|
Here is a sample of the Tuesday Report and the archives of all the current updates and Tuesday Reports...
Real Estate - Is It Over?
March 28, 2006
In this issue...
The Dow continues to gain ground like a runaway freight train. How long this will last is anyone's guess. Frankly, we believe most of this rise is built by way of the incredible amount of liquidity that continues to be poured into the economy by the Federal Reserve System. Foreigners, reinvesting the dollars they get from us, contribute as well, but would not be able to do so were it not for the runaway Fed.
Gold is again moving up quickly. It was up over $6.00 Monday. Silver is exploding. Part of that is due to the excitement over the near-certain offering of a Silver Exchange Traded Fund (ETF). Silver closed up over $1.20 today at $10.91 ask - the highest we've seen silver in many years. Once the initial excitement over the ETF is digested, we'll see silver settle back a bit, but the prospects are still very bullish.
Key Indicators Table
| Description |
Current Level |
Since Last Report |
| Dow
Jones |
11,250.11
|
152.56
|
| NASDAQ |
2,315.58
|
8.40
|
| Gold |
567.5
|
12.00
|
| Silver |
10.91
|
1.25
|
| Platinum |
1070
|
35.00
|
| Swiss
Franc / US$ |
1.31
|
0.01
|
| Crude
Oil |
64.17
|
3.62
|
(**Note: BEI does not provide investment, tax or legal advice. For specific advice on securities, insurance, legal matters or taxes, see your own advisor. Our information is from sources we think reliable, but there are no guarantees. BEI, its officers and directors may have positions in investments discussed herein. We do not sell securities or insurance. Not all these points apply to all people. If you want individualized help (except on stock market purchase or sale), contact BEI at (800) 460-7238. All calls confidential. No charge for initial consultation. Details available on request.)
BEI Market Report
Real Estate – Are We Close To A Top?
“A recent study shows that as of last September, 9.4% of all mortgage borrowers had either no equity or actual negative equity in their homes. That increased to 29% of all owners who took out first mortgages in 2005. This amounts to the following -- borrowers with $800 billion in mortgages now owe more on their homes than their homes are worth. Home prices have declined in selected areas of the US, but in general prices are still above those of a year ago. However, home insurer First America states that if prices were to fall just 10%, the share of 2005 owners with no equity or negative equity would surge to nearly 48%.
New home sales fell 10.5% last month, the biggest drop since April 1997.”
Excerpted from Richard Russell’s Dow Theory Letters, March 24, 2006
“Total mortgage debt expanded an astounding $1.470 trillion in 2005, up 14%. That is five times the average annual mortgage debt growth during the 1990s. TOTAL MORTGAGE DEBT ballooned 29% in just two years to $2.708 trillion, and more than doubled in seven years, up 107%. TOTAL MORTGAGE DEBT increased to a record 96% of GDP during 2005, up from 67% to begin year 2000, and 51% in 1982. Household mortgage debt expanded a record $1.133 trillion, or 14.1%, up from 2004’s record $992 billion growth and the 90s average of $230 billion.”
Excerpted from Bob Chapman’s The International Forecaster, March 18, 2006
America has always had a love affair with real estate. The belief that “A man’s home is his castle” is very true for many if not most of us. For much of our generation and perhaps others that have gone before, it has previously made sense to purchase a home rather than rent. There are many reasons, but today, because of the unique position of the current residential real estate market, we believe it is important to review some of the purely dollars-and-cents factors about home ownership that may – temporarily at least – indicate that home ownership should be postponed.
During the last decade or so, we have talked to many actual and would-be home owners who claim that even if pure economics says rent, buy is better because if you rent, “you’re just throwing money away!” At the time, there was a certain amount of truth to that. Once the check was written, your rent was gone! Of course, for the rent you did have a roof over your head. But the reply to that was – and correctly, too – “Yeah, sure, if you rent you’d have a roof over your head, but you wouldn’t be building any equity!”
All that may have changed now. The real estate market is changing. No longer can we count on a steady rise in the dollar value of our homes. Many economists see a leveling off of real estate prices in most US markets this year. Some see an actual decline. Some of those we closely follow see a 20% decline in US residential real estate over the next several years. Some even see a major crash where the market loses 30% or more in just a few years. Just before leaving office, even Fed Chairman Alan Greenspan remarked that the nation’s housing boom is near an end.
Advice From The Past: Borrow All You Can, Now!
All of our lives, real estate has been sacred. When your editor was a young bank management trainee in the late 1960s, a senior vice president addressed a group of the trainees saying: “I advise all of you to buy the most house for the least down-payment you can possibly afford. Do it right away! Why? Simply this: Inflation will boost the value of your home quickly – you will have built in, unbelievable equity! Also, in addition to regular salary increases based on performance, promotions, etc., inflation will carry your income up. Your home mortgage will be a smaller and smaller percent of your home’s value. And your monthly mortgage payment will be a smaller and smaller percent of your income.”
But back in those days, the absolute minimum down payment on a home loan was 25% of the purchase price or appraised value, which ever was least. You had to have a solid job for at least two years. Your credit had to be flawless. Your monthly house payment could be no more than 25% of total monthly income. And, in general, your total monthly debt payment could be no more than 33% of income.
The friendly senior vice president who gave out that advice 40 years ago has long since faded into history. If he were around today, he’d probably choke on what he said then. We have build a real estate debt pyramid beyond what even the most liberal mortgage bankers believed possible in those conservative days. We all know the drill: Mortgage loans can be had for 100% of the purchase price. Sometimes more. Payments are made as low as possible – even interest only. Income? No verification needed. If you have a pulse and can sign your name 23 times or so on all the documents – you can borrow!
Are The Days Of Rising Real Estate Prices Numbered?
But today, the advice from many so-called “responsible” financial sources is essentially the same as it was 40 years ago: Borrow all you can, now. But the conditions are different. We are close to the very limit of what consumers can afford to pay in debt repayment. Interest rates are beginning to move up. Loans will not be as easily available soon. We have an international problem with the US dollar. So far, the value of that dollar has been supported by foreigners who eagerly lend us more. But those days will end. Nearly all credible sources agree that the dollar must eventually slide against other currencies. When it does, even “Helicopter Ben” will be forced to act to defend the dollar. And that means raising rates, possibly significantly. When those long-term mortgage rates begin to inch up, it will be like a noose tightening around the neck of US housing. No more “0 Down” loans. No more interest only for five years terms. No more “no income qualifier” loans. When all that goes away, a huge chunk of the demand for homes will simply disappear. How fast? Depends on how fast the rates rise. Another factor is recession. If interest rates rise significantly enough to slow the dollar’s fall, business borrowing will slow, people will be laid off. Incomes will fall. Foreclosures will increase. Nearly all real estate prices will fall. It is simply not a question of whether prices will fall. Only when. As Richard Russell points out above, the when may be very close.
What if the dollar does not fall? We think it will – it is almost guaranteed. But, if the unlikely continues for years – that is if other nations continue to inflate their currencies faster than the Fed inflates the dollar, we will eventually see runaway inflation. If that happens, the housing market would see even more rapidly rising prices. But incomes could not keep up for long. We’d end up with a hyper-inflation, followed by massive deflation with the same result. It would take longer and the pain would be deeper. But again, the result would be the same.
It Can’t Happen Here!
Our point? The prices of residential real estate today are supported by a huge, leveraged, derivative laden mortgage market. Money is created, loaned and spent on housing in the billions of dollars. These are, by-and-large, created dollars. This is how the bloated residential housing market of today has been created. Foreigners are involved too, because they receive billions of our inflated dollars for the goods they sell us. Those dollars are then loaned back to the US, keeping the supply of lendable funds high and interest rates low.
When we hear the sages of today defending the real estate prices as forever going up, or at the very least, only pausing or declining slightly before resuming the trend, we try to be very polite. They tick off their list:
1. Real Estate has always gone up. (It hasn’t)
2. Real Estate may go down in a few areas due to regional factors such as when a local industry moves or enters difficult times.
(What if the whole country is the region – not just a local industry? It happened before in the 1930s. Many believe it will happen again – only this time will be much, much worse…)
3. They just aren’t making it anymore! People multiply. Land does not!
(Remember, demand means people who are ready and willing to pay! If they have no money and no credit, it doesn’t matter how much they desire real estate, they won’t – they can’t – buy it. In such instances, prices fall.)
4. The home is where people spend their money. It is American as apple pie. It is tradition and culture.
(That and $3.95 will buy you a good Latte!)
5. People are moving in to the hot areas with money! Many don’t need loans. They are retirees who sold their houses for big money! This will continue for a long time!!!
(When the music stops, these folks will not be selling their houses – except at drastically reduced prices. Then – they won’t buy fancy new homes – they’ll move in with their kids – if the kids still have a place and room…)
There are more of these, but they usually are just a variation of one or more of them or make so little sense that we won’t bore you with them here.
Logical Planning
If you buy into this thinking – and we do – you may be thinking: “How can I prevent my family from being wiped out?” There are no cookie-cutter answers, but there are some points to consider.
1. If you own your home free and clear of debt, you are in good shape. You can stay in your home and weather any storm.
(Possible exception: Real estate taxes. In recessions and depressions, local governments are strapped for cash. Unlike the federal government, they can’t - at least not yet – reach into the federal trough of created money. They have to tax the people. It is true that most real estate taxes are geared to assessed value. But the lag effect of assessments means that those taxes come down very slowly. You might want to stash several years of anticipated real estate taxes.)
2. If you have a mortgage, and if it makes sense, divert other investments and pay off the mortgage. Many do not have that option, of course.
3. If you have a mortgage, but have a good equity in your home, consider selling the home and re-employing the equity in other investments that will survive in the times just ahead. (See our BEI model portfolios for ideas.)
4. If you have a mortgage, high payments and little equity, sell now and rent. That way you avoid foreclosure as well as preserve your credit and peace of mind. You also will be a terrific example to others.
Of course, we are aware that all but the first alternative are not easy. They require planning, foresight and courage. Try to adopt the long view. What is the end result you are trying to accomplish? We all are living in an instant gratification culture. Those days will soon be over. Why not get a head start?
If You Have Already Sold
Some have acted already. You’ve sold your homes and are sitting on the cash. We talk to these people regularly. We’ve done the same – we sold our home in Central Oregon in 2003, believing that the top was in sight. We were wrong as to timing – now would have been a better time to sell. But our thinking was right on. Now the market looks ever so much more top heavy. When will we see the real top. We believe we are in it now. Even much of the mainstream financial press has noticed that home prices are softening in many locales. It is early yet, but, in our opinion, the bubble cannot grow much more.
Many who have sold and are renting while sitting on cash are frustrated as we are. We grew up thinking real estate was home and that our homes would always appreciate. But now, all of us must realize that the real estate escalator ride will not last forever. Our research has now shown clearly that in many instances, renting a good home is substantially cheaper than owning the same home. Lets look at a couple of examples. The following are actual very current instances in two northwest cities.
Home One:
This is a $700,000 home. It is actually just a 2,000 square foot rambler with a lot of extras. It has an incredible view. This home rents for $1,300 a month on a year lease. Let’s look at this from the landlord’s point of view:
Description
|
Amount
|
Comments
|
Sale Value of Real Estate
|
$700,000
|
Based on comparable sales
|
Annual Rental Income
|
$15,600
|
Actual
|
Annual Real Estate Taxes
|
($3,800)
|
Actual
|
Association Dues
|
($685)
|
Actual
|
Maintenance
|
($600)
|
Conservative estimate
|
Fire Insurance
|
($400)
|
Conservative estimate |
Total Income
|
$10,142
|
|
Pre-tax annual rate of return
|
1.45%
|
|
Many landlords use professional property management services to handle the details of leasing such as finding suitable lessees, tending to problems, collecting rent, etc. In this instance, the fee is 50% of the first month’s rent and 10% of every month thereafter. Total for the year? $2,105. When calculated in as a cost, the return is a mere $8,037, or an annual return of 1.15%.
Home Two
Description
|
Amount
|
Comments
|
Sale Value of Real Estate
|
$385,000
|
Actual Sale after annual rental |
| Annual Rental Income |
$12,600
|
Actual
|
| Annual Real Estate Taxes |
($2,980)
|
Actual
|
Association Dues
|
($420)
|
Actual
|
Maintenance
|
($600)
|
Conservative estimate |
Fire Insurance
|
($385)
|
Conservative estimate |
Landscaping service:
|
($1,800)
|
Actual
|
Total Income:
|
$6,415
|
|
| Pre-tax annual rate of return |
1.67%
|
|
As in the first home, this one was rented through a property manager that charged a fee. It was a straight 15% of the rent. Total for the year? $1,890. When calculated in as a cost, the return is a mere $4,525, or an annual return of 1.17%, basically the same as for home one.
Some will say that property managers are not necessary – a landlord could do that him or herself. Sure. But what else could he/she be doing with the time? Time is money.
If you are sitting on cash from your home, you can earn more than rent by putting your money in a savings account! If you invest it wisely, you can – with fairly low risk - make a good profit while living in a good home.
Let’s say you sold your home for a clear $290,000 after the mortgage was paid and after the real estate commission was paid. You decide that maybe it is not the time to buy. You invest your cash as follows:
Investment
|
Principal
|
Annual Yield
|
Annual Income
|
FDIC Insured CD
|
$100,000
|
4.85%
|
$4,850.00
|
Shiningbank Energy Income Fund
|
$100,000
|
14.82%
|
$14,820
|
| Treasury Inflation Protected Fund |
$90,000
|
4.40%
|
$3,960
|
Total
|
$290,000
|
8.15%
|
$23,630
|
On a monthly basis, the income is $1,969.17. Sure, there’s tax on that. But as the examples above you can rent a very nice house for the after tax income. Roof leaks? Call the landlord. Need a toilet repair? Call the landlord. Maybe you can even negotiate the landlord to do the yard work. (It is sometimes included in rent.) No real estate taxes to worry about, no fees, no painting, etc., etc.
If You Are Just Starting Out
If you have little or no cash, we believe renting is the best answer in most circumstances. It’s true that there are “0” down home loans available and that the terms are tempting. But, in our view, buying a house on credit today is the financial kiss of death. When home values fall, a “0” down or even a minimum down owner can be very quickly under water. That is, the loan balance will be more than the home is worth. As pointed out in the Russell quote at the beginning of this article, this is already happening in some areas.
Real estate gurus tell us that owning is the only way to build equity. Our view: In a rising market that argument has validity. Not now. If the value of the home even just stays flat, the equity you build in the early years of a 15 or 30 year mortgage is really ‘nil. You would do far better renting and then investing the difference between the now artificially low rent and a mortgage payment. We know this is hard to swallow. But remember: Real estate prices – like everything else in life – do not go up ad infinitum.
Should You Rent?
In many if not most markets, you can often rent far less expensively than you can own a home today. We think the case for renting in today’s market is strong. Could we be wrong? Sure. If home prices just hiccup here and then go moving on up, the appreciation from owning would change the picture, perhaps substantially. We think that entirely unlikely.
Furthermore, while you rent, you can preserve and possibly increase your capital. The investment income example provided above is very conservative. Far more could be done by an active investor or good money manager.
If we are right, if real estate sags in the next few years, your capital will not. Even if it does not grow in nominal terms, it will in relative terms because in, say, two to five years housing could drop 20%. Then, if the market has bottomed, you’ll be able to buy a far better home with essentially the same capital. If the value of your investments increase, then it’s a whole new and very much improved ball game!
But there are other considerations:
(1) Many – particularly wives – feel sort-of “uprooted” if they don’t “own” their own homes. No sense of permanency.
(2) Making major changes – adding on a room, redoing a kitchen, etc. – becomes impractical if not impossible.
(3) Moving when a rental period is over – say when the owner wants to move back in or sell – is often inconvenient. It is absolutely dreaded by many who have moved often.
Window of Opportunity
If you own a home now are considering selling and renting, we suggest you do so now and get ahead of the crowd. Once the top in the market has clearly formed, prices will not stay at current levels. The simple, tried and true maxim of investment, “buy low and sell high”, is just as true for real estate as it is any investment. Right now, real estate prices are at or near a historical high.
Conversely, because of the topsy-turvy mortgage terms out there anyone can buy a house. Many who under normal circumstances would be renters are becoming “owners” under the most egregious derivative markets ever conceived. When these terms dissolve into the ether from which they came, floods of new home buyers will disappear. Many will be looking to rent. Also, many owners will suddenly find they:
(1) Will have negative equity in the home they purchased,
(2) Will be unable to make new higher payments due to their low introductory interest rate period expiring or
(3) Will lose a job due to a recessionary trend in the economy brought on by higher interest rates.
The net result here is that when prices start to fall in earnest, rents will climb in relative terms. So if you want to execute a rent rather than buy strategy, the time to act may be at hand.
The Bottom Line
In the final analysis, the rent or buy decision can only be made after careful weighing of your particular circumstances. Generally, however, renting rather than buying makes far more sense today than it has for many years. If you already own your home – free of debt – you are in a good position. You are flexible. You can sell at or near the top – where the market is now or soon will be – and then rent. Or, you can ride out the coming decline and smile every day. If you own and have a significant exposure to mortgage debt, we suggest you evaluate your situation and possibly sell and rent. We’re doing it. Even with the usual hassles, it is working very well.
Of course, eventually the excesses in the market will be liquidated and we’ll see a bottom begin to form. Then will be the time to buy a home – perhaps several of them if you want to be a landlord. As a famous investor once said, “Buy when blood is in the streets”. Financially speaking, surely we’ll see that happen at the bottom of a real estate shake-out.
Have a good week!
(**Note: BEI does not provide investment, tax or legal advice. For specific advice on securities, insurance, legal matters or taxes, see your own advisor. Our information is from sources we think reliable, but there are no guarantees. BEI, its officers and directors may have positions in investments discussed herein. We do not sell securities or insurance. Not all these points apply to all people. If you want individualized help (except on stock market purchase or sale), contact BEI at (800) 460-7238. All calls confidential. No charge for initial consultation. Details available on request.)
At long last, we have a new Communiqué from Aptal. It came via e-mail from Easter Island yesterday. Evelyn and I left Naggai base last Thursday morning. After a one day lay-over in Los Angeles, we flew home Saturday. The teaching experience at the base was terrific – and when there is more time, we’ll tell you more. But for now, I just want to pass on Aptal’s report. As you will see, she and her compatriots need prayer.
Aptal's Communiqué
Dave,
It has been several weeks since I last wrote. Much has happened. As you may recall, Alan and Miguel traveled to the abandoned weather station three weeks ago so as to be prepared for the delivery of arms and men from Chile that were to have arrived with arms, supplies and a hundred or so commandos. Two waves were to have come on two barges. Miguel stayed to greet the men that were to have arrived in the very early morning (2:30 AM or so). He had a radio with him to receive coded calls from the barges. He was to have returned by 0800 and I was to meet him at a small café in the native village of Esteria, just outside Hanga Roa. By 9:00 AM, there was no sign of him, nor was there any coded signal from the radio.
Alan had his hands full – so it was decided that a local named Johanna and I could make the trip from Esteria to the weather station to find out what had happened to Miguel. I put on simple native clothing similar to Johanna’s and put my now almost fully recovered hair in a wrap around cap of sorts. Johanna and I put some water and a small amount of food in small backpacks and began to walk the 17 kilometers. I had a .38 caliber pistol, 100 rounds of ammunition and a hand-held walkie-talkie radio that Alan had given me. I’m not sure where he got the pistol and ammunition, since we brought no weapons with us to the island. He showed me how to contact Miguel and reminded me of the coded communications to use as we got closer.
We started at first light – about 0630. We were stopped only once by two terrorist types in a jeep. One could speak a sort of broken French – so we did talk. I smiled and said we regularly walked the entire coast line of the island for my health under doctor’s orders. Johanna said nothing since she could not understand French. Apparently, the uniformed man at the wheel accepted my explanation. After warning us that infiltrators had tried to come onto the island under the cover of darkness, and to be careful, the two men abruptly departed in the jeep going the opposite direction.
Needless to say, the man’s remark left us concerned. We hastened our speed. At about noon, a large truck pulling a flat bed trailer came by with an old man (Perloa) at the wheel. Johanna knew him, so at his invitation we got in the cab with him. Johanna told him we were going to see the small park – with some of those Easter Island statues. He said it would be a mile past his destination, but he’d take us anyway. We did not tell him our actual objective which lay only about a half kilometer further on.
The ride was very welcome as it saved us maybe as much as 10 kilometers. Arriving at the park, we quickly thanked Perloa and bid him goodbye. After he disappeared, we set off towards the abandoned weather station.
As we came over the top of a low hill, we saw that there was a beehive of activity around the old weather station. Not sure at first whether the men and trucks were Chilean or terrorist, we hit the ground and just watched over the rim of the hill. There were three jeeps, a large truck and an armored personnel carrier on hand. We could not get an accurate count on personnel from where we were, but there appeared to be at least a dozen. They were not making any effort to conceal their activities.
Johanna suggested we skirt the station and continue a few hundred meters beyond to some caves she knew of there. About thirty minutes later we crawled into a low cave about 10 meters above the surf. The opening would have been large enough to walk through once the brush was cleared, but we welcomed the cover of the brush. Unless one knew the exact location, as Johanna did, it is unlikely that the cave would be discovered. We did not have any source of light with us and so were in pitch darkness once we got around the first bend. Johanna apparently knew this cave well. She grew up on the island and she and her friends had played in this and similar caves when she was very young.
The caves were deathly quiet. Somehow, though, I felt a presence in the cave. It was eerie, but nothing I could quite put my finger on. I was a bit worried – (Scared? No, Dave, not me…hah!) but Johanna guided me skillfully. Although she had not been in the caves for years, she said she had hidden some candles, some rope and other assorted items near the back. Maybe they were still there! We felt our way for perhaps twenty more minutes. Then, praise God!, we found her stash. There were probably two dozen, maybe more candles, neatly stacked against a rock near the cave’s left wall. Johanna fumbled around and found matches. The first three did not work – apparently had absorbed too much moisture. Then she found some wooden ones in a can with a screw top. And, thankfully the very first one lit. Soon we had five candles going. Johanna continued fumbling around and found several torches – short sticks wound with cloth, apparently impregnated with a flammable substance, because they lit up immediately.
The cave was large – disappearing off to the right in a generally downward slopping direction. Johanna said that she and her friends had never gone as far as they could, but she guessed they’d gone maybe a half kilometer. She showed me some initials she’d added all those years ago, noting that there had been more added since she’d been there.
We found what was left of an old tarpaulin she had used and spread it out. We had some water and a brief snack of beef jerky and some fruit from our packs. Then we decided to walk back to the mouth of the cave and see once more if we could raise Miguel on the radio. Leaning out just far enough to clear the mouth of the cave, but still hidden by foliage and brush, I keyed the radio three times and said “Lemon-lime to orange”. I listened. Nothing but three brief bursts of static as if someone had keyed there microphone. Then something tugged on my left leg and a voice said: “Sshhhh!”. I turned around, thinking it was Johanna. There, to my utter amazement, was Miguel, smiling and holding his radio.
“Miguel”, I said, “What are you doing here?” (Miguel spoke English, so I did too.)
Miguel, a handsome young man about 25 or so, said: “Miss Aptal, I am hiding for now, I knew these caves when I was a kid – and when I found Trosvar’s men crawling all over the weather station. I had to hide. I got a signal to Captain Rameriz on the ship that they could not send the barges. But my signal must have been intercepted by Trosvar’s people. This morning, men were combing the area looking for something. Of course, they do not know what we communicated because we are using the lemon-lime code system we set up. Since our general presence may be known, it’s best we don’t use the radio unless absolutely necessary – they could triangulate the signal and find us.”
I’ll shorten this up a bit, Dave, I must go. Miguel was successful in stopping the barges from coming ashore. The next task was to signal the ship that the barges could come in the next night – but would need to rendezvous at the mouth of the cave. Under cover of dark, we’d open the entrance and then re-camouflage it after the men and supplies were in.
It was decided that Johanna would return to Esteria as soon as the sun set - probably two hours away - in order to inform Alan and the others of our situation. She would also take the radio and send a brief coded transmission that she would be there, once she was clear of the cave area. Miguel and I would stay and, again under cover of dark, try to learn what the occupation of the old weather station was all about.
There’s more, Dave, much more, but I’m off to catch a plane for Naggai. I will fill you in as soon as I can – but I’m late now. Short version: Miguel and I got back safely the next morning. What we found from our spying on the weather station has to do with the cargo we saw being unloaded by the terrorists at Hanga Roa that I described in my last communiqué. I don’t want to tell you yet because we’re still not positive. But if it is what we think it is, the Chilean government, and really the US as well, as a major problem here on Easter Island!
God Bless,
Aptal
Disclaimer: Although some of the material in Aptal's Communiqué is based on real events, it is a work of fiction. Characters, companies, organizations, agencies, etc. cited herein are the product of the author's imagination or, if real, are used fictitiously without any intent to describe their actual conduct.
The following was forwarded by a reader in Bend, Oregon. It is outrageously funny – we were rolling in the aisles! But the short piece is also very sad. You can guess the reason. We’ll let you judge which emotion, hilarity or sadness, is the more meaningful.
New Student In Class!
It was the first day of school and a new student named Pedro Martinez, the son of a Mexican restaurateur, entered the fourth grade.
The teacher said: "Let's begin by reviewing some American history. Who said 'Give me Liberty, or give me Death?' "
She saw a sea of blank faces, except for Pedro, who had his hand up. He said: "Patrick Henry, 1775."
"Very good!" apprised the teacher. "Now, who said, "Government of the
people, by the people, for the people, shall not perish from the earth?"
Again, no response except from Pedro: "Abraham Lincoln, 1863."
The teacher snapped at the class, "Class, you should be ashamed! Pedro,
who is new to our country, knows more about its history than you do!"
She heard a loud whisper: "Screw the Mexicans!"
"Who said that?" she demanded.
Pedro put his hand up. "Jim Bowie, 1836." (The Alamo)
At that point, a student in the back said, "I'm gonna puke."
The teacher glared and asked, "All right! Now, who said that?"
Again, Pedro answered, "George H.W. Bush to the Japanese Prime Minister, 1991."
Now furious, another student yelled, "Oh yeah? Suck this!"
Pedro jumped out of his chair waving his hand and shouting to the teacher, "Bill Clinton to Monica Lewinsky, 1997!"
Now, with almost a mob hysteria, the teacher said, "You little shit. If you say anything else, I'll kill you!"
Pedro frantically yelled at the top of his voice, "Gary Condit to Chandra Levy, 2001."
The teacher fainted, and as the class gathered around her on the floor, someone said, "Oh shit, we're in BIG trouble now!"
Pedro whispered, "Saddam Hussein, 2003."
Finally someone threw an eraser at Pedro. Someone else shouted "Duck"!
The teacher, who had awakened, asked "Who said that?"
Pedro: “Dick Cheney 2006!”
A day without laughter, is a day wasted. (Editor: But - in this case - we also need to ask ourselves what is the real lesson here? It is not about Mexican students knowing who said what, when. It goes deeper.)
The following is from the March 11, 2006 issue of The International Forecaster by Bob Chapman. It contains important information that will help you understand what is going on in the country at the highest levels down to where the rubber meets the road. Although we are great admirers of Chapman's work, I am not sure that his editorial conclusions are sound. Specifically, we think characterization of the President as among "the biggest bunch of crooks ever to hit Washington" may not be true. On the other hand, judging by results, he may as well be.
Train Wreck
We are n the verge of the greatest inflationary binge in history. Our perceived wealth is the manifestation of one of the greatest misallocation of created assets and as such its existence will have profound ramifications. Our society, world society, has inflated expectations based upon financial leverage and useless credit. Our asset inflation and bubbles have created unsound distortions driven by unsound incentives. Due to this our capitalistic system is in extreme danger. Speculative market dynamics have fueled our economy for many years in spite of our knowledge that previous journeys into this realm have ended in financial tears and at deplorable social cost. All the economic revisionism of today won’t make the past and our human mistakes go away.
Today, like in the late 1920s, there is no sound money and credit. We live in a fiat financial structure underpinned with fiat currencies. This unsound monetary backdrop, like before, has created asset inflation, resource misallocations, speculation that will eventually bring about destabilization, unbridled non-productive debt expansion, wealth redistribution expedited by offshoring and outsourcing, a form of international socialization and an economic system now riddled with holes. This condition was not only created by the Fed and other central banks, governmental fiscal profligacy, but also a new factor the advent of electronic money, so to speak outside our historic system. Unchecked non-productive credit expansion is at the heart of contemporary monetary inflation. Inflation that is officially understated by more than 50% in a system devised to deceive not only the public but professionals as well.
Our bubble is the result of credit inflation based upon the expansion of asset and securities-based finance. A system that is fundamentally unsound. A system based on the value of speculative assets is inherently unstable and leads to booms, which we have recently witnessed, and busts like we saw in the stock market of 2000 and 2001, and we are about to experience in real estate.
We are in the age of Wall Street finance – the engine of global leveraged speculation. The Street is ably assisted by the Working Group on Financial Markets, also known as the Plunge Protection Team and the Fed, via the repo pool. We are in an era where Wall Street’s excesses are moderated and controlled by corporatists in both government and at the Fed. They are protecting Wall Street’s leverage mechanisms by interceding in all markets. They have kept the US stock market in a narrow range for almost three years to keep it from correcting. A 35% or 50% market correction would destroy their game. They are assisted as well by other central banks. Thus, we have Wall Street and the Fed governing monetary issuance, which gives them free reign to create wealth. This is assisted by a so-called derivative structure. Every time the Fed announces what it is going to do it does so slowly to allow Wall Street to take its profits. They did that with interest rates over the past two years and they have begun that process with the yen carry-trade. It is a system designed to protect the wealth of Wall Street and the very rich to the detriment of the American public. In almost two years Wall Street profits are up 80%. They knew well ahead of time what the plan was. Slowly higher interest rates and massive money and credit expansion simultaneously. The slow elevation of interest rates allow Wall street and its clients to adjust their interest rate arbitrages in financial instruments and in their carry-trade positions. Instead of normalizing, Wall Street ratcheted up its asset inflation mechanism to garner even greater profits. This is why we have not had a tightening in liquidity beyond what the Fed and other central banks have done. At this very moment, despite the condition of our financial system, and the performance of gold and silver in a rigged market, they are still expanding the use of over-issuance and augmenting even more credit inflation. These acts guarantee hyperinflation. They, of course, were aided and abetted by the Fed’s Sir Alan Greenspan in lowering short-term rates providing the wherewithal and incentive for the Street to boost leveraged bond bets and as a result bond yields fell. This allowed the boom to continue and the guaranteed profits to flow to the street. Unfortunately, slowing down the runaway train is not working. In order to keep the system from deflating, M3 and credit had to be increased. To terminate or slow it would guarantee a financial collapse thus, the high-powered game continues and any sane person knows the results are going to be disastrous. Understanding the problem is simple and the solution is, there is no way out. Wall Street understands what they are facing and they’ll play their hand until the bitter end hoping they survive. We are witnessing one of the greatest destabilizing speculative periods of all time. We are going to reap the consequences of unsound money and credit. Your only investment alternative is gold and silver related assets. This is the only mechanism for protecting your wealth.
Trading oil in euros means the dollar monopoly is over and the market place will be flooded with dollars. That means the Fed will have to monetize trillions of dollars and that is immediately inflationary. In euro terms the dollar could easily trade back down to $1.30 to $1.366 before yearend. If that transpires we could see $1.70 by the end of 2007. That means a gold price in the thousands of dollars. If the Fed thinks that by terminating M3 they’ll be able to hide what they are doing, they are sadly mistaken. We know the elitists do not want the Republicans decimated in the next election, but we’ll be able to get the numbers on what they are doing. Hiding M3 is an attempt as well to hide monetization. That is why we implore you to have almost all your assets in gold and silver. The real crisis is just getting underway.
You can expect, under these circumstances, that oil will go to $120 a barrel or higher dependent on whether there is further disruption in the supply. The good news is globalization and free trade will be stone cold dead. After a year or two they’ll be a hyperinflationary blow off and a 1929-type collapse, only worse. You have to be only in gold and silver during the hyperinflation and in gold only when the depression hits. The dollar will no longer be a place of refuge. All this should start to unfold over the next two months.
In 2000, the BIS said ex-China 49.6% of international financial assets were held in dollars and 30.1% in euros. At the end of 2005, the statistics were 37.0% in dollars and 46.8% in euro. That is a massive switch in holdings and the only way you would have found out about it was by reading the BIS’s International Bonds & Notes, not one media outlet carried this very important financial information. That means the strength in the dollar was produced by those fools choosing a higher yield and intervention by the Fed and the Working Group on Financial Markets. The dollar was also assisted by the repatriation of $325 billion by US transnational conglomerates under the Employment Act. The corporations were supposed to create jobs for workers when in fact the money was used to buy back their own shares out of the market, which was expressly forbidden under that law. When repatriating funds they paid 5 1/4% in taxes instead of 33%. A giveaway to fellow elitists. As you can see, all kinds of chicanery has been going on. Giveaways to fellow illuminists and the dollar holders leaving what they believe to be a sinking ship.
This shows you the vindictiveness and mean-spirited attitude that pervades the White House elitists.
Rep. Peter King’s prominent opposition to a proposal to allow a Dubai company takeover of 21 terminal operations at American ports has caused retaliation from our President. King is Chairman of the House Homeland Security Committee. A few days after he first threatened legislation to hold up the port deal, the Pentagon informed him that it could not provide an aircraft for his planned March Congressional delegation to Iraq and elsewhere in the Middle East. He received an e-mail from the Legislative Affairs branch of Secretary Rumsfeld’s office saying they do not have any aircraft to support the trip. Please advise if you will now pursue commercial aircraft.
George and the neocons have to be the biggest bunch of crooks ever to hit Washington. The Pentagon’s newest and fastest-growing intelligence agency, the Counterintelligence Field Activity, has spent more than $1 billion, mostly for outsourced services, since its establishment in late 2002. In the investigation of convicted Congressman Cunningham it was found that Cunningham had earmarked $6.3 million for work to be done to CIFA and the contract went to MZM. The details are terrible, but there will be charges. Cunningham, CIFA and MZM were all in bed together. We find it of interest the neocons choose not to help Cunningham.
|
|
Flash Message Archive
Tuesday Report Archive
|
