The International Forecaster (#2)

Editor: Robert Chapman, Jan 7/03

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THE INTERNATIONAL FORECASTER 7, JANUARY , 2003 (#2) An international financial, economic, political and social commentary. Robert Chapman, Editor Vol. 7 No. 1-2 (49pgs.) Phone & Fax: 941 639 4756 E-mail: bif4653@comcast.ne (Proofreading services provided by jasondrp@aol.com)

"Just look at us. Everything is backwards; everything is upside down. Doctors destroy health, lawyers destroy justice, universities destroy knowledge, governments destroy freedom, the major media destroy information and religions destroy spirituality." ---Michael Ellner

US MARKETS

The elitists that control our nation own our congress and own our oil; defense and weapons industries are deliberately creating war in Iraq and the Middle East. Hundreds of billions of dollars are being spent on the war industry to enrich these criminals and to bring about world government. In the name of Terror we now have the USA Patriot Act and Fatherland Security, both of which are modeled after the Gestapo and the SS. These elitists control the Project for A New American Century, created long before 9/11 and Iraq by the CFR to promulgate war. The foundation is sponsored by Jeb Bush, Paul Wolfowitz, Donald Rumsfeld and Dick Cheney. The NGO is beating pots and pans for war under the euphemism of promoting American global leadership. They are also demanding mega increases in defense spending so America can preserve and extend its influence over international order, or the American version of Pax Americana. Plans for invasion of Iraq were drawn and ready to go, as we predicted, long before 9/11, as was their terrorism project and the legalization of the USA Patriot Act and Fatherland Security. There are no coincidences in life. This was all pre-planned. Our new military mission is to be one of aggression. Waging wars on multiple fronts and, of course, the reinstitution of the selective service draft so our children and grandchildren can fight and die in far away lands for the "new world order." This is why we call our President Napoleon Bush. Global domination is what this cabal seeks and it will do so through imperial force. That is why in 2001 the "defense" budget was over $300 billion and 2002 will be over $350 billion. The US elitists are intent on world domination, which will be followed by world government.

Hopefully we were instrumental in the resignation of pedophile Henry Kissinger from his appointed post as head of the 9/11 investigations. Now we should all lean on pardoned criminal ex-Adm. John Poindexter. Who better than a convicted criminal to run the government database that will infringe upon every aspect of your private life?

The US Court of Appeals has acknowledged that recruiters under government direction lied to servicemen in promising them lifetime healthcare. The case will go to the Supreme Court. In 1995, the Pentagon denied medical benefits to veterans who reach age 65 and qualify for Medicare. What a wonderful government; another exercise in judicial tyranny. The Florida Board of Education has proposed tuition hikes of up to 12.5% for the state's eleven colleges and universities, which could bankrupt the Florida Prepaid College Plan and affect Bright Futures Scholarships, which are based on grades and test scores and cover 75 to 100% of state university tuition for about one-third of the state's high school graduates. Due to zero financing and $3,000 rebates, auto sales have held up in a recession. Car and light truck sales for 2002 were over 16.5 million units, off from 17.2 in 2001. Nobody needs a new car anymore. The market is truly saturated and the used car market is in a shambles. Early predictions are for 15.5 million units for 2003 and in order to achieve that there will have to be much bigger incentives, probably discounts of $5,000 to $6,000. Consumers may be willing to take on additional debt but can they service that debt? The average vehicle traded for a new model is now less than five years old; in 1990 it was 8.5 years old.

The experts have been wrong three years in a row, which certainly disqualifies them as experts. The Dow fell 16.8%; its sharpest decline since 1977 and the S&P fell 23.4%. The market has lost $7 trillion since we gave our sell signal in April 2000. NASDAQ was off 31.5% on the year and is off 73.6% from March of 2000. The Dow is off 28.8% from its high. 2003 will bring us a repeat of 1929-1933 and 1836-1839 and 2004 will be just as bad. Needless to say investors are confused and they should be when 98.2% of the experts are wrong. An absence of a war with Iraq is not going to make the market go up because the world economy's problems are structurally overwhelming. Profits should be up 10-12% in 2003 but at the cost of unemployed consumers. Those profits have to drop off when you have fewer and fewer people to sell to. By historical standards stocks should be selling at half of what they are. In our mind there is absolutely no question that Dow 7286 will be broken on the downside. S&P stocks are trading at 23 times our projected 2003 earnings. We are now correcting in the second bear market rally and once 7286 is broken to say 4500 to 5500 we'll have another rally.

In the final analysis you want to be out of the market except for very special situations, gold and silver shares and the Prudent Bear Fund and the Safe Harbor Fund, which can be purchased from Rich Radez at 800-285-1700. Our President, thru a backdoor maneuver, is encouraging thousands of companies with hugely under funded pension plans, to use cash balance plans, which will rob almost all Americans with pensions of two-thirds of their retirement. Listen, because this is very important. George Bush is attempting to sell you out. The US Treasury has proposed rules that would end a three-year moratorium on conversions to a complicated cash balance plan for pensions. Older workers will get and have gotten royally screwed by such a program. If the Treasury, that is George Bush and transnational elitist corporations, among others, were allowed to get to cash balance plans pensions for older worker, they would be slashed by 63%. This will truly be a disaster for workers and their families and should not be allowed to happen. The rules have to be passed by the IRS but that's a formality.

Cash balance is a type of defined benefit plan. Under traditional formulas, pension benefits are calculated as a percentage of wages multiplied by years of service. Thus a 20-year employee would get 30% of his final salary in monthly benefits at age 65. All the money contributed to the plan comes from the employer. In a cash balance plan, the employer also makes all pension contributions, but the workers pension benefit, which can be paid in a lump sum or a monthly stipend, depends on how much the employer contributes every year and the rate of return earned on the account, much like a 401(K). The plan is portable, allowing workers to carry their pensions from one employer to another. Thus far about 700 corporations have converted to cash balance and it is estimated the switch has cost eight million retired workers $334 billion in promised benefits. Cash balance conversions stop the continued accrual of pension benefits for older employees. They get the old pension say to 50, but from 50 to 65 years old they get the lesser cash balance programs' lower results. Our friend and benefactor, George Bush, interprets pension law in such a way that cash balance plan conversions would not be in violation of age discrimination laws. We have no protection under the law.

Our system of jurisprudence no longer works. This is another national disgrace visited upon American workers by omnipotent fascist government. You must contact your elected representatives and put a stop to this.

2002 real estate price gains were over 6.2% and in some areas prices were up more than that. On Long Island, NY, prices are up 72.8% since 1997 and in San Diego, they are up 78.1%. Since 2000 overall prices are up 15.4%. Due to 5.93% 30-year fixed lending rates, millions are buying homes and condos that they could never previously afford. That is reflected in the rental market. The commercial market has a growing vacancy rate, especially in the office sector. In the fourth quarter house appreciation slowed to 0.84% from 2.39% in the third quarter. We believe that was the top in the third quarter and lower prices would become more evident as the year wears on. The mortgage refinance boom that contributed $100 billion in fresh cash to the economy in 2002 is losing steam. The MBA index of mortgage refinance application was 4101 in the week ended 12/20/02, down from a record 6927 in October. Later in 2003, in the flight to quality, interest rates will rise irrespective of what the Fed does. It is now, not that there is little probable upside in house prices, it's as these prices decline in value how many owners will lose their homes. If you have extra real estate sell it because the price correction in homes could be 20 to 70%.

In 2002, program trading by institutions on the NYSE comprised 32.5% of total volume. That's versus 27.6% in 2001, 21.4% in 2000 and 19.4% in 1999. In this just-passed quarter it accounted for 33.1%. In the week ended 12/20/02 computer-aided strategies constituted 43.6% of NYSE daily volume, which is living proof of the activities of the "Plunge Protection Team."

This is how our government moves markets, particularly when they are thin. Venture capital returns to investors, valuations, deal flow and available dollars all continued to decline in 2002. The amount of money raised fell to 1995 levels. Valuations on good deals are too high and low -to-medium deals have fallen through the floor. Only $1.2 billion was raised in the third quarter, far below the peak of $24.3 billion in the fourth quarter of 2000. Capital raised for all of 2002 probably was $22 billion. There will be little fund raising in 2003, which means few IPO's. The entire venture capital sector is in a shambles.

The business of mergers and acquisitions was in free-fall in 2002, and 2003 won't fare any better. The total value of 2002 deals was $447.8 billion, off 41% from 2001 and it's the lowest level since 1994. The number of deals fell to the lowest level since 1993. From its peak in 2000, the value of deals has fallen by 74%; globally in 2002 they fell 28%. US mergers as a percentage of total US equity capitalization, has fallen to 4% from 12% in 2000.

In 2002, the number of IPO's hit a 20-year low of just 83 deals and those that did go public had to drastically cut their initial offering price. Predictions are that 2003 will be about the same or slightly lower. Hedge funds are the rage and they should be with their flexibility. The problem is their managements often don't measure up. $35 billion went into hedge funds through the third quarter. That's down from $42 billion in the same period in 2001, but the full year total for 2001 was a record, at $60 billion. Except for some 50 funds, the remainder did not do well; they still don't get it. Most of these funds are unregulated but almost all follow the rules the way they should. A wonderful example of how well a hedge fund can do is the Prudent Bear Fund.

Last year the dollar fell 10-17% against major currencies. We see the dollar falling another 10-15% in 2003. The experts see it 5-10% higher, but they are almost always wrong. Downward dollar pressure will come from capital flight out of the US into the euro, pound and gold. Besides, European equity-market valuations appear to be more attractive then those of the US. The dollar is going lower and unfortunately it isn't going to help the US much because their exports are not what they used to be. The dollar decline is the largest since 1987. Other factors are also hurting the dollar. Lower consumer confidence, terrible Christmas sales, lower factory orders and the plague of job insecurity to name a few. Laying off workers may improve the corporate bottom line but it also means fewer consumers. Get this, citing a shortage of money; the Bureau of Labor Statistics will stop publishing information about factory closings. Do they really expect us to believe that? What morons! They want to kill the report so business, labor and consumers don't know what is going on.

On January second the US government Plunge Protection Team showed us what market manipulation is all about. First we were told by the Institution of Supply Management that their factory index rose to 54.7 in December from 49.2 in November, which is almost an impossibility considering other contributing figures. That was accompanied by a dollar that was rising versus the yen, euro and pound. Then came the JP Morgan Chase announcement that they would only have to take a $400 million loss. A deal was supposedly cut with the insurance companies for them to take a $600 million loss. The arrangement has US Government fingerprints all over it. Our guess is the insurance companies were told to take a $600 million loss in spite of having an airtight case. The government probably set up a method of covering their losses. That, of course, overshadowed Morgan's $1.3 billion pre-tax loss. Then in a still-thin market the Dow advanced 266 points, S&P 29 and NASDAQ 49 points. We called it classical manipulation. As an afterthought Morgan CEO Harrison said, JPM does not have any "real" exposure to gold. "I don't know where that rumor keeps coming from." We do, from our spies inside Morgan. Now they are having the junkyard dogs at the SEC come after us for uncovering the truth. We can promise you one thing: neither we, nor GATA will shut up. Morgan, the SEC and the whole cabal are terrified that the public will find out that the US Treasury is covering up their losses and guaranteeing their exposure. Don't forget Barrick is part of this also. If we can drag all these criminals into the legal sunlight, not only will the gold producer go under but also their management since 1987 will lose everything they have in court. The criminality is overwhelming. The professionals on Wall Street are not inept when it comes to gold. They are terrorized into silence. Remember, markets climb a wall of worry and that is exactly what is happening to gold. The cartel tried everything to knock the price down $5 to $6 but had to settle for minus $1.70 while silver rose a penny. We surely have them on the run.

Money market mutual fund assets fell $35.45 billion to $2.297 trillion last week. The seven-day compounded yield was 0.88% versus 0.89% and the 30-day was 0.90% down from 0.92%.

Federal agents failed to detect an illegal alien who used a false identity and fraudulent documents and was employed for at least two years as a supervisor of tent installation for White House social events. He was apprehended by law enforcement at the Mexican border. It shows what a farce US security really is.

The telecom and DotCom industries haven't bottomed out yet, but much of the suffering is over. Our attention turns now to a more serious problem and that is the vehicle industry. As an example, GM and Ford must refinance billions of dollars of debt as they face potential credit problems. Both GM and Ford are one false move away from the edge of investment grade. They and the sector have the potential to destabilize the bond markets in 2003. Ford is rated at BBB by S&P, and both S&P and Moody's have Ford with a negative outlook. The fear is they both could become fallen angels and become junk. Ford and GM and Daimler/Chrysler have some $128 billion in debt; the biggest being Ford, which has $61 billion and saw sales fall 10% last year.

The whole credit structure is deteriorating and that is something most professionals don't see and when they do discover the problem they want to look the other way. Of course, the investing public doesn't have a clue. Utilities are another dangerous area with $90 billion in refinancing over the next four years in the US and about $30 billion in Europe.

Unfortunately, we see no economic recovery in 2003. Industry problems include changing accounting standards, and the possibility of war. In all, late in the year interest rates will climb higher, even as we enter depression and credit ratings will fall. That will push stock markets lower as well as bonds. Credit and interest rate problems will be even worse in 2004 and 2005.

Many pension funds are in trouble. IBM has transferred $3.95 billion in cash and stock to its pension plan, expanding investor stock dilution. That was $2.09 billion in cash and 24.03 million shares worth $1.86 billion. IBM trading at $82.00 is headed back to $54.00 and then to $38.00 a share. The final leg of the bear market will take it into the teens. If we are correct IBM will have to come up with a lot more cash and stock, as will many other "blue chip" companies. The US government tells us US pension fund plans are under funded by over $300 billion.

The US media wants to hide the news that IUE-CWA, the International Union of Electrical-Communications Workers of America, will soon go on strike against GE over an increase of $200 yearly in health care costs. The strike threat, the first in 30 years, would idle 17,500 workers or 6% of GE's workforce. A strike that shut or impaired GE's US industrial operations would mean their shares would fall in value. We recommend a short on GE at $55. It is now $24.00 and headed much lower.

Barron's profiled 22 Wall Street experts and their choices for 2001 and 2002 regarding where the Dow and NASDAQ would end up at the end of each year. The results were overwhelmingly dreadful. They were off 15 to 30% in each year. Its not that they are stupid or incompetent, but they are forced by peer influence, their brokerage firms and government to make predictions they don't believe in. The problem is that they have been responsible for billions of dollars being lost in the stock market. They, of course, got behind the recent ISM report, an explosion of new orders of 22%, which is ridiculous when it's impossible to square with almost every other piece of available data, whether from corporations, industry, government statistics or even readings of regional manufacturing activity. Again, they promote the big lie.

Here is another peak behind the Wall Street veil. Schuyler Winter, a former institutional equities salesman at Prudential Securities contends he lost his $1 million-a-year job with Prudential Securities in July 2000, after 16 years with the firm, because he warned a money manager client away from a secondary offering in stock in Purchase Pro, that Prudential was scheduled to co-manage. Winter is seeking over $32 million in commissions and punitive and wrongful termination damages. We saw this and worse go on for 28 years. It's about time someone takes these crooks on.

The INS has proposed that Americans traveling abroad submit to the government their name, birth date, sex, passport numbers, home country and address of every passenger and crewmember. This would include citizens and non-citizens. What the government if trying to do besides spy on you is to set up a national database. The police state goosesteps onward.

The NASD has advised Henry Blodget, the former Internet Analyst at Merrill Lynch, that he will probably be sued for fraud. Ho Hum, another fine and no jail time.

We find it of significant interest that the Florida State's Attorney General's office has very quietly dropped its racketeering investigation of Alliance Capital Management, which caused $300 million in state pension fund losses in Enron stock. It is no secret that the Alliance people and Ken Lay were personal friends of Governor Jeb Bush.

Florida is in the throes of a debt crisis, largely because they have been financing with debt what they could have paid for with received revenue. Now the state is nearing its statutory limit. With bills of $19 billion, they now pay $1.4 billion a year in interest. Part of the problem is $6 billion in tax cuts by the governor and the legislature. Thus there'll be more debt, more accounting gimmicks, more tax shell games, such as raiding the teachers' retirement fund. Florida's finances are like a huge pyramid scheme. Just more greed, politics and incompetence.

It is so dangerous at Lafayette High School in Brooklyn, NY that children refuse to go to school. This has brought NYPD swat teams to the school to protect the innocent. Now the school has become a prison for the attendees.

For the last several years a counterfeit $100.00 US bill, emanating from the Bekaa Valley in Lebanon, has begun to undermine international confidence in the dollar. The number of such counterfeits increases daily and it's estimated about $4 billion has already been printed. That is that new note Robert Rubin was so proud of. The secret service has been unable to stop the flow. Of course, this is truly an act of terrorism but you won't read about it in your media. It's another deep dark secret of our government that you do not have a need to know. You can't be told the truth because 76% of world central bank reserves are in US dollars. That is 70% of US GDP. As an aside, foreign ownership of the US Treasury market is over 30%. They also own 23% of the corporate bond market and 13% of the equity market. This is why investors buy gold. Gold is not dependent upon someone else's promise to pay.

A sign of the times, Phoenix officials are slashing municipal golf course fees to fill in their tee times. Of course there is no deflation. The dollar has reached 102.00. Once 100 is broken the next step is 90, then perhaps 80 and 70. We may see 90 by the end of February, which should translate into $512.00 gold.

A former fellow worker in medicine with Dr. Bill First, now Senate majority leader, said he was a complete A__H___; a doctor who amassed big bucks as a heart/lung transplant surgeon. He is also an ardent toady of the health care and pharmaceutical cartels. He was and probably still is arrogant and unhelpful.

Those of you who live in Maryland and had considered moving, should now set your moving plans in motion. Maryland became the first state to require that only new handguns with internal trigger locks could be sold in the state. It is estimated handgun sales will drop 85%. You can't fiddle with a lock when confronting an intruder in your bedroom at 3:00 AM. The next step will be enterprising parties buying used guns in other states and selling them in Maryland, bypassing the whole process of clearance and registration. A new underground black market has been born. As they say in NYC, pass a law, make a business.

In three years New Jersey will have a smart gun law, which required a block to the handgun unless it is held by an authorized user. Such a gun does not exist. We'd move out of New Jersey also. The public in Maryland and New Jersey have no rights left.

Thirty percent of 100 senior auto executives said they expected lean times industry-wide until 2005 at the earliest. Forty-eight percent of buyers expect an increase in incentives in the coming years that will be a severe burden on profits. At the Detroit auto show next week, 45 automakers will introduce more than 60 vehicles, a record for the event. They're banking that these new vehicles will capture the eye of the consumer, returning automakers to profitability and making zero percent financing a thing of the past. We disagree, the market is flooded and the used car market is in chaos. Six years ago, GM, Ford and Chrysler controlled 72% of the market. They now have 60%. In the next five years that is expected to drop to 50%. Consumers are still buried in debt and we see sales falling in 2003 even with incentives.

Despite a fourth quarter bear market rally, only 3.8% of US stock funds made money in last year's depressed market, the smallest group on a percentage basis since 1974. In November investors actually pulled more money out of stock mutual funds than they put in for the first time since 1988. Stock funds finished the year down an average 22.43% for the third year of progressively growing declines. Gold funds were the top performers, up 63.28%; short funds were up 10.23% and REITS 4.15%. Bond funds again outperformed stocks for the third consecutive year, up 6.01%. Over three years they've returned 6.04% annually, while the average diversified US stock fund has surrendered 11.872% annually.

The top fund in Specialty Diversified Equity Funds was the Prudent Bear Fund as David Tice completed another magnificent year up, 62.87%. For three years the fund was up 31.64% for five years 2.87%. It doesn't get any better than this. The combination of gold and silver shares and short positions has well rewarded investors. We continue to recommend the fund. You can purchase the Prudent Bear Fund and the Safe Harbor Fund by contacting Rich Radez at 800-285-1700.

We put a short on Home Depot at $40.32, covered at $27.28. We reshorted at $30.30 for a cover at $22.00. It closed at $21.38 last Friday, so we are stopped out again. Earnings will be $1.00 to $1.25 per share in 2003. Thus we reset the short at $21.38 looking to cover at $15.00 a share. The US accounts for 5% of the world's population and 50% of world debt. Issuance of all types of securitized debt climbed 41% last year.

Mortgage-backed debt issuance globally rose 64% in 2002 to $819 billion, accounting for 21% of global debt volume, compared with 13% in 2001. Global issuance of investment-grade and high yield debt fell 23% and 20% respectively. "Corporate America basically quit borrowing, while the American consumer never has been able to borrow so freely", says Doug Noland, credit analyst at David Tice and Associates in Dallas, Texas. "The American household has been going nuts." Last year private sector borrowing accounted for about 60% of all debt raised globally, or $2.4 trillion.

Agency, mortgage-backed and asset-backed debt accounted for 25% of the US private sector total in 2002 and about 50% of the global total. Asset-backed debt issuance is dominated by three areas: home equity loans, credit card balances and auto loans. Investment-grade-rated unsecured debt accounted for 19% of the US private-sector total, while high-yield debt accounted for 2% of the total. Refinancing of homes has provided 20% of growth in inflation-adjusted GDP since 2000 and injected some $170 billion into the economy in 2002. Mr. Noland, of David Tice and Associates says unlike corporate borrowing, which may lead to expansion, consumer borrowing is "non-productive" and its growth may mask deterioration in industry. Fannie Mae and Freddie Mac have created a housing-finance colossus that is sure to collapse. In 2002 debt proved to be astounding, especially the current account deficit. America is living well beyond its means. As an example, German debt accounted for 11% of global debt issues while the UK and Japan each claimed 3% of the total. Sooner or later these debts have to be paid and once it begins it will be real nasty for the world economy. We say get out of debt and save yourself a lot of pain in the future. Another example of questionable financing is that the proportion of refinanciers who cashed some equity out of their homes grew to 46% in 2001-2002 from 35% in 1998-1999. The average cash out grew to $31,000 from $18,000 and the share spent on consumer purchases and home improvements rose to 60% from 51%. Refinancing gave homeowners $170 billion, which increased GDP 1/2 of 1%. This year the financing boom will end.

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