Bob Chapman
International Forecaster
Tuesday, February 2nd, 2010
Your assets can be frozen, another reason to hold gold, media requests concerning AIG rescue blocked, China trying to adjust the heat, Bernanke reappointed, Paul Volcker reappears, foreclosures and unemployment still a concern, jump in credit default swaps, airline passenger traffic now flying low.

In the past quarter Verizon eliminated 7,413 jobs to net 222,927.

The SEC now allows money market funds to suspend redemptions, freezing your assets. That rule is designed to push inventors out of money market funds and into US Treasuries and Agency bonds. Anyone whoever had any doubts about the worth of government securities has to now be convenienced that their money should be in gold and silver assets. This is the only way to preserve wealth.

Goldman Sachs Group Inc., one of the biggest recipients of funds from the U.S. bailout of American International Group Inc., was seen by the public as favored by regulators, according to an internal Federal Reserve Bank of New York e-mail.

The public perception was a reason to reject a December 2008 media request for the names of securities purchased from banks during AIG’s rescue, according to the e-mail released yesterday. If the names of the assets were released, the banks, including Goldman Sachs, would be identified as beneficiaries, New York Fed employee Danielle Vicente wrote in the Dec. 4, 2008, e-mail to Fed counsel James Hennessy.

Public pension funds needing to boost their returns but frustrated with hedge funds and private-equity investments are turning to one of the oldest investment strategies—using borrowed money to boost performance.

The strategy calls for leveraging pension funds’ safest asset—government or other high-grade bonds— while reducing exposure to stocks.

The State of Wisconsin Investment Board, which manages $78 billion, became among the first to adopt the strategy when it approved the plan Tuesday. The fund will borrow an amount equivalent to 4% of assets this year, and as much as 20% of its assets over the next three years.


California Teachers Pension Fund $42.6 Billion Short


The world and particularly the US, received some bad news last week. The new purported engine of recovery, China, is trying desperately to take the intense heat out of its economy, after pouring $1.8 trillion into it over the span of just nine months. In today’s world no economy can bail out the world, as the US was once able to do.

The world occasionally can produce some surprising events and one such event was the election of Scott Brown to the Senate. A Republican winning in a Democratic state where that seat had been held by the Kennedy’s since 1953. That deprived the Democrats and those who control them a staggering blow. The Democrats now have a majority of 59 votes, which means without the help of Republicans they and the President are lame ducks on almost all issues.

The President had held off his “State of the Union” address hoping his showpiece legislation, medical reform, would have been passed. That was not to be, so finally January 27th was chosen in desperation. It just happened to be the same day Secretary of the Treasury faces Congress due to his and the Federal Reserve’s criminal activity. The President’s speech will now be used as a cover for Little Timmy to hide under. Healthcare is dead and it will be very interesting to see if Mr. Geithner will be criminally charged. Historically, members of the Illuminati never go to jail. They are fined and proceed on their merry way to commit further crimes. At the same time Fed Chairman Bernanke is facing re-appointment. He probably will be re-appointed, but only with the assistance of millions of dollars handed out by the Republican National Committee. It is called purchasing the vote.

At the same time from out of the shadows steps Paul Volcker, who advocates the end of propriety trading by brokerage houses, so that they no longer steal from their customers by front-running them. Nothing as yet has been said about “flash trading,” which is front-running as well, and naked shorting, both of which are illegal, but strangely the SEC refuses to stop. Could it be that the SEC is really working for the large banks, insurance companies and brokerage firms? Even Rep. Barney Frank, who had to speed off to Davos to the Bilderberg, World Economic Forum, is in on the act advocating Fannie Mae and Freddie Mac be abolished and be replaced with a new mortgage system? He has in the planning another taxpayer disaster. Such is life in America today.

The mainline media in America refuses to discuss real inflation numbers, U-6 and the employment birth/death ratio and the spreading sovereign debt crisis. They feel free to talk about Greece, Ireland, Spain, Portugal, Italy and England, but not the United States. No one in America believes unemployment is 10%, just as no one in the UK believes their unemployment is 7.9%. These bogus statistics as wages fall and inflation rises far beyond the official rate. Both the UK and the US will eventually face a sovereign debt crisis. If you can believe it Mr. Melvyn King, governor of the BofE wants to merge G-20 into the IMF to bring monetary reform. The leadership behind the scenes want a one-world currency, but later rather than sooner. In the US they want to squeeze the last bit of profit out of the dollar, as long as it is the world reserve currency.


Last February the Federal Reserve told us that they had swapped currencies with five major nations. We now find out the real figure was $2 trillion. The Fed used the foreign exchange to manipulate the dollar upward and the dollars were used to buy US Treasuries. Those swaps are now going to have to be unwound, the dollar will fall and the Treasuries will engulf the Treasury market. This is a giant event if the currencies are unwound.

The Chicago Fed December National Activity index was minus 0.61, down from November’s minus 0.32. The three-month average moved up a second month to minus 0.61 from minus 0.68. Employment was the biggest downsize contributor at minus .27, down from minus 0.11. Payrolls increased by 4,000 to 85,000. Only 36 indicators of 85 were positive.

The 7-year T-note auction had a bid-to-cover of 2.85 versus an average of 2.62 in the last ten auctions.

Foreclosures are again rising as unemployment and depression takes it toll. The hot areas were Las Vegas 12%, Cape Coral-Ft. Meyers. Fl 11.9% and Merced, CA at 10%.

In this weeks congressional hearings Mr. Henry Paulson was terrified, as he was in his last appearance, and he stammered through looking terribly unprofessional and unknowledgeable. On the other hand, Mr. Geitner looked like an arrogant lying sociopath, which he is.

The Fed returned $46 billion to the Treasury last year. The Fed owes $1.8 trillion in government debt and mortgage related securities, up from $497 billion a year earlier. Their expenses were $6 billion. Only a full audit will tell us what has been really going on.

The latest from the SEC that money market funds can suspend payouts has been put into place to keep these funds from selling Treasuries. Many of these funds are still deep into Agencies and toxic garbage, so they as well do not want this garbage marked to the market.

Home Depot Inc., the world’s largest home improvement retailer, will cut 1,000 US jobs as it shrinks its pool of human resources and construction workers and closes three test stores.

Home Depot will start cutting most of the jobs by the end of the week, Ron Defeo, a spokesman, said yesterday. The positions being eliminated are also in finance and real estate. The company will also add 200 jobs, resulting in a net loss of 800 positions, he said.

Chairman and chief executive Frank Blake announced the reductions in a memo to employees, saying it “makes business sense to consolidate some functions’’ as store construction slows. Defeo provided a copy of the memo.

The job cuts include 150 at its Atlanta headquarters, Defeo said. Stores in Wilson, N.C.; Waveland, Miss.; and Austell, Ga., with 100 employees will close in six to eight weeks, after merchandise is sold, he said.

Verizon Communications Inc., coping with subscriber losses at its fixed-line phone business, plans to cut about 13,000 jobs at the division this year after posting fourth-quarter revenue that missed analysts’ estimates.

Massachusetts regulators have charged Securities America, a broker owned by Ameriprise Financial Inc., with selling $697 million in investments without fully warning investors about the risks involved.

The promissory notes were issued by companies owned by Medical Capital Holdings Inc., which ended up defaulting on $1 billion in obligations in August 2008. Medical Capital is under investigation by the Securities and Exchange Commission for fraud.

Secretary of State William F. Galvin yesterday charged Securities America because he said it placed more than one-third of Medical Capital’s $1.7 billion in notes. That includes $7.2 million in notes sold to 60 Massachusetts investors. Galvin said Medical Capital paid Securities America $26 million in compensation and funded trips for Securities America executives, including vacations at Las Vegas resorts and golfing outings to Pebble Beach in California.

“People invested their life savings, while this dealer hid from them the truth of what they were getting into,’’ Galvin said in a statement. He wants Securities America to reimburse Massachusetts investors for their Medical Capital holdings.

Oregon’s voters approved a $727 million tax increase on businesses and high-income earners, forestalling deeper budget cuts in a shift for a state with a history of defeating levies at the polls.

Oregonians voted to keep taxes enacted by Democratic Governor Ted Kulongoski in July, according to a count of ballots cast by more than half of the state’s registered voters. Measure 66, which raises taxes on households earning $250,000 or more, passed by 54 percent. Measure 67, which increases corporate levies, garnered favor of 53 percent.

Legislators enacted the tax boost last year to help close a $4 billion hole that the U.S. recession opened in the state’s budget. The levies spurred a challenge from foes who gathered enough signatures to force the referendum. By targeting businesses and the wealthy, proponents parried resistance from voters who twice defeated tax increases in the wake of the 2001 recession.

“It’s a go-after-the-rich strategy,” said John Matsusaka, president of the Initiative and Referendum Institute at the University of Southern California in Los Angeles. “It shows that some voters have switched their minds and they’re more likely to go after the rich.”

U.S. securities regulators are abandoning a plan to ban money-market mutual funds from buying anything other than the most highly rated debt after companies said the requirement would hurt the commercial-paper market, three people familiar with the matter said.

The Securities and Exchange Commission will vote today to cut the so-called tier two securities money funds can buy, instead of barring purchases as proposed in June, said the people, who declined to be identified because the agency’s plans aren’t public. Current SEC rules allow funds to invest up to 5 percent of their assets in debt that carries the second-highest rating from Moody’s Investors Service or Standard & Poor’s.

The SEC recommended new rules six months ago to increase the liquidity and stability of money-market funds after the collapse of the $62.5 billion Reserve Primary Fund in 2008 raised concerns about whether the industry could meet investor redemptions during financial panics. The agency changed its proposal after the U.S. Chamber of Commerce, Time Warner Inc. and Comcast Corp. said in comment letters that the ban on lower- rated assets would make it harder for companies to fund payrolls and other short-term expenses through sales of commercial paper.

Traders are buying protection against defaults on sovereign debt at more than five times the rate of company bonds as governments fund ballooning deficits.

The net amount of credit-default swaps outstanding on 54 governments from Japan to Italy jumped 14.2 percent since Oct. 9, compared with 2.6 percent for all other contracts, according to Depository Trust & Clearing Corp. data. European countries led the jump, with the amount of protection on Portugal climbing 23 percent, Spain 16 percent and Greece 5 percent.

Rising use of derivatives to insure against defaults or speculate on government bond prices is spilling over into the corporate debt market, stemming a rally that drove yields to the lowest relative to sovereign benchmarks since December 2007, according to BNP Paribas SA. The global financial system remains “fragile,” with sovereign debt posing a risk to markets, the Washington-based International Monetary Fund said yesterday in its Global Financial Stability Report.

The perception of rising risk “can puncture a country’s ability to access the capital markets,” said Scott MacDonald, head of credit and economics research at Stamford, Connecticut- based Aladdin Capital Management LLC, which oversees $11.9 billion. “Maybe it’s not an end-all be-all indicator. But when these countries get into a position where they need to raise capital, it becomes a confidence game,” he said.

Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of Treasuries held at 164 basis points, or 1.64 percentage points, yesterday, Bank of America Merrill Lynch’s Global Broad Market Corporate Index showed. The spread has widened from this year’s low of 160 basis points on Jan. 14.

Airline passenger traffic fell the most ever last year and a recovery in demand in recent months has yet to translate into higher fares, the International Air Transport Association said.

Traffic, a measure of passengers flown multiplied by distance travelled, dropped 3.5 percent, with declines exceeding 5 percent in Europe, North America and the Asia-Pacific region, IATA, which represents 230 carriers, said in a statement today.

“The industry starts 2010 with some enormous challenges,” Giovanni Bisignani, the organization’s chief executive officer, said in a statement. “Revenue improvements will be at a much slower pace than the demand growth that we are starting to see. Profitability will be even slower to recover.”

While yields, or revenues per passenger, have begun to improve after airlines slashed capacity, they’re still 5 to 10 percent below 2008 levels, IATA said. That suggests airlines are struggling to raise fares even as demand begins to pick up.

The recession and credit crisis have cost carriers 2 ½ years of growth in passenger markets and 3 ½ years in the airfreight industry, so that 2010 will be “another spartan year” of cost controls and capacity caps, Bisignani said.

Global losses will amount to $5.6 billion this year, IATA reiterated, after a deficit of about $11 billion in 2009.

While the industry’s worst loss to date was almost $13 billion in 2001 following the Sept. 11 terror attacks, an $80 billion revenue decline last year was “vastly bigger” than anything previously experienced, IATA Chief Economist Brian Pearce said in a telephone interview. Net losses were limited only by a decline in oil prices, he said.

[This is a direct result of the insanity of the TSA and its counterparts worldwide. People do not believe the terrorism threat and more and more are simply refusing to fly at all. This will get much worse. As a result tickets that used to cost $350 now cost $850, which in and of itself is financially daunting.]