US MARKETS

            Four years ago we passed the point of no return financially for the United States and the remainder of the world. Our situation today is far worse than it was in the 1930s. Our government and our banking system were bankrupt in the 1930s and they are bankrupt today. We are being forced to adopt a fascist system led by elitist corporatists and our government, something we were able to avoid during the depression. This time it is all going under.

            Between 1945 and 1960, we created real wealth. Then we began with GATT, which eventually evolved into WTO. For the last 20 years, we have eliminated tariffs, shipped entire industries overseas and have outsourced many of our best jobs to the third world.

            Most of the people we elected to Congress are either paid off or too dumb for words. The latest example of jumping from the frying pan into the fire is in California’s choice of trading socialist Grey Davis for fascist Arnold Schwarzenegger, a creature captured and harnessed by the elitists. When the real estate bubble is broken and decimates the wealth of California again, we can promise you California will end up with martial law and many other states will immediately follow.

            Anyone who cannot recognize that we have an economic, fiscal, monetary and financial crisis is just plain dumb. We have a decadent country that no longer wishes to produce, just spend. Our technology is being shipped out, over 50% of our factories are gone, we now import agricultural products and our great skills are being lost. Our country is rotting and dumb Americans stand by and watch. As we said last week, we are not alone; Europe is in the same predicament.

            Most of us stand by and watch as our President prepares to rape Social Security and ultimately destroy it. Socialism is bad, fascism is worse. Social Security is the only bulwark left for the disabled and retiree. Let us suppose you put your money in the stock market and it collapses, like we believe it will, you will be out of your only backup. Private pension plans are already in jeopardy. If the market goes down, many of them will fail, so you do not want to lose your Social Security.

            We were against the Afghanistan and Iraq wars three years before they started. We must immediately get out, and if we do not we are not going to have a US military. The volunteer system will be dead. Few want to join the National Guard or Reserves and recruitment is difficult in all service branches. The military knows what is going on and they do not like it. We know Cheney and Rumsfeld want to use mini-nukes and they plan to use perpetual warfare to establish a one-world government. We cannot allow this to happen.

            Alberto Gonzales, Bush’s Nazi lawyer, has been confirmed as Attorney General. We can now look forward to the promotion of indefinite detentions not only in foreign locations but in the US as well. The torture of detainees (prisoners) held without charges will expand under the legal rationalization for the untrammeled exercise for executive powers and the egregious abuse and misuse of those powers. You might recall that Hitler used the same strategy and justification in relations with the Soviet Union based on the excuse that Russia had not participated in the Hague Convention and therefore, had no rights under it. This is what led to German barbarity on the eastern front that was, of course, answered in return by Russian atrocities.

            Our new Himmler, Mr. Gonzales, like his master George W. Bush, calls the war against terrorism “a new kind of war.” Mr. Gonzales said, “In my judgment, this new Paradigm renders obsolete and quaint" various provisions of the Geneva Convention on the treatment of prisoners of war.” He also said the Geneva Convention did not apply to the war against the Taliban and al Qaida in Afghanistan. The neocons are operating under the assumption that there are no limitations, which either the courts or Congress and its laws can impose on the President in the conduct of war. Events will be staged and wars will happen. Gonzales argues as well that the President could launch a military attack “pre-emptively” against alleged terrorist organizations, or countries claimed to be harboring terrorists, whether or not such organizations or countries were even linked to 9/11 or terrorism. These arguments may well have been the basis for an executive order authorizing inhumane treatment of interrogation techniques in Iraq, which our President may not disclose to the public. The military has been using torture and although authorized to also do so the FBI has refused to follow the military’s sordid example. The FBI knows all about this because military and CIA torturers were masquerading as FBI agents. This Gonzales is a very evil man and we will all suffer by his acts.

            Last year under Governor Arnold Schwarzenegger the state’s total debt load grew by more than 55% and the state budget has a budget deficit of more than $8.1 billion for 2005-06. Fifteen billion dollars in additional debt was incurred, which has only postponed California’s plunge into bankruptcy.

            Arnold’s answer is to sidestep the legislature and use referendums. His answer is major budget cuts; structural reform that would give him as Governor, more powers then the legislators and a decimation of the state pension system. That would entail turning the program into 401(k’s) and serving the funds up to Wall Street on an individual basis. This cuts back on the state’s contributions and enriches the elitists on Wall Street.

            Arnold is led by George Schultz, one of the guiding lights of the conspiracy. A creature of Becthel Corp., a devotee of the Chicago School led by Milton Friedman and the creator of economic restructuring of Chile under dictator General Augusto Pinochet. Arnold and George Bush are in the process of trying to replicate the failed privatization of Social Security that Chile adopted.

            Schwarzenegger wants to cut health and human services in a state that already has six million uninsured. Due to massive illegal immigration, most emergency trauma centers have already been cut. The tax base does not reflect the real economy because the illegals work in the black economy paying no taxes and sending more than $4 billion out of the state every year. Arnold says drug companies will get voluntary discounts, which we doubt. In his campaign, Arnold received more than $360,000 in contributions from drug companies. He also wants to cut $2.2 billion from education in a system that has been one of the worst in the country since 1928. When we lived there, we were forced to send our children to private schools.

As of 9/30/04, JP Morgan Chase had $43 trillion in derivatives, which is about four times US GDP; Citigroup has $17.5 trillion and Bank of America $17.1 trillion. Other trillion dollar players are Wachovia and HSBC, Hong Kong Shanghai Bank Corp. Twenty-five banks held $86.9 trillion in derivatives. The collateralization for these derivatives was only $804 billion. For those unfamiliar with derivatives, they are a form of insurance. Eighty-seven percent of all derivatives were interest rate bets, followed by foreign exchange bets of 9%. In the past three years, banks’ derivatives holding increased by 25% and they have doubled since 2000. Since the end of 2000 derivatives have soared $44 trillion or 108%, while assets have grown only $2 trillion or 32% to $8.2 trillion, loans have grown $1.1 trillion, or 28%, to $4.8 trillion and equity capital has grown $292 billion, or 55% to $821 billion. Thus, derivatives are now ten times assets, 17 times loans, and 103 times equity capital. The real danger of this massive bookmaking operation is that it is entirely unregulated. It is a Ponzi scheme. When the economy heads down and the stock, bond and real estate markets follow, the derivative house of cards will collapse. An additional danger for banks is that they are setting aside less and less capital for loan loss reserves and as the economy comes unglued their losses will mount more quickly.  At the big banks, charge-offs for bad loans have exceeded provisions for the seventh quarter in a row and the overall level of loan-loss reserves declined for the fourth time in five quarters. The big banks only covered 93% of their write-offs, pocketing the difference as profits, which they were not.  Fifty-eight percent of recent growth in equity capital was in good will, which is worthless. As you can see, any sharp correction in the economy could easily take the banking system down. It is purely a scam built on derivatives that could very well become worthless in a crisis. We have been decrying the use of derivatives since the early 1990s, but we have been only one of a few voices in the wilderness. Derivatives pose an enormous risk to the welfare of the world financial system, because of the unscrupulous quest for banking profits at all costs. Even the investment community is clueless to what is going on in derivatives because the system remains totally secret and unregulated. Derivatives are a terrible risk to the financial system and almost everyone outside the banking and brokerage industry do not know what they are or that they even exist. Not only banks sell derivatives, they are sold by brokerage houses, investment banks, and insurance companies. You have not heard about them and derivatives are the world’s biggest industry, worth more than $200 trillion. It is a vast betting and bookmaking network for corporate gamblers used as a means to exponentially increase profits. Once markets begin their decent, these derivatives will come unraveled causing a paralysis of the entire banking system. Derivatives will be the icing on the cake. They will exacerbate financial turmoil, unemployment increases will be compounded and pensions will evaporate. Of course, Bush and Blair will try to blame a terrorist, someone who caused it all with an Arabic name who is involved in New York or London. Derivatives are truly financial weapons of mass destruction. Our message is clear; we are in terrible financial danger. The only way you can protect your financial assets is to be in gold and silver related assets. If you are not, you will be financially doomed.

            In Mid-December, the National Guard began to pay a bounty of $15,000 a head for every six-year reenlistment due to the poor reenlistment rate. If the trooper goes to Iraq, his or her bonuses are free from taxes. Three-year enlistments get you a $7,500 bounty. Last year the Guard’s reenlistments were 7,000 short. Unfortunately, the guard is looking for an economic solution to a socio-political problem. Poor areas of the country draw the biggest enlistments and reenlistments.

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GOLD, SILVER, PLATINUM, PALLADIUM AND DIAMONDS

            We frequently get the question, how did gold shares do during deflation and depression? During the great depression, Homestake Mining went from $65.00 a share to $540.00 a share in 1936. Dividends also doubled three times during that period. All gold stocks did very well.

            Precious metals analyst at Barclays Kamala Nauru says if the IMF wants to sell gold, sell it to China or Japan because they have the dollars and they only hold 1% of their reserves in gold whereas the global average is somewhere around 10%. What an opportunity to dump dollars in exchange for 3,000 tons of gold. In order to cancel the debts of $6 billion, owed to the IMF by poor countries, only 420 tons would have to be sold or 14% of IMF holdings.

            We, of course, believe the main intent of the possible sale was to suppress gold prices particularly during the G7 meeting and President Bush’s trip to Europe. It could very well be that London bullion houses are short gold and cannot deliver or they have leased gold that is being recalled by the leaser and have to find gold to cover without running the price up.

            The latest on a meeting to discuss gold sales by the G7 now is possible in April in Washington or perhaps in the UK in June. Thus, we have to wait two to four months to find out what the IMF is going to do regarding gold if anything.

            Global demand for gold jewelry rose 7.5% in the fourth quarter and 7% in 2004 or 2,673 tons. In 2003, institutional investment was a plus 653 tons and sales were 124 tons in 2004, which shows that 81% is being held as a long-term investment, which is excellent. Demand was up 17% in India and +13% in China in 2004. India was the largest consumer followed by the US and Turkey. In the US, demand in 2004 was off slightly but value rose 12%.

            Fifty-one commercial banks ordered 194.5 tons of gold from producers in 2004, but banks do not always buy as much as they order. They ordered 195.4 tons in 2003.

            Russia produced 180.515 tons of gold in 2004, down 2% from 2003. Producers say gold production will rise 2.5 tons in 2005 to 183 tons.

            The one-month leasing rates for gold and silver are close at .12% for gold and .15% for silver. The spread is usually 1 to 2% and has been as high as 4 to 5%. It is now .1%. The spread is being squeezed as mines get out of their hedges and commercial borrowers withdraw from the lease market as too dangerous. The bottom line is leasing is dying and soon will not be a factor in gold andsilver prices.

            Gold supply fell 13% in 2004 versus 2003, which is the sharpest fall in mine production since the 1940s when mines were shut down due to WWII.