wed silver says its a budda doji

aka graveyard doji

thus due up

hard to believe; but that what the chart says

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10.45am
Egyptian 'spy for Israel' found dead outside London flat

Matthew Weaver and agencies
Thursday June 28, 2007
Guardian Unlimited

Ashraf Marwan, right, shakes hands with President Nasser of Egypt, left, after marrying Mona Nasser in July 1966. Photograph: AP

Ashraf Marwan, the son-in-law of the former Egyptian president Gamal Abdel Nasser and a suspected spy for Israel, has been found dead outside his central London flat in "unexplained" circumstances.
The well-connected financier is believed to have fallen from a fourth-floor balcony in Carlton House Terrace overlooking St James's Park.

A spokesman for Scotland Yard could not confirm the man's name but said: "The death is being treated as unexplained."

The 62-year-old grandfather died amid controversy about his role in the intelligence and business worlds. Mr Marwan, who had also been a member of former Egyptian president Anwar Sadat's inner circle, was suspected of tipping off the Israelis about the start of the Yom Kippur war in 1973.

Article continues

He was a former shareholder in Chelsea football club and had a colourful list of associates. According to reports today these included Adnan Khashoggi, the arms dealer; Ken Bates, the former Chelsea chairman who now owns Leeds United; Mohamed Al Fayed, the owner of Harrods; and the Libyan leader, Colonel Muammar Gadafy.
Some politicians in Egypt have demanded an investigation into reports that Mr Marwan was a double agent for Israel.

Gad Shimron, a former officer with Mossad, the Israeli intelligence agency, turned military historian, told Reuters: "We know now, from testimony given by Israeli spymasters and made public years after the Yom Kippur war, that Marwan was the man who tipped off Mossad."

It was alleged in a book in 2004 that Mr Marwan gave Israel an early warning about the start of the war, but Israel's leaders ignored it and were caught by surprise when Egypt and Syria attacked.

It was reported that Mr Marwan first walked into the Israeli embassy in London in 1969 and volunteered to give information and was initially turned down, but later recruited by Mossad.

In the 1960s he worked as an assistant to Nasser and married his daughter Mona.

After Nasser's death in 1970 he became a political and security adviser to Sadat during his presidency.

Later in the 1970s Mr Marwan worked as head of Egypt's government-owned military industry complex. He retired and moved to Britain 25 years ago to work in business.

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http://www.intuiware.com/Products/MacOSX/ChangesMeter/

d
above works good for

http://www.shortorlong.com/

it tells mac users automatically, when sol has been updated; its good for non rss sites such as sol

is anyone aware of similar prog for windows os; thus pc users can be automatically informed when sol is updated

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http://www.gold-eagle.com/editorials_05/swanson062707.html

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AP
U.S. Stocks Flat Ahead of Rate Decision
Thursday June 28, 7:28 am ET
By Joe Bel Bruno, AP Business Writer
Wall Street Headed to Flat Open As Investors Prepare for Fed Rate Decision

NEW YORK (AP) -- Stock futures were little changed Thursday ahead of the Federal Reserve's interest rate decision, and investors were on guard for whatever comments policymakers might make about the economy.
ADVERTISEMENT

Wall Street will likely remain skittish before the Fed announces its decision during the afternoon, especially after all three major indexes rallied in the previous session. Stocks have been turbulent during the past few weeks because of soaring bond yields and concern about the broader impact of faltering subprime loans.

The Fed -- widely expected to keep the benchmark rate steady at 5.25 percent after its two-day meeting ends -- has stated recently the economy is on track to recover from a weak first quarter despite difficulties in the housing market. Investors want to get any clues on the pace of inflation, which central bankers have believe remains a paramount concern.

Investors will also get some more economic data to mull over. The Commerce Department releases its final reading on first-quarter gross domestic product, which the market expects to come in at 0.6 percent, the same as the estimate made in May.

The report comes after the Commerce Department disappointed Wall Street on Wednesday. reporting that orders for durable goods plunged 2.8 percent in May following three months of increases.

In corporate news, Apple Inc. will be in focus as the technology powerhouse debuts its iPhone to consumers on Friday. Trading for mobile phone makers like Motorola Inc. and Nokia may be erratic as investors determine how much of an impact the iPhone will have on their business.

Cereal maker General Mills Inc. will report quarterly earnings on Thursday. Also on tap are handheld device makers Palm Inc. and Research in Motion Ltd.

Dow futures expiring in September were down 4.00, or less than 0.01 percent, at 13516, while S&P 500 futures fell 1.20, or 0.08 percent, to 1,517.70. Nasdaq 100 index futures added 2.00, or 0.10 percent, to 1,957.50.

Oil futures rose 44 cents to $69.41 a barrel in premarket trading on the New York Mercantile Exchange. A U.S. government report showed an unexpected drop in gasoline stocks amid peak summer driving season demand.

Overseas, Japan's Nikkei stock average fell 0.46 percent. Britain's FTSE 100 fell 0.57 percent, Germany's DAX index fell 1.16 percent, and France's CAC-40 fell 0.90.

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

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CDO Hedge Funds = Enron ?
in Credit | Data Analysis | Derivatives | Finance | Hedge Funds | Markets | Psychology/Sentiment
Last night's discussion of the Bear Stearn's Hedge Fund melt down was remarkably sanguine.

I guess to those who look at the blow up of a small hedge fund -- it was only $684 million in equity, albeit leveraged up 10-to-1 to $6.8 billion. Hey, sometimes, losses happen.

And Wall Street has been terrific about managing risk, haven't they? I mean, they did a great job with the dot coms, and they are doing a terrific job with housing, right? There may be 49 Trillion dollars worth of derivatives -- thats trillion with a "T" -- so what if 1 or 2% goes belly up? It's well contained.

Um, not exactly.

There are several issues here that deserve closer scrutiny. Here's how I connect the dots:

1. Side Pockets: A way to move toxic holdings "Off Balance Sheet," to a netherland, hidden from investors and perhaps regulators. This lack of transparency does not exactly comply with truth-in-reporting to your investors or FASB accounting standards.

Sound familiar? It should: Its remarkably similar to Enron Off Balance Sheet Special Partnerships. The WSJ's Scott Patterson went into the details last week:

Even if Bear's pain spreads through the market, other hedge-fund investors might not feel it, at least right away. Sometimes, hedge funds move big pieces of their holdings into separate accounts known as side pockets to keep declining assets from hurting a main fund's performance record -- and managers' wallets. They can also block investors from cashing out.

2. Mark-to-Model: The similarities to Kenny boy's outfit don't end there: What do we do with illiquid holdings where the fund is both the buyer and seller, and the parent company is the buyer of last resort? Unlike most mutual and hedge fund, who mark-to-market based upon the closing price pof their assets, holders of these CDOs get to indulge their "creative" side. Instead of writing the great American novel, they derive a model that optimistically prices these illiquid assets.

Why optimistic? Because the theoretical returns to investors and actual fees to management are based on the pricing of these (non-priced) assets! Keep those Enron parallels coming!

Indeed, the reason Bear was originally willing to pony up $3.2 billion dollars was what would happen if there was an actual public auction price: The entire complex would have to reprice all oft heir holdings. Buy bye investor returns, buy bye fees!

3. Crimping Copious Consumer Lending: What does all this esoteric derivatives and murky hedge fund operations have to do with me, Al Franken the ordinary investor?

First off are lending standards: They have tightened -- in some instances, dramatically. That means any debt fueled consumer purchases -- most especially, homes -- have a reduced pool of buyers. That will pressure prices further, reduce MEW, leading to decreasing consumer spending. The spigot that has been open wide for so long is now reducing its flow.

4. Crimping Copious Corporate Liquidity: Mr. Market has enjoyed a delightful wind at his back, funded by corporate buybacks, Leveraged buyouts, M&A activity. The issue rates front page coverage in this morning's WSJ: Market's Jitters Stir Some Fears For Buyout Boom.

Remember, this is all courtesy of lots of Fed induced liquidity, and a willingness of lenders to provide lots of cash to high risk borrowers at low rates with easy terms. In Tuesday's FT, Lombard Street Research's chief economist, Charles Dumas noted what could happen as this dries up:

“With this mortgage-backed crisis we could simultaneously see market-price liquidity implode just as banks are forced to shrink their books by capital losses.”

“Banks’ capital is about to be slashed, and with it excess liquidity in the global system...Suppose the CDOs held by banks were valued at “market” rather than “model” levels (a fancy new euphemism for illusionary historic book values). Their capital would turn out to be lower. Preservation of capital ratios against loans would require fewer loans: liquidity would have imploded... better to let the Bear flounder than reveal just what a low value the Street puts on even the A-rated paper. A bunch of hedge funds may have problems, but that is the tip of the iceberg for “Titanic” Wall Street."

Mr.Duma may be overstating the case somewhat -- he's more Bearish than I -- but he raises very significant issues that have very real risks -- the same risks most of the bullish crowd seems to be overlooking.

~~~

How might this play out? Well, Mortgages at banks with past due payments are at the highest level since 1994, according to first-quarter data compiled by the Federal Deposit Insurance Corp. Mortgage defaults are accelerating, not getting better.

Oh, and a whole slew of Sub-prime ARM Mortgage Resets are scheduled to hit in the 2nd half of 2007.

To say the least, this is going to get increasingly interesting . . .

>

Sources:
Recent Woes Cast Light on Hedge Funds' Murkiness
Scott Patterson
WSJ, June 21, 2007; Page C1
http://online.wsj.com/article/SB118238374972442738.html

Is Cheap Debt Drying Up?
Breaking Views
WSJ, June 27, 2007; Page C14
http://online.wsj.com/article/SB118291029012849552.html

Market's Jitters Stir Some Fears For Buyout Boom
Takeover-Related Debt Gets Chilly Reception; Hearing 'Wake-Up Call'
SERENA NG, TOM LAURICELLA and MICHAEL ANEIRO
WSJ, June 28, 2007; Page A1
http://online.wsj.com/article/SB118299592168350999.html

Market insight: Liquidity under threat
Charles Dumas
Finacial Times, June 26 2007 17:47 | Last updated: June 26 2007 17:47
http://www.ft.com/cms/s/2b7e102a-2401-11dc-8ee2-000b5df10621.html
Thursday, June 28, 2007 | 06:48 AM | Permalink | Comments (3) | TrackBack (0)
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Re mortgage resets: Some of these loans had a 10 year interest only feature (can you believe it) FED (the ticker) offered these. While the interest rate reset, the payment (even if it were interest only) would reset to a cap of 7.5%. Despite that, most of their loans required a reset anywhere from 36-60 months that would require full amortization of loan within the remainder of the loan period. They offered 40 year mortgages. (It's worth noting, too, that their loan interest rate reset MONTHLY based on a 12 month rolling average).

The point....there were so many of these "flexible" mortgages, that I think that there will be alot of deferred pain. The hand wringing should continue for another 24-36 months (if you assume that most of these designer terms were offered in the 2005 through current time frame).

Heck, I'm still waiting for the fallout from New Century. Don't lose site of that--there is a bankruptcy provision that could provide all sorts of additional issues for bondholders---the collateral in the REIT can be reconstituted as collateral into the issuing agency. No press on this. Perhaps I misread the prospectus, but I don't think so.

Posted by: Leisa | Jun 28, 2007 7:45:49 AM

the fed will be cutting rates before year end no doubt.

Posted by: Moira | Jun 28, 2007 7:48:40 AM

All good points, at least to think about, but before we get to enrononomics first lets think about the core here - which is custom-designed and built financial instruments constructed on math models of STATIC market relationships and not just thinly traded but not traded; each CDO, CLO, etc. is a thing unto itself. Now the last two major times that hypothesized math models were used to look at risks within bounds were in circa '87 and circa '97/'98. In the first case it was called portfolio insurance and the gyrations of the market broke the models. In the 2nd case it was both currency speculation ala Asia and our friends at LTTC (by the way Wikipedia of all places has excellent summaries). Now it's not just sub-prime mortgages but almost every major asset class that's riding on a see of liquidity constructed from artificial, model-based derivatives.

Posted by: dblwyo | Jun 28, 2007 8:07:47 AM

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http://www.dailyspeculations.com/wordpress/?p=1829

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http://www.dailyspeculations.com/wordpress/?p=1828

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http://www.dailyspeculations.com/wordpress/?p=1826

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http://www.dailyspeculations.com/wordpress/?p=1830

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http://www.safehaven.com/article-7856.htm

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Sentence of Reid
 
Remember the guy who got on a plane with a bomb built into his shoe and tried to light it?

   Did you know his trial is over?
   Did you know he was sentenced?
   Did you see/hear any of the judge's comments on TV or Radio?

   Didn't think so.

Everyone should hear what the judge had to say. 
 
 Ruling by Judge William Young, US District Court.
 
Prior to sentencing, the Judge asked the defendant if he had anything to say.  His response: After admitting his guilt to the court for the record, Reid also admitted his "allegiance to Osama bin Laden, to Islam, and to the religion of Allah," defiantly stating, "I think I will not apologize for my actions," and told the court "I am at war with your country."

Judge Young then delivered the statement quoted below:

January 30, 2003, United States vs. Reid. Judge Young:

"Mr. Richard C. Reid, hearken now to the sentence the Court imposes upon you.

On counts 1, 5 and 6 the Court sentences you to life in prison in the custody of the United States Attorney General.  On count s 2, 3, 4 and 7, the Court sentences you to 20 years in prison on each count, the sentence on each count to run consecutively.  (That's 80 years.)

On count 8 the Court sentences you to the mandatory 30 years again, to be served consecutively to the 80 years just imposed.  The Court imposes upon you for each of the eight counts a fine of $250,000 that's an aggregate fine of $2 million.  The Court accepts the government's recommendation with respect to restitution and orders restitution in the amount of $298.17 to Andre Bousquet and $5,784 to American Airlines.

The Court imposes upon you an $800 special assessment.
The Court imposes upon you five years supervised release simply because the law requires it.  But the life sentences are real life sentences so I need go no further.

This is the sentence that is provided for by our statutes.  It is a fair and just sentence.  It is a righteous sentence.

Now, let me explain this to you.  We are not afraid of you or any of your terrorist co-conspirators, Mr. Reid.  We are Americans.  We have been through the fire before.  There is too much war talk here and I say that to everyone with the utmost respect.  Here in this court, we deal with individuals as individuals and care for individuals as individuals.  As human beings, we reach out for justice.

You are not an enemy combatant.  You are a terrorist.  You are not a soldier in any war.  You are a terrorist.  To give you that reference, to call you a soldier, gives you far too much stature. Whether the officers of government do it or your attorney does it, or if you think you are a soldier.  You are not----- you are a terrorist.  And we do not negotiate with terrorists.  We do not meet with terrorists.  We do not sign documents with terrorists.  We hunt them down one by one and bring them to justice.

So war talk is way out of line in this court.  You are a big fellow. But you are not that big. You're no warrior.  I've known warriors. You are a terrorist.  A species of criminal that is guilty of multiple attempted murders.  In a very real sense, State Trooper Santiago had it right when you first were taken off that plane and into custody and you wondered where the press and the TV crews were, and he said: "You're no big deal."

You are no big deal.

What your able counsel and what the equally able United States attorneys have grappled with and what I have as honestly as I know how tried to grapple with, is why you did something so horrific.  What was it that led you here to this courtroom today?

I have listened respectfully to what you have to say. And I ask you to search your heart and ask yourself what sort of unfathomable hate led you to do what you are guilty and admit you are guilty of doing?  And, I have an answer for you.  It may not satisfy you, but as I search this entire record, it comes as close to understanding as I know.
 
It seems to me you hate the one thing that to us is most precious. You hate our freedom. Our individual freedom.  Our individual freedom to live as we choose, to come and go as we choose, to believe or not believe as we individually choose.  Here, in this society, the very wind carries freedom.  It carries it everywhere from sea to shining sea.  It is because we prize individual freedom so much that you are here in this beautiful courtroom.  So that everyone can see, truly see, that justice is administered fairly, individually, and discretely. It is for freedom's sake that your lawyers are striving so vigorously on your behalf, have filed appeals, will go on in their representation of you before other judges.

We Americans are all about freedom.  Because we all know that the way we treat you, Mr. Reid, is the measure of our own liberties.  Make no mistake though.  It is yet true that we will bare any burden; pay any price, to preserve our freedoms.  Look around this courtroom.  Mark it well.  The world is not going to long remember what you or I say here.  The day after tomorrow, it will be forgotten, but this, however, will long endure.

Here in this courtroom and courtrooms all across America , the American people will gather to see that justice, individual justice, justice, not war, individual justice is in fact being done.  The very President of the United States through his officers will have to come into courtrooms and lay out evidence on which specific matters can be judged and juries of citizens will gather to sit and judge that evidence democratically, to mold and shape and refine our sense of justice.

See that flag, Mr. Reid?  That's the flag of the United States of America.  That flag will fly there long after this is all forgotten.  That flag stands for freedom.  And it always will.

Mr. Custody Officer.  Stand him down.

So, how much of this Judge's comments did we hear on our TV sets?  We need more judges like Judge Young, but that's another subject.  Pass this around.  Everyone should and needs to hear what this fine judge had to say.  Powerful words that strike home.  God bless America

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China at 45 Times Earnings Fed by `Herd Mentality,' Government
By Le-Min Lim and Zhang Shidong

Wu Ruiling, a 68-year-old former grade-school teacher
June 28 (Bloomberg) -- High above Shanghai, in an office reserved for stock market barons, Xu Yongyi swirls a flask of coffee, only breaking his rhythm to explain why money matters.

``It's not about being rich,'' asserts Xu, a 43-year-old former factory worker who says he turned 16,000 yuan ($2,100) into 5 million yuan by trading shares. ``I want to rise above the masses and prove I'm a step ahead.''

Thirty floors below in the public trading room of Shenyin & Wanguo Securities Co., Xu's ascent inspires investors who sit at rows of boxy computer screens studying stock graphs and swapping tips. Former grade-school teacher Wu Ruiling, 68, recalls the days when the man she knows only as Dahu, or ``Big Account,'' would expound on stock-price movements over box lunches.

``We look up to him,'' Wu says. ``He analyzes the market so thoroughly; that's why he's so rich now.''

Aspiration and envy are key emotions driving China's stocks boom as investors ignore warnings of a growing bubble to pursue quick riches and gain respect from friends and neighbors. Rapid recoveries from two government-triggered sell-offs this year have deepened investors' belief that the market is immune to a crash.

Traders such as Xu are role models. In a year when China's benchmark CSI 300 Index has doubled, Xu says the value of his shares, which include China's biggest sock maker, Langsha Group, have almost tripled. That earned him an upgrade from a ground- floor booth to the 30th-floor VIP room -- exclusive to those with portfolios of 5 million yuan or more.

Life Changing

``The stock market doesn't care who you are or where you come from,'' says Xu, spinning in a swivel chair in the sparsely furnished office he shares with another large account holder. ``If you call the market right, you win.''

Winning has changed Xu's life. In the 1980s he earned 45 yuan a month making television casings at a state-owned factory; now he owns a 29-inch color TV. For years, he lived in an old 50- square-meter apartment; last month he paid 1.3 million yuan for a 129-square-meter (1,388 square feet) condominium on the outskirts of the city.

That's a long way from his childhood during the Cultural Revolution of the 1960s and '70s, when the streets of Shanghai teemed with people in uniform blue, green and gray jackets.

``Everyone looked the same, spoke the same way and got the same pay,'' he says. ``Factory workers hung around to collect pensions.''

By the 1990s, Shanghai began responding to top leader Deng Xiaoping's call for faster economic growth, developing a new commercial center, and promoting entrepreneurship and share sales to catch up with Hong Kong and rapidly growing southern cities such as Shenzhen.

``Big Pot of Rice''

Xu jumped into the private economy, working as a bus driver and buying stocks for the first time. Today he is shopping for a 100,000-yuan Nissan Tiida compact and planning to send his 13- year-old daughter, Runru, to study in the U.S. after high school.

``For a long time, everyone ate from the same big pot of rice regardless of how much or how little they did, obliterating their sense of achievement,'' says Shi Junqi, a psychologist specializing in consumer behavior at Peking University. ``Stock- market investment helps restore that.''

Unlike business people who amass wealth through political connections and corruption, successful stock traders are respected for winning on their own merits, Shi says.

Such is China's investing frenzy that an average of 300,000 stock-trading accounts have been opened every day since April, according to China Securities Depository & Clearing Corp. Trading by individual investors accounts for about 60 percent of market volume, estimates the Shanghai-based brokerage Guotai Junan Securities Co. In the U.S., individuals account for only 5 percent of trading as institutional investors dominate.

Soup Shop Dream

Since a four-year bear market ended in the third quarter of 2005, the CSI 300 has quadrupled. While the index fell as much as 16 percent the week of May 30, after the government tripled a share-trading tax, all the losses were recouped by the close of trading June 18. The index has fallen 1.4 percent since then because of concerns the central bank would raise interest rates.

At Shenyin & Wanguo Securities, human-resources consultant Guan Fengxian checks her stocks at one of the terminals small investors line up to use. Nearby is a chef from the adjoining restaurant and the building's cleaning lady. Guan, 30, says her dream is to make enough money to open a soup shop with two friends -- and quit her job.

Guan opened her trading account in early June, during the market sell-off. She bought 1,000 shares in Hunan Valin Steel Tube & Wire for about 7 yuan apiece; they have risen to 9.18 yuan. Guan says she's waiting to plow an additional 160,000 yuan, most of her savings, into the market.

``I'm not afraid,'' says Guan, tightening her clutch on a pink Mickey Mouse wallet. ``Our economy is doing so well; nothing could possibly go wrong, right?''

Foreign Vultures

Such confidence defies warnings from former Federal Reserve Chairman Alan Greenspan and Hong Kong billionaire Li Ka-shing who last month said shares were too expensive.

Xu says he ignores such comments from abroad.

``These foreign interests want to get in on the action themselves but can't because the market has risen too much,'' he says. ``That's why they are talking down the market, so they can swoop in and pick up some cheap stocks.''

Government support for the stock market is guaranteed because it is selling state-owned shares to pay for future pension obligations and education programs, Xu says.

``If we take a beating in the stock market, the government takes a beating too,'' he says. ``There's no reason the government would want to smash the stock market.''

Trading Strategy

Xu mostly buys shares of listed companies in which the state is reducing its holdings. He recently bought shares in papermaker Heilongjiang Black Dragon Co. and fertilizer-producer Heilongjiang Sunfield Science & Technology Co., betting on big price gains when trading resumes.

Chinese shares are among the most expensive in the world, trading at about 45 times reported earnings. By comparison, shares trade for an average of 17 times earnings on the Hang Seng Index in Hong Kong and 18 times on the Standard & Poor's 500 Index in the U.S.

Only Chinese nationals are allowed to buy yuan-denominated shares traded in Shanghai and Shenzhen, except for 52 authorized foreign money managers that are allowed to invest a combined $10 billion in Chinese stocks, a fraction of the nation's $2.27 trillion market capitalization.

``Herd mentality prevails in Chinese society,'' Shi says. ``If they see everyone around them -- neighbors, friends and colleagues -- trading stocks, they would want to follow.''

Ironically, government-triggered market declines may provide the impetus for future surges.

Chastened by Declines

``With each plunge, investors become more immune to market volatility,'' says Yao Maogong, chief trader at Shanghai Securities Co. ``Chinese investors don't pay much attention to ratios; as long as the market trends up, they think it's safe.''

Some Chinese investors are chastened by the recent sell-off. Retired school teacher Wu had ``tens of thousands'' wiped off her portfolio. While she hasn't sold stocks, Wu has stopped buying and talks gravely of the stock-market plunge in 2001 that cut the value of her holdings in half.

``The market looks good but it may turn on a dime,'' says Wu, a slight woman who is trying to expand a retirement nest egg that has grown to 600,000 yuan. ``New investors that keep piling into the market are like new-born calves that don't fear tigers; we know what to fear.''

Still, investors like Xu and Guan insist things are different this time. The current Chinese leadership under Premier Wen Jiabao knows the country needs a viable stock market to fund social services and allow companies to raise money, Xu says.

Xu says: ``There's no way the government would let the stock market crash.''

To contact the reporters on this story: Le-Min Lim in Hong Kong at lmlim@bloomberg.net Zhang Shidong in Shanghai szhang5@bloomberg.net

Last Updated: June 27, 2007 17:17 EDT

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June 28, 2007

Subprime Shoes Continue to Drop
by Peter Schiff

The meltdown in the subprime mortgage market is inexorably spreading throughout the U.S. economy. The first shoe dropped in February, when scores of mortgage originators went bust amid rising defaults and tightening lending standards. Last week, the second shoe dropped as two CDO-focused Bear Stearns hedge funds blew up. Overshadowed by the Bear Stearns drama which unfolded at the same time, California-based brokerage firm Brookstreet Securities shut its doors when unsecured customer losses from margined investments in collateralized mortgage obligations were "unrepentantly" marked down. However, as the subprime monster likely resembles a giant centipede, this will not be the last show to drop.

Bear Stearns' reluctance to mark down the value of their overpriced CDOs is mirrored by an equal desire among homeowners to hold tight to their fantasies of real estate riches. Despite the obvious weakness in the current market, deluded sellers continue to behave as if the boom of 1998-2005 never ended. A recent survey by Boston Consulting Group showed that 55% of home owners believe they could sell their house for more now than a year ago, and nearly three-quarters think they could sell their homes within the next six months at a price they set. Is it any wonder that there is a record 8.9 months supply of new homes on the market?

Just as CDOs are not worth the "marked to market" value conveniently assigned by Wall Street, homes throughout the country are not worth anything near the asking prices listed on "For Sale" signs. Wall Street may be able to buy some time by bailing out troubled hedge funds to keep their worthless subprime mortgage investments off the market, but no such safety nets exist for strapped consumers looking down the barrel of resetting adjustable rate mortgages. Inventories will continue to balloon until reluctant home owners come to their senses and slash prices.

If they do not do it themselves, appraisers, just like Brookstreet Securities' clearing firm will do it for them. Imagine the effect on the economy when America consumer's biggest assets turn into their greatest liabilities!

However, as I have been writing for years, the biggest losers in the real estate bubble will not be the borrowers who took advantage of easy credit, but the lenders who foolishly underwrote the loans. Whether they be unsophisticated clients of small brokerage firms like Brookstreet, or big time hedge fund clients of Bear Stearns, anyone who owns subprime mortgages is going to lose money. Some will lose 100% of what they invested, and those who used margin may lose even more.

The main problem was that Wall Street, hungry to feed the profit-rich CDO market, convinced the mortgage industry to abandon all traditional lending standards. In prior years, when borrowers were required to make sizeable down-payments, lenders were assured that borrowers would not knowingly commit themselves to mortgages that they could not afford, and that sufficient collateral would exist were defaults to occur. In addition, by verifying incomes and assets, lenders gained further assurance that loans would actually be repaid.

Once lenders dropped down payment requirements, the stage was set for the unfolding disaster. The advent of no-documentation loans, especially ARMs with teasers rates, interest-only payments and negative amortizations, further allowed risk free speculation to run rampant. Is it any wonder house prices rose so high when Wall Street allowed so many people to gamble with other people's money?

If borrowers actually had to put their own hard-earned money down, they would have thought twice before committing themselves to mortgages they could not afford. But once Wall Street took all of the risk out of real estate speculation, there was no reason not to roll the dice. So borrowers lied about their incomes and stretched to meet payments because if home prices kept rising all the profits would belong to them. For years it was a stunningly successful bet that minted real estate tycoons by the hundreds of thousands. And, if prices reversed course, they had nothing to lose, as they put nothing down. Buyers could walk away from their bad bets none the worse for wear, leaving lenders to cover their losses.

However, amidst the hysteria and oblivious to their own roles in perpetuating the bubble, lenders also believed that real estate prices could only go up. With such assumptions, defaults seemed unlikely and ultimately riskless (a foreclosed property worth more than the underlying mortgage is a boon). Also, in many cases, as hedge fund managers made huge profits by risking their client's money, both the borrowers and the lenders had no skin in the game. All the risks were transferred to those who purchased the re-packaged loans, and who are now left holding the bag.

All of the pundits and so called "experts" who did not see this coming still do not appreciate the magnitude of the mortgage disaster and how it will impact the housing market in general, the economy, the stock market, the dollar, interest rates, inflation, and the price of gold. They are content to believe government hype about the resilience of the American economy. On Tuesday, just as home building giant Lennar reported huge losses due to a weak pricing environment, the government told us that new home prices basically held firm to last years gains. Later in the week, similar losses blamed on falling home prices were reported by KB Homes. Just like with the CPI, this is yet another example of government numbers being in sharp contrast with reality and why they should always be taken with a grain of salt.

The curtain has yet to close, but if you listen closely you can hear the fat lady warming up in the wings. It has been one hell of a show, but there will be no encore. For those holding toxic mortgage paper there is nothing left to do but sue. However, even those who do not own this stuff are not in the clear. A much larger disaster looms for holders of U.S. dollar denominated assets in general. It will not be long before our foreign creditors realize that Uncle Sam is the biggest subprime borrower of them all and will similarly mark down the value of its debts as well.

For a more in depth analysis of the tenuous position of the housing and mortgage markets, the Americana economy and U.S. dollar denominated investments, read my new book "Crash Proof: How to Profit from the Coming Economic Collapse." Click here to order a copy today.

More importantly, don't wait for reality to set in. Protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com, download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com, and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp.

Peter Schiff C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.

Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. As a result of his accurate forecasts on the U.S. stock market, commodities, gold and the dollar, he is becoming increasingly more renowned. He has been quoted in many of the nations leading newspapers, including The Wall Street Journal, Barron's, Investor's Business Daily, The Financial Times, The New York Times, The Los Angeles Times, The Washington Post, The Chicago Tribune, The Dallas Morning News, The Miami Herald, The San Francisco Chronicle, The Atlanta Journal-Constitution, The Arizona Republic, The Philadelphia Inquirer, and the Christian Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg. In addition, his views are frequently quoted locally in the Orange County Register.

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkley in 1987. A financial professional for seventeen years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, he is a highly recommended broker by many of the nation's financial newsletters and advisory services.

Copyright © 2005-2007 Euro Pacific Capital, Inc.

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June 28, 2007

No Short Supply of Freaking Doom!
by The Mogambo Guru

"Then, abruptly out of ammo, with clouds of burnt cordite tingeing the air, the tragic Mogambo falls slowly to his knees, his Mighty Mogambo Head (MMH) hanging. He is beaten, destroyed."

I don't know why I am so edgy here lately. Maybe because Federal Reserve Credit last week only increased a little, going up $2.3 billion to $852.3 billion, which is about the same level of Total Credit as it was in January, six months ago.

Or maybe it is because Anthony M. Cherniawski of thepracticalinvestor.com writes that, suddenly, three Hindenburg Omens have been sighted.

So what is a Hindenburg Omen? Robert McHugh of Main Line Investors, accurately assessing my limited intellectual abilities, explains just the essence of it, which is "the alignment of several technical factors that measure the underlying condition of the stock market - specifically the NYSE - such that the probability that a stock market crash occurs is higher than normal, and the probability of a severe decline is quite high."

Mr. Cherniawski says that according to the facts at Wikipedia.com, this "now confirms the probability of a major decline in the next 120 days. The probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen within the next 41 days after its occurrence is 77%, the probability of a panic sellout is 41%, and the probability of a real big stock market crash is 25%."

He admits that the 77%, 41% and 25% statistics are a long way from any precision as far as forecasting goes, and, "The occurrence of a confirmed Hindenburg Omen does not necessarily mean that the stock market will go down. On the other hand, there has never been a significant stock market decline in history that was not preceded by a confirmed Hindenburg Omen."

And on the third hand, a 77% probability ain't hay, either!

"Closing the 'Collapse Gap': The USSR was better prepared for peak oil than the US" is an essay by Dmitry Orlov at EnergyBulletin.net. He writes, "An economic arrangement can continue for quite some time after it becomes untenable, through sheer inertia. But at some point a tide of broken promises and invalidated assumptions sweeps it all out to sea."

That sounded so strangely familiar! Then I realized that it was a virtual replay of the Father's Day we just had around here! So, suddenly, I was in a panic when I thought that he too was talking about me, and how everyone should get as far away from me as possible because I am worse than worthless and trailing a lot of broken promises (mostly of the "I'll never do THAT again!" or "I'll pay you back!" types) and invalidated assumptions ("He'll change for the better one day!") and how life is too short to waste it with trash like me, and blah blah blah, but he was, thankfully, not. Whew! Once is enough!

Instead, what he was really saying was economics in nature, as in, "One such untenable arrangement rests on the notion that it is possible to perpetually borrow more and more money from abroad, to pay for more and more energy imports, while the price of these imports continues to double every few years."

And why not? He reveals the problem so elegantly, almost Newtonian, when he explains, "Free money with which to buy energy equals free energy, and free energy does not occur in nature."

And how to explain that it IS occurring right now? He easily brushes me off, like he would some pesky fly buzzing around his head, by saying, "This must therefore be a transient condition. When the flow of energy snaps back toward equilibrium, much of the U.S. economy will be forced to shut down."

And what does this mean by "shut down" in terms of the essential staples of modern life like, you know, 24-hour convenience stores with gasoline pumps, 24-hour coffee shops and 24-hour adult novelty stores? I see him mentally check those three items off the list, and then he says we should, "certainly expect shortages of fuel, food, medicine, and countless consumer items, outages of electricity, gas, and water, breakdowns in transportation systems and other infrastructure, hyperinflation, widespread shutdowns and mass layoffs, along with a lot of despair, confusion, violence, and lawlessness."

And what about a gigantic system of governments, all of which think that they can "do something"? One could almost hear his snort of disdain and contempt for the whole idea when he said, "We definitely should not expect any grand rescue plans, innovative technology programs, or miracles of social cohesion."

And that, I am happy to report, brings us to another episode of the famous, award-winning Mogambo Pathos Theatre (MPT). This week's riveting melodrama is an original vignette I call, "Been down so long it looks like The Mogambo was right when he said the damnable Federal Reserve creating all that excess money and credit will destroy us all by destroying our money, and now the stinking gutter looks like up to me."

The curtains open, revealing a silent, darkened stage, except for the single magenta-colored spotlight on The Mogambo, who sits slumped over in a plain wooden chair in the center of the stage, his mighty shoulders gently heaving as he weeps piteously, softly crying out in pain, "Inflation! It's killing me!"

Then, almost imperceptibly, he slowly raises one hand to point towards the heavens, and raising his head and eyes to follow his lead, says with a ringing voice like Richard Burton at his Shakespearean best, "Yet forsooth, the villainous part of 38% inflation in prices is that it is but slow, agonizing death to the poor wretch who has absolutely nothing, in whose mouth is only the dry dust of despair, and whose painful belly is as empty as his pockets. I starve! I suffer! Somehow scraping up $2.25 for a nice, warm, bean burrito supremo was hard enough, and now it's $3.10! Oh, woe, cruel Fates! I wax woeful! Woeful!"

Turning and bellowing to the ether, "May I please borrow $3.10 so that I might not die, and at least fart to amuse myself and others until I can get another $3.10?"

From offstage a chorus of voices calls out, "No way! Go away!"

Suddenly, the air is filled with a wail of babies crying in hunger and a swirl of people sweeping around the stage like ravenous harpies, crying out, "Buy me something nice! Buy me something expensive! Buy me stuff! Buy me stuff!"

Again The Mogambo wails, "Please give me a lousy $3.10!" and again an unseen chorus replies "No way! Go away!" joining the cacophony of babies screaming and people demanding, demanding, demanding money, louder and louder until, reaching a maddening crescendo, The Mogambo snatches up two Uzi submachine guns and starts blasting indiscriminately, eardrums throbbing from the sonic assault, spent cartridge casings flying through the air, shooting the hell out of everything blam blam blam blam blam blam and pieces of wood and plaster and crap are filling the air with dusty debris, blam blam blam blam blam and the audience is screaming and crying and scrambling to get the hell out of there, and it is pure freaking Apocalyptic bedlam! What a thrilling, memorable moment of American theatre!

Then, abruptly out of ammo, with clouds of burnt cordite tingeing the air, the tragic Mogambo falls slowly to his knees, his Mighty Mogambo Head (MMH) hanging. He is beaten, destroyed. Gradually, the cacophonous sound of babies crying, incessant demands for money and his own stomach growling slowly fade, fade, fade away as the scene fades to sinister black, until a leaden silence hangs like a sickening shroud over the dark theatre.

The crowd, hushed at the powerful, powerful scene, erupts with cries of "Boo! Boo! Worst performance ever! We want our money back!" I laugh at them! Hell, they wouldn't know fine, classy art if it came up and took a big ol' crap on their shoes!

But this is not about how my theatrical masterpieces are not appreciated by a cruel and tasteless world, but about what happens when inflation in prices gets out of hand, which comes after inflation in the money supply gets out of hand (made worse by the fact that the money went to pay for the growth of the government, which got waaaAAAaaay out of hand for decades), and everybody gets so miserable that mindless violence seems somehow justified in the face of such overwhelming misery.

But the stupid audience is not interested in this important, timeless lesson, and all they can think of is that they want their stupid money back. I say "Screw 'em!", as they can afford it now that the minimum wage was raised from $5.15 an hour to $5.85 by Congress, which is supposed to offset the staggering, criminal incompetence of Congress in not restraining the awful Federal Reserve, to keep the damned banks from creating too much money and credit, which produces inflation in prices.

And since not even a conceited, arrogant, stupid Congress as conceited, arrogant and stupid as this one can force prices down, they feel utterly justified in forcing wages up to make up for it! Hahahaha! Incompetent morons!

But this is not about how much I despise damned near every government you can name, but that the minimum wage will next go to $6.55 in July, 2008 and finally reach the federal maximum, taking the minimum wage to $7.25 in July, 2009, two years from now.

The total raise is (click click click on the calculator) $2.10 per hour, although in reality, they will make about 7.5% less, as FICA gets its share off the top. So their new, maximum "adjusted gross income net of FICA" raise in pay is about $1.94 an hour.

Let's see, that's a 38% increase in wages in two years, where it will undoubtedly stay for a few years as the economy tries to digest the increases in the prices of everything, including the labor of the guy who was already making $7.25, but is going to be making only minimum wage in 2009 unless HE gets a nice raise, too, creating the wage-price spiral of story and song. So prices will go up!

To prove the inflation I scream so incessantly about, I point to Larry Edelson at MoneyandMarkets.com, who looks at the Commodity Research Bureau's Index, which is a composite of 23 widely traded commodities. "According to the index," he says, "prices of raw materials are up nearly 30% since the first of the year."

Junior Mogambo Ranger (JMR) Len M. writes, "I recall ten years ago when I looked in the local paper that there was a section devoted to just cheap cars for sale. The listing was for cars '$3,000 or less'. Now, cheap cars are listed as '$5,000 or less'. That is an increase of 66.6% in ten years."

And it is not just cars, as all that excess money and credit, supplied by the Federal Reserve so that the government can spend it, seeps into the prices of everything, and already the price of food - yummy, yummy food! - is rising over 6% here in the USA, not to mention food prices rising 7% in China or the big rises all over the world. And so in five years, what is the compounded rate of an annual 6% increase in food prices? 34%! Hahaha! The increase in the minimum wage was only 38%!

It all comes down to what Andy Sutton of My2CentsOnline.com was talking about when he wrote about the "disconnect in understanding between money and purchasing power." To remedy that, he gives us an example: "Say a man in 1933 stuffed twenty dollars under his bed. In 1933, the price of a gallon of gas was around 10 cents. So the twenty dollars was worth 200 gallons of gas."

Now contrast 200 gallons of gas in 1933 with, "In 1970, gas sold on average for 34 cents/gallon. The twenty dollars was now only worth 59 gallons of gas."

Now contrast both of those with, "Today, I paid $2.89/ gallon. The twenty dollars would buy only 6.92 gallons of gas. To recap, the twenty dollar bill that in 1933 bought 200 gallons of gas today only buys 6.92 gallons."

Thus we see in precious gallons the ravages of inflation in prices thanks to the damned Federal Reserve.

TheStreet.com reports that "Paul (R., Texas) is so disgusted with the Fed and its role in failing to stem inflation that he wants to eliminate the entire institution, including its army of economics Ph.D.s and other money wizards", which refers to a bill that he filed in Congress, HR2755, that would do just that.

As Junior Mogambo Ranger H.H.H. puts it, this shows that "Ron Paul will go to his grave with his honor and dignity intact, which is far more than I can say for most members of our government."

Why does Rep. Paul want to eliminate the Fed? Well, according to me at my loudmouth, know-it-all, arrogant best, it is because the Federal Reserve has been a complete, dismal failure in every freaking respect, and especially in their duty to protect the value of the dollar.

Well, nobody ever wants to hear what I think, and so I am happy that the question is admirably answered by the epic truth revealed by Antony Mueller at Mises.org and handily posted at Agora Financial's 5-Minute Forecast. "Central bankers," he writes, "sometimes describe their activity as 'more art than science', which is implicit recognition of their ignorance. The 'art of central banking' is the art of pretending to know what one does not know. Not only is it not a science; it is not even an art. At best, it is alchemy; at worst, it is a gigantic cheat."

Or as the Law of Logical Argument puts it, "Anything is possible if you don't know what you are talking about".

This leads to the Law of Lying and Statistical Manipulation, which I just made up, which is, "If you have a willing, co-conspirator like Congress, then the Federal Reserve can do and say anything it wants, whether it knows what it is talking about or not, and nobody will try to stop them, and the Fed will create so much money and credit that price inflation will destroy us all, which it will, and we are freaking doomed, doomed, doomed as a result."

Vaclav Klaus is Professor of Finance at the Prague School of Economics and is a former Minister of Finance, and is quoted in the Financial Times as saying (although originally in reference to something else), "I am not ashamed of this ignorance of mine. On the contrary, I am ashamed of the confidence of those who claim to know the answer. I see a big difference between science and 'national scientific establishments'. To believe in scientific establishment is impossible, this is just another powerful rent-seeking group."

In short, being just as disrespectful as I can muster, the Fed and the Congress are two symbiotic parasites guaranteeing their own free ride by telling and believing lies, which is only possible under a fiat-money standard, as under the gold standard, "you have fixed exchange rates and free mobility of capital, but you give up domestic monetary policy," says Robert Wright, who is a professor of economic history at New York University's Stern School of Business.

Perhaps because he is at a university that receives huge amounts of government money, he forgets to mention that a gold standard also constrains fiscal policy of the government, too, as they don't dare just spend and spend, because borrowed money has to be paid back by raising taxes! And the spending had better be good, too, because if it isn't (like spending tax money for stupid crap like creating huge entitlement programs and, ummm, funding universities), then the gold will actually flow out of the country as foreigners get scared of our idiocy and take their money away, actually shrinking our money supply!

Therefore, under a gold standard, the government and the banks had to be smart and act smart. Now they don't. And obviously aren't.

If you want to see the real beauty of "gold as money" and the wonderful economic bliss that comes from it, then it is inferred when Mr. Wright brings up "the phenomenon of falling nominal wages."

Note the use of the word "nominal" wages, which merely means wages expressed as a strict dollar amount (such as dollars per hour). "Real" wages, on the other hand, means nominal wages expressed in terms of inflation-adjusted buying power, which is experienced as rising prices.

I mean, if your income doubles, but all prices double, too, then you are not better off, are you? No.

But if your income stays the same and prices go down, then you ARE better off, right? Of course you are! Welcome to the gold standard!

The "problem" Mr. Wright refers to is that the gold standard was so successful that "Many of the conflicts between labor and factory owners in the 1800s had more to do with adjusting workers' wages downward in line with the overall price level than they did with owner-inspired greed, as is popularly perceived."

Aha! In short, thanks to our money being gold, the standard of living of the country was increasing! People's lives were getting better! And they had more! And they bought more, although their nominal wages were exactly the same! And in fact, things were so good that the workers were becoming overpaid! Overpaid labor! What a Utopia!

And so who is so evil, so dastardly, so despicable as to screw with such a successful system?

Note the dark and gloomy soundtrack of wolves howling and the distant screams of people being eaten alive. The banks and the government! It's always the damned banks and the damned government!

A lot has been made of the AP report that the Swiss National Bank said "it will sell 276 U.S. tons of gold reserves over the next two years. The sale would fetch about $5.2 billion (3.9 billion euros) at current prices."

But you can relax; this is not another Screeching Mogambo Rendition (SMR) of the sheer scope of the cancerous fraud of grossly mismanaged Federal Reserve monetary policy, a corrupt and stupidly ideologically-driven Congress that aided and abetted it, and a compliant free press interested only in the scandalous and salacious sound-bite with revealing photos (because that is what their shallow and happily-ignorant audience demands), all of which made the cancerous growth in government possible, which has now turned predictably fascist in its panic and determination for self-preservation at any cost.

Rather, this is about how gold is performing exactly how you would expect in the face of such monetary and fiscal stupidities! It went up in price!

The point of the Swiss selling all that gold is that gold is so valuable that "The share of gold in Switzerland's currency reserves has risen to 42 percent from 33 percent since mid-2005 due to the increase in gold prices." Hahaha! So this sale of gold by Switzerland, says Mr. Jordan, "would return the share of gold in the currency reserves to their previous level."

But don't feel too bad for them, as "Once completed, the national bank will hold 1,040 metric tons (1,146 U.S. tons) of gold."

And lest you think that this is something new that is going to tilt the global balance, it ain't, as "Between 2000 and 2005 Switzerland sold 1,300 metric tonnes (1,433 U.S. tons) of surplus gold reserves."

And what did they do with the money? Hahaha! I'm glad you asked! "The proceeds - about 21 billion Swiss francs - were distributed between the federal government and the country's 26 cantons (states), who used the money to pay off debts." Hahahaha!

So where do you think THIS new infusion of money, from selling 276 U.S. tons of gold, will go? Me, too. Morons.

From SafeHaven.com we get an interesting perspective on global warming from The National Post, which had an article by R. Timothy Patterson, who is a professor with the Department of Earth Sciences at Carleton University. He writes that he and some buddies were performing a "time series analysis" on the "colouration and thickness of the annual layers" in core samples drilled down into the ground, sorting through a zillion years of earth's history, and one day they, "discovered repeated cycles in marine productivity."

For example, "we find a very strong and consistent 11-year cycle throughout the whole record in the sediments and diatom remains." It gets very, very interesting when he notes, "This correlates closely to the well-known 11-year 'Schwabe' sunspot cycle, during which the output of the sun varies by about 0.1%. Such records have been kept for many centuries and match very well with the changes in marine productivity we are observing."

The result is that "Our finding of a direct correlation between variations in the brightness of the sun and earthly climate indicators (called 'proxies') is not unique. Hundreds of other studies, using proxies from tree rings in Russia's Kola Peninsula to water levels of the Nile, show exactly the same thing: The sun appears to drive climate change."

What? The sun causes global warming? Wow! How's that happen? He says, "Sunspots, violent storms on the surface of the sun, have the effect of increasing solar output, so, by counting the spots visible on the surface of our star, we have an indirect measure of its varying brightness."

And I note that they are trying very hard be staid and sober scientists, and not to be alarmists like The Mogambo who goes freaking berserk at everything these days, and they did not mention how the brightness of sunlight is just an indirect measure of the sheer amount of increased power from the sun that is increasingly slamming into the Earth every minute of every hour of every day, month after month, year after year.

And if you don't think that this big, BIG increased amount of energy being absorbed by the Earth will cause big, BIG changes, which will then cause big, BIG changes in everything else after just a few iterations of the system, like a big, BIG, insanely huge Chaos Theory butterfly flapping its big, BIG enormous wings, then stick around, because you are in for a big, BIG surprise as to how things really, REALLY work!

And it gets even more interesting when "We also see longer period cycles, all correlating closely with other well-known regular solar variations. In particular, we see marine productivity cycles that match well with the sun's 75-90-year 'Gleissberg Cycle,' the 200-500-year 'Suess Cycle' and the 1,100-1,500-year 'Bond Cycle.'"

In fact, apparently a couple of these cycles seem to be overlapping, as "it seems Solar scientists predict that, by 2020, the sun will be starting into its weakest Schwabe solar cycle of the past two centuries, likely leading to unusually cool conditions on Earth."

He says that the lesson is that "It is global cooling, not warming, that is the major climate threat to the world, especially Canada".

Even so, The Mogambo says that, short-term, the more immediate lesson is that the Earth is still getting warmer, however temporarily, and will continue to get warmer, meaning (I assume) more drought, more crop failures, more demands for energy, etc., as according to this guy, it's another 13 long, dry years until the cycle even peaks, for crying out loud!

And there is also a lot of money to be made in commodities and on the back of government attempting to "combat global warming" with doomed-from-the-start boondoggles (like ethanol) between now and then. And this is not to mention the sharp decrease in standards of living that will obviously happen as a result of these, and so many other, ugly things, all bought and paid for by the excess money and credit created by the filthy Federal Reserve.

I sigh. We're doomed. We're freaking doomed. Ugh.

Mogambo sez: I run down the checklist: Weapons? Check. Gold? Check. Silver? Check. Oil stocks? Check. Now ask yourself why I am doing this. Now ask yourself why you aren't.

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Editor's Note: This year, the Mighty Mogambo is actually going to bravely exit his Big Mogambo Bunker (BMB) in order to speak at the Agora Financial Investment Symposium in Vancouver, British Columbia. Don't miss this opportunity to hear his rants live, on why "We are all Freaking Doomed!" Agora Financial Investment Symposium - July 24-27

Richard Daughty, the angriest guy in economics
The Mogambo Guru

Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.

The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications.

Copyright © 2005-2007 Richard Daughty

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Fiscally Dangerous Liaisons

By: Addison Wiggin & The Daily Reckoning Crew

-- Posted Thursday, 28 June 2007 | Digg This Article

London, England
Thursday, June 28, 2007

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*** Seduced by financial aphrodisiacs…dim rock singers now own private equity…

*** We're not alone in touting credit bubble dangers…not quite time to abandon gold…

*** People who love inflation, and why…a world traveler offers investment advice…and more!

--- Special Announcement ---

Only 7 Days Left…

To get our newest $995 investment research service - for free:

http://www.isecureonline.com/Reports/AFR/EAFRH690/

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"Take time to know her. It's not an overnight thing"
- Percy Sledge's Momma

We boarded a small plane yesterday and traded the chilly shores of the Irish Sea for the chilly banks of the Thames. Here in London, too, it is cold and rainy.

Thank God we have the financial news to warm our hearts…and more.

Bill Gross, who manages PIMCO, the world's largest bond fund, says that professional investors were seduced by CDOs (collateralized debt obligations) in "hooker heels." While the moms and pops fell for mortgages in sexy, low-cut dresses, the pros couldn't resist mortgage-backed securities, tarted up by the financial industry.

The whole financial world has had kind of a bodacious appeal lately. It is as full of strumpets as the Rue St. Denis, and its customers seem to be getting as excited. Stocks in Shanghai are rising so fast - it is as if they had put some of that tiger paw or shark privates into the city water reservoir.

We would like to go on record, dear reader, with this advice to the Chinese: Take a cold shower.

And all over the world, the rich seem desperate to begin expensive liaisons. A mystery buyer apparently paid $300 million for an Airbus A380 double-decker Superjumbo, with room for 853 passengers. The plan will be for private use, say the reports. A big birthday bash, maybe?

And for $84 million, someone has bought himself the most expensive English house outside of London. The place is in such bad repair, says the notice in MoneyWeek, that the poor buyer will have to spend a fortune fixing it up. And another person paid $2,600 for an empty prescription drug bottle once owned by Elvis.

One wild fling after another. But are any of these love objects good enough to take home and introduce to your mother?

Poor Percy Sledge. When he found "a little girl of own," he took her home to momma. But momma took one look at her and she said: "Take time to know her. It's not an overnight thing."

But Percy wouldn't listen. He went straight to the preacher. And then, later, he came home from work early and "found her kissin' on another man."

The hussy!

We keep warning…like Percy Sledge's momma…but a fat lot of good it does. Some things have to run their course, from the first come-hither invitation…to the last look of revulsion and disgust. So it goes in affairs of the heart…and affairs of the wallet. All begin in hopeful anticipation and end in limp disappointment.

Nothing is sexier today than private equity. Even U2's Bono is a partner in a private equity firm. But when dim rock singers get into a trend, dear reader, you have to wonder if it isn't already a little late in the day. M&A activity is still going up, according to the latest reports. But as with everything else, quantity and quality vary inversely in the private equity sector. In the last four years, the debt service ratios of target companies has been cut in half - from 3.4 to 1.7.

But who cares? Now, lenders no longer ask for guarantees. New 'cove-lit' deals allow them to destroy their own balance sheets with no fear that their loans will be called.

Even the authorities are getting worried. When we were in Madrid a few weeks ago, we noticed that the Bank of Spain was warning investors to watch out. The world was getting far too deep in debt, said the Spanish bankers. Then, the Bank of England issued almost exactly the same alert…followed by the Bank of International Settlements, which says what we've been saying for years: Loose lending policies have caused a dangerous credit bubble; the world economy is more vulnerable to a setback than any time since the late '20s.

And here comes the central bank of Norway, with reservations of its own. Yesterday, it raised its key-lending rate to 4.5%.

And at home, lawmakers have decided that hedge funds are threatening the well being of the lumpeninvestoriat with the billions in public pension funds that they now have invested in alternative investments. Lawmakers want to hike the tax rate on private equity firms that go public from 15% to 35% and one even complained to the Department of Homeland Security that Blackstone's deal with China's state investment fund constitutes a national security risk.

Meanwhile, both the former head of the Fed (Alan Greenspan, remember him?) and the richest man in China - Li Ka-shing - have both joined our warning that China's stocks are in a bubble.

All of this, of course, makes us worry. We are in a camp along with so many prestigious institutions and renowned, straight-laced economists. What are we missing?

More below…

First, the news:

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Addison Wiggin reporting from Charm City…

"With visions of fall 2002, GM also announced this week that it will be offering 0% financing for three years plus 1,000 bucks cash back on select cars and trucks. Ironically, the gimmick is a product tie-in to the movie Transformers. Transform is exactly what GM needs to do right now. Toyota handed them their hat in first-quarter sales…beating them squarely on their home turf: tough trucks for the meathead set."

For the rest of this story - and more market insights, see today's issue of

The 5 Min. Forecast

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And more thoughts:

*** What is going on in the gold market? Our favorite metal fell below $645 yesterday. The price has gone nowhere in a year. Gold bugs are beginning to wonder. Is it time to give up on the yellow metal and embrace the Great Worldwide Credit Bubble?

We wouldn't do that.

We are still in what Mises referred to as a Crack-Up Boom. It is a great boom, to be sure. Prices of all sorts of strange assets - including Zimbabwe stocks - are going up. But they are going up not because they are becoming inherently more valuable, quite the contrary. They are going up because of inflation. There is much more purchasing power in the world. Much more liquidity. Much more cash and credit - concentrated at the upper end, where people tend to buy high-priced items.

There is no particular reason why a painting or a house should be worth a lot more today than it was 10 years ago. It still gives exactly the same service. It's just that there is more money bidding for it.

For the moment, this inflation is loved by everyone - because it is boosting asset prices, not so much consumer prices. Still, consumer prices are starting to budge upwards, too - especially in the exporting countries, such as China. As basic costs increase, so does the incentive to use its great pile of cash to pay them - rather than recycle the money into the world credit system. Sooner or later, foreigners will tire of funding U.S. and British excess consumption. They will find it more appealing, or more urgent, to finance their own consumption. Then, the cost of financing will rise. M&A activity will decline. Companies, deals and households that depend on low-priced credit will go belly up. And the credit bubble will be over.

We don't know when…or even how…this will come about. But at the end of a Crack-Up Boom the currency cracks along with asset prices. When that happens people will wonder what their own dollars, yen, euros and pounds are worth. A few will want to lay in a little gold just in case. Perhaps even a few central banks.

Gold has been in a bull market for almost exactly eight years. The price has risen from $256 to over $700…and since backed off to below $650. Anything could happen, but it would be an odd bull market in gold that produced so little excitement. And it would be an odd Crack-Up Boom that produced so little fear and destruction. And it would be a damned odd world in which a bunch of government employees in central banks could create a truly lasting New Era in monetary history.

No, dear reader, don't worry. This bull market in gold is far from over. This New Era of paper money, backed only by faith, will crack up. Sooner or later, as we keep saying.

Buy gold now:

Zero-Downside Gold

*** Yes, maybe the financial world will go to hell in a handcart, as our old friend Sven Lorenz said over dinner last night. But there are still a lot of ways to make a lot of money.

Sven travels the world regularly - looking for the curious, quirky opportunities that mainstream investors have missed. When he found, for example, a cache of rare St. Petersburg caribou leather, 200 years old, retrieved from the North Sea, he bought the whole thing. Then, he found old Asian safes, which he transformed into cigar humidors. He owns a hotel on one of the Channel Islands…apartments in Germany…and a cosmetic company in Russia. Sven also journeyed to the Falkland Islands to explore the potential of a vast new oil discovery there - and to the Heart of Darkness to look at mining and farming operations in Zimbabwe.

We put the question to him directly: Where do you think the world's best investment opportunities are today? His reply:

"They are probably in Europe. Low capital costs and a desire for reform are coming together to produce some remarkable opportunities. Some of these companies are controlled by founders and their families for generations. People don't know much about them…they are often wrapped in Swiss holding companies and Lichtenstein trusts. But they often own very good brands…and sometimes have property - even cash - that most investors don't know about.

"These companies now are being challenged by shareholder activists. And they're being drawn out by private equity firms, hedge funds and private investors. Some extraordinary bargains are emerging. We bought one bank - a great franchise - for little more than the cash in its vault. It is as if we had gotten the business for free. I think we're going to see some more deals like this - even very big ones.

"And one of the nice things about this is that we're talking about big, solid, old companies. When you buy a start-up…or an emerging market…you don't know what you're getting. As long as the market is flying, the paper will stay in the air. But as soon as there's a setback, you'll see some very unhappy investors.

"Solid European companies are another story. They're often very conservative and very profitable. And now we're getting them at a good price."

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The Daily Reckoning PRESENTS: The U.S. dollar is in freefall. We mention it often, dear reader, only because we want you to be prepared. With major increases in the trade deficit as well as consumer debt, now is the time to be asking yourself, "How will this dollar decline affect me?" Addison Wiggin explains…

PATHOLOGICAL CONSUMPTION
by Addison Wiggin

Most people can relate to the realities of how jobs and profits shift, and why. The idea that higher-wage manufacturing jobs are being lost and replaced by lower-wage retail jobs, for example, is a reality that working people understand. They get it. The same is not always true when we talk about trade deficits. Like the falling dollar itself, it's worth asking the question: How does it affect you, the individual?

The trade deficit-the excess of imports over exports-has a direct and serious effect on the value of our dollars. As long as we continue having big trade deficits, it means we're spending more money overseas than we're making at home. Our manufacturing profits are lower than our consumption. If your family's budget has a "trade deficit" of sorts, you'll soon be in trouble. If your spouse spends $4,000 for every $2,000 you bring home, something eventually gives way. This is what is going on with the trade deficit.

In fact, the trade deficit is one of the most important trends in the economy, and the one most likely to affect the value of the dollar. Combined with our government's big budget deficit, the trade deficit only accelerates the speed of decline in our dollar's value. Speaking in terms of spending power of the dollar, the trade deficit is the third rail of the economy. Here is what has been going on: The United States used to produce goods and sell them not only here at home, but throughout the world. We led the way, but not anymore. The shift away from dominance in the production of things people need has allowed other countries (most notably, China and India) to pass us up, and now the U.S. consumer has become a buyer instead of a seller.

This international version of conspicuous consumption is financed not from the profits of commerce, but from debt. Let's think about this for a minute. If we were buying from domestic profits, the trade deficit wouldn't be such a bad thing. It would mean we were spending money earned from domestic productivity. But this is not what is going on. We are going further and further into debt to buy goods from other countries.

Our wealth is being transferred overseas and, at the same time, we are sinking deeper into debt. This is taking place individually as well as nationally. Consumer debt (you know: credit cards, mortgages, lines of credit) is growing to record levels, and the federal current account deficit is moving our multi trillion-dollar national debt into new high territory.

Sure, we should be concerned about retirement income from savings, investments, pension plans, and Social Security. But a bigger danger is that, even with a comfortable retirement nest egg by today's standards, what if those dollars are worthless when we retire? What then?

The big question today is, how long can this debt-driven economy continue? If you quit your job and refinance your home, you could live for a while on the money. The higher your equity, the longer you would be able to spend, spend, spend. But then what?

This is precisely what is going on in the U.S. economy and, at some point very soon, we are going to have to face up to it and change our ways. The trade deficit is the best way to track what's going on. Returning to the analogy of quitting your job and living off of your home equity, you may stay home all day and order an endless array of electronics, furniture, toys, computers . . . in other words, you could consume goods in place of working. But remember, you didn't win the lottery; you are financing this "new plan" with borrowed money. The lender will want that repaid. So this individual version of a trade deficit (the deficit between generating income and spending money) is what is happening on a national level in the United States.

This is the problem that is directly affecting the value of the dollar; and the situation is getting worse. We know that the dollar is in trouble because we see it depreciating against the floating currencies of other countries. America has a lot of wealth, but that wealth is being consumed very quickly. History shows that no matter how rich you are, you can lose that wealth if you're not productive. Meanwhile, the dollar's value falls and - in spite of the Fed's view that this is a good thing - it means our savings are worth less. Your spending power falls when the dollar falls, and as this continues, the consequences will be sobering.

The dollar's plunge has taken many people, currency experts of banks included, by surprise. For many of them, it is still impossible to grasp. Some talking head on CNBC said that he was at a complete loss to understand how such weak economies as those seen in the European Union could have a strong currency. For America's policy makers and most economists, the huge trade deficit is no problem. They find it natural that fast-growing countries import money while slow-growing economies export money. At least, that is the recurring theme.

So Americans traveling abroad may continue to complain that "it has become so expensive to travel in Europe" as though the problem were somehow the fault of the Europeans. But in fact, it is the declining spending power of the dollar that is to blame, and not just the French, the Italians, and the residents of the so-called "chocolate making" countries.

This problem is pegged not to some speculative or fuzzy economic cause, even though the concept of currency exchange rates continues to mystify. A historically large trade deficit is at the core of the declining dollar. Somebody needs to get over the notion that our economy is strong and other economies are weak, merely because this is America. In the United States, the reason for the trade deficit is not a high rate of investment as we see in some other countries, but an abysmally low level of national savings. We are spending, not producing.

A second argument offered by some is that "capital flows from high-saving countries to low-saving countries, wanting to grow faster." Under this reasoning, a deficit country, looking at both consumption and investment, is absorbing more than its own production. But whether this is good or bad for the economy depends on the source and use of foreign funds. Do those funds pay for the financing of consumption in excess of production (as in the United States) or for investment in excess of saving? That is the key question that ought to be asked in the first place about the huge U.S. capital imports.

To quote Joan Robinson, a well-known economist in the 1920-1930s close to John Maynard Keynes: "If the capital inflows merely permit an excess of consumption over production, the economy is on the road to ruin. If they permit an excess of investment over home saving, the result depends on the nature of the investment."

The huge U.S. capital inflows (economic jargon for money coming into the country), accounting now for more than 5 percent of gross domestic product (GDP), have not financed productive investment. America's net investments are among the lowest in the world, meaning we prefer spending and borrowing over actual production and growth. The huge capital inflows have not helped finance a higher rate of investment. America has been selling its factories and financial assets to pay for consumption.

It's helpful to use a real means for measuring economic strength. Money coming here from overseas finances higher personal consumption. The steep decline in personal saving is a symptom of our spending, and along with that habit we have lower capital investment and a growing federal budget deficit. The U.S. economy has for years been the strongest in the world, leading the rest of the countries. Our Daily Reckoning newsletter routinely gets reader responses saying, in effect, "How dare you impugn the superiority of the American economy! How dare you!"

We're rather thick-skinned so the insults bounce off rather easily. But "facts are stubborn things." The fact that the U.S. economy has outperformed the rest of the world in the past several years is easily explained. Our credit machine has been operating in overdrive nonstop.

It is geared to accommodate unlimited credit for two purposes- consumption and financial speculation. Let's look at these two things a little more deeply. Credit is not the same thing as production, despite the fuzzy logic you get from the financial media. There is a severe imbalance between the huge amount of credit that goes into the economy and the minimal amount that goes into productive investment. Instead of moving to rein in these excesses and imbalances, the Greenspan Fed has clearly opted to sustain and even to encourage them. Today it is customary to measure economic strength by simply comparing recent real GDP growth rates. It is pointed to as proof and applauded by U.S. economists when U.S. economic growth outscores Europe- like some kind of dysfunctional futbol match.

Financial speculation is equally unproductive. An investor puts up capital to generate a sustained and long-term growth plan. For example, buying and holding stocks is a form of investment and a sign that the investor has faith in the management of that company. peculators don't care about long-term growth. They want to get in and out of positions as quickly as possible, make a profit, and repeat the process. So speculative profits-especially those paid for with borrowed money-tend to be churned over and over in further speculation and increased spending. None of that money goes into investment in the long-term sense. The speculator is invested in short-term profits, nothing more. Even so, the speculator is today's cowboy, the risk-taking, living-on-the-edge market hero willing to take big chances. He is seen as a guy with big stones because he's staring the prospect of loss right in the eye.

Regards,

Addison Wiggin
The Daily Reckoning

Editor's Note: Addison Wiggin is the editorial director and publisher of The Daily Reckoning. Mr. Wiggin is also the author, with Bill Bonner, of the international bestseller Financial Reckoning Day and the upcoming thriller Empire of Debt. Mr. Wiggin is frequent guest on national radio and television programs.

The above essay was taken from Addison's book, The Demise of the Dollar…and Why It's Great for Your Investments. To order your copy, please see here:

Demise of the Dollar

-- Posted Thursday, 28 June 2007

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You Would Have Thought It Was A Gold Bull Market!

By: Richard J. Greene

-- Posted Thursday, 28 June 2007 | Digg This Article

There are just an overwhelming amount of bullish factors for gold and silver that are still cleverly being camouflaged so that the fewest possible can see them. From this point forward; remember the words of former Fed Chairman Paul Volker from the 1970’s, “the one mistake that I made was in not capping the gold price.” Do not forget that statement because they did not forget this time and that has created the most incredible investment opportunity for those that see through it that has ever existed. Control and manipulation in precious metals markets has reached a new level of transparency this year in an effort to discourage interest in the precious metals for their traditional investment merits.

A key event awakening the world to the continuing decline to worthlessness of fiat currencies led by the dollar; was when China was disallowed from spending some of its stockpile of reserves to purchase Unocal. China has amassed close to $1 trillion in reserves and has been instrumental in prolonging the viability of the U.S. dollar by recycling trade surpluses into U.S. bonds despite massive trade and budget deficits that can be traced to Americans consuming far in excess of what they are producing. The most basic of economic principles has been totally lost on the American public. Due to being led by feeble economic minds such as Ben Bernanke and Alan Greenspan, the American public has to be among the most economically illiterate empires in history. We have been on the verge of bankruptcy for so long that most don’t even have slightest hint that we would have crashed long ago if not for the arm twisting of other Central Banks by the U.S. to run similarly irresponsible monetary policies worldwide. The problem is right here in the United States and it starts with a lack of savings. (By the way, define saving as: that left over from the rewards of production that has not been totally consumed rather than the more commonly accepted; borrow money or extract equity to flip into the nearest asset bubble.) Yet our fearless financial leaders, (clowns), Helicopter Ben or Mr. Magoo would have you believe we Americans are bravely shouldering the world’s burden because we are more willing to consume with money we are borrowing from our trade partners and buying things we have not yet earned and taking rewards that others have earned and that we will be unable to repay. This is another form of the Adolph Hitler style of truth: say it often enough and they will believe it.

A debt-based fiat currency system that has now fully expanded worldwide has only one way to go and that is toward final collapse. Now that the U.S. has bought some time by convincing other countries to increase their money growth rates even higher than the U.S., we are at such high rates of growth worldwide, (on the order of 15%) that we are literally hurtling toward either hyperinflation or economic devastation. The U.S. is in a box and seriously at the mercy of other countries’ decisions because inflation is rising and we can not raise rates due to the leverage, particularly in housing, and we can not lower rates for fear the dollar will rapidly implode. Thus with money compounding worldwide at a 15%+ clip annually led by Russia at a 57% annual rate, inflation will be too obvious to even the biggest economic dullards. Even by holding rates constant the Fed would, in effect be easing aggressively as real rates would become even more negative than they already are. If you can not feel the walls closing in then you haven’t noticed the many countries that have spoken of diversifying their foreign exchange reserves or increasing their commitment to gold. Syria and Kuwait are the latest examples of countries that have had enough of the excessive money creation in the U.S. and have moved to de-link their currencies from the dollar. Our foreign policies have been heavy handed economically, militarily and financially. We are failing on all fronts and stand ready to slap China in the face with trade sanctions even while they have been most instrumental in keeping our currency from plummeting. We should fear the risk of a military aggression on our part is a bigger and bigger risk as our other two methods of control are weakening considerably. This would be an even bigger mistake. The U.S. dollar is on the way out and just because officials have convinced other countries to wreck their currencies at a faster rate does little to salvage anything except perhaps a little more time.

The U.S. continues to bleed enormous trade and budget deficits, has lost its industrial base, finds fewer takers of its oversupplied currency, and can’t even manufacture borderline positive economic statistics despite massive fraudulent manipulation. The World Gold Council earlier this month said world gold demand is running 31% above a year ago while supply continues to decline. The world’s largest producer, South Africa, saw gold production fall 7.5% last year to an 84 year low and continued declining in this year’s first quarter at an even greater rate despite an almost tripling of the gold price in the last five years. Gold production peaked in 2001 at 2645 tonnes and fell to 2470 tonnes by last year. Five of the top producers: South Africa, Canada, Australia, Peru, and the U.S. produced more than half that total in 2001 with 1330 tonnes and saw that drop off to only 1095 tonnes in 2006. These stats make a pretty compelling bullish case yet gold is trashed in the press, the TV, financial advisors, and especially the bullion banks and the gold cartel. They have resorted to an especially incredible tactic of late; instead of smashing down gold when negative news for gold is released, they especially whack it when gold positive news is released. Despite these attempts gold has held up even with heavy Central Bank sales, heavy shorting in the futures markets, double leasing of the same gold, and attacks on the gold ETF which has been driven down with dollars being thrown at these paper markets. Meanwhile, jewelry sales are up 17% and physical demand was high on any sell-offs.

The tide is turning as gold as a percentage of global currency is now down to 10% from a high of 84% back in 1950; so the Central Banks are running out of ammo to cap the gold price. Of course, those investors that continue to make their gold investments in the paper markets of the futures markets and the gold and silver ETF’s are helping to cap the price because the gold cartel will someday run out of gold but they will never run out of paper. These instruments are what help them to crush the charts of the stocks and the metals causing chartists and technical players to pile on downswings. There is more technical analysis on the major gold websites than ever…forget them, they do not matter. First of all 99% of them are trying to chart gold and the stocks in dollars and that is a totally frivolous effort. The dollar is a measure of nothing with unlimited supply at any point in time. Technical analysis is another tool being used to cap gold and gold stocks, nothing more at this point. Don’t listen to technical analysis and don’t listen short term price explanations of the days action. If you do, you will notice: higher interest rates are bad for gold; lower interest rates are bad for gold; high oil prices are bad for gold; lower oil prices are bad for gold; get it?...EVERYTHING IS BAD FOR GOLD! That’s what they have to get you to believe for the currency system of the world to make it through one more day. When that one more day doesn’t come if you listen to these people you will be left far behind and in an incredibly short timeframe.

Since 1970 the money supply of the world has increased more than 20 times the industrial production of the same period. This IS inflation. There is now more paper money added to the existing pile of money in the world EACH YEAR, close to $4 trillion, than the value of all the gold mined in human history and the pace is accelerating to the point that the paper money is beginning to be selectively rejected. Do you not believe that holding gold and silver will not go up more in value than paper nothing? This is all you ever have to know about gold and silver. PERIOD!

There is a favorite saying that I like very much attributed to Sidney Greenberg: “A successful man is one who can lay a firm foundation with the bricks that others throw at him.”

They are throwing bricks at you right now and they are made of gold and silver. GRAB THEM!



Richard J. Greene June 28, 2007
Clearwater, Florida

-- Posted Thursday, 28 June 2007

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http://news.goldseek.com/GoldSeek/1183042950.php

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http://www.signalwatch.com/markets/markets-dow.asp

Updated Thursday, 6/28 for Friday's market.
Key DOW Levels for 6/29
UP Above 13,500
DN Below 13,250
Volatile Afternoon..

Dow trades in volatile fashion, remains beneath 13,500.

From prior commentary, "...since the index staved off any sell-off attempt, we can assume that another move higher within the large trading range is very likely...Watch for strength through 13,500 for signs that another test of 13,700 may occur..."
The Dow opened the session very quietly today, but really increased in volatility late in the session, as the index swayed between 13,400 and 13,500 before closing the day with a mild 5 point loss. The Dow held beneath 13,500 throughout the session and continues to honor this zone as resistance, which we will continue to watch for potential strength.

The 15 and 60 Minute Charts show the Dow is holding beneath a clear near-term resistance level at 13,500, which we will continue to watch closely for more signs of strength back toward the 13,700 zone. A break of this zone could easily boost the index another 200 points.

Keep an eye on the 13,400 level tomorrow, as a break through this zone could easily spark another test of lows at 13,300.

Short Term Dow

The Dow closed the day just above near-term support at 13,400, seen in the 5 Minute Charts. Watch this zone closely for early weakness.

Medium Term Dow

In the medium term, we are still out of the market and will watch 13,500 up, and 13,250 down; using 20 point stops.

NASDAQ & S&P

The NASDAQ and S&P each held gains nicely throughout the day, but increased in volatility before closing mixed. Watch clear resistance levels tomorrow for signs of direction.

Summary

The Dow closed the day in a highly volatile fashion, but remains within a clear 100 point range. Watch this range tomorrow for signs of medium term direction.

Thanks for listening, and Good luck in your trading!

Ed Downs

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"Integrity has no need of rules." - Albert Camus (1913-1960) -

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"From none but self expect applause:
He noblest lives and noblest dies
Who makes and keeps his self-made laws."
-- Sir Richard Francis Burton - (1821-1890) English explorer, linguist, author, and soldier

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" function of free speech under our system of government is to invite dispute. It may indeed best serve it's high purpose when it indices a condition of unrest, creates dissatisfaction with things as they are, or even stirs people to anger. Speech is often provocative and challenging. It may strike at prejudices and preconceptions and have profound unsettling effects as it presses for understanding.": -- Justice Potter Stewart - (1915-1985), U. S. Supreme Court Justice
Source: in Free Speech and Political Protest , 1967

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"The end move in politics is always to pick up a gun." --- R. Buckminster Fuller

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Click here for text only version of the site (great for dialup users)!

http://www.ichblog.eu/text/

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Read this newsletter online http://tinyurl.com/dy6yy

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Number Of Iraqis Slaughtered In America's War On Iraq - At Least 655,000 + +
http://tinyurl.com/usq4x

Number of U.S. Military Personnel Sacrificed (Officially acknowledged) In America'sWar On Iraq 3571
http://icasualties.org/oif/

The War in Iraq Costs
$438,558,311,420

See the cost in your community
http://nationalpriorities.org/index.php?option=com_wrapper&Itemid=182
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Secret Trials For Terrorists, Says US Judge

David Nason, Chicago

A TOP-RANKING US judge has stunned a conference of Australian judges and barristers in Chicago by advocating secret trials for terrorists, more surveillance of Muslim populations across North America and an end to counter-terrorism efforts being "hog-tied" by the US constitution.
http://www.informationclearinghouse.info/article17934.htm

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"Everybody Knows the Clock is Ticking

Yet nobody knows what time it is.

By Jim Kirwan

For most of the last ten days the news from Washington has been punctuated by the bizarre antics of Dick Cheney - the man that puts the 'Vice' in the US presidency. History gave us all a lesson during the Nixon years and Watergate, when the line between the laws and those who either make or enforce those laws was re-emphasized.
http://www.informationclearinghouse.info/article17932.htm

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Impeach Cheney

The vice president has run utterly amok and must be stopped.

By Bruce Fein

Under Dick Cheney, the office of the vice president has been transformed from a tiny acorn into an unprecedented giant oak. In grasping and exercising presidential powers, Cheney has dulled political accountability and concocted theories for evading the law and Constitution that would have embarrassed King George III.
http://www.informationclearinghouse.info/article17933.htm

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The Ignorance Of The Highly Educated

Wealth, Empire And The Future Of America

Video

Prof. Peter Dale Scott presents a condensed version of the two chapters from his forthcoming book, "The Road to 9/11", that deal with the actions of Dick Cheney on the morning of 9/11, and a host of troubling contradictions on that day, in lecture form.
http://www.informationclearinghouse.info/article17931.htm

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At least 117 killed as U.S. occupation grinds on:

A car bomb killed 25 people on Thursday at a busy intersection in Baghdad where minibuses pick up and drop off passengers, while 20 beheaded bodies were found on a riverbank south of the capital, Iraqi police said
http://www.alertnet.org/thenews/newsdesk/L28641145.htm

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Government said to have lost control of Basra:

As U.S. troops battle to retake Baghdad and surrounding areas, the government is reported to have lost its control of Basra where almost all of the country's oil exports originate.
http://www.azzaman.com/english/index.asp?fname=news\\2007-06-27\\kurd.htm

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Say goodbye to war Americans don't care about:

If I were an American soldier in Iraq, I'd be tempted mightily to say, "Good luck and goodbye," and then start for home.
http://tinyurl.com/25al22

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Turkish army chief insists on attack on Northern Iraq :

The head of the Turkish armed forces insisted Wednesday on the need for a military incursion into northern Iraq to hunt down Turkish Kurd rebels based there, but said he needed the government's green light to do so.
http://tinyurl.com/2d97wb

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Manufacturing Consent For War With Iran:

Iran helping to plan attacks in Iraq - US:

Iran is training fighters in Iraq and helping to plan attacks there despite diplomatic pressure for change, U.S. officials said on Wednesday, while violence around the Arab state killed at least 19 people.
http://www.alertnet.org/thenews/newsdesk/L27811652.htm

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Iran says it backs Iraq government:

IRAN'S supreme leader said his country backed the Iraqi Government and accused the United States of seeking to undermine Tehran's ties with Baghdad, the Iranian student news agency ISNA reported.
http://tinyurl.com/2gjlpn

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Obama would consider missile strikes on Iran:

U.S. Senate candidate Barack Obama suggested Friday that the United States one day might have to launch surgical missile strikes into Iran and Pakistan to keep extremists from getting control of nuclear bombs.
http://tinyurl.com/yawtm2

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Bolton: I'm 'very worried' for Israel:

Sanctions and diplomacy have failed and it may be too late for internal opposition to oust the Islamist regime, leaving only military intervention to stop Iran's drive to nuclear weapons, the US's former ambassador to the UN, John Bolton, told The Jerusalem Post on Tuesday
http://tinyurl.com/2yy2oc

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In a world gone crazy:

Congress Votes to Send Iran President Before U.N. Court :

Today the House of Representatives passed H. Con.Res.21, a resolution that pressures the United Nations Security Council to charge Iranian President Mahmoud Ahmadinejad with violating the 1948 Convention on Genocide and the United Nations Charter because of his alleged calls for the destruction of Israel.
http://campaignsandelections.com/oh/releases/index.cfm?ID=1328

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Another sick joke:

Bush cites Israel as an example of progress for Iraq:

President Bush held up Israel as a model for defining success in Iraq today, saying the U.S. goal there is not to eliminate attacks but to enable a democracy that can function despite violence.
http://www.chron.com/disp/story.mpl/nation/4929061.html

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At Least 13 Palestinians Killed As Israeli Occupation Forces Attack Gaza:

Israeli forces killed at least 13 Palestinians on Wednesday and wounded more than 40 others in ground fighting backed by tanks and air support during military operations across the Gaza Strip
http://tinyurl.com/2bf2yb

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Israeli troops battle Fatah militants: -

Israeli occupation troops imposed a curfew on downtown Nablus and clashed with Fatah resistance fighters as the army's activities moved Thursday from Gaza to the West Bank.
http://www.thestate.com/372/story/103476.html

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Hamas ready to facilitate Gaza crossings operations :

Hamas' spokesman Sami Abu Zuhri told reporters in Gaza that "The movement is committed to all kinds of resistance to protect the Palestinian people from the (Israeli) occupation and aggression."
http://news.xinhuanet.com/english/2007-06/28/content_6304199.htm

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Senior Russian diplomat says Moscow to keep Hamas contacts :

Russia intends to keep up its contacts with Hamas, a senior Foreign Ministry official said on Thursday, rejecting Western calls to isolate the Palestinian group after its takeover of the Gaza Strip.
http://www.haaretz.com/hasen/spages/876264.html

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Deep concern in Israel after Palestinians destroy Merkava Mk4 tank :

Deep concern prevailed in Israeli security agencies Thursday after Palestinian militants used an anti-tank rocket to hit a Merkava Mk4 tank and destroyed the vehicle slightly injuring two of its crew.
http://tinyurl.com/yrao84

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Israel angers US Jewish charities:

"Israeli officials have told us that the Finance Ministry is budgeting basic social services at a percentage of their known costs, telling local authorities to raise the money from overseas donors," an American Jewish official told The Jerusalem Post on Tuesday.
http://tinyurl.com/yvokl9

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6 Islamic militants killed in clash with Lebanese troops in north:

Lebanese troops killed six Islamic militants during a gunbattle in a northern Lebanon town on Thursday, a military official said.
http://www.ynetnews.com/articles/0,7340,L-3418760,00.html

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Western security workers killed in Afghan blast:

Two contractors killed by suicide car bomber in Kabul, police officials say
http://www.msnbc.msn.com/id/19473818/

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Attack that killed kids likely missed target: Officials:

Military knew children were present but considered risk worth it
http://www.msnbc.msn.com/id/19463133

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Libyan allowed Lockerbie appeal :

"The commission is of the view, based upon our lengthy investigations, new evidence we have found and other evidence which was not before the trial court, that the applicant may have suffered a miscarriage of justice," the panel said in a statement summarising its 800-page report.
http://tinyurl.com/3c7vd8

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CIA altered mind of a girl aged 4:

Of all the heinous acts committed by the CIA in the name of national security, these experiments, done on the agency's behalf by prominent psychiatrists on innocent victims - including children as young as four - may be the darkest.
http://www.theaustralian.news.com.au/printpage/0,5942,21980496,00.html

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With Release of "Family Jewels,"

CIA Acknowledges Years of Assassination Plots, Coerced Drug Tests and Domestic Spying
http://www.democracynow.org/article.pl?sid=07/06/27/1428212

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White House Rejects Subpoenas on Prosecutor Firings:

The Bush administration asserted executive privilege and rejected subpoenas from two congressional committees probing last year's firings of eight U.S. attorneys.
http://tinyurl.com/37pvzm

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Conyers slams Bush for refusing to answer subpoenas:

"This response indicates the reckless disrespect this administration has for the rule of law."
http://tinyurl.com/3x59oy

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Oglala Commeration 2007 :

VIDEO: Leonard Peltier was convicted of murder for killing two FBI agents on the reservation in 1975
http://tinyurl.com/39x2hb

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How can Des Browne still be in office?

By Simon Heffer
Last Updated: 12:01am BST 29/06/2007

Have your say Read comments

Britain's new Prime Minister
Gordon Brown has said he intends to govern for all of Britain: so how far does the Cabinet he constructed yesterday fulfil that pledge? How far does it promise to deal with the problems that "all of Britain" feels it has after 10 years of Tony Blair?

It might help to start by quantifying what those problems are. People are unhappy about taxation, about the standard of public services and, most keenly, about the war in Iraq. Their concerns remain to be taken on board. In simple geographical terms, many in the south-east of England feel they had been made to suffer unreasonably at the hands of the Blair Government.

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The South-East is overcrowded, its infrastructure is overloaded, and it seems to be paying huge amounts of tax to be used to subsidise other parts of the country. It also feels this was a policy deliberately engineered by some in the last administration, notably John Prescott, to punish predominantly Tory-voting areas. Is there any real sign that this will change now?

The Blair administration was viewed by much of England as being completely disconnected from it: in outlook and in policy it was relentlessly urban and populated disproportionately by Scots. Well, the new Cabinet is just as urban, but the number of Scots in it has been cut by a third, so perhaps Mr Brown has received a message. Since half of Britain is female, the cut in the number of women who attend Cabinet by right may suggest that half the population is being under-represented: it might also suggest, beneficially for the country, that tokenism has been replaced by the pursuit of talent.

The people to whom the Blair administration did not speak had a variety of grouses. They were increasingly worried by the level of taxation and by its unfair incidence on the middle classes. Whether the combination of Alistair Darling and Andy Burnham at the Treasury will make any difference in this respect is a matter for conjecture.

Certainly, the Brown administration cannot possibly be seen to live up to a pledge to govern for all our people if it continues to tax many of them heavily and unfairly: an early reform of inheritance tax, for example, would make a great deal of difference to scores of thousands of not especially affluent families who suddenly inherit an estate whose value has, thanks to rocketing house prices, far exceeded the raising of thresholds.

Similarly, it would help all of Britain if the gap between average earnings and the higher-rate threshold for income tax were considerably widened. But Messrs Darling and Burnham can be relied on to do, for the time being, exactly what the Prime Minister wants them to do in his former department, so change may be slow in coming.

The greatest clue that "change" is rhetorical rather than real is given by the one man in the Cabinet who has more or less kept his job: Des Browne, the Defence Secretary.

Few things matter more to people in this country than the war in Iraq, whose growing and increasingly agonising toll was exemplified by the deaths of three more soldiers yesterday. Yet the already ineffectual minister in charge of our Armed Forces is left in place. Worse, his job is considered to be so trifling now that he has the responsibilities of what remains of the Scottish Office bolted on to it for good measure.

This is not only absurd; it is deeply insulting to all those under arms and whose families live in dread of bad news about them. Afghanistan is, and will remain, a situation far more dangerous and intractable even than Iraq, and requires the Defence Secretary's full attention. Mr Browne is said to have kept his job because he is a friend of the Prime Minister: he certainly didn't get it on merit.

It may be that Mr Brown is planning a withdrawal of troops from Iraq so imminent that it scarcely matters who is Defence Secretary. The other minister who will be involved in this policy is David Miliband, the youngest Foreign Secretary for 30 years, and for whom Iraq is but one of a raft of problems to which his predecessor, Margaret Beckett, did not seem equal.

As well as dealing with the Middle East, Mr Miliband has to handle the connected grief of our relationship with America - something that may become easier after the presidential elections next year - and the forthcoming ratification of the EU treaty. Given the public clamour for a referendum, and the complete reluctance of Mr Brown to concede one (because he would lose it), Mr Miliband's career could be interesting.

Alan Johnson's move to Health suggests there will be no attempt to bring in more private money, which would upset the trade unions that Mr Johnson, like his master, treats with such respect. Ed Balls will consider himself to be the cleverest man in the Cabinet, and making the necessary improvements in the education system will soon be a test of how clever he is. Jacqui Smith is an unknown quantity at the Home Office, with its massive problems in dealing with immigration: she can be thankful that Jack Straw, as Justice Minister, has charge of our buckling prisons system, but she will still need to restore some of the reputation of a police force from which millions of Britons feel increasingly alienated.

To be fair to Mr Brown, his Cabinet is not sectarian, and is full of hard-minded people who eschew the superficiality of the Blair years. Although faced with a weak opposition, Mr Brown is unlikely to make the mistake of thinking that he doesn't have to try too hard.

The team he has chosen has been picked to win an election. He knows they will only do that by (to use a Blair phrase) delivering. That, in itself, would be (to use a Brown phrase) something of a change.

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Related articles
News: Brown Cabinet reshuffle sweeps away old order
Comments
When Tony Blair became Prime Minister he entered Number 10 chanting the mantras ”education, education, education”, “24 hours to save the NHS”, “no more unkept promises” and with a government that would be, “white than white”; but, after a decade most if not all of those mantras have not come to fruition.

The new Prime Minister has just carried out his first cabinet re-shuffle and from the list there is no mention of education. Instead we now have two departments, one for Schools and Children and another for Innovation, Universities and Skills; and, the Department for Trade and Industry has disappeared to be replaced by Business and Enterprise.

However, Defence appears to have been reduced in relative importance, yet again, and this despite the ongoing wars in Iraq and Afghanistan, the British soldiers killed daily in those conflicts and the comments made by Tony Blair at his last PMQ in the House of Commons on Wednesday, because the Secretary of State for Defence is now also the Secretary of State for Scotland.

Does this not show that Mr Brown has little or no interest in Defence, is in fact showing a degree of contempt to our Armed Forces personnel and that our they will continue to be stretched with a shortage of new platforms, vessels, vehicles and aircraft, and weapons systems for the foreseeable future?

What I want to hear from Mr Brown now is "election, election, election".
Posted by Kenneth Armitage on June 29, 2007 6:37 AM
Report this comment

Alistair Darling as Chancellor is the appointment that catches my eye. When there was an over-payment of social security to some recipients, the civil service suggested several courses of action but poor old Alistair was unable to work out for himself that there was another much more viable option. He did not see that reduced future payments would solve the problem over time and cause least distress.

This may be an indictment of his logic and, of course, logic is based on simple arithmetic. Do we need a Chancellor who cannot add up?
Posted by C Smith on June 29, 2007 6:24 AM
Report this comment

What a lot of Brown-suiters! We need some blue-suiters and quickly!
Posted by boz robinson on June 29, 2007 4:48 AM
Report this comment

Dear Gordon Brown,
It is really a bit much that after the promises of a "pension fund" for bright graduates they find to their cost that when the need comes to find more promising "pastures new" overseas that money already paid in to the pension fund is unrefundable....yrs etc. Isabel Witty NZ.
Posted by Isabel Witty on June 29, 2007 1:13 AM
Report this comment

When we consider that Brown was part and parcel of the Blair regime, and in fact, the prime instigator of higher taxes plus stealth taxes, overloading of the NHS with administrators instead of doctors and nurses, part of the Blair govt. who controlled the failing schools I find it difficult to imagine that he will make any changes.
Will he have a referendum? NO! Though he should as it might very well get him elected. Will he reduce taxes? Doubtful.
I really cannot believe anything that comes out of his mouth as he was part of the spin and control government already in power. Unfortunately.
Posted by c.a apicella on June 29, 2007 1:02 AM
Report this comment

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Dominic Lawson: Why is the 'listening' PM so terrified of spontaneous public engagement?
Brown's press minders saw it as their duty to obstruct attempts to ask questions
Published: 29 June 2007
Along with everyone in Britain bar one, I have no clear idea what Gordon Brown has in mind when he declares that he will "renew our constitution". If there is one thing that he should not do, however, it would be to abandon the constituency system through which our MPs are elected.

Every member of Parliament represents not just an abstract accumulation of votes, but real, identifiable people, to whom he or she is personally answerable. While those voters frequently complain that "we only see you when there's a general election", all MPs operate a "surgery" which their constituents can attend if they have a serious problem which they think requires the intercession of their elected representative. Beyond that, there is the MP's postbag, and a good constituency agent will not keep its contents a complete secret from the person to whom the letters have been addressed.

While it is true that busy Cabinet ministers will attend their surgeries less often than backbenchers, all of them do their duty. It follows, therefore, that Gordon Brown, throughout his 10 years as Chancellor, will have remained at all times aware of the sorts of things which most concern and irritate his constituents in Kirkcaldy and Cowdenbeath.

What then, is the man talking about, when he declares that he will break with the recent past by "listening to the British people"? Over the past fortnight he has spoken as if his ears have been sealed ever since Labour took office in 1997: "The last 10 years have taught me that the best preparation for Government is not meetings in Whitehall. The best preparation is listening to the British people."

The truth is that Gordon Brown is not really referring to himself at all. Without being so tactless as actually to name his predecessor, he is apologising to the public for Tony Blair on behalf of the Labour Government. While Blair began his Prime Ministership as a man apparently determined to reflect every shade of public opinion, he ended up boasting that he had always been true to his own inner voice: Vox Dei, rather than Vox Populi.

This was especially true in respect of the invasion of Iraq. By talking endlessly about "listening to the British people" Brown, I suspect, wants to persuade those who opposed that military campaign that he feels their pain. It certainly goes no further than empathy; in his answers to written questions from Independent readers earlier this week, Brown gave a predictably monosyllabic response to one who asked if it had been a mistake to invade Iraq: No.

At least the new Prime Minister dealt honestly and openly with the question. Unlike his predecessor, however, he seems terrified of any spontaneous engagement with the British public. Throughout his Chancellorship Mr Brown refused countless requests to go on programmes such as Question Time or Any Questions. Norman Lamont and Kenneth Clarke, who held the same position in a much less popular Conservative Government, were quite prepared to debate with the public in such uncontrollable and open forums.

This was not just a matter of greater confidence or courage on their part. New Labour has always believed that it can best influence public opinion by manipulating the press - and for a long time did so very efficiently; the Major government had such a hostile press that its ministers saw BBC open debate programmes as almost the only way to communicate with the public - and their political opponents - on equal terms.

Earlier this week the viewers of BBC Newsnight were given a vivid example of this continuing difference between Mr Brown and his Tory rivals. A film-maker called Jamie Campbell had some months ago pursued David Cameron up and down the country, asking him quite pointed questions, rather in the style of Michael Moore. Cameron, in Campbell's own words, was "affable, courteous and answered every one of my questions".

The difference with Gordon Brown was, as he reported, "striking". Brown's press minders saw it as their duty to obstruct Campbell's attempt to ask questions, sometimes physically. At one point we saw one of Brown's press officers call the police, who promptly hauled Campbell away and searched him, invoking counter-terrorism legislation: this, despite the fact that they knew he was a journalist working for the BBC.

Such heavy-handed intimidation does not sit well from the private office of a man who proclaims that he now wants "a different type of politics, a more open form of dialogue". Brown's office might justifiably retort that Mr Campbell is not an ordinary member of the public, but a smart-arse film-maker. The point remains: why was this encounter so terrifying for Gordon Brown's minders that they had to call in the men with bullet-proof jackets and machine guns?

In a wider sense, too, the "listening government" line is more spin than substance. All administrations, after a long period of office, are widely declared to be "out of touch". Countless New Labour focus groups will have passed this information up the line to Downing Street. The appropriate public relations response to this has always been to declare that the Government is "listening". It was this which led to New Labour setting up its "Big Conversation" during the mid-term lull of the last Parliament - although no reference to its results appeared in New Labour's 2005 election manifesto.

There's a reason for that: it's very easy, as a Government, to listen, but it then needs to decide what to do. Contrary to the fashionable view that politics is about reflecting some sort of immanent consensus, the public is deeply divided on most matters of any importance and whatever a Government decides will usually disappoint as many as it pleases. Mr Brown may decide that the public wants much more "affordable housing" - but will he then also "listen" to the howls of anguish when green fields are earmarked by the construction companies and property developers?

There are some matters on which there is an overwhelming consensus. According to recent opinion polls, about 75 per cent of the public want to have a referendum on the forthcoming EU treaty. After all, according to such experts as Angela Merkel and Valery Giscard D'Estaing, it is intrinsically - though not rhetorically - identical to the European Constitution which New Labour had promised to put to the British people in a plebiscite.

Mr Brown, understandably, does not now want to expend his political capital on such an uncertain and fraught enterprise. Fine: but if he is not prepared to accede to a clear popular demand for a referendum --on a matter which a number of other European countries will put to their own people - he should not expect us to take too seriously his claim to be a "listening" Prime Minister.

d.lawson@ independent.co.uk

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Obesity linked to Alzheimer's as epidemic looms

· Healthier lifestyles offer protection from dementia
· Overweight children lead to fears of rise in disease

Sarah Boseley, health editor
Friday June 29, 2007
The Guardian

The number of people with Alzheimer's disease is due to soar as a result of the obesity epidemic, it was revealed yesterday, as evidence grows that dementia, like heart attacks and strokes, has lifestyle causes.
The Alzheimer's Society, the British Heart Foundation and the Stroke Association joined forces to call for people to embrace healthier lifestyles in the hope of fending off all three devastating conditions.

There are 700,000 people with dementia in the UK, most of whom have Alzheimer's disease which gradually erodes the powers of the mind until sufferers do not know their own children. In 15 or 20 years, with an ageing population, that will rise to more than a million, according to the Alzheimer's Society, and within 50 years to one and a half million. With such a major epidemic looming, said Clive Ballard, director of research, "it will be absolutely essential to stop some of the risk factors".

Overweight people were substantially more at risk of dementia, he said. "Obesity is a huge risk factor for Alzheimer's.

"If you are overweight at 60 you are twice as likely to have it by the time you are 75."

The surge in childhood obesity was a major cause for concern. In the long term, it could push up the numbers with dementia hugely - maybe to as high as two to two and a half million.

Studies had shown, he said, that exercise - even in the form of everyday activity - could stave off dementia, reducing the risk by 30% to 40%.

Diets rich in vitamin C cut the risk by about 15% and a very good study had shown that sticking closely to a Mediterranean diet could cut the chances of developing dementia by up to 40%.

Just as with heart disease and stroke, reducing blood pressure is also protective - yet less than one in three people who need it have their blood pressure properly managed in the NHS.

Like stroke, dementia can be caused by damage to the brain from the bursting of furred-up blood vessels. One in three people who have a stroke will then develop vascular dementia within three or four months.

There had been some encouraging research showing that improving the lifestyle of people who already had dementia by managing their blood pressure and encouraging exercise and eating well could slow down its progress. "We can do something," said Professor Ballard.

"It is not hopeless. There is now a good evidence base. What is needed is a joined-up approach - for commissions and policymakers to be on board and a national plan for how we are going to tackle this. This is not a fantasy."

Professor Jeremy Pearson, associate medical director of the British Heart Foundation, said: "The major risk factors for heart disease are also risk factors for dementia."

Premature deaths from heart disease had been cut over the past 30 years as much by lifestyle changes, such as improving diet and giving up smoking, as by drug treatments, he said.

When people have a stroke, said Tony Rudd, a consultant at Guy's and St Thomas' hospital in London, who they see depends on the area of the body affected. "If you have some damage in an area that affects movement, you will present to me with paralysis. If the lesions are not so obvious, you may become demented and end up presenting to a psychiatrist in the dementia services," he said. "We need to start working together to see dementia as part of a spectrum that includes stroke and heart disease. We need to recognise that it is a preventable disease."

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http://prudentinvestor.blogspot.com/2007/06/fomc-takes-dovish-view-despite.html

Thursday, June 28, 2007
FOMC Takes a Dovish View Despite Inflationary Risks

In a widely expected non-move the Federal Open Market Committee (FOMC) decided unanimously to keep the Fed Funds rate unchanged at 5.25%, extending the grace period for overstretched consumers/debtors who are fearing the times of painful mortage rate-adjustments. Such adjustments are now upheld for at least another quarter.
The brief statement says:
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector. The economy seems likely to continue to expand at a moderate pace over coming quarters.
Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.
In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

It seems the doves are flying high at the Federal Reserve despite a sky full of warning signs. Recent headline inflation figures and a revision of the deflator from 4.0% to 4.2% for today's final GDP growth figures for Q1 2007 from the Bureau of Economic Analysis seem to prove the FOMC's expecations that inflation will not moderate as hoped. Q1 growth was revised to an annualized rate of 0.7% (0.6%.)
With oil futures creeping above $70 such hopes seem far-flung anyway.
Conclusion: The FOMC seems to be more concerned about choking a sharply slowing economy than fighting the worrisome uptrend in consumer prices that are poorly reflected in the Fed's favored gauge, the highly hypothetical "core" rate of inflation that may help complacency at the Fed's part but in no way mirrors consumers daily experiences at the cash register.
The continued hold on rates may be a temporary relief at first sight, but the easy monetary policy will only prolong the credit financed shopping spree of consumers who are already indebted up to their ears.
Labels: Fed, FOMC, interest rates

by The Prudent Investor @ 13:08

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http://www.dailyspeculations.com/wordpress/?p=1835

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APPLE'S IPHONE, AN INVESTORS DILEMMA
by Hans Wagner
TradingOnlineMarkets.com
June 28, 2007

Apple has helped investors beat the market this year. The company’s iPhone is one of the biggest events of the year for many investors and those interested in the potential of a “game changing” device. Any investor who bought Apple’s stock in that recent past has enjoyed a very nice appreciation, partly due to the anticipation that has built up around the iPhone. The question for investors is do I hold on my Apple stock, or do I sell it before the iPhone is released for sale 6pm local time on June 29, 2007. Let’s see if we can help put some perspective on this issue.

iPhone Hype

In case you haven’t heard about the iPhone here are a few points to consider. The iPhone will be available from the Apple Store and from AT&T Wireless, formerly Cingular Wireless, with a price of US$499 for the 4 GB model and US$599 for the 8 GB model, based on a two-year service contract. Apple intends to make the phone available in Europe in Q4 2007 and in Asia in 2008.

Management at Apple expects sales of the iPhone to reach 10 million phones by the end of 2008. PiperJaffray, an investment bank, expects Apple to sell $15 billion in iPhones by 2009, more than the $13 billion in MAC computer sales.

Then there are the detractors who say the iPhone is overpriced and will not play well in the smartphone markets. These people are extensive users of email on their devices and many analysts do not believe the iPhone will be a viable email device.

On the other hand, the iPhone could prove to be the device that the next generation of mobile web users wants, a device that handles web pages and video better than current products. Walt Mosberg, a journalist who reviews technology for the Wall Street Journal tested the iPhone for two weeks in cities across the U.S. You can read the review here. Basically he says the iPhone is a “breakthrough” handheld computer that has some limitations, especially the AT&T network it uses. However, it will automatically switch over to any available Wi-Fi network it finds giving it excellent Web browsing speed.

The point of all this is there is a lot of hyped up expectations regarding the iPhone and Apple’s stock. This could be good or bad for investors.

Investors’ Dilemma

The dilemma investors face is do they sell Apple’s stock before the sales of the iPhone begin, or do they hold on counting on the hype to drive the stock higher. There is an old axiom on Wall Street “Buy on the rumor, sell on the news.” The idea is when the news comes out the price of shares will fall. But what if the iPhone lives up to the hype and the price of Apple takes off with it. In this case Apple shareholders will miss out on the increase in the price of the stock.

So we return to the question “Do I hold on to my Apple stock or do I sell it before the iPhone goes on sale?” If only there was a way to hedge your bet on Apple. In other words, protect your investment on the down side; yet take advantage of any up move if it takes place. Well, it turns out there is a way.

Protect Current Profits

First, you can use a stop loss to protect your shares from a more than expected fall in the price of the stock. But what if you want to keep you Apple shares, since you believe in the longer term for Apple? Also, you are concerned that your stop will be hit on an initial drop in price and then the price of the shares will jump back up. If this happens you no longer have a position in Apple and your shares have been sold at a lower price.

Another way to protect your stock position in Apple is to use a Put Option. A Put Option gives the owner of the put the right, not the obligation to sell the shares of the underlying asset at a set price. An example will help to explain this strategy. First, let’s say you own 100 shares of Apple (AAPL) that you acquired at $90 a share earlier in 2007. The price as of the close on June 22, 2007 was $123.00 giving you an unrealized gain of $3,300. Your stop is set at $110, meaning if the bid price hits $110 your shares will be sold for about that price depending on when it is executed. This would leave you with a profit of $2,000. Still a good trade, but you did leave some money on the table, and if you want to own Apple going forward, you must buy the shares again, hopefully below the $110 price level.

On the other hand let’s say you bought a Put Option with a strike price of $120, just below the current trading price. This gives you the right to sell your Apple shares at $120, no matter where the price of the stock goes. If it drops to $110, you could sell your shares for $120, so in a sense the put option acts as a stop loss. You can also sell your put option before it expires to cover the drop in the price of the shares. However, there are some caveats that you need to consider.

First, every option has an expiration date, the date when the option contract ends. This creates a time value factor to the put. Time value is basically the risk premium that the option seller requires to provide the option buyer the right to buy/sell the stock up to the date the option expires. It is like an insurance premium of the option; the higher the risk the higher the cost to buy the option. It is directly related to how much time an option has until it expires as well as the volatility of the stock.

The next factor to consider is you must pay a price to buy the put. As of the close on June 22, 2007 the price for the120 strike price put with an August 2007 expiration date was $6.00. Since you have one hundred shares this means you must pay $600 ($6.00 * 100) to buy a put. For that $600 you get the right to sell your 100 shares of Apple at $120 up until August 18, 2007. If the price of Apple falls to $110 you can sell your shares for $120, giving you a $2,400 ($3,000 profit on the shares minus the $600 to buy the put) profit on your trade when the cost of buying the put option is included. A nice trade, and $400 better than just using a stop loss at $110.

But with your put option you have another choice. You could sell you option before it expires and reap any gain to add to your overall profit. Plus you would still own your 100 shares of Apple. If the price of your Apple shares fell to $110, the price of the August 2007 120 put would rise to at least $10 (the difference between 120 strike price and the $110 price of the Apple stock). For this purpose I am ignoring the impact of the time value factor of options. So if you sold your Apple 120 August put options at $10 you would receive $1,000 and still own your Apple shares. This gives you a realized profit of $400 ($1,000 - $600) and an unrealized profit of $2,000 on the Apple shares you still own. In this case you are better off, as long as the price of your Apple shares do not drop any further. To that end, you should hold your put until the price of Apple has found support, as that is usually the best place to exit this position.

All listed options in the U.S. expire on the third Friday of the month of the option contract. Investors using options need to be aware of the option expiration date. By owning an option you are betting that the option will become profitable within the time frame set by the option. Should the option you acquired become profitable, you can only realize this profit by selling the option. However, you must sell (close out the position) before the option expires. On the other hand, if the price of the stock goes against the option, then the loss of the premium may be acceptable, similar to the cost of insurance. After all, the price of the stock has risen.

There is a way to help pay for the cost of the put you bought to protect your Apple stock position. Sell another type of option called the Covered Call. A call option gives you the right, but not the obligation buy shares of the underlying asset at a set price. A covered call means that you own the underlying asset, so you can fulfill your obligation if necessary. Using our Apple example let’s say you believed Apple could continue to rise further, possibly as high as $140 a share by the end of 2007. It turns out that the January 2008 140 call option is selling at $9.20 as of the close June 22, 2007. By selling this option you receive $920 ($9.20 * 100) in cash. Keep in mind that you are now obligated to sell your 100 shares of Apple at $140 per share should they be called. Should this take place you would have a $5,000 profit from your originally Apple buy. In addition you would have $320 from your option trades ($920 received for your Call Option minus $600 to buy your put option you bought to protect against a move down on your shares of Apple). This gives you a total profit of $5,320.

This strategy is called a collar trade. Now remember that an option may expire before the price of Apple’s stock completes its pull back. Should this happen you will need to close out the current option contract (selling the put option, and possibly buying back the call option). You can always set up a new collar trade with new strike prices and expiration dates.

The Bottom Line

When the company of a stock you own is about to encounter a news event that is likely to cause substantial volatility in the price of the stock, investors need to evaluate what they intend to do with their stock. A variation of an option collar trade is a way to protect your shares on the down side while giving you a way to pay for the cost of the insurance. Consider using the collar trade when a company is about to announce their earnings or make a significant news announcement.

© 2007 Hans Wagner
Editorial Archive

As a long time investor, I was fortunate to retire at 55. I believe you can employ simple investment principles to find and evaluate companies before committing one's hard earned money. Recently, after my children and their friends graduated from college, I found my self helping them to learn about the stock market and investing in stocks. As a result I created a website that provides a growing set of information on many investing topics along with sample portfolios that consistently beat the market. Feel free to visit the site at http://www.tradingonlinemarkets.com/

CONTACT INFORMATION
Hans Wagner
tradingonlinemarkets.com
Manitou Springs, CO USA

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http://www.financialsense.com/editorials/williams/2007/0628.html

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Bookmobile: Master Traders & Just what I said

I recently finished reading two books, both of which I can recommend. The first is "Just What I Said" by Bloomberg columnist Caroline Baum and the second is "Master Traders" by Fari Hamzei of Hamzei Analytics.

I did not know what to expect from either book, but once started they were both hard to put down. The books are completely different in style and content and perhaps who they will appeal to. Let's take a look at each.

Just What I Said

"Just What I Said" will appeal to anyone who wants to learn how the real economy works, in easy to understand lessons cleverly disguised as light hearted articles. The book (broken out into 19 distinct recurring themes) is a collection of the best columns that she has written for Bloomberg over the past seven years, some 1300+ columns in total. The amazing thing is her columns are as pertinent today as when she originally wrote them.

There are so many misconceptions about the economy floating around that simply refuse to die probably because not enough people have read her book. Caroline tackles many of those misconceptions in a manner that anyone could understand. Her style varies from funny, to serious, to sarcastic and everything in between.

Articles in the book range from understanding the yield curve, voodoo economics, the tax code, the US dollar, the trade deficit, the Time Magazine cover curse, the minimum wage, whether or not falling oil prices are good for the economy, the seen and unseen, the political economy, and much more. In one article she compared Alan Greenspan to Alfred Hitchcock. In another article she compares birds at her backyard feeders to the economy. And she is as dedicated to a free market economy as I am.

My favorite chapters are the key myth busting chapters: "Myths Under the Microscope", "Still Nonsense After All These Years", and "Oil Things to Oil People".

Inquiring minds might be interested in how this book came to my attention. I have been reading her articles for many years (but had not yet read her book) when I made a post on my blog called Caroline Baum on Inflation. In that post I sided with her on the Fed's understanding of inflation, as well as reader reactions to her Bloomberg articles. I ended my blog with ...

Note to Caroline:
All we need now is to get you firmly in the Austrian camp.
Lunch with Paul Kasriel just may cure those lingering "monetarist blues" that you seem to have. Can I try and set that up for you?
Cheers!
I did not know if my joke about Kasriel would fly with her or not, or even if she would see it. But there are "spies" everywhere. The next day I received the following email from Caroline:
Mish, It was interesting you matched us up. Kasriel TAUGHT me economics but he wasn't an Austrian at the time. I have toyed with them, done some reading, but I have some issues with their analysis.
A week or two later she sent me an autographed copy of her book which I thoroughly enjoyed and you will too. If you are interested in learning about how the economy really works in easy to understand terms while simultaneously being entertained with humorous analogies, this book is for you.

Master Traders

"Master Traders" will appeal to anyone who wants to sharpen their trading skills with tricks, tips, and approaches to both widely used and new trading methods. The book organized into chapters has a goal of providing "Strategies for Superior Returns from Today's Top Traders".

There are four basic themes to the book as follows:
Technical Analysis
Fundamental Analysis
Sentiment
Trading Size
When Fari was approached by Wiley Publishing to write this book he was wondering what to fill it with. Instead he chose a different approach: asking 14 of the best traders, analysts, and/or hedge fund managers he knew to write the introduction and the book's 13 chapters.

Greg Collins writes in the introduction, "The focus of this book is on exposing practical methods with the hope you can find an idea or two to actually incorporate into your daily routine. It's the difference between watching a bass fishing tournament and learning how to catch dinner yourself".

Greg goes on to talk about self-awareness, humility, focus, risk management, experience, and instinct. All of those are important concepts and all of those can be found in the introduction alone.

Jeff deGraaf has a chapter on Playing with Fear and Arrogance. "Contrary to what 99% of the investment population thinks, trading is not about being right. Being right is easy. Trading is about being wrong; and navigating this inevitable occurrence distinguishes winners from the losers in the long run."

Phil Erlanger talks about Trading Seasonality.

Kevin Tuttle has a chapter on Evaluating Probabilities to improve Profitability.

Tim Ord talks about The Secret Science of Price and Volume.

Jon "Doctor J" Najarian, a 24-year veteran on the options market, including the floor of the CBOE talks about "A New Options Game". The game has changed so much that Dr. J sold his floor trading firm in October 2004 moving from being an options maker to an options taker in the process. The doctor has 5 tips for market takers and option players need to understand those tips to be successful traders in this space. This chapter is a must read for option traders.

Fari Hamzei has a chapter on The Secret Messages of Equity and Options Markets. His method involves using a dollar weighted put/call ratio.

Jeffrey Spotts talks about Making Sense of Market Moves: Using Technical and Fundamental Analysis Together.

David Miller discloses The Keys to Biotech Investing. This was one of the most interesting chapters for me. David Miller talks about the difficulty of fundamental research in the biotech sector and has developed 5 rules and 3 themes to help overcome those difficulties. I would consider this chapter a must read for biotech investors just as I would consider Doctor J's chapter a must read for options traders.

If someone can get one or two good trading ideas out of a book the book is usually worthwhile. Master Traders offers a bakers dozen of ideas to choose from and I heartily endorse it.

Final Thoughts

Many of the writers of the chapters in Master Traders have services or product offerings to sell. To me that does not detract from the ideas presented in the book. Good ideas are after all still good ideas, and one can take the ideas presented and run with most of them without subscribing to any services.

Furthermore, and in the interest of full disclosure, there is absolutely nothing to disclose. I do not benefit in any way should someone subscribe to any of those services. Nor do I endorse books or products just because I received an autographed copy.

I give two thumbs up to both books.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

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Thursday was an interesting, if relatively unimportant distraction to the market. We've learned over the years to not write off anything OPENLY attributable to the Fed, or its head, for a few days either side of the event. Those were an important tool of Alan Greenspan, the penultimate politician, as well as economist, to move the markets. Charisma was an important power lever. You should remember "When Greenspan sneezes, the world catches a cold." It took him about 10 years on the job to achieve that ability. Give Ben time. So, perhaps even the LACK of apparent importance here is important.

This FOMC meeting was required, and it looks like Ben got through it as he would have liked. A "no change of rate target" laid on a seemingly placid market. The major cyborgs have been muzzled, and the PPT appears to have put some warm air into the balloon. The indices dithered, but could find no direction following the 1415 HR announcement. I BELIEVE THAT THE LONGER OVERALL SCENARIO, TO THE DOWNSIDE, WILL NOW RESUME.

I've blown up the Dow chart so that you can see the detail of the trading transients. They are the same, of course, for the other indices. If you were controlling the market, the points at which you would push the massive-sell, and massive-buy buttons would make great sense. To most of us individual slow hands, it was an invitation to get whipsawed into little pieces. One of the particularly interesting features of the day was the apparent disgust of the major cyborgs with their inability to capitalize on the confusion by either crashing the market, or igniting a rally. At 3:30 the decision was made to sell out to protect profits, and 3 minutes later, the final sell off began. And, in 10 more minutes, it was over, leaving the dazed slow hands about 20 minutes to take their mostly protective actions.

This is a good example of what I call "The Cannibal Dance." The major cyborgs trying to trick the bystanders into their dance, in order to eat them. Today, it didn't work. A look at today's volumes tells us that the oft burned "buystanders" just didn't participate.

It appears that the indices are back on the "intended track," support for my contention that ALL of the moves since February were nasty reactions to the "China melts," (note plural), without which, we would have seen the Dow constrained within the X'-Y boundaries. The Lockstep chart is interesting because of the weak reaction to a late pivot, suggesting that the true cyclic flip did NOT happen here, but likely is "in process." I've added the down red arrow to signify direction I expect next week. If it is correct, then we'll see a continuation of the downward direction expected by the gray arrow. This very low half cycle amplitude will just be a wiggle on the way down. Won't this earnings season by interesting?

So, Ben has not yet planted his flag staff. He is choosing his battles well, so far. He will do it when he can plant it into some truly formidable vanquished opponent. Social Security is but one of the major "entitlement issues" he has shown concern about, and they are but chess pawns in some larger battle. I have not yet seen either of the articles (Washington Post was one) that triggered my rant on the "what if" scenario about Social Security. "If" didn't come, but it almost certainly WILL come, in its proper time. And, when it DOES come, a key signal likely will be NOT a sudden change in what the Fed looks at (core vs. headline), but rather, the COMPOSITION of the CPI itself. Kind of like the tricks used in schools to lower the bars for non-performing students. COLA recipients were bewildered the last time that the CPI was changed to cheat them out a realistic increase, because, for example, the relative speed to cost ratio of home computers had increased.

- Charlie Miller, MIT Retired
2007-06-28

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* FIEND'S SUPERBEAR MARKET REPORT *
* June 29, 2007 *
* *
* e-mail: fiendbear@fiendbear.com *
* web address: http://www.fiendbear.com *
*************************************** *************************************

Fiend Commentary
================
Not much of a reaction to the Fed standing pat or oil going above $70 a
barrel. Status quo wins again for now but the percolating problems
developing over the past year one stay subdued indefinitely.

I'm imagining that there will be some event--major brokerage going under,
China imploding, etc. that will suddenly break the positive momentum. My
bet is China. Its stock market has been shaky lately with sneaky moves down
and recoveries that seem to be more labored. A crash in the SSE Composite
is almost guaranteed and it will be interesting to see how the Chinese
deal with it. The fear of Wall Street should be the China pulls all of its
support out of U.S. assets to prop up its own economy

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Absolute Bond Contagion

By: Jim Willie CB, GoldenJackass.com

-- Posted Friday, 29 June 2007 | Digg This Article

home: Golden Jackass website
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Jim Willie CB, editor of the “HAT TRICK LETTER”

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise like a cantilever during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by heretical central bankers and charlatan economic advisors, whose interference has irreversibly altered and damaged the world financial system. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy. A tad of relevant geopolitics is covered as well. Articles in this series are promotional, an unabashed gesture to induce readers to subscribe.

When the contagion (denied no longer) is systemic, pervasive, broad, multi-faceted, and ominous in its lethal potential, perhaps one can calmly conclude that the system is merely adjusting to a total change in the seas. NO WAY!!! Without much doubt whatsoever, Bear Stearns is GROUND ZERO for the bond market firestorm. BS was forced to extend $3.2 billion in loans to its hedge fund clients, who attempted to liquidate but could not. That represents 25% of the BS entire capital. Don’t worry. Both hedge funds will eventually die, but when they do, BS will possibly die with them. A few months time is all they bought. Call it a STAY OF EXECUTION in legal parlance. With great amusement on my end, reaction to the denial of contagion, the claimed containment of the subprimes, the assurance of no spillover into other arenas, housing recovery in the spring, capex from corporations leading the recovery, these have been met with my disgust, outbursts of laughter, and dismay that such broad deception and misrepresentation can pass as journalism and economic analysis. Without doubt, the economics profession is replete with more harlots than Piccadilly Square or Battery Park or any fine district in Copenhagen. Instead, their analysis and forecasts should be labeled what they are, bold promotion marred by giant lies.

Some old lessons were learned long ago when listening to Wall Street and the US Federal Reserve. Whatever topic they discuss, therein lies the problem. Ignore their words and focus on their topics. They cannot avoid discussion of their primary concern, distress, worst fears, and outright trepidation. Whatever they deny most strenuously, vehemently, and frequently, that is what will occur with the greatest of impact and damage. Whatever is boasted as a systemic strength and advantage, quickly discount it as only a fleeting factor to wither away within months. They scale slowly into reality, kicking and screaming, only when they are confronted with the obvious. They are last to detect true conditions. That is their other job, in contrast to being managers of the inflation apparatus.

The housing crisis and mortgage debacle are two sides of the same bubble powered by basic monetary and debt inflation. Just as the mortgages have begun to reset to higher adjusted rates (an average of 1.8% to 2.2% higher), the mortgage bonds must next be reset to lower ratings than ‘AAA’ which stands as an insult to the intelligence of a warm bodied investor with a pulse. The significantly higher monthly mortgage payments coincide with the massive mortgage bond valuation declines. Just as foreclosure auctions essentially go ‘No Bid’ with 90% of the home inventory to move, the mortgage bonds have gone ‘No Bid’ with those auctions in the public view. Far more fire sales of toxic mortgage bonds are in trouble beyond what the plebeians can observe. Next they must work through the phase of $2 trillion adjustable mortgages enduring a rate reset. Many home owners will face 50% monthly payment increases. Some will see a double. The bankers made the rules by which they will suffer. They imposed stiff pre-payment penalties for any refinance before full term of mortgage loans. They tightened lending standards to the point that 80% of all first-time buyers are refused loan applications. Bankers and lenders face a tough decision. Soon the cost of portfolio insurance will exceed the loss from their liquidation. Then mortgage bonds will be sold in droves. The subprime mortgage ABX index has plumbed no lows, lower than last February, the index measuring that portfolio insurance cost.

For the tenth consecutive month, the median home price has fallen on a nationwide basis. Aggregate prices are down 14% from the April 2006 peak. The last time conditions were so bad, the Great Depression was in full swing. We are now in the midst of the Great Orwellian Depression, where counterfeit money flows freely (mostly into wealthy pockets), economic statistics are all rosy (see Wobegon Days), spokesmen from government, banking, and Wall Street claim both the USEconomy and US stock market are in great shape, drugs are dispensed liberally upon the US public (see ‘soma’ in Brave New World), the military is first in line for money and supplies (largest non-corporate oil consumer in entire world), public monitors are commonplace, and the majority of the people acknowledge things are going in the wrong direction.

Bloated inventory aggravates the housing crisis and mortgage debacle. Both new home inventory and new home inventory continue to rise. The supply side of the equation is getting worse. With tighter lending from institutions, with more caution from buyers, with removal of speculators altogether, the demand side is also getting weaker. So home prices will come down, like another 20% at least nationally. Reports stream in that even low-end homes are rising in inventory, and falling in price. About 80% of first time buyers are refused mortgage applications. The high end has already seen massive price markdowns and swollen inventories.

IRONY OF BEAR STEARNS, ODD MAN IN
The most intriguing element of the Bear Stearns incendiary news recently has been the inner motive for major Wall Street firms to turn a deaf ear to BS for help. In 1998, during the LongTerm Capital Mgmt fiasco, BS failed to offer help. So now WS offers them no help. However, although BS is the kingpin among collateralized debt obligation (CDO) broker dealers, the numerous WS houses have a basement full of similar mortgage backed securities (MBS) and other CDO bonds. One really needs a nice cartoon to depict this, but that is not a skill possessed here. The dozen major houses all share common dry kindling in their basement, or is it oily rags? By permitting Bear Stearns to set afire their basement contents, all Wall Street firms are vulnerable at an extraordinary level. BS is not ‘Odd Man Out’ but rather an insider of different stripes, disliked, but connected in important avenues of capital flow into toxic bonds. If truth be known, JPMorgan and Goldman Sachs probably own a similar wad of MBS and CDO. That claim is especially true if one considers the counter-party risk associated with client hedge funds.

Sadly, the system will grow much worse, not better. The victims and exploited have no power. Ironically, the power brokers have a fire in their basement, which is certain to spread to a grotesque level. The entire asset based bond market will suffer quantum losses once the rating agencies do the obvious, DOWNGRADE. We must observe to see how the US Federal Reserve and Dept of Treasury enable public money and phony money to offer grandiose assistance to themselves, just like in 1998 when LTCM was bailed out. Another dangerous signal has been how the USFed and Treasury are attempting to create new rules to collude for easier money and debt security creation. A serious fraud has been perpetrated to maintain value in these acidic CDO bonds. Rating agencies are complicit in the fraud, coming to the aid of their clients via negligence and dereliction of duty.

A bitter twist must be described. In the last two years, the degree of targeting by JPM and GSax against their own clients, gunning for their critical support levels, has become horrible enough to call the parent creditor brokers as PREDATORS. See Goldman Sachs and Amaranth for a vivid example. This current drama reeks of irony. Wall Street has permitted ignition of a fire which will reach their own foundations and ramparts. One can only wish that our compatriot precious metal and energy investors did not include whiz kids like hedge funds wearing propeller hats, who in turn are subject to the dastardly deeds of Wall Street giants.

In the Mussolini Fascist Business Model framework, these Wall Street firms are much like commanders of cannons fired upon the private sector. Recall the Bolsheviks with naval cannons directed toward the Romanov family in Russia. In the framework of Von Mises theories, these Wall Street firms are much like vampires sucking money out of the private sector. The competing currency war and race to the bottom are vividly coming to life. In the framework of a colonial time when the previous King George ruled, these Wall Street firms are akin to aristocrats lording over their castle, seizing booty as fellow wealthy citizens transport large chests of money via stagecoaches from castle to castle. With the police, regulators, and courts all aligned to protect those engaged in large scale theft along the roadways where the money changers ply their trade, one should not expect any prosecution, resolution, or change. The power factions will continue to thrive.

In this Fascist Business Model, the ruling elite have all the marbles, make all the rules, enforce those rules, protect their friends, collude with fellow agencies, abuse the power of government posts to further their cause of accumulation for wealth and power. For evidence, check the court decisions, the regulator actions (see SEC and CFTC), the lack of convictions inside Wall Street firms (see Enron, WorldCom, Tyco), the overturned convictions of minor Wall Street players (see Quattrone), the debt rating agencies sitting on their hands (see Fitch), the outsized short positions of gold & silver and other commodities like natural gas, the initial public auctions of Chinese banks (see ICBC). The gradually realized outcome of the Fascist Business Model, and why the elite love it, is that the Middle Class is drained, and the poor remain ever poorer. It is not a coincidence that the merger of the USGovt and big industry has occurred while the US Middle Class has suffered a tragic income reduction since the 1970’s. Pay no attention to official income statistics, which are a woefully concocted spew. They reduce nominal income by a grossly inadequate degree, greatly distorting any reduction from price inflation. A constant income over the past six years would have declined in real terms by 7% to 11% each year. That is roughly a 50% decline in real terms!!!

FAILED AUCTIONS
The Hudson Institute recently issued a white paper on the rating agencies. It is in no way comforting. Often confused erroneously with a mission charter similar to the Securities & Exchange Commission, these outfits are neither unbiased nor effective. Refer to Fitch, Moodys, and Standard & Poor as leaders who dominate their arena. My June Hat Trick Letter covered their utter compromised role. They are dependent for income from the investment banks whose debt security products they issue ratings on. They do not look backwards on old debt securities when refining their models, since they have already been sold. They routinely do not incorporate (ignore) the debt situation of borrowers. They are late in reacting to changed situations, like an obvious decline in home values, the collateral for many CDO bonds. The system is so screwed up, tilted toward corruption of the value of risky bonds. The lower tier juniors must be jettisoned first, before the higher tier seniors which comprise 90% of the market. One would hope that the system would be transparent, regulated, liquid, as well as fair & balanced. Unfortunately, it is none of the above, the last to fall being the liquid trait. One possible solution under consideration is for the Big Three Ratings Agencies to withdraw ratings of many high risk mortgage bonds and other collateralized bond securities. If a home auction or mortgage bond auctions attracts no bids, what is their value? If you cannot say anything good about a bond, or can find no value, then say nothing at all!!!

Too much ‘scratch & sniff’ lately has revealed that such CDO and MBS bonds are worth far less than the lofty value associated with ‘AAA’ ratings attached. The odor is of financial sewage and excrement, not value. Recent attempts to sell $4 billion in junk mortgage bonds by Bear Stearns, another $850 million in similar junk by Merrill Lynch and JPMorgan, all failed miserably. Merrill managed only to unload $100 million of $850M of assets put up for auction sale. One problem is that the public usually has no appetite or interest in such bonds, even if of good value. They comprehend stocks. Also, pension funds have wised up, now realizing they bought a heap of overpriced mortgage bonds in the past, a mistake not to be repeated. Big Wall Street firms have butchered the balance sheets of many clients, passing on the junk. Hedge funds cannot be conned into buying any more junky bonds even at discount, since the discount once offered is grossly insufficient nowadays. Besides, some hedge funds have died. Public CDO bond auctions are the chosen route. Therein lies the problem, since public exposure means that the system must mark down prices. A failed auction means other similar CDO bonds must be reduced in value. THE PROCESS HAS BEGUN. The ratings agencies will be last to follow suit, not to be blamed for initiating the process.

Poor Bear Stearns is in trouble. They were forced to cancel that heralded Everquest initial public stock offering, where scads of acidic bonds were to be sold to the unsuspecting public. They would surely have lied on the value in the prospectus, read with magnifying glasses by the dullard public. Whether the SEC obstructed the IPO or not, who knows? Doubtful, since Wall Street is so deep into their pockets, that the SEC can seek relief in the bathroom without usage of hands. THE CRISIS IS FINALLY OUT IN THE OPEN. Being in public view, being visible to the army of analysts, having blood on the floor detectible to potential buyers, and worst of all, having the open wounds so clearly observable that the rating agencies must respond, THE CANCER MUST FINALLY BE DIAGNOSED IN THE OPEN.

In the United States, always a sucker can be found. Some are well dressed and well heeled, like perhaps even PIMCO. They are the Texas State Teachers Union gobbled up some discounted mortgage bonds. Now Wake Forest University in North Carolina is in the process of investing $25 million in discounted mortgage bonds promising to pay a hefty yield for income. Check the principal in a year or two guys! It might be down 20% to 30% at least.

HOLLOW PERVASIVE DENIALS
Like peeling the layers from an onion, removing the various hollow denials has been a staged process. The denial of a wider mortgage problem beyond the infamous subprimes was the first truly hollow denial to be peeled back. The Alt-A mortgagors found themselves in the line of fire from resets, delinquencies, and defaults. Then came the claim that the banks and large lending institutions could handle the problem. Upon closer inspection, one can see that at least $750 billion in questionable mortgage toilet paper has been strewn around the balance sheets of their owners, whose combined value is in the neighborhood of $850 billion. Then came the wishful thinking that the housing market would stage a recovery in the spring. Isn’t that when more homes go on the market, both existing (for school vacation reasons) and homes from builders (after winter construction)? Then came the absurd claim that home prices had begun to stabilize and the worst is over. The inventory glut is testimony to the falsity of such claims, along with the vastly reduced home buyer traffic flow. Then came an absolutely absurd claim that business capital expenditures (business investment) will come to the rescue, and actually lead the way for consumers. How utterly absurd! A consumer driven USEconomy contradicts such a claim instantly, as we have seen. Nowhere is there a ‘build it & they will come’ mentality in the Untied States. More like, ‘if they can borrow, they will spend’ is the motto. Borrowing funds is a tough sell nowadays. Capex does not lead, it follows. Income depends on the financial centrifuges in this upside down USEconomy where the financial tail wags the aging three-legged dog. The missing leg is the manufacturing sector. One should note that the denials can be integral parts of the US Mythology.

Obviously, the decline on the tangible housing side and the bond security side have just finished the first deadly stages, ready to proceed to the next stage, then to the truly interesting and challenging phase when meltdown is the topic on a daily basis. Again, pay attention to the topics, ignore words. It started with ‘Subprimes’ and then ‘Home Builders’ and then ‘Mortgage Bonds’ with the next topics to be ‘Credit Derivatives’ and then ‘Meltdown’ and then ‘Hedge Fund Blowup’ and then finally ‘Bailout’ discussed on a regular basis to such an extent that the enlightened are annoyed, and the tone deaf can hear.

My forecast stands. With each passing month, my trio forecast looks increasingly likely. The last two are the latest conclusions.
1) the bailout will be at least $1 trillion and possibly much more among bond holders
2) the housing decline will wipe out all gains in national home values since 2001
3) all except one or two home builders will declare bankruptcy
4) USFed wants considerable destruction so as to consolidate the banks
5) USFed wants broad economic decline to usher in the North American Alliance.

The band of professional analysts has begun to properly describe the situation, using words such as ‘tip of the iceberg’ and ‘tipping point’ and ‘interconnected’ and ‘domino effect’ among others. This will be interesting to observe.

IMPACT ON GOLD
Much depends on key decisions to be made. Will the Euro Central Bank hike interest rates again? Probably yes. If so, then the USDollar will test DX=80 again, and USTreasury Bonds will once more face a selloff. If truth be known, the biggest factor behind the May-June USTBond selloff on the long end was the scuttle ditch executed by China and Russia. The USGovt has little place in making demands to China regarding trade, yet did so. The debtor listens to the rules, decisions, and abides. The USGovt displays little wisdom in deploying a missile system pointed at Russia, when Putin controls an enormous strategic advantage in energy production AND distribution. The Druzhba Oil Pipeline in Lithuania now serves as the first linkage between the Energy War and the Renewed Cold War. Details are in the June Hat Trick Letter report. It is not being repaired, so the Baltic States suffer. Lithuania supported the US Military deployment.

Will the Bank of Japan hike interest rates eventually again? Probably yes, but unsure when. They must. If they do not, they leave their entire economy and financial system wide open and vulnerable to inflation. Economic growth, monetary growth, financial market growth, consumer spending growth, these all greatly outpace the measly 0.5% official interest rate within Japan. Of course, one should never lose sight of the key subservient role of Japan to supply the Western world with easy money for carry trades. Without the Yen Carry Trade, the Western banks would have gone bankrupt long ago.

How much does the USFed and USGovt want for the USEconomy and banking sector to suffer? This is the quintessential question, whose answer might be known only to the cabal in power, pulling faraway strings tied to US leaders. An astute contact has posed the theory, based upon considerable observation, that the Dynamic Duo of JPMorgan and Goldman Sachs have undertaken two key and different functions. My reference is of the Evil Twins. Well apparently, they have two distinct roles which have evolved over time. ArthurC (friend of friend) poses the theory that JPMorgan will serve as the ‘waste basket’ to capture the brunt of the underwater credit derivatives. Since well past a salvageable state, JPM will serve as the consolidated garbage can that the Powers That Be require for any and all destroyed financial instruments. The JPM house is beyond reproach, can easily sidestep audit, is not burdened by disclosure, can have losses forgiven or bailed out secretly, works for national security (thanks Security Czar Negroponte), and will never be coerced into revealing the boils, cysts, and blemishes under the skirt. On the other hand, Goldman Sachs serves as executor in charge of enacting change through policy. They boast a growing list of partners sitting in very important powerful political positions. Some claim GSax manages the outsourced US financial operations. The tentacles have extended and continue to extend. The appointment of Robert Zoellick as head of the World Bank is the most recent. In addition to Secy Paulson at Dept of Treasury, we have Josh Bolten as the White House Chief of Staff.

GOLD WILL SOAR WHEN THE RESCUE BEGINS. The difficult questions remain which shed light on when that might be. Will the USFed cut short-term interest rates if demanded by the bond market? Even if the long-term interest rates rise in the market more subject to equilibrium forces? Personally, my preference is to own silver and silver mining stocks. One is hard pressed to find a story where central banks dumped tonnes of silver bullion. In fact, silver delivery is so constrained and obstructed, that a silver default is the present reality in my book. The image of Helicopter Ben showering the nation with money is not accurate. He and his compromised USFed institution will flood their banking compromised cousin cadre with money.

When mortgage bonds are properly price finally, the impact will be huge, extending broadly to the entire credit market. Why? Contagion will spread because almost everything in the bond market is connected, via credit swaps, spread contracts, and an array of complicated derivatives (sometimes called exotic). Leverage has been abused broadly and pervasively and for a long time. Subprime and other higher risk mortgages have defaulted to a degree inconsistent with the value of related CDO bonds which contain them. Losses will grow suddenly into the hundreds of billion$ when the downgrades finally come, when the bond markdowns finally come. Many investment institutions are not permitted to hold bonds which fall below a certain investment grade. So sales are almost automatic, forcing bond principal values much lower. Be sure that the major Wall Street banks and broker dealers are working feverishly to dump as much of their toxic bond holdings on unsuspecting hedge funds, pension funds, and public as possible before the great price valuation cuts. Sheer weight of gravity might run ahead of the rating agencies to pushing the next lever. The pervasive unspoken fear among experts is the degree of the contagion. Corporate bonds, junk bonds, emerging market bonds, these are certain to be detrimentally affected. Insofar as foreign central banks are concerned, they hold some hydrochloric mortgage acid. They could easily sell some USTBonds in order to offset some mortgage losses. Does that qualify as contagion? Sure. Gold traditionally benefits from the ratcheted degradation of systemic risk.

Bear Stearns has earned the label ‘Tip of Iceberg’ with full justification. My view is systemic contagion, not isolated contagion. Any mortgage bond rescue package will render the USDollar vulnerable to another PROFOUND round of devaluation. Gigantic money creation adds to the supply of USDollars, sure to cause an exchange rate devaluation, unless most other major currencies suffer the same dilution. With the sequence of crises engineered and papered over, the USDollar will be mostly 0’s and 1’s soon, and not much value at all. Gold is counting on that eventuality. Pushing the gold price down will be the sewer effect from liquidations. Pushing up the gold price will be the heavy downward pressure on the USDollar.

The big fix is the national bailout of the big banks after their bond holdings collapse. Gold investors are counting on it, since the flood of monetary inflation will be acute, huge, and sure to find plenty of haven in gold. The USTreasury Bond market might be severely damaged, the price (and yield) will respond to reduced foreign willingness to hold. The prestige and reputation of the US$ and USTBond are sure to be degraded and shamed. Always the flip side, mortgage rates will rise as the meltdown occurs. The housing market will be slammed one round after another. The new mantra will not be focused on recovery, but when will the bleeding end? And when will the bailout rescue be officially enacted? The fresh money in colossal volumes used in rescue, called monetary inflation by the wise, called liquidity by the deceitful, will be the harbinger of the march to $1000 gold.

The big problems are that the USFed might prefer to be slow to recognize the debacle, the rating agencies might prefer not to downgrade at all, and the big banks & broker dealers might succeed in containing their fire for many more weeks or months. Conditions must worsen much more before the USFed takes drastic action. The momentum, ripple, and feedback effects have much more pathogenesis to occur. Actions behind the scenes are almost assuredly desperate. We are close to an event where USFed has a repeat of September 1998 when they flooded the system to bail out LTCM and destructive Nobel Prize winner schemes. In a system dependent upon monetary inflation, even genius is guaranteed to take the system to the brink, and to disappoint the managers and investors alike. Even the LTCM bailout had a secret motive, to cover up the need for a gigantic short cover rally in gold. Has anyone noticed that the Bank of Italy has no gold to offer in official Euro Central Bank sales? That is because they lost their gold in the LTCM fiasco!

TIDBITS
With Asians withdrawing from recycled trade surpluses into USTBonds, with Persian Gulf nations rumbling over USDollar pegs which heap price inflation upon their local economies, the USFed has been forced to monetize the USGovt federal debt on an increasing basis. Ever since the Chinese decided to send a message (decreasing their holdings of USTBonds for a month to show Bernanke they could play nasty with his interest rates), the USFed is trapped in a minefield with multiple tripwires. Ben has begun to go public in his reflections of reality, that both the housing crisis has more negative momentum to suffer, and the household pain from wealth reduction will be much more damaging. He has yet to publicly awaken to the mortgage debacle and its devastation. They are two sides of the same fiasco. Some hard evidence of strain was seen with a recent USTreasury auction. One went out in early June at a 1.9 bid cover ratio on the 30-year bond. No rally ensued afterward, rendering all buyers almost instantly underwater. A bid cover ratio of 2.5x is normal. Bond dealers have good memories; they will not be burned too often.

Prices for food cannot be all that bad. Heck, bananas sell for 4 cents each here in Costa Rica. Cantaloupes sell for $1 only. A full meal with frijoles, vegetables, either chicken or fish can be found for under $4 at several nice locations, some with a great upper view of passing pedestrians. Plenty of them are worth the view. The level of beauty, appeal, and personal appearance is easily 10-fold greater than in the corpulent states. That makes for high consumer confidence here on the eleventh parallel, where the long spring rainy season is close to an end. Pura Vida!

The word for mortgage in Spanish is ‘hipoteca’ whose verb form has additional meanings of to compromise and to jeopardize. Hmm, how true! Another interesting perspective is that a home mortgage is essentially a leveraged home credit derivative, which does not have margin calls in mark-to-market calculations, but which can indeed have rising margin requirements. The M2M would require full payment or additional down payment in equity if the home dropped in value. The rising margin has come in the form of adjustable rate resets. Homeowners have begun to benefit from an education that many novice futures contract participants receive, namely losing all their money rapidly. They believed the realtors and so-called experts, that home values never go down. So this is what Greenspan boasted about on financial innovation, effective risk offload, and some such nonsense? When will the Greenspan legacy and reputation be downgraded? Maybe never, since he offloaded the risk to Bernanke.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com

-- Posted Friday, 29 June 2007

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