crude has fallen from $126/BBL to $90 or more than 25%. Most OPEC countries will soon be selling oil at a loss if crude plummets further. The obvious culprit is a slowing global economy and no infusion or QE from the Fed. Another dynamic has also emerged. US domestic production has created an excess supply in North America! CMV encourages President Obama to take credit for the reduction in the price of gasoline. We hope you get the duplicitous over-reach.

The US market reacted unfavorably to the non-reassuring Fed comments after the FOMC meeting on June 20th. Wall St. was expecting QE 3. Alan Abelson said in his “Up & Down Wall St.” column:

“Bernanke and Co. would unveil some ingenious scheme to get the economy’s adrenaline flowing again and enable it to free itself from the deepening malaise into which it was sinking...for all intents and purposes he (Bernanke) has as the cliche goes, run out of ammo and he knows it.”

Abelson’s choice of the word “malaise” was insightful and historic. You will recall that Jimmy Carter used that term to describe the condition of the US economy in the late 70s. Carter’s address to the nation came to be known as the “Malaise Speech” and was a lynchpin that led to his defeat in 1980. Omens are ominous and omnipresent.

CMV has a reputation for “connecting the dots” when most will only see them as “spots.” It was recently announced that there was a merger of the Rothschild Investment Trust of Europe and the US based Rockefeller Financial Services. Tyler Durden of zerohedge.com termed the new entity “Rockchilds.” To 99.9% of the world population this would garner no significance. To the 00.1% who know who the Bildenbergers are and who really call the shots in the global political and banking arena, the merger is a harbinger. Both of these banking families bought assets worldwide at pennies on the dollar after the crash of 1929. Could it be that New World Order elites are pooling their assets for the next big opportunity? The EU is being “looted” as we write.

Last month CMV informed its’ readers that the Federal Reserve had approved the location of three Chinese government controlled banks to not only operate in the US but to make acquisitions in our country. Let’s play a game of Chinese Checkers:

●   There are reportedly as many as hundreds of banks in the US that are under “watch” for insufficient capital and are prospects for closing and/or merger.

●   The Federal Deposit Insurance Corp. (FDIC) is undercapitalized and does not have the funds to pay depositors of shuttered banks.

●   The Chinese government owns over a trillion of US Treasuries and other securities and wants its’ yuan or renminbi to become the world’s reserve currency.

You don’t suppose that China and the US have struck a deal that allows the Chinese to lever its’ trove of US debt, that could become of questionable value, and, at the same time take its desired first position of prominence in the dying Western-Centric Fiat Monetary System?

Anna Swartz, the wife of Milton Friedman and co-author of A Monetary History of the United States, written in 1963, recently died at the age of 96. Anna and Milton had argued that mistakes that the Federal Reserve made in the 1930s turned the stock market crash into the 10 year Great Depression. In 2002, Ben Bernanke, then a Federal Reserve Board Governor, honored Mrs. Swartz by saying:

“I would like to say to Milton and Anna: Regarding the Great Depression you’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

A short-term flash back.   It was in 2002 that Bernanke and his mentor Alan Greenspan initiated the sub-prime refi strategy to avoid a recession that led to the crash of 2008 and the severe recession that followed. Four years later the Boomerang (Michael Lewis’ book) has returned and “Helicopter Ben” finds himself and his board in another box of the Fed’s own making. Sorry Anna. Sorry Milton. Ben lied. He did it again. Is The Earth Running Out Of Minerals?

“The Meek shall inherit the earth but not its’ mineral rights!” – J. Paul Getty

Getty was, of course, one of the world’s most renown oil barons who apparently had a sense of humor along with his enormous wealth. There’s another aspect of Getty’s musings which he would have had little insight into, or focus on, during his lifetime. Given the unsustainable global proliferation of debt, the meek will most certainly inherit nothing but intangible promises and scant hard assets and real money. And, developing this point further, the diminishing supply of the earth’s assets will make this issue take on a greater significance and value.

The WSJ had a feature article on June 5, 2012, written by John Miller with the same title as the heading of this piece. Is mankind rapidly depleting the earth’s natural resources? Here are some of the key minerals that lie beneath the earth’s surface and their estimated reserve life.

Gold                              18.9 years
Oil                                  46.2 years
Natural Gas                    58.6 years
Metallurgical Coal       82.0 years
Copper       136.0 years
Iron Ore                        590.0 years
Potash           610.0 years

What precipitated this discussion was the announcement by Google, Inc., CEO Larry Page and film director James Cameron in April when they launched Planetary Resources, Inc. to explore for these minerals on other planets and asteroids. On the surface (excuse the pun) it would appear that there is ample mineral resources here on earth, but they’re becoming more difficult to find, more costly to mine, and the grade is getting lower. Gold, a prime example, is not being discovered in large enough quantities at sufficient grade to make most mines feasible. One of the great mysteries of human history is the theory that planet earth has been mined by extraterrestrials thousands of years ago. (Google Peru Alien Mining.) Maybe those visionaries Page and Cameron aren’t so spacey after all.

Several yeas ago CMV introduced its’ readers to Nautilus Minerals, Inc., who had discovered a massive high grade gold and copper deposit at the bottom of the ocean floor off Papua New Guinea, created by epithermal or volcanic vents. Visualize a massive vacuum cleaner placed on a barge sucking up fine-grained sand laden with these minerals. You would surmise that ocean mining would be more cost effective than drilling and excavation on Mars, but who knows?

A Right Hook To The Left

Gov. Scott Walker’s surprise defeat of the recall election in Wisconsin was a right hook to the face of the left and marked a shift in the “political mood and assumption” in the nation according to Peggy Noonan in her WSJ Declarations Column (June 9/10/, 2012). The assumption was that “public employee unions with their manpower, money and clout, get what they want. If you move against them, you will be crushed.” Mr. Walker was not crushed. He won by 7 points and the national public mood has changed. Getting control of the state’s budget (now a surplus) by taking actions resisted by the public unions, Gov. Walker proved that his conservative fiscal change was right for the state and all of its’ citizens.

Perhaps even more stunning were the results in California. Citizens in the cities of San Jose and San Diego overwhelmingly voted to reduce pay and entitlements in order to avoid possible bankruptcy that is destined to plague municipalities in the Golden State as well as the nation.   Stockton, CA will file for bankruptcy this week. Reason has prevailed over hysteria. Working for a city for 25 years and retiring at full pay with free healthcare for life is no longer a right regardless of the consequences. A large number of union members figured it out. If they didn’t back off and compromise, their jobs and benefits would be in jeopardy. If they had won in Wisconsin, they would have lost.

Noonan was early to make a critical observation. She said, “The Obama Administration suddenly looks like a house of cards.” Her perspective was prophetic. In short order since June 9, 2012:

●   Intelligence leaks, ostensibly directed from the White House to the NY Times to boost the President’s image, were in Sen. Diane Feinstein’s (D-CA) words, “the worst breach I’ve ever seen.”

●   The House of Representatives is about to hold Eric Holder, the President’s Attorney General, in contempt of Congress for refusing to release documents pertaining to “Fast & Furious.” The President has evoked Executive Privilege despite the fact that he had no knowledge of the event.

●   The Supreme Court on June 28, 2012 will render its’ decision on Obamacare. Even a partial ruling against this Administration’s signature initiative will be devastating to the President.

●   When leftist late-night comics like John Stewart begin making jokes at the President’s expense, the image of “Mr. Cool” begins to melt.

●   43 Catholic institutions have filed 12 separate lawsuits against Obama’s Administration for violating religious freedom. The President has succeeded in awakening the Christian Silent Majority.

●   A video of the meeting between Vladimir Putin and President Obama on June 18 in Mexico as very revealing. Putin’s body language and dour look exhibited complete disdain and disrespect for the US President.

●   Despite 3 years of US negotiations and weak sanctions Iran continues to develop nuclear weapons confident the US will not act decisively.

●   As the European Union struggles to stay afloat and relevant, President Obama and Treasury Secretary Tim Geithner have been blaming the EU for America’s economic problems. The “blame game” is what this leadership does the best.

●   Bill Clinton, James Carville, Jimmy Carter, and other Democrats have openly questioned and criticized the President’s policies and a number of his party unfaithful have suggested that it would be their preference that the President not make an appearance in their district. There are even whispers that Hilary would be a better candidate for President. Don’t laugh. It could happen on the floor of the Democratic Convention.

In short, the White House is in panic mode as some polls demonstrate that Mr. Romney has drawn even with the incumbent four months before the election. As Noonan says, “He (the President) isn’t even trying to lead, he’s just trying to win.” Don’t expect action on a budget, the fiscal cliff or any urgent issues until after the election. What should concern all Americans is what strategy this radical group of Marxists could deploy to remain in office. Their goal to “fundamentally change America” into a totalitarian state requires more time. They won’t let a crisis go to waste even if they have to create one.

Sector Overview

1. Cash & Fixed Income
    According to Randall W. Forsyth in his Current Yield Column in Barron’s, June 25, 2012, Government Bonds continue to behave more as portfolio insurance policies against upheavals in Europe than traditional debt securities. The Fed’s decision to extend its’ Operation Twist (like it did last summer) by lengthening maturities of its’ Treasury portfolio in an attempt to reduce long-term interest rates, was a non-event. The equity markets were looking for QE 3 and when the Fed didn’t deliver the DOW took a 250 point hit and West Texas Intermediate Crude oil dropped below $80/BBL. The Fed’s action will certainly drive down commodity prices and may result in increased profit margins to manufacturers and relief to consumers. Global market Trends magazine made an interesting observation. They believe that the Fed has ditched its’ last chance to stimulate the economy since the FOMC doesn’t meet again until August. Therefore, they speculate, the Fed has decided to abandon the President who now sees a US economy headed south which would deliver a death knell to his re-election. Since Mitt Romney has openly criticized Bernanke’s handling of US monetary policy and has indicated he would replace the bearded one, an interesting dynamic emerges. CMV takes the position that QE 3 now would be too early timed because its’ negative impact on higher gas and good prices would hit the voters just prior to the election. Also, the FOMC can call a special meeting at any time and make a change in policy. Given the current sudden erosion in the economic numbers, this appears to us to be the most likely outcome.

2. US Equities
    If you don’t have Felix Zulauf’s market opinion fresh in mind (page 2), re-read it. CMV has long maintained that the total public and private debt are unsustainable and would reach a tipping point where defaults would become inevitable. The chickens have come home to roost, so to speak. CMV believes that the US equity market faces an extreme challenge going forward the remainder of 2012 and into 2013, interrupted by a spontaneous rally keyed off two major events:

1.   The Fed’s new “sterilized” bond buying program (or some other neologism) which they will maintain would provide needed funding to the US Treasury without creating inflation, and,

2.   A Romney victory in November.

These potential rallies will be interspersed by possible sovereign debt defaults, a worsening conflict in Syria and Iran, a US budget and debt limit crisis and the sober reality that austerity and deficit reduction will be met with rancor and unrest not only world-wide but also here at home.

The Moody’s downgrade of Bank of America and Citigroup 2 notches to Baa2, and close to junk status, sent tremors through the US financial markets. Goldman Sachs was downgraded 2 notches to A3 with JP Morgan-Chase holding the highest ranking of US money center banks at A2. It makes investors nervous and US corporations reluctant to invest in expansion and hiring. Third and fourth quarter GDP could surprise to the downside. Rumor has it that Basel III will make gold bullion a Tier I asset which could assist the acceleration of gold’s price.

3. International Equities
    The perception amongst many investors is that emerging markets have and will outperform the US going forward. The BRICS however (Brazil, Russia, India, China and South Africa) have been sinking like a brick. The MSCI Bric Index is down 20% this year including dividends. Capital is fleeing many of these markets which will aggravate the situation. The Marxist regime in Argentina is implementing all kinds of currency controls which could result with a repeat of another sovereign debt default like the one that occurred there in 2001. Brazil, which was a magnet for investment two years ago is also experiencing serious problems. The bottom line: Bring your money home. The US is the best house in a bad neighborhood.

4. Hard Assets
    Under this President’s leadership the US has entered into the “twilight zone.” The land of the unimaginable. In June the American Fuel & Petrochemical Manufacturers filed suit against the EPA challenging a requirement for refiners to blend gasoline with cellulosic ethanol or pay to EPA a penalty called a “waiver fee.” One problem. Cellulosic ethanol doesn’t yet exist in commercial quantities but the EPA wants refiners to pay $6.78 million in fees for 2011 for failing to blend in 6.6 million gallons of a product that didn’t even exist.

The Administration now has two Democratic governors from Missouri and Colorado and trade union representatives who favor the completion of the Keystone Pipeline in opposition to the President. Closer to home in Arizona key Republicans on the Natural Resources Committee have released internal e-mails from US government scientists that reveal that some environmental impacts were ‘grossly overstated’ and ‘very minor to negligible’ for uranium mining in Northern Arizona. Secretary of the Interior, Ken Salazar ruled that over 1,000,000 acres of land be withdrawn from mining purposes for 20 years. The e-mails support the contention that Salazar blatantly ignored their own scientific evidence to advance the Administration’s agenda. It’s similar to the President appointing the Super Committee to come up with a budget plan and then completely ignoring the results of Boles-Simpson because it didn’t fit the President’s spending agenda. One of the best long-term investments is Uranium (Ux) despite the action above.

5. Precious Metals
    CMV has subscribed to The Dines Letter off and on for over 30 years. Your author first became interested in precious metals and gold in the 70s when it became lawful to own bullion for the first time. Franklin D. Roosevelt confiscated all privately-owned gold in 1933. Jim Dines was the only reliable source of information in the 1970s when he was labeled a “gold bug” and when we saw the meteoric rise of gold go from $100/oz to a high of $850 by January 1980. We profited handsomely and continue to use Dines as a trusted source of information. So, what does this “master” say as gold plunged back down again this month to $1,566/oz and threatened to reach its’ triple bottom of $1,525?

Dines has developed what he calls the Dines Greed/Fear Oscillator. Fear is now driving investors to the safety of government bonds – principally US and German and out of what they perceive as “risk” assets including gold. Dines says in his June 22, 2012 newsletter:

“Both gold and silver are in near-term downtrends, but have so far held above their December, 2011 lows, and could rally near those levels.”

He goes on to say:

“Of course, the ultimate safe currencies are gold and silver, but their day is ahead.”

And,

“We think that gold and silver will be making an important Bottom Formation sometime soon. A matter of months. Perhaps sooner...”

CMV concurs precisely. Dines also sees the current global deflation and currency debasement leading to Hyper-Inflation. Keen minds travel the same road.

To quote a source that doesn’t fit the a mold of a “gold bug” or “extreme conservative” we look to Simon Mikhailovich, co-founder of Edelweiss Capital, who emigrated from Russia to the US in 1979. He is convinced that the worst is yet to come for the global economy and has gold bullion stored in various locations around the world outside the banking system. He says in a June 4, 2012 edition of Barron’s:

“If this devaluation of financial assets proceeds apace and the moment of clarity comes for many investors in the West who realize the need to diversify into assets that can protect against devaluation, demand for physical gold has the potential to rise dramatically.”

Amen.

6. Commodities
    The fear of the “Dreaded Double D” (Deflation and Default), has created downside pressure on all commodities with the exception of the Grains which have rallied sharply due to hot and dry weather in the farm belt.

Conventional wisdom says prices will continue to decline as the global economy heads for another recession. A reversal in this view will take everyone by surprise. Competitive currency devaluation, absent a total collapse of the global financial system, will ultimately lead to massive inflation and the prospect of Hyper-Inflation.. CMV sees a scenario whereby food products reach a severe supply-demand imbalance and prices of all commodities skyrocket. Hard to believe but that’s what happened in Latin America in the mid-1980s and is re-occurring in Argentina as we write.

7. Real Estate
    Two years ago your author’s spouse, who has had over 30 years experience as a successful residential realtor, announced that it was time to hang it up. “There’s no activity. The market is dead. It is time to retire and do the things I have always wanted to do,” she said. “Not now dear,” her husband and advisor emphatically stated. “There’s another short-term boom ahead. It’s the last rodeo. When this ones over it is really over.” Sure enough. That’s exactly what has happened. Activity is accelerating, prices are rising and her listings are sold in a matter of days and weeks. Few well-seasoned professionals including my spouse saw this coming. CMV did.

Where are the buyers coming from? A June 12, 2012 WSJ article articulates the unexpected source.

“The six-year slide in US home prices and the dollars weakness against some currencies are driving a property-buying binge by Asians, Canadians, Europeans and Latin Americans eager to own a piece of America.”

International buyers accounted for $82.5 billion or 8.9% of the $928 billion in residential real estate in the 12 month period ending in March, 2012, up 24% from the year prior. 62% of these buyers paid cash for the properties and Arizona was one of the top 5 states to benefit.

Total foreign direct investment in corporate acquisitions and real estate totaled $234 billion in 2011 according to a separate WSJ article on June 15, 2012. The pertinent question is, will this trend continue? Will the problems in the Eurozone accelerate the capital flows or will the US lose its’ luster as a safe haven? That’s difficult to assess but an inflationary scenario could accelerate and drive this market higher. Your author, who has taught a CE class in real estate for 19 years reminds his students to seize this opportunity while it lasts. How long? Only the Shadow knows. Remember, when citizens lose confidence in the value of their money and in the leadership to cure the nation’s problems, there’s a rush to hard assets – real estate and precious metals. Could this be a repeat of 1976 to 1980? Only the Shadow knows. (Old folks will remember the “Shadow.”)

8. Special Situations
    CMV firmly believes that we’re rapidly approaching the time when Contrarians take a Contrarian view and back up the truck and load up on hard assets. Look principally to gold and silver producers who are profitable and whose shares have been beaten to death, down 50% to 70% and represent one of the greatest buying opportunities of a lifetime. The same can be said for uranium, rare earths, copper and other base metals. Last month CMV related the story of Kyle Bass, the hedge fund manager who has accumulated the largest store of nickel coins outside the US mint.

CMV would like to introduce you to three “new age” metals or alloys that will change the products we use everyday in ways totally unknown to 99% of the world. Briefly, they are:

1.   Graphite (Graphene)
    Graphite has been around for centuries. Highly Ordered Pyrolitic Graphite (HOPG) or Graphene was discovered just two years ago and the scientists who separated it from graphite received the Nobel Prize for their work. This mineral is tougher than diamonds, is almost invisible, conducts heat and electricity better than copper, stretches like rubber and weights next to nothing. Samsung will soon introduce a TV which has a screen almost as thin as wallpaper. China presently has 80% of the supply of Graphene but a small Canadian mining company has a proven resource of 8 million tons valued at $20,000/ton. The stock is presently under $1.00/sh.

2. Vanadium
    This product is known as “Liquid Metal” and has the unique ability to retain and store electricity. Applied to an electrical power grid, this new metal can provide emergency power and avoid brown-outs. Applied to microprocessors this metal could revolutionize this industry. 95% of all vanadium is presently imported from Venezuela, Russia and South Africa – not exactly reliable sources. A small American company has discovered 120 million pounds of this material in the US and the Preliminary Economic Assessment (PEA) indicates that the capital investment in infrastructure will have a payback in only 2.4 years. The stock is currently under $1.00/sh.

3. Beryllium
    This material has the unique property to radiate heat away in what is known as Thermal Diffusivity.   It is 30% lighter than aluminum, six times stiffer than steel, doesn’t oxidate, doesn’t spark and has a very high melting point. This alloy is critical to the US Dept. of Defense for aerospace, satellites and nuclear development. The company has proven resources to mine in Colorado, Utah and Brazil. Shares are currently under $.14/sh. This is a fully integrated company from mining to product development.

Historically, there have been periods in time when new discoveries revolutionize various industries and ironically some have occurred when the economy is in recession. The development of silicon and the microchip comes to mind. The US and global economy was in a funk in the early 90s when the .com craze made fortunes for millions of investors. Make no mistake about it, the companies above that are pioneering these new metals are high risk but then again what isn’t in this environment? Investments in microcaps like these should not be made unless you can afford to lose 100% of your capital investment. If you want to learn more, please give me a call at (602) 840-4117. At a time of crisis there’s always opportunity.

-- H. L. Quist