Sparrow,

It is truly nice to see someone who is looking at the time-bomb that is being created here. What a senseless thing for Robert Reich to say. We are all in a very playful mode while Rome burns. Thank you so much for this information.

Check out this video by Peter Schiff.


The message is ready to be sent with the following file or link attachments:
Shortcut to: http://www.europac.net/Schiff

Hey Johnny, I couldn't get the link to work. But I have seen Peter Schiff predicting all sorts of things months and months ago and everyone else was laughing at him and saying he was crazy.. The real estate market, the economy, etc.
He ended up being 100% correct.

This world is in such bad shape.

wouldn't it be nice if someone like Mr. Rogers were in charge of the world?


I'm going to try to be as much like Mr. Rogers as I can.
We need more of his type here on this earth.
It's difficult not to sink totally down with all of the bad news and corruption and ugliness and fakeness and shallowness and evil...
It's hard to keep your head above water sometimes.
so I think I'll try to think more like Mr. Rogers when I find myself sinking.


Sorry to derail your thread.
but maybe it's ok to have a picture of mr. rogers in this thread...
Help us not drown in the sadness of this present reality...

RIP Mr. Rogers.. you are greatly missed.

peace.

Johnny,

We are all in a very playful mode while Rome burns./quote]

That is right, they feasted, partied, fiddled and made merry while Rome burned, History is repeating

Sparrow,

Yes Peter Shiff gave very accurate forcasts of events and happenings to come that have proved to be true.,
too bad we don't have more Peter Shiffs and Ron Pauls in charge instead of the selfish manipulating forked tongued liars, people that can't see beyond the end of their own nose and short sided selfish interests who are in charge of our Government who in turn are manipulated
and chaneled by International bankers, the Federal reserve and other such forces.

Peace,
Fire Walker

Fire Walker,

Thank you for the comments. Mr. Rogers is a really great person and so are you. You would make a super Mr. Rogers - this world is in desperate need of such people like this, indeed!!

John

Why Geithner's bank bailout plan got a Bronx cheer



by Mike Larson



This was supposed to be a great week for Washington and Wall Street. The administration had leaked in advance that it was going to put a full-court press on for its stimulus and bailout programs. That led to intense anticipatory buying by the stock market bulls.

Monday night's primetime news conference with President Barack Obama only heightened anticipation ahead of the main events on Tuesday: A big speech from Treasury Secretary Timothy Geithner and testimony before Congress by Federal Reserve Chairman Ben Bernanke.


Geithner's speech was full of grandiose talk and fluff.
But shortly after Geithner opened his mouth, stocks began to fall. Then they fell further. By the end of the day, the Dow Jones Industrials had plunged 382 points, or almost 5%.

What the Heck Happened?

Why did the best laid plans of politicians and policymakers fail? What's going to happen next? Those are questions every investor needs the answers to, and I'm going to provide them today.

Before I take the scalpel to Geithner's gamble, let me explain exactly what the latest "plan" (and yes, I'm putting that in quotes for a reason) entails ...

For starters, the Fed will be expanding its Term Asset-backed Securities Loan Facility, or TALF. This is a program whereby the Fed will lend money to investors who buy securities that fund various types of loans.

The facility was originally designed to help the student loan, credit card, and auto loan securitization markets. Now, it's going to cover commercial mortgages and most likely residential mortgages outside the purview of Fannie Mae and Freddie Mac.

The Treasury will seed the TALF program with as much as $100 billion. The Fed can then provide additional leveraged funding, allowing for the purchase of as much as $1 trillion in assets.

Second, the Treasury is going to set up a public-private program to buy crummy assets from banks. Private investors would be offered loss caps and/or cheap financing to encourage them to participate. The idea is to avoid the excessively high cost of setting up a program completely funded by Uncle Sam. Early estimates of the size of the program run as high as $500 billion.

Third, there will be additional capital injections into U.S. financial institutions. Regulators will "stress test" bank portfolios, and inject capital into them if necessary through the purchase of convertible preferred securities.

Finally, there was some fuzzier talk about foreclosure mitigation and prevention. The details weren't entirely clear, but any program will probably build on existing loan modification programs under way at Fannie Mae, Freddie Mac, and private banks.

So what's the problem? I hardly know where to start.

But Here Are the
Three Biggest Problems ...

Problem #1:
The plan wasn't ready
for prime time!

Heading into this week's events, the stock market had rallied significantly. Certain options market indicators were reflecting high levels of complacency. Wall Street investors clearly were betting that this time, the government would spell out exactly how, when, and why it would save the day.

But while Geithner's speech was full of grandiose talk and fluff — it was extremely light on details. A separate "fact sheet" on the bailout efforts wasn't entirely clear on how things would work, either.

The message that came through to the markets, loud and clear: Policymakers don't even have the specifics of their plan hammered out yet!

Why on earth would you make a big deal about a huge bailout plan, leak details to the press for days, and suggest everything was tied up with a ribbon, then essentially announce a "plan to come up with a plan?"

I have no idea ...

But the market clearly felt that's exactly what the administration did. So investors dumped their stocks.

Problem #2:
The "same old, same old" efforts

These programs appear to be nothing more than expanded versions of efforts that have already had either limited success, or failed entirely.

A public-private effort to buy up bad debts that are clogging the system?


Paulson's attempt to buy up bad debts was a total flop.
Former Treasury Secretary Hank Paulson floated a plan similar to that called the "Super SIV" back in late 2007. It never really got off the ground and was a total flop.

Another Fed program designed to support the securitization market and jumpstart credit extension?

We've been seeing versions of these for more than a year. Remember the TAF, the TSLF, the PDCF, and all the rest of those acronyms? Those programs have kept many "zombie" financial institutions alive.

But the origination and securitization of all kinds of loans has continued to plunge — and credit standards have continued to get tighter.

Just one of many examples:

Commercial loan originations dropped 80% year-over-year in the fourth quarter. EIGHTY PERCENT! Just think of the impact that's going to have on the commercial real estate business, which I warned you almost two years ago in my Money and Markets column was destined to collapse.

And how about the supposedly new effort to mitigate foreclosures or modify mortgage loans?

Banks, loan servicers, and other interested parties are ALREADY trying to do that. Payment reductions, re-amortization of delinquent balances, interest rate cuts, and other "solutions" are ALREADY being used widely. Temporary foreclosure moratoriums have ALREADY been implemented in several states.

But they're NOT stemming the tide of foreclosures — or keeping home prices from falling further. Indeed, many borrowers who've had their loans modified are just redefaulting anyway.

Don't just take my word for it ...

The Office of the Comptroller of the Currency, which regulates national banks, recently reported on the success rate of loans that were modified in the first quarter of last year. Some 36% had fallen behind on their payments again after just three months. After eight months, a whopping 58% were falling behind again!


Washington is talking a big game out of stemming foreclosures. But no interest rate or payment reduction can offset the complete loss of a borrower's income.
Those findings jibe with private reports I have seen or read about. And that's completely understandable: Some borrowers are so far underwater (they owe more than their homes are worth) that they see no reason to keep paying on their loans. Others are losing their jobs, and no interest rate or payment reduction can offset the complete loss of a borrower's income.

So sure, Washington is talking a big game out of stemming foreclosures. But the numbers show the efforts aren't really bearing fruit.

Problem #3:
Investors may finally be
starting to face reality

I think it's finally dawning on investors that what Martin and I have been telling you all along is true. To reiterate from my January 30, Money and Markets column:

"This latest scheme to save the world will fail just like all the others. That is because nothing ... NOTHING ... can prevent a painful adjustment process.

"I wish that weren't the case. But the time to prevent this painful correction and deleveraging process was a few years ago when the bubble was inflating.

"If regulators, policymakers, borrowers, and lenders hadn't acted so stupidly then, we wouldn't be in this mess now. But they did, we are, and no amount of Washington happy talk can change that fact."

Personally, I believe we need to stop shoveling hundreds of billions of dollars more down the financial sector rat hole and get busy eliminating the dead weight.

That means we should start nationalizing and carving up crummy banks that are just walking zombies anyway — instead of propping them up.


That means we should also stop pretending the problem is that bad assets can't be priced. Or that we need to eliminate mark-to-market accounting. Or that we should use taxpayer money to buy assets at inflated values.
Instead, we should acknowledge that the REAL problem is sellers are living in denial. Vulture investors are willing to bid for bad assets. But the banks don't want to accept those bids because doing so might push them into insolvency.

So we end up with a paralyzed market.

That is EXACTLY what happened in the early stages of the downturn in the underlying housing market. The official gauges of house prices didn't fall even as volume all but dried up. The dynamic: Buyers were dropping their bids ... but sellers weren't willing to accept them ... and the result was paralysis.

But pretending that prices weren't really falling didn't help those sellers one bit. By hanging on and hoping for improvement, rather than just selling and getting it over with, they ended up losing even more money because the "real" market kept deteriorating. The same thing is going to happen with the banking industry if policymakers and executives keep sticking their heads in the sand.

Until next time,

Mike

February 13, 2009

Obama’s Opening Salvo

by Peter Schiff

There is nearly universal agreement that the opening salvo of the Obama Administration’s campaign to restore health to the financial system, delivered this week by new Treasury Secretary Geithner, fell with a loud and ugly thud. The most common criticism is that the announcement was short on detail. What is abundantly clear, however, is that the new Administration intends to push spending back up to pre-crash levels and to fill the entire credit void that has disappeared into the black hole of the American financial system. Whether or not the prior levels of spending and lending were justified by market conditions then, or now, appears to be largely unexamined.

In the worldview of Geithner and like-minded economists, credit, rather than savings, is the central figure in the economic equation. Therefore, he sees anything that eases the process of lending to be an effective economic policy. With such a view in mind, the centerpiece of Geithner’s plan is the commitment of up to $1 trillion to revive the collapsed market for securitized debt. In the lead up to the Crash of 2008 securitization, more than anything else, permitted Americans to borrow more than they had ever borrowed before.

Developed primarily over the last 10 years, securitization permitted loans of all shapes and sizes to be packaged into investment-ready securities. The system worked, fueling unprecedented levels of lending in the home, auto, student, and credit card sectors. But in the last few years as the collateral underpinning these securities has collapsed in value, the trillions of dollars of securitized debt now in circulation has become the toxic sludge at the bottom of our financial pit. Geithner is making the false assumption that cleaning up and rebuilding the securitization market is a prerequisite for a healthy economy.

Our nation’s short history with wide securitization has simply shown that the process can lead to massive mispricing of assets and risk. By artificially rebuilding the securitization market, and committing taxpayer funds as collateral, the U.S. economy will be pushed farther and farther out on a leveraged limb, until no amount of market medicine can prevent a total economic collapse.

In truth, the only vital function provided by securitization was that it offered foreign savers a pathway to lend directly to American consumers, and Wall Street executives a new asset class to over-leverage for massive profits. Our economy must dispense with these gimmicks if it hopes to pursue a meaningful recovery.

After more than a decade of unsustainable borrowing and spending, the private sector is currently attempting to restore balance through reduced consumer and mortgage credit, greater savings, and lower asset prices. With its trillions of dollars of credit injections and stimulus programs, the government hopes to allay this process by force-feeding Americans a diet of more borrowing. They feel that a restored securitization market will help. It won’t. It will just grease the skids for a quicker collapse.

Credit, whether securitized or not, cannot be created out of thin air. It only comes into existence though savings, which must be preceded by under-consumption. Since savings are scarce, any government guarantees toward consumer credit merely crowd out credit that might otherwise have been available to business. During the previous decade too much credit was extended to consumers and not enough to producers (securitization focused almost exclusively on consumer debt). The market is trying to correct this misallocation, but government policy is standing in the way. When consumers borrow and spend, society gains nothing. When producers borrow and invest, our capital stock is improved, and we all benefit from the increased productivity.

Consumers default on credit much more frequently than businesses. This is because businesses typically use loans to expand, and then have greater cash flow to repay the debt. In contrast, consumers typically borrow to consume and in the process do not improve their ability to repay. As a result, one would expect consumer credit to be harder and more expensive to obtain. But that is currently not the case. Government guarantees have altered the playing field, so that now consumers are still being offered credit while businesses are being shown the door. By shifting credit away from producers, fewer goods and services will be produced for consumers to buy and fewer employment opportunities provided for them to earn money with which to buy the goods.

To restore prosperity, credit (derived from savings rather than a printing press) must flow to producers. Greater liquidity for business will lead to legitimate job creation, increased production, and rising living standards. By further encumbering the economy with burdensome regulation, and by transferring business decisions to vote-seeking politicians who will bail out the irresponsible, reward failure and punish success, the government will create a society destined for misery.

In an interview following his announcement, Geithner stated that government should replace the demand lost by the private sector. However, those with even a marginal grasp of economics know that demand is unlimited. It is the ability to spend that is not. While Americans still want all the things they wanted years ago, they have made the rational choice that they can no longer afford to buy at the same levels they once did. Using a printing press to replace this lost ‘demand’ will simply cause consumer prices to rise. Printed money does not create new purchasing power, but merely redistributes it from savers to borrowers. And since the plan will severely undermine the real productive capacity of our economy, there will not be much purchasing power left to redistribute!

Stimulus Bill wasn't even READ:

(watch all the way to the end.)
http://www.youtube.com/watch?v=WyBwPBCYxbg

http://www.youtube.com/watch?v=J_Y4f2lX7Q4

Sparrow,

That was amazing - how a 1000 page document is acted upon so quickly with no real study. This whole attempt to "stimulate the economy" is going to become a train wreck looking diligently for a place to happen. So buy some gold or silver to protect your wealth - the wheels are coming off this train and it is going to make the 1929 depression look like a banana cream pie!!! The US economy is suffering from a huge hangover from decades of spending and going into unfathomable amounts of debt. And the solution for that is to enact and enable more spending and debt. This is insane.

Thank you Sparrow for sharing.
John

Hi Johnny, You're right, it is insane!

I have no idea what the next 6 months holds for us.
We really are living in strange times.

It seems everything is starting to crumble and be broken down.

A lot of corruption is being exposed. And the more we see and hear... the more desensitized and apathetic some become and the more angry others become.
I don't know where I am... some days I'm angry. Other days... I throw my hands up in the air and think to myself.. how can you fight it? It's too big. It's just TOO BIG.

What's going to happen next? are we going to be chipped?
Is that what's going to happen.

Is this economic game just that... a game? and they know it will crumble.
and they will force us to get chipped and really start to try to control us???

Then I wonder to myself.. am I watching too many youtube conspiracy theory videos??
What is truth?!




I don't know what to think anymore.
There IS so much corruption.
That's a solid fact.
But what does it really mean for us?
What does it mean?
but what do we do?
what are we supposed to do?

A lot of times I just think that this isn't for me to worry about, I know that Good overpowers evil.
In the end, none of this is going to matter.
Everything is going to be OK!!
I KNOW THIS!
I don't FEAR.
but I wonder... should I be doing something? or nothing and just have faith?
but if I don't do anything... aren't I part of the problem?
and what can I do, IF I'm supposed to be doing something?!

Thanks for letting me ramble.
Sorry I keep junking up your thread!!

Sparrow,


What you are expressing here is not "junking up my thread"!!! What you are doing is exactly the right thing and that is, you are awake to these great and serious problems. These times are historical. In principal it is said that history repeats itself and I agree. But it is not mimicked in that exact fashion. The circumstances and out comes vary greatly even though in principal they are the same.

As an example. We have always had wars as long as there have been humans on this planet. Compare the destruction of Jerusalem in 70AD with WWII. There really is no comparison. Compare WWII with WWIII if it ever happens in our lifetime. There again is no comparison to be made. And so it is with this current economic crisis. There is no comparison - indeed!

If we take a brief look at the 1929 depression we find at that time....

1) There was only 1/4 of the population. People like my father and like most people back then were very resourceful They knew how to plant a garden and built a cabin without debt to sustain themselves. They were rugged individualists that could get by without welfare and food stamps. A very different psyche from today.

2) In 1929 70% of people were employed either directly or indirectly on farms. It was an agrarian based economy. People could feed themselves.

3) People or governments were not in anywhere near the debt they are in today. People never bought anything until they saved the money for it. So spending was based on savings which is just the opposite thing that is happening today in this phony economy.

4) And to top it all off we do not make anything here any more. It is made in China. In 1929 we made it here in Canada and the US. This is no longer the case. It is not complicated to figure out. Just look at the labels on items - Made in China as far as the eye can see.

Sparrow - you asked what is going to happen? I do not know for sure what will. I do not have a crystal ball - but it seems that if 1929 is any indication this will be far worse. It would be prudent in my opinion to cut you overhead down dramatically. Have savings - not in the US dollar. If you do not have money to buy gold, then buy silver bullion or minted coins. Get out of debt!! Have a small house and a garden in a less populated area, if posible. Go towards simple living, find people of like mind for support. Like the voluntary simplicity groups around the country. They have excellent ideas in how to cut back on expenses. Just some ideas.

Yes it is not necessary to watch too many U-Tube presentations. Look after your own much smaller world - do not go on overload or go into depression. Use this negative news - as your own stimulus - to do what makes sense for you.

John

Indeed! We see what God has given us to see, either in the Biblical or Economic realm, as there is no difference! All is of God!


Paul

Hey Johnny,
Thank you so much for what you said. You actually really helped me. I feel like I've been sort of floating between two extremes, the past few months. Thanks for balancing me out. I needed that. What you said was right. Thank you, brother. I will keep what you said in mind, definitely.
,
sparrow

Eastern Europe is about to Blow



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Written by Mike Whitney from Austrilian News

February 17, 2009 "ICH" -- -Eastern Europe is about to blow. If it does, it could take much of the EU with it. It's an emergency situation but there are no easy solutions. The IMF doesn't have the resources for a bailout of this size and the recession is spreading faster than relief efforts can be organized. Finance ministers and central bankers are running in circles trying to put out one fire after another. Its only a matter of time before they are overtaken by events. If one country is allowed to default, the dominoes could begin to tumble through the whole region. This could trigger dramatic changes in the political landscape. The rise of fascism is no longer out of the question.

The UK Telegraph's economics editor Edmund Conway sums it up like this:

"A 'second wave' of countries will fall victim to the economic crisis and face being bailed out by the International Monetary Fund, its chief warned at the G7 summit in Rome....But with some countries' economies effectively dwarfed by the size of their banking sector and its financial liabilities, there are fears they could fall victim to balance of payments and currency crises, much as Iceland did before receiving emergency assistance from the IMF last year." (UK Telegraph)

Foreign capital is fleeing at an alarming rate; nearly two-thirds gone in matter of months. Deflation is pushing down asset prices, increasing unemployment, and compounding the debt-burden of financial institutions. It's the same everywhere. The economies are being hollowed out and stripped of capital. Ukraine is teetering on the brink of bankruptcy. Poland, Latvia, Lithuania, Hungary have all slipped into a low-grade depression. The countries that followed Washington's economic regimen have suffered the most. They bet that debt-fueled growth and exports would lead to prosperity. That dream has been shattered. They haven't developed their consumer markets, so demand is weak. Capital is scarce and businesses are being forced to deleverage to avoid default. All of Eastern Europe has gotten a margin call. They need extra funds to cover the falling value of their equity. They need a lifeline from the IMF or their economies will continue to crumble.

The UK Telegraph's economics correspondent Ambrose Evans-Pritchard has written a series of articles about Eastern Europe. In "Failure to save East Europe will lead to Worldwide meltdown" he says:

"Austria's finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria's GDP.

"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.

The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc....

Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut.

Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets. They are five times more exposed to this latest bust than American or Japanese banks, and they are 50pc more leveraged (IMF data). (Ambrose Evans-Pritchard UK Telegraph)

An economic crisis is quickly turning into a political crisis. Riots have broken out in capitals across Eastern Europe. Mr. Geithner had better be paying attention. The prospects for political upheaval are growing. Public anxiety can spill out onto the streets at a moments notice. Governments must act quickly and with resolve. These countries need hard currency and guarantees of support. If they don't get help, the simmering public fury will turn into something much more lethal.

UK Telegraph's economics correspondent Ambrose Evans-Pritchard:

"Global banks have so far written down half the $2,200bn losses estimated by the IMF. On top of this, EU banks have $1,600bn of exposure to Eastern Europe -- increasingly viewed as Europe’s subprime debacle, and EU corporate debts are 95pc of GDP compared to 50pc in the US, a mounting concern as default rates surge.

“It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems. Such considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance." (UK Telegraph)

It's the same wherever banks merged their commercial and investment branches. Debt has skyrocketed to unsustainable levels destabilizing the entire economy. The banks have been operating like hedge funds, concealing their activities on off-balance sheets operations and maximizing their leverage through opaque debt-instruments. Now the global economy is caught in the downdraft of a collapsing speculative bubble. East Europe has been hit hard, but it's just the first of many bowling pins that will fall. All of Europe has been infected by the same virus which originated on Wall Street. Monday's New York Times summarizes developments in the EU:

"Europe sank even deeper into recession than the United States in the closing months of last year, according to figures published Friday...The economy of the 16 countries sharing the euro currency declined by 1.5 percent in the fourth quarter, (an annualized drop of roughly 6 percent) according to the European Union's statistics office. That is even worse than the 1 percent decline in the United States economy during that period, compared with the previous quarter.

“Today’s data wipes out any illusion that the euro zone is getting off lightly in this global downturn,” said Jörg Radeke, an economist at the Center for Economics and Business Research in London. ("Europe Slump Deeper than Expected" New york Times)

The "liquidationists" would like to see governments cut off the flow of funds to ailing financial institutions and let them fail by themselves. It's Darwinian madness, like waiting out a heart attack on the kitchen floor instead of rushing to the hospital for emergency care. The global economy is decelerating at the fastest pace on record. 40 percent of global wealth has been wiped out. The banking system is insolvent, unemployment is soaring, tax revenues are falling, the markets are in shock, housing is crashing, deficits are soaring, and consumer confidence is at its lowest point in history. This is no time to cling to half-baked ideology. The global economy is undergoing a massive system-wide contraction which could spin out of control and plunge us into another world war. Political leaders need to grasp the urgency of the moment and keep the vehicle from careening into the ditch.

+++++++++++++++++++++++++++++++++++++++

John,

No one could have shined a brighter light in the spirit of truth than this on war and economy than you have just did here in the message you posted above, very well said and direct to the point!

Peace,
Fire Walker

The ripple effect....

Kansas may delay tax refunds, paychecks

http://www.kansas.com/735/story/701750.html

Kansas may delay tax refunds, paychecks
Comments (496) Recommend (151)
BY JEANNINE KORANDA
Eagle Topeka bureau
Visit The Eagle’s Wichitopekington blog to read more about the various stances on the budget situation.
TOPEKA - Income tax refunds and state employee paychecks could be late after Republican leaders and the Democratic governor clashed Monday over how to solve a cash-flow problem.

Payments to Medicaid providers and schools also could be delayed.

"We are out of cash, in essence," state budget director Duane Goossen said.

The move places state taxpayers, workers and schoolchildren in the middle of a political battle over budget cuts.

Republicans, who hold majorities in both chambers, blocked Gov. Kathleen Sebelius’ proposal to borrow $225 million from healthy state funds to cover shortages in accounts used to meet the state’s payroll and issue tax refunds.

GOP leaders said they won’t approve the IOUs until Sebelius either cuts the current budget herself or signs the bill they passed last week slashing $326 million — including $32 million for education — to balance the budget.

Republican leaders said they had no choice, that by law the state can’t borrow any more money from itself.

Sebelius and Democrats disagree and accuse the GOP of playing politics with people’s paychecks.

"Through their refusal to act today, the Republican legislative leadership is jeopardizing our citizens' pocketbooks for no other reason than to play political games — games in which the only ones set to lose are Kansas families, workers and schools," Sebelius said in a written statement.

Replied House Speaker Mike O’Neal: "While we all can agree that these are trying times for Kansas families, seniors and business owners, the Kansas House of Representatives respectfully disagrees with breaking the law in order to gain political capital."

The Senate approved the budget-cutting bill Thursday, but the governor has yet to receive it. It is being proofread and could reach Sebelius as early as Tuesday.

Her spokeswoman has said she will carefully consider it. She could sign it, veto it or veto portions of it.

Lower tax revenues

Kansas’ cash-flow problem stems in part from the worsening recession and lower-than-expected tax revenue.

As a result, the state had only $10æmillion in its checking account Monday morning.

Most immediately, that means the state does not have $24 million to cover payroll for the state's 42,000 employees and about $20 million for payments to Medicaid providers such as doctors, hospitals and nursing homes, Goossen said. Usually the state processes the payments on Wednesday and sends the checks out Friday.

"State employees simply have no more to give. Paychecks shouldn’t be held hostage for political maneuvering," said Lisa Ochs, president of the Kansas Organization of State Employees.

Kansas taxpayers also are due about $12 million in income tax returns. The state stopped payments on the refunds Friday.

Washburn University political science professor Bob Beatty likened the impasse to the 1995 budget battle between President Clinton and U.S. House Speaker Newt Gingrich. That dispute prompted a shutdown of the federal government. He said Kansas legislative leaders are making a dangerous gamble.

"Gingrich went too far," Beatty said. "If you go too far, you lose."

Options for borrowing

The state will pay its bills — "in a lawful manner," said O’Neal, R-Hutchinson.

At issue is whether the state can borrow now from other state funds. Such loans — called certificates of indebtedness — have routinely been used in the past when the state runs short on cash.

The move is similar to a family shifting unused money from one banking account to another to temporarily cover an expense, then putting the money back into the original account later.

The state would borrow unused money from one state agency's fund to pay immediate expenses for another agency, then replenish the borrowed amount later. The money has to be paid back by June 30, when the budget year ends.

State leaders already have authorized $550æmillion in certificates this fiscal year — $300 million last summer and $250 million in December.

In December, Republican leaders worried the state wouldn’t have the money to pay itself back. That’s the concern now, they say.

They say that although the state has borrowed from itself before, it has never borrowed this much in one year.

The Kansas Finance Council — which includes Sebelius and six Republican leaders — must approve any certificates of indebtedness.

"We cannot issue more certificates if the funds will not materialize by the end of the year," O’Neal said in a statement. “Without the revised 2009 budget bill, there is no way that we can legally issue a certificate knowing full well that the money will not be available to retire the debt."

Legislative leaders contend that if Sebelius had made cuts to state programs in late 2008, then the state wouldn’t be facing this problem. She could still make cuts to programs, guaranteeing the money would be available at the end of the year, O’Neal said.

Goossen said even if the governor ordered the cuts, called allotments, it wouldn’t fix the current predicament.

“The problem today is we don’t have cash to pay our bills in a timely fashion," he said. "Allotments only allow the governor to hold spending back."

State Treasurer Dennis McKinney, a Democrat, said the legislative leaders' move put the state's reputation as a reliable bill payer, and its credit rating, at risk.

"This is taking a budget fight one step too far," McKinney said.

Other ripples

In addition to payroll spending, the tax refunds and Medicaid payments, payments to schools and cities could be affected eventually if the impasse continues.

The state is scheduled March 2 to pay $185 million to public schools and $25 million to cities and counties to offset money lost when the state abolished the machinery and equipment tax, Goossen said.

Diane Gjerstad, lobbyist for Wichita schools, said she didn’t expect the district to be harmed. She added that the situation pointed to why districts need to have their own contingency fund. "If the state is short, we want to be able to make our payroll," she said.

Andover schools would be able to pay employees for the near future, said district spokeswoman Keturah Austin.

"If the state didn’t make it on time in February, we have enough cash reserves for one month," she said.

Fire Walker,

Thank you for your kind words. Like Sparrow says - we do not need inaccurate U-Tube hype. But in very short supply is truly helpful information that will help ease the impact of these accelerating events. We must take action - and that action must be realistic.

Those cash shortages in Kansas are spreading like wild fire across the US.

John

'Porkfest' Will Crush Economy, Rep. Ryan Says



Tuesday, February 10, 2009 11:05 AM

By: Ronald Kessler




Rather than rescuing the economy, the stimulus bill will worsen it, says Rep. Paul Ryan of Wisconsin, a rising star in the GOP.

Calling the bill a “bloated porkfest,” Ryan tells Newsmax that it will “raise the deficit, it will raise borrowing costs, it will lead to raising interest rates, which are economically self-defeating.”

The ranking Republican member of the Budget Committee, Ryan turned down colleagues’ requests that he run for House minority leader. Before being elected to the House in 1998, he was an economic analyst and consultant.

Ryan points out that spending stimuluses were tried in Japan in the 1990s and in America in the 1930s, but they never have worked.

“All they ended up doing was cranking up the national debt, raising the borrowing costs, and continuing to stagnate the economy, and they perpetuated high unemployment,” Ryan says.

Even if such plans worked, they would have to spend money immediately to be successful, he says.

“A committed Keynesian would say spend the money right now, in the moment of recession,” Ryan says, referring to the ideas of British economist John Maynard Keynes. “But 7 percent of the money gets spent this year and 31 percent next year. The majority of the money doesn’t even get spent for two or three years. So the plan doesn’t even meet the Good Keynesian economics test.”

In contrast, lowering taxes has an immediate effect on the economy and gives people the correct incentives. He pointed to successful efforts to stimulate the economy by lowering taxes under John F. Kennedy and Ronald Reagan. Yet the stimulus bill — costing $838 billion in the Senate version — will require raising taxes in two years or less, Ryan says.

“If an investor, an entrepreneur, or a small business person is looking at higher taxes, they’re not going to have much of an incentive to invest and create jobs,” Ryan says. “If they have lower taxes on risk-taking, they’re going to take more risks. If they have lower taxes on expanding their businesses, then they’re going to expand their businesses. If they have lower taxes on putting money into their business and hiring more people, they’re going to do that. If they have higher taxes, which this bill will create, then they won’t.”

Because the government will have to borrow to spend, “You are taking money out of the private sector, which in and of itself is bad for growth,” Ryan observes. “You are sending it to Washington, swishing it around the bureaucracy, and then spending it slowly in ways that are much less productive than the ways the free market would allocate it.”

Even if one considers spending on infrastructure as good for the economy, the money will be doled out over a number of years and amounts to only 5 percent of the cost of the bill, Ryan says.

“Most of it will occur after the recession is past,” Ryan says.

Having met with President Obama with other members of Congress, Ryan believes that the Democrats are mostly “focused on ideology, doctrine, and rewarding spending constituencies by satisfying all this pent-up spending demand that they’ve had for many years. This bill is more about the spending on pet projects that they’ve wanted to spend on for some time than on actually growing the economy.”

Ryan thinks the Democrats are aware of that, and that is why they want Republicans to back the bill, so Republicans can “share in the blame if it’s not working. But we’re not going to fall for that.”

In the end, Ryan says, “I think the bill will make matters worse. What’s shameful about this situation is our economy is in real trouble. And I do believe a fiscal response is necessary. But we should do a fiscal response that works, not one that has proven to fail every time it’s been tried.”

Will the stimulus boomerang on Democrats? Not necessarily. The economy could recover in spite of the stimulus, in part because of efforts by the Federal Reserve to apply monetary stimulus like lowering interest rates, Ryan notes. In that case, the Democrats will claim credit, he says.

Meanwhile, the issue has energized Republicans.

“We all stuck together unanimously in rejecting this wish list of special interest groups,” Ryan says.

Another Year of Shock and Awe


By Doug Casey

The $1.1 Trillion Budget Deficit

My reaction is that the people in the government are totally out of control. A poker player would say the government is "on tilt," placing wild, desperate bets in the hope of getting rescued by good luck.

The things they're doing are not only unproductive, they're the exact opposite of what should be done. The country got into this mess by living beyond its means for more than a generation. That's the message from the debt that's burdening so many individuals; debt is proof that you're living above your means. The solution is for people to significantly reduce their standard of living for a while and start building capital. That's what saving is about, producing more than you consume. The government creating funny money - money out of nothing - doesn't fix anything. All it does is prolong the problem and make it worse by destroying the currency.

Over several generations, huge distortions and misallocations of capital have been cranked into the economy, inviting levels of consumption that are unsustainable. In fact, Americans refer to themselves as consumers. That's degrading and ridiculous. You should be first and foremost a producer, and a consumer only as a consequence.

In any event, the government is going to destroy the currency, which will be a mega-disaster. And they're making the depression worse by holding interest rates at artificially low levels, which discourages savings - the exact opposite of what's needed. They're trying to prop up a bankrupt system. And, at this point, it's not just economically bankrupt, but morally and intellectually bankrupt. What they should be doing is recognize that they're bankrupt and then start rebuilding. But they're not, so it's going to be a disaster.

The U.S. Economy in 2009

My patented answer, when asked what it will be like, is that this is going to be so bad, it will be worse than even I think it's going to be. I think all the surprises are going to be on the downside; don't expect friendly aliens to land on the roof of the White House and present the government with a magic solution. We're still very early in this thing. It's not going to just blow away like other post-war recessions. One reason that it's going to get worse is that the biggest shoe has yet to drop... interest rates are now at all-time lows, and the bond market is much, much bigger than the stock market. What's inevitable is much higher interest rates. And when they go up, that will be the final nail in the coffins of the stock and real estate markets, and it will wipe out a huge amount of capital in the bond market. And higher interest rates will bring on more bankruptcies.

The bankruptcies will be painful, but a good thing, incidentally. We can't hope to see the bottom until interest rates go high enough to encourage people to save. The way you become wealthy is by producing more than you consume, not consuming more than you produce.

Deflation vs. Inflation

First of all, deflation is a good thing. Its bad reputation is just one of the serious misunderstandings that most people have. In deflation, your money becomes worth more every year. It's a good thing because it encourages people to save, it encourages thrift. I'm all for deflation. The current episode of necessary and beneficial deflation will, however, be cut short because Bernanke, as he's so eloquently pointed out, has a printing press and will use it to create as many dollars as needed.

So at this point I would start preparing for inflation, and I wouldn't worry too much about deflation. The only question is the timing.

It's too early to buy real estate right now, although a fixed-rate mortgage could go a long way toward offsetting bad timing. It would let you make your money on the depreciation of the mortgage, as opposed to the appreciation of the asset. Still, I wouldn't touch housing with a 10-foot pole - there's been immense overbuilding, immense inventory. And people forget: a house isn't an investment, it's a consumer good. It's like a toothbrush, suit of clothes, or a car; it just lasts a little bit longer. An investment - say, a factory - can create new wealth. Houses are strictly expense items. Forget about buying the things for the unpaid mortgage; before this is over, you'll buy them for back taxes. But then you'll have to figure out how to pay the utilities and maintenance. The housing bear market has a long way to run.

The U.S. Dollar and the Day of Reckoning

It's very hard to predict the timing on these things. The financial markets and the economy itself are going up and down like an elevator with a lunatic at the controls. My feeling is that the fate of the dollar is sealed. People forget that there are 6 or 8 trillion dollars - who knows how many - outside of the United States, and they're hot potatoes. Foreigners are going to recognize that the dollar is an unbacked smiley-face token of a bankrupt government. My advice is to get out of dollars. In fact, take advantage of the ultra-low interest rates; borrow as many dollars as you can long-term and at a fixed rate and put the money into something tangible, because the dollar is going to reach its intrinsic value.

The Recession

This isn't a recession, it's a depression. A depression is a period when most people's standard of living falls significantly. It can also be defined as a time when distortions and misallocations of capital are liquidated, as well as a time when the business cycle climaxes. We don't have time here, unfortunately, to explore all that in detail. But this is the real thing. And it's going to drag on much longer than most people think. It will be called the Greater Depression, and it's likely the most serious thing to happen to the country since its founding. And not just from an economic point of view, but political, sociological, and military.

For a number of reasons, wars usually occur in tough economic times. Governments always like to find foreigners to blame for their problems, and that includes other countries blaming the U.S. In the end, I wouldn't be surprised to see violence, tax revolt, or even parts of the country trying to secede. I don't think I can adequately emphasize how serious this thing is likely to get. Nothing is certain, but it seems to me the odds are very, very high for an absolutely world-class disaster.

Gold's Performance in 2008

The big surprise to me is how low gold is right now. It's well known that even if we use the government's statistics, gold would have to reach $2,500 an ounce to match its 1980 high. I don't necessarily buy the theories that the government and some bullion banks are suppressing the price of gold. Of course, with everything else going on, the last thing the powers-that-be want is a stampede into gold. That would be the equivalent of shooting a gun in a crowded theatre; it could set off a real panic. But at the same time, I don't see how they can effectively suppress the price. Either way, the good news is that gold is about the cheapest thing out there. Remember, it's the only financial asset that's not simultaneously someone else's liability. So I would take advantage of today's price and buy more gold. I know I'm doing just that.

Gold Volatility

Gold will remain volatile but trend upward. I don't pay attention to daily fluctuations, which can be caused by any number of trivial things. Gold is going to the moon in the next couple of years.

Gold Stocks

Last year, it seemed to me that we were still climbing the Wall of Worry and that the next stage would be the Mania. But what I failed to read was the public's indirect involvement through the $2 trillion in hedge funds. On top of that, while the prices of gold stocks weren't that high, the number of shares out and the number of companies were increasing dramatically. Finally, the costs of mining and exploration rose immensely, which limited their profitability.

The good news is that relative to the price of gold, gold stocks are at their cheapest level in history. I still have my gold stocks and the fact is, I'm buying more. I'm not selling, because I think we're starting another bull market. And this one is going to be much steeper and much quicker than the last one. I'm not a perma-bull on any asset class, but in this case I'm forced to go into the gold stocks. They're the cheapest asset class out there, and the one with the highest potential.

February 27, 2009

Obama Puts the Economic Cart Before the Horse

In his first televised speech before Congress, President Obama asserted that prosperity will return once the government restores the flow of credit in the economy. It may come as a surprise to him, but an economy cannot run on consumer loans. Furthermore, credit stopped flowing in the U.S. for a very good reason: there was no more savings left to loan. Government efforts to simply make credit available, without rebuilding productive capacity or increasing savings, are doomed to destroy what’s left of our economy.

The central tenets of Obamanomics appear to be that access to credit will enable people to borrow money to buy stuff, the spending will spur production and employment, and thus the economy will grow. It’s a neat and simple picture, but it has nothing whatsoever to do with how an economy works. The President does not understand that consumption is made possible by production and that credit is made possible by savings. The size and complexity of modern economies has obscured these simple concepts, but reducing the picture to a small scale can help clear away the fog.

Suppose there is a very small barter-based economy consisting of only three individuals, a butcher, a baker, and a candlestick maker. If the candlestick maker wants bread or steak, he makes candles and trades. The candlestick maker always wants food, but his demand can only be satisfied if he makes candles, without which he goes hungry. The mere fact that he desires bread and steak is meaningless.

Enter the magic wand of credit, which many now assume can take the place of production. Suppose the butcher has managed to produce an excess amount of steak and has more than he needs on a daily basis. Knowing this, the candlestick maker asks to borrow a steak from the butcher to trade to the baker for bread. For this transaction to take place the butcher must first have produced steaks which he did not consume (savings). He then loans his savings to the candlestick maker, who issues the butcher a note promising to repay his debt in candlesticks.

In this instance, it was the butcher’s production of steak that enabled the candlestick maker to buy bread, which also had to be produced. The fact that the candlestick maker had access to credit did not increase demand or bolster the economy. In fact, by using credit to buy instead of candles, the economy now has fewer candles, and the butcher now has fewer steaks with which to buy bread himself. What has happened is that through savings, the butcher has loaned his purchasing power, created by his production, to the candlestick maker, who used it to buy bread.

Similarly, the candlestick maker could have offered “IOU candlesticks” directly to the baker. Again, the transaction could only be successful if the baker actually baked bread that he did not consume himself and was therefore able to loan his savings to the candlestick maker. Since he loaned his bread to the candlestick maker, he no longer has that bread himself to trade for steak.

The existence of credit in no way increases aggregate consumption within this community, it merely temporarily alters the way consumption is distributed. The only way for aggregate consumption to increase is for the production of candlesticks, steak, and bread to increase.

One way credit could be used to grow this economy would be for the candlestick maker to borrow bread and steak for sustenance while he improves the productive capacity of his candlestick-making equipment. If successful, he could repay his loans with interest out of his increased production, and all would benefit from greater productivity. In this case the under-consumption of the butcher and baker led to the accumulation of savings, which were then loaned to the candlestick maker to finance capital investments. Had the butcher and baker consumed all their production, no savings would have been accumulated, and no credit would have been available to the candlestick maker, depriving society of the increased productivity that would have followed.

On the other hand, had the candlestick maker merely borrowed bread and steak to sustain himself while taking a vacation from candlestick making, society would gain nothing, and there would be a good chance the candlestick maker would default on the loan. In this case, the extension of consumer credit squanders savings which are now no longer available to finance other capital investments.

What would happen if a natural disaster destroyed all the equipment used to make candlesticks, bread and steak? Confronted with dangerous shortages of food and lighting, Barack Obama would offer to stimulate the economy by handing out pieces of paper called money and guaranteeing loans to whomever wants to consume. What good would the money do? Would these pieces of paper or loans make goods magically appear?

The mere introduction of paper money into this economy only increases the ability of the butcher, baker, and candlestick maker to bid up prices (measured in money, not trade goods) once goods are actually produced again. The only way to restore actual prosperity is to repair the destroyed equipment and start producing again.

The sad truth is that the productive capacity of the American economy is now largely in tatters. Our industrial economy has been replaced by a reliance on health care, financial services and government spending. Introducing freer flowing credit and more printed money into such a system will do nothing except spark inflation. We need to get back to the basics of production. It won’t be easy, but it will work.

President Obama would have us believe that we can all spend the day relaxing in a tub while his printing press does all the work for us. The problem comes when you get out of the tub to go to dinner and the only thing on your plate is an IOU for steak.

Mr. Schiff is president of Euro Pacific Capital and author of "The Little Book of Bull Moves in Bear Markets" (Wiley, 2008).
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Flawed Reasoning

Vicious selling continues on Wall Street and the pathetic action of the financials is dragging down the entire market. So far, the banking index has declined by roughly 83% from its highs! As I have said for years, banking is the only industry which is always in a state of permanent bankruptcy and people have finally realised that the emperor has no clothes! We can thank the fractional reserve banking system for this mess; a totally fraudulent system which allows banks to create multiples of credit compared to bank deposits.

Today, investors in financials have lost nearly everything and before this is over, I suspect the majority of banks in the West will be nationalised. This would mean a total catastrophe for those who invested in bank stocks or corporate bonds. So, no matter how strongly your private banker pushes you to load up on "cheap" financial stocks, please DO NOT go "bottom fishing" in this bankrupt industry. Banking is no longer a growth industry and financials will disappoint investors for many years. Furthermore, if you have any exposure to hedge funds, structured products, accumulators or derivatives of any kind, I sincerely urge you to get rid of all this highly toxic garbage. Such ponzi schemes were very good for the private bankers (due to the huge amounts of commissions involved) but they are a disaster waiting to happen. Today, our planet has roughly US$600 trillion worth of derivatives and this is roughly 10 times the size of the global economy! So, please get rid of your derivatives based "investments" immediately.

Even though the financials are getting killed, our fundamentally sound stocks in solid sectors continue to report good operating results and their stock prices are much higher than the lows recorded last fall. So, this is a positive divergence and shows that the market's internal breadth is improving with fewer stocks breaking down to new lows. Another positive sign is that the Asian markets are faring much better and are nowhere near the lows recorded last fall.

During such turbulent times, it is worth remembering that your stocks represent partial ownership in underlying businesses with real assets (plants, reserves, land, machinery, technology, cash and human resources). And even though the stock market's current appraisal is not favourable, it has no connection with the intrinsic value of your holdings.

Various central banks continue to steer this economy like drunken sailors and they are injecting TRILLIONS of dollars into the system. I would argue that many nations in the West are already bankrupt (US, Britain, Germany, Spain, Iceland and Ireland come to mind) and the ONLY thing they can do now is to print even more money. For example, America's total debt is worth US$54 trillion and there is no way the US can ever hope of repaying its debt in today's money. In other words, either the US will default (highly unlikely in my view) or it will print and inflate so that this huge mountain of debt feels much smaller in the future due to the loss of its purchasing power. Remember, the best way to make debt more manageable is by inflating the supply of money in the system. And this is precisely what the various central banks are doing.

It is worth noting that nations like Germany and the US have already started using the printing press and more nations will soon follow. When the entire planet is covered with oceans of paper "money", its purchasing power will sink and hard assets will sky-rocket. At least this is what has happened throughout history. So, please don't be fooled by this temporary contraction in hard assets and hold on to your positions. If anything, take advantage of the ongoing fire-sale and if your financial situation permits, convert more cash to quality assets in the resources sector.

A bunch of turkeys have hijacked our monetary system and all they know is how to print money. Rather than let the market clear itself out, central banks continue to use tax payers' money to bail out insolvent institutions. This brilliant strategy has NEVER worked in the past and it will not work this time around. Instead of robbing innocent people of their savings, the establishment must allow the weak banks to go bust. For example, if Citibank is on the verge of collapse, then the US Treasury must let it go bust! All Mr. Geithner needs to do is to protect the customers of Citibank, allow Citibank's investors (shareholders and bondholders) to suffer and sell the bank's book to another institution. This is all that needs to happen. This way, depositors will not lose anything and only investors in Citibank will suffer - and they should! Why should the public share the losses with these investors? When Citibank did well in the past, did its shareholders and bondholders distribute the profits to the public? Of course not! So, why should the reverse occur now?!

Personally, I find these bail-outs absurd, unethical and a total waste of valuable resources! Who gave these politicians the authority to act like investment bankers? Mr. Geithner, so how does he have the audacity to use other people's money to take over insolvent banks? Likewise, Mr. Bernanke is now using American taxpayers' money and buying distressed debt! I find this outrageous! Is he going to act like a debt collector when people default on their loans?

Mark my words - the establishment is only making matters worse and prolonging the pain. Moreover, by printing insane amounts of paper, the politicians are setting everyone up for an inflationary nightmare! One thing is for sure - before this drama ends, the viability of the US Dollar as the world's reserve currency will come under question. When the US Dollar starts to implode, hard assets will go through the roof. Remember, commodity prices went ballistic in the late 1930's as well as during the 1970's. We should expect similar action in the years ahead.

John

Beginning Now: The Panic Phase of the Collapse



by Martin D. Weiss, Ph.D.


Just as the Obama Administration launches a triple tirade of new initiatives — a record stimulus package, a bigger round of rescues, and the largest deficit financing of all time ...

Just as the Treasury Department doubles down on its bailouts for sinking giants — Fannie Mae, Freddie Mac, AIG, General Motors, Chrysler, and Citigroup ...

And precisely when the government has raised hopes for a recovery in 2010 ...

The panic phase of this collapse is about to begin.

The panic phase is an acceleration in the economic decline ... a chain reaction of debt explosions ... a free-fall in the financial markets ... and a series of rude awakenings that will accelerate the decline even further:

Rude Awakening #1
In a Collapse, Washington's Economic
Forecasting Models Are Worthless.

Economists rely on computer models designed to forecast gradual, continuous, linear changes, such as economic growth.

But these models are incapable of handling sudden, discontinuous, structural changes, such as housing market collapses, mortgage meltdowns, megabank failures, credit market shutdowns, or stock market crashes.

Already, as explained by the New York Times on Saturday,

"The fortunes of the American economy have grown so alarming and the pace of the decline so swift that economists are now straining to describe where events are headed, dusting off a word that has not been indulged since the 1940s: depression."

They're a bit late. Three months ago, in "Depression, Deflation and Your Survival," we warned you that we were sinking into America's Second Great Depression. And today, that's precisely what's happening.

But with no other model to turn to, most economists continue to forecast the future in terms of moderate, incremental changes.

In the panic phase now unfolding, a growing number will begin to realize how wrong they've been. They'll see that this crisis represents a clean break with the past, rendering their forecasting models worthless.

Some already see the light. It's only a matter of time before they admit it in public.

Rude Awakening #2
The Economy Is Sinking Three to
Five Times Faster Than Expected.

Every single step taken by the Bush and Obama administrations has been based on the flawed assumptions embedded in their economic models. They assume that:

the world economy is not collapsing ...


the banking system is not broken ...


corporations, investors, consumers and entire nations will not take drastic action to protect their own interests, and, therefore ...


we will not see widespread factory shutdowns, wholesale layoffs, mass dumping of assets, or major new trade barriers.
They assume that none of this is happening or will continue to happen. They assume that the six-decade growth cycle that began after World War II remains largely intact. They think, talk and act as though we were still living in an era that's now over.

Each of these assumptions is, on the face of it, patently false. And yet, it's based on these assumptions that our government continues to spend, lend or guarantee TRILLIONS of dollars.

Starting right now, however, we can begin to see the first signs of a rude awakening in that realm as well:

The New York Times reports "a sense of disconnect between the projections of the White House and the grim realities of everyday American life."


Economist Allen Sinai calls the White House's economic forecasts "a hope, a wing and prayer."


Even Obama advisor Paul Volcker admits this crisis is swifter and broader than that of the Great Depression — something that, at this juncture, most Obama advisers refuse to admit.
Despite all these doubts, however, the average GDP forecast of most private economists differs only marginally from the rosy forecasts of the White House. Specifically ...

In 2009, the White House predicts the economy will contract by a meager 1.2 percent, while private economists predict a decline of only 2.0 percent.

The grim reality:

The 6.2 percent plunge in the fourth quarter — plus a similar decline estimated for the current quarter — shows the economy is now sinking three to five times faster than they're forecasting for the year.


There is absolutely no sign that the decline is ending and every sign that it's accelerating.


Thus, to contain this year's decline to the meager 1 or 2 percent that the government and private economists are projecting would require a comeback in the second half that's nothing short of a miracle.
In 2010, the White House says the economy will grow 3.2 percent, while private economists say it will grow 2.1 percent.

The grim reality:


In America's First Great Depression, the financial collapses beginning in 1929 led to GDP declines of 8.6 percent in 1930, 6.4 percent in 1931 and 13 percent in 1932.


But in this cycle — America's Second Great Depression — the financial collapses that we saw in 2008, such as Bear Stearns, Lehman Brothers, Fannie and Freddie, Washington Mutual, Wachovia, AIG, Citigroup and many others, were markedly worse than those of 1929.
That doesn't necessarily mean that the GDP declines in 2009, 2010 and 2011 will be worse than those of the early 1930s. But it does mean that the 2 or 3 percent growth now forecast by private and government economists for 2010 is clearly a pipedream.

In the panic phase now unfolding, some prominent economists are now beginning to recognize their forecasts may be full of holes. It's only a matter of time before they admit it in public.

Rude Awakening #3
The Dangerous, Unintended Consequences of the
Government's Rescue Efforts Can Only Deepen,
Broaden and Prolong the Economic Decline.

These include:

The dangerous and inevitable surge in government borrowing. Even with its fairy-tale forecast of a meager 1.2 percent decline in the economy this year, the White House projects a 2009 federal budget deficit of $1.75 trillion. If you assume the average private forecast of a 2 percent GDP decline, the deficit automatically grows beyond $2 trillion. And the only neutral assumption for GDP — no deceleration or acceleration in the 6.2 percent rate of decline now underway — leads you to a deficit that makes the above projections look puny by comparison.


The dangerous and inevitable surge in borrowing costs. Even in the government's unrealistic rosy scenario, the explosion in government borrowing must drive real rates of interest sharply higher. There is simply no other conceivable scenario.


The dangerous and inevitable damage caused by higher interest rates. When interest rates go up, they go up for nearly everyone, sweeping across the economic landscape into every home, business, or government. Result: Even a rate rise of just a few percentage points can quickly neutralize and overwhelm any benefits derived from the government's stimulus spending, banking bailouts or expansive budget plans.


A dangerous and inescapable two-tiered market for credit. What happens when the government pumps money into defaulting households or failing banks even while nearly all other interest rates are rising? The answer is simple: The lucky few who get government aid are able to borrow at lower interest rates. But the vast majority, not eligible for government money, must pay much higher rates than they'd pay otherwise.


A dangerous diversion of precious capital from strong hands to weak hands. With government money pouring into the weakest households and companies, precious resources are diverted from strong hands — those who could best help bring about a recovery — to weak hands, including those who were most responsible for the bust. Already, companies like Berkshire Hathaway, despite triple-A ratings, are paying record high spreads to borrow ... while banks and others which get government guarantees can borrow far more cheaply, despite abysmal credit ratings and balance sheets.
In the panic phase of the crisis now unfolding, a minority of Washington and Wall Street experts is beginning to fear these dangerous consequences. It's only a matter of time before they openly confess their real concerns.

Sadly, though, confession is one thing; action is another. And sadly, each of these unintended consequences deepens the depression, spreads the pain, prolongs the crisis, and weakens the eventual recovery.

In an economic collapse of this magnitude, the only predictable bottom in the value of most assets is zero. In that context, any value investors can squeeze out of their assets that's significantly above zero must be counted as a blessing.

Here are my forecasts for each major investment sector ...

Stocks:

Eight months ago, in our July 2008 Safe Money Report headlined "Major U.S. Bear Market Just Beginning to Unfold," we set our medium-term target for the Dow Jones Industrials at 7200. Now, that target has been reached.

Then, three months ago, in our December 2008 Safe Money headlined "Starting Now: America's Second Great Depression," we set a new target at 5500 on the Dow.

And three weeks ago, based on the fundamental measures provided by Claus Vogt, editor of the German edition of our Safe Money Report, we have further revised that forecast to

5000 on the Dow


500 on the S&P 500, and


900 on the Nasdaq.
Today, Dow 5000 may seem far away. But with the Industrials closing at 7063 on Friday, it's actually relatively close: All that's needed to reach 5000 is another 29 percent decline — a modest move in contrast to the massive wipeouts already witnessed in the shares of our nation's largest banks.

And in America's Second Great Depression, the averages could easily fall to even lower levels.

Real Estate:

Chief economist Mark Zandi of Moody's Economy.com forecasts a possible "mild depression" scenario, in which the average price of a home — already down 27 percent from its peak — could fall another 20 percent. What he does not tell us how far home prices could fall in a worst-case, 1930s-type depression scenario. But I will: As much as 80 or even 90 percent from peak to trough.

Meanwhile, commercial real estate prices could fall with equal speed. As Mike Larson reported this week, the issuance of commercial mortgage-backed securities plunged 95 percent last year ... S&P expects their delinquency rates to triple this year ... and the resulting credit shutdown is already driving prices into a tailspin.

Bonds:

While Zandi forecasts a possible mild depression, his own colleagues at Moody's Bond Rating division are forecasting bond default rates that denote an inevitable severe depression.

Indeed, Moody's announced last week that

It expects the number of defaults on high-yield bonds to triple this year to about 300, the worst since the early 1980s when the high-yield bond market first emerged ...


The default rates on those bonds could reach 15 percent, higher than that registered during the Great Depression ...


And default rates could rise even further — to 20 percent — if the economy deteriorates more than currently expected.
Even assuming Moody's less pessimistic forecast, a 15-percent default rate will gut the price of nearly all corporate bonds, regardless of rating.

Add the inevitable surge in interest rates driven by massive government borrowing, and you can see how most corporate bonds could lose anywhere from half to 90 percent of their current market value.

Banks:

Last week, the Federal Deposit Insurance Corporation (FDIC) announced that

The number of troubled banks jumped from 76 at year-end 2007 to 252 at year-end 2008.


The assets held by problem banks jumped to $159 billion, up more than seven-fold from $22 billion a year earlier.
But it appears that most of the large banks that have already failed or been bailed out by the government — IndyMac, Washington Mutual, Citigroup and Bank of America — were never on their list to begin with.

And based on our own lists of weak banks, the number in jeopardy is many times larger than the FDIC indicates.

This raises immediate questions about the FDIC's ability to flag problem banks. And it raises fundamental questions regarding the government's future ability to guarantee the deposits of millions of Americans.

My forecast: Expect to lose at least half and possibly up to 90% of your money in uninsured deposits of failing banks. And although it is not an immediate concern, in America's Second Great Depression, even insured depositors could lose money.

Is Buffett Right About Asia?

by Tony Sagami
Dear Subscriber,


Warren Buffett knows a thing or two about investing. But what I really admire is that he always tells it exactly like it is ... good or bad.

Buffett really caught my attention a few days ago when he sent out his annual letter to the shareholders of Berkshire Hathaway, Buffett's insurance and investment holding company.

"The economy will be in shambles throughout 2009 — and, for that matter, probably well beyond," warned Buffett.


Shambles? Well beyond? Those are very gloomy words. But Buffett has good reason to be so pessimistic ... Berkshire Hathaway recently reported a staggering 96 percent drop in its fourth-quarter profits — the fifth quarter in a row of falling profits.


Warren Buffett didn't have good news for Berkshire Hathaway shareholders: Fourth quarter profits had plummeted 96 percent.
Business was bad across the board. But Berkshire Hathaway got particularly pounded by $4.61 billion of losses on 251 derivative contracts. The result: Berkshire Hathaway's stock tumbled 44 percent in the last 12 months.

No Shortage of Pessimism ...

Buffett isn't the only big name who is worried about the economy. Guess who said this: "The economy is going to get worse before it gets better."

It was President Obama on December 7, 2008.

I am in 100 percent agreement with Obama's assessment of our economy. However, his multi-trillion dollar solution to rejuvenate our economy will cost us a fortune! In fact, his recent budget proposal includes a $1.75 trillion deficit — the largest in history.


"The economy is going to get worse before it gets better." -President Obama, December 7, 2008, on NBC's Meet the Press.
On top of that, he warned that we should expect similar deficits "for years to come."

Unfortunately, that spend, spend, spend mentality is nothing new for our country. The politicians we elect and the got-to-have-it-today mentality of consumers is all about spending too much and saving too little.

I suspect that a lot of Buffett's pessimism is because of that spend-like-there's-no-tomorrow strategy. And despite his unflattering short-term performance, Buffett's long-term track record certainly proves that he is one of the best stock pickers the world has ever seen.

That's why you should ...

Pay Careful Attention to What
Buffett Says and What He Does

What Buffett says is that the U.S. economy is going to get worse, and what he is doing is investing in Asia. Here are two examples of where Buffett is putting money:


Buffett has increased Berkshire Hathaway's holdings in South Korea's third-largest steelmaker.
Berkshire Hathaway recently increased its holdings of South Korea-based Posco (PKX), Asia's third-largest steelmaker. Posco makes structural steel used in the construction of buildings, industrial pipes, and automobile chassis; and steel plates used in shipbuilding, structural steelwork, power generation, earth-moving equipment, and other industrial machinery.

Buffett also invested $230 million for a 10 percent stake in BYD Company (1211.HK), a Chinese company that makes electric cars. BYD makes 65 percent of the world's nickel-cadmium batteries and 30 percent of the world's lithium-ion mobile phone batteries.

Is Buffett right about Asia? Absolutely ... on a long-term basis. But I still expect things to get worse over in Asia before they get better.

Moreover, a poll of nine, Chinese-managed mutual funds showed that Chinese portfolio managers do not expect a quick rebound in Chinese equities. On average, they expect the Shanghai Composite to be at 2,133 three months from now, which is about where it is now.

The Asian markets have unfolded exactly as I told you they would in previous Money and Markets columns. And if you have followed my suggestions, you've avoided a lot of pain and have a good-sized pile of cash to put to work when the market does bottom.

That bottom isn't far away though. So the best thing to do is to stay patient and prepare to become an aggressive buyer.

WASHINGTON WATCH


US's Afghan aid package fuels pipeline politics


By James Borton

WASHINGTON - Washington's approval of more than US$1.4 billion for the economic recovery of barren and battle-scarred Afghanistan provides the Bush administration with possible insurance for deepening its petro-political sphere of influence along Russia's borders in the form of a revived Trans-Afghan pipeline.

No one disputes that America is critically in need of alternative sources of oil from outside the politically volatile Middle East. This is particularly true since Iraq's Saddam Hussein recently, albeit temporarily, halted his country's oil exports to the US. With Iran and Libyan leaders also supporting the idea of renewing the 1973 Arab oil embargo, the White House has no intention of standing idly by as frustrated Americans fight long lines and higher prices at the pump.

Since the early 1990s, three countries around the Caspian Sea - Azerbaijan, Kazakhstan and Turkmenistan - have yielded a vast reserve of oil and gas. Because all three are landlocked, however, control over their billions of dollars worth of oil and gas depends on the security and economic influence of the pipelines. For keen Washington energy analysts, the recent deployment of US special operations forces to the state of Georgia can only help enforce a Washington pipeline policy aimed at neutralizing Russian influence in oil-rich Central Asia.

Several important transit lines already exist, including the existing Russian pipeline from Baku to Novorossiisk on the Black Sea, which passes through troublesome Chechnya. US oil companies, which have had difficulty dealing with the Russians, and that includes paying excessively high pipeline fees, have previously proposed alternative pipeline routes that pass through Georgia and Armenia. These pipelines would allow US companies, and not Soviet ones, to control oil and pipeline prices. The geopolitics of putting together deals in this region are so complex that only one of seven new pipelines proposed since 1996 has been built. However, a secure and stable Afghanistan offers the US a new opportunity to fulfill its expanding energy needs.

Afghanistan's US-led reconstruction plan includes not only an economic aid lift-off, but also calls for a closer military presence, brokering warlord divisions, and avoidance of any Russian intervention. Now that the Taliban are no longer an obstacle and the interim government is shaping Afghanistan's economic and political future, the Bush administration plans to accelerate the project referred to by some savvy Texas oil men as the new "Silk Road".

It was in early February that Afghanistan's interim leader Hamid Karzai and Pakistan's President General Pervez Musharraf agreed to revive plans for a trans-Afghanistan route for Iranian gas. The next day, neighboring Turkmenistan chimed in by stating that it hoped the trans-Afghanistan route would soon be built with full American participation.

The demonstrative support for the war on terrorism against the Taliban was most clearly visible in US energy company board rooms. Unocal headquarters, located in Sugarland, Texas, was no exception. Board members were elated when the Taliban were deposed; after all, these were the same individuals who had held up their expensive pipeline project a few years ago.

It is noteworthy that Vice President Dick Cheney, as former CEO of the oil-services company Halliburton, is also a veteran of the American oil industry's presence in the Caspian basin. Cheney met as recently as last spring with many of these companies, including Unocal, whose oil investments in the Caspian basin are now languishing. With almost $30 billion already invested by US oil companies in Kazakhstan, Turkmenistan, Uzbekistan and Azerbaijan, the suggested Afghan route would cost only one-half the amount of the other alternative which would run through Georgia to Turkey's Mediterranean coast.

"Unocal was part of a consortium that had proposed to build a pipeline from fields in Turkmenistan to markets in Pakistan. That line would have crossed Afghanistan. We officially withdrew from that proposed consortium in December 1998 because of many unresolved issues related to the Taliban," according to Unocal's senior spokesman Barry Lane.

As early as October 1995, Unocal Corp and Delta Oil Co of Saudi Arabia inked an agreement with Turkmenistan that was destined to open new markets in Pakistan. The agreement with Turkmenistan involved a detailed plan to develop an oil pipeline from Turkmenistan through Afghanistan to a crude oil export terminal and or refineries in Pakistan on the Indian Ocean. This trans-Afghan pipeline would be engineered to transport crude oil from fields inside Turkmenistan and from the surrounding region.

Almost two years later, in the fall and early winter of 1997, numerous meetings and dinners were held with several ranking Taliban members who traveled to Unocal's corporate offices in Texas to explore this pipeline plan. The Taliban and Unocal were hoping to build a $4.5 billion pipeline network to transport Caspian Sea oil and gas across Afghanistan to the Indian subcontinent. But the position was radically reversed in August of 1998 after the US missile strikes ordered by the Clinton administration hit Afghanistan. A corporate communications release stated that "Unocal will only participate in construction of the proposed Central Asia Gas Pipeline when and if Afghanistan achieves the peace and stability necessary to obtain financing from international lending agencies for this project and an established government is recognized by the United Nations and the United States".

As part of its initial Taliban pipeline courtship, Unocal conservatively spent $20 million and donated more than $1 million to various Afghan charities. The Texas oil company's lobbying efforts included providing testimony in Washington on a cold wintry morning in February 1998. Unocal's vice president for international relations John Maresca appeared before the House Committee on International Relations in Washington to state its case for multiple pipeline routes for Central Asian oil and gas. Almost four years later, there is a major reshufffling of the petro-political stakes and perhaps in the necessary and costly battle for energy dominance and stability, courtesy of the resurrected trans-Afghan pipeline blueprint.

As part of Afghanistan's pipeline political recovery, some in Washington questioned President George W Bush's new appointment of Zalmay Khalilzad, a former Unocal consultant, as his special envoy to Afghanistan. This is the same consultant who once served as Unocal's point man assisting with the energy company's earlier plans to build a pipeline through Afghanistan. Coinciding with this appointment, a recent Reuters release stated that Afghanistan hopes to strike a deal by the end of May to build a $2 billion pipeline through the country to take gas from energy-rich Turkmenistan to Pakistan and India. Karzai is scheduled to hold talks with his Pakistani and Turkmenistan counterparts later this year on Afghanistan's largest foreign investment project, according to Afghan Minister for Mines and Industries Mohammad Alim Razim.

According to Razim, Unocal is still considered the "lead company" among those that would build the pipeline, which would bring 30 billion cubic meters of Turkmen gas to market annually. Unocal, which led a consortium of companies from Saudi Arabia, Pakistan, Turkmenistan, Japan and South Korea, had previously maintained the project is both economically and technically feasible once Afghan stability was secured.

Back on Capitol Hill, energy companies and numerous consultants are weighing in on whether the former CEO of Halliburton, Dick Cheney, will yield to a formal demand from a Congressional inquiry. In an unprecedented move against a sitting vice president, the investigative arm of Congress filed a suit in federal court last week challenging Cheney's refusal to hand over documents related to national energy policy. Some observers have speculated that these newest developments may actually lead to an Enron investment trail in Central Asia.

The Caspian Sea region is widely viewed as important to world markets because of its large oil and gas reserves. Most energy companies regard the Caspian basin as the Persian Gulf of the 21st century. However, uncertainty over the status of the Caspian has held back oil development in the resource-rich water body, although an $8 billion international consortium is already in production off the shores of Azerbaijan. Furthermore, there is mounting geological evidence that the reserve potential even in Kazakhstan remains substantial. ENI, ExxonMobil, and other energy companies are developing one of the largest oil fields at Kashagan, estimated to contain 50 billion barrels. Conservative forecasts demonstrate that the Caspian shelf holds at least 75 billion barrels of oil.

Halliburton does not intend to be left out of this Caspian rich black gold marketplace. Cheney's former company signed a major contract with the State Oil Company of Azerbaijan to develop a 6,000-square-meter marine base to support offshore oil construction in the Caspian Sea. The base will be used to assist Halliburton's catamaran crane vessel, the Qurban Abbasov, in upcoming offshore pipe-laying and subsea activities, according to a statement the company released in mid-May.

It is the Caspian Pipeline Consortium, which links Kazakhstan's rich oil fields to the Russian ports on the Black Sea, which are most likely to add up to 1.5 million barrels of crude oil per day. Oil from the vast Tengiz field is pumped by the Caspian Pipeline Consortium (CPC) route to Novorossiisk. Unfortunately, numerous oil rich field finds, like those in Kashaghan, have few outlets to the global markets. Meanwhile, all of Russia's leading producers like Lukoil and Yukos have benefited from business relationships with US firms like Conoco, ExxonMobil and Halliburton. For example, these direct benefits include last week's awarding of a $140 million contract to a Russian company, Amur Shipbuilding, by ExxonMobil to refurbish an oil-drilling rig that the US energy company needs to develop for the rich oil fields off Sakhalin, an island near the Pacific coast of Russia.

Moscow's energy authorities are holding later this week an "Oil and Gas Summit: Caspian XXI". There, numerous oil executives and foreign ministry officials from all the neighboring "stans" are converging in Russia's Caspian capital Astrakhan. The purpose is to figure out a cooperative plan for sharing the wealth found in the often contested sea's oil deposits and also to stonewall any plans for any American companies' unilateral participation in the trans-Afghan pipeline. Prior to September 11, the US had actively encouraged the Russians to protect American energy interests and to also assist Caspian countries in developing their own hydrocarbons. Now it has become more apparent to Washington that Russia's ranking oil companies want to keep the black gold or "crown jewels" for themselves.

The US national energy plan drawn up last year and now revived calls on the Bush administration to undertake initiatives aimed at increasing oil and gas imports from alternative sources of supply. With Afghanistan's billion-dollar economic aid package, the new government will at least insure that some infrastructure requirements will be safely met. But the new coalition of warlords is also very cognizant that Afghanistan's wealth is found not in what in holds or produces, but largely in what may pass through it.

Some policy shapers and also energy consultants believe that if the pipeline transit through Afghanistan can be jump-started again there will be also clear dividends for America which may include the following:

With the absence of the Taliban, the international investor community, including foreign banks and governments may now be quite predisposed to this oil-driven pipeline. The cost of such a pipeline may run as high as $2 billion or more with as much as $500 million of it spent in the ravaged and poor Afghanistan;

It will enable the US to create a safe and secure transit point for oil reserves found in the Caspian shelf, and;

With fees being paid to all parties, many energy consultants and policy shapers suggest that this project might also become a "peace pipeline" since it will also provide much needed economic benefits in the form of transit fees to the saber-rattling and warring states of Pakistan and India.

Adding ballast to this scenario, World Bank president James Wolfensohn spoke in Kabul only two weeks ago about financing a fuel pipeline to channel massive gas reserves from Turkmenistan through Afghanistan to India and/or Pakistan. Wolfensohn was in the Afghan capital to open the financial institution's Kabul office and to confirm $100 million of World Bank grants for the interim administration.

It was in 1996 when Unocal won its initial contract to build a 1,005-mile pipeline in an effort to exploit the vast Turkmenistan natural gas fields. The pipeline would extend through Afghanistan and Pakistan, terminating at Multan, with a proposed 400-mile extension into India. Of course, the project was halted when the Taliban regime became unmanageable. With the Taliban no longer a political impediment, the primary stumbling block to the Caspian-Pakistan pipeline is removed.

" I cannot state strongly enough that Unocal did not negotiate with the Taliban or any other faction in Afghanistan. Unocal met with the factions so they could be acquainted with our company and the proposed pipeline. But no negotiations were conducted. There was no globally recognized government in Afghanistan that could negotiate a pipeline franchise," added Unocal's spokesman Barry Lane in an Asia Times Online interview .

The US Energy Information Agency confirmed several years ago that Afghanistan's significance from an energy standpoint stems from its geographical position as potential transit route for oil and natural gas exports from Central Asia to the Arabian Sea. This potential includes the possible construction of oil and gas export pipelines through Afghanistan.

S Frederick Starr, chairman of the Central Asia-Caucasus Institute at Johns Hopkins University, advocates that whatever nation shapes this pipeline map will influence a huge part of the world. In regard to Unocal's previous exploratory efforts in Afghanistan, Starr added, "Unocal's relationship was killed as much by the failure of Unocal's president at the time to develop a working relation with [Turkmen President Sapar] Niyazof as by events in Afghanistan. I don't expect any real breakthroughs now until the price of hydrocarbons rises enough to warrant the investment. That can happen, of course, and could open a new page."

There remain far more questions than answers: Will Russia continue on its course in supporting America's war on terrorism? With continuing instability in the Caucasus and in developing repressive regimes like Kyrgystan, how long will an American presence even be tolerated? Can the competing warlords in Afghanistan manage such an ambitious pipeline project, ensure its security, and will these proposed transit fees replace the opium cash crops? Will Pakistan and India stand down and accept a shared peace pipeline?

With so many questions and so many more looming, it was not surprising that at last week's Unocal annual meeting, chairman and CEO Charles Williamson reiterated that Unocal has no plans or interest in becoming involved in any projects in Afghanistan, including natural gas or crude oil pipelines.

But Ian Bremmer, president of the Eurasia Group, a New York think tank, reinforces the views that all multinational energy companies will continue to capitalize on the lucractive reserves discovered in the Caspian Sea and will be engaged in both back-door channels and politically sensitive development of appropriate transit points for shipment of their black gold.

There is ample evidence to support Washington's desire to fuel its petro-politics agenda in Central Asia. Cemented with diplomatic detente with Russia, and strongly reinforced with US troops positioned in Georgia, Uzbekistan, Tajikistan, and Kyrgyzstan, the revisited Silk Road winding through Afghanistan may yet prove to be an American-led commercial corridor. But as author and journalist Ahmed Rashid writes purposely in his book Taliban, "peace can bring a pipeline, but a pipeline cannot bring peace".

Some Interesting Concepts To Think Carefully About

Dear Reader,

Those Saudi Arabians, you've gotta love 'em. First, 15 out of 19 hijackers on Sept. 11 were Saudis, but Saudi Arabia had NOTHING to do with it, or so we're told. They love us!

Now Saudi Arabia is about to drop another bombshell on us, and this one will make Sept. 11 look like small potatoes.

I never thought I'd say anything could make Sept. 11 look like small potatoes. But this does, at least when it comes to the economy.

Sept. 11 shut the markets down for a few days. When the next crisis hits, you'll wish the markets would shut down so you wouldn't have to watch the carnage.

What Bush learned behind closed doors

If some well-informed experts are right, Saudi Arabia's oil reserves are a fraction of what they've been telling us.

Why does it matter? Because everyone has believed for decades that Saudi Arabia's oil supply is virtually unlimited. That's what the Saudis have said over and over again for more than 30 years.

If an oil shortage threatens to cause a recession or a market crash, we can count on the Saudis to come through. So people think.

But in a private briefing, one of America's top oil experts told President George Bush exactly what I'm telling you. In fact, this same man was a consultant to the secretive task force that drew up Vice President Dick Cheney's energy plan in 2001.

In other words, the guy is a heavy hitter who knows the energy business.

He warned Bush that the Saudis don't have anything near the oil reserves they claim. They already pump less oil than most "experts" think, and here's the real kicker...

Saudi oil production is about to drop sharply. And it will keep going down for good.

Other experts have analyzed the numbers and come to the same conclusions. If the charges are true — and I believe they are — we could be facing...

Oil at $150 per barrel and gasoline at $6 a gallon or more

The oil is running out. It's as simple as that.

But that's not what you hear from so-called experts. If you ask government officials, our intelligence agencies and even powerful Wall Street financiers, they tell you the opposite.

They say the Saudis could quickly double their oil production from the current level if they wanted to. And given a few years, they think the Saudis could produce four times as much oil as they do now.

This is like the Iraqi WMDs all over again

The intelligence agencies and the conventional "experts" are dead wrong. The oil isn't there.

Why should you pay attention to what I think? Let me give you a good reason, and then you decide. My name is Byron King, and I'm the editor of Outstanding Investments.

My publication had the best track record over a five-year period of any investment newsletter in the country in 2005, 2006, and again in 2007. You can check it out at MarketWatch and its independent rating service, the Hulbert Financial Digest.

Readers who followed Outstanding Investments are up an average 25% so far in 2008 and averaged 79% the year before. What's more, we did it all with stocks, not options, and I recommended very few trades. So it's worth your time to spend a few minutes and let me tell you...

Why 2008 was a year of crisis

The oil and gas shortages we've seen lately are nothing compared with what's on the way.

When the truth comes out, it will send shock waves through the world economy. Everyone will find out too late — when gasoline soars to $5 or $6 or more per gallon. I'm writing today to give you a heads-up.

The next few pages show you how to protect yourself and get rich off energy sources and technologies the world will scramble to buy at any price.

Don't be surprised if certain commodities and resource stocks soar three, five or even 10 times over.

Here are a few things you'll discover in the next
few minutes...

The most important fact — not an opinion, but a fact — that should guide your whole investment strategy.

A "minor" sector of the energy market is set to grow 17 times over. I give you the best ways to play it.

A "little" oil company owns reserves the size of Alaska's Prudhoe Bay. It's not even on your radar screen, yet readers who listened to me are currently up 306%. Even bigger gains are on the way.

The coal revolution is here. It's always been cheap and plentiful. Now it's going to be clean, and soon it will even be liquid. It's also going to cause a massive shift in world power. Two American companies will profit big time.

What car will you drive in 2015? Keep reading to discover a "secret play" on the winning car technology of the future. Hint: It may run on coal. MORE: Why the Prius will be a loser. And another surprise: The car makers are NOT the ones who will reap big profits from the super-car.

Discover the fastest-growing energy source in the world. Also the cleanest and safest. America may miss out, but you can still profit.

A natural gas company offers more income than CDs do. It will probably give you a 100% capital gain to boot. But you have to know about a hidden pitfall. Keep reading...

Three wild cards could send oil well over $150 in one day. One of these events may have happened by the time you read this.

I urge you to keep reading and at least consider the steps I recommend to protect yourself. Because you need to ask...

Will Americans have to read by candlelight and bike
to work?

We will if the country dodges crucial energy choices — and time is running out. It may be too late to avoid a deep recession, thanks to...

Saudi Secrets and Funny Math

The cupboard is bare and nobody knows it

Americans used to run Aramco, the huge oil company that manages the Saudi fields. But in 1979, the Saudis booted us out and took over.

And then a funny thing happened...

The Saudis started keeping everything a secret.

No one knows for sure how much oil they've got in the ground, or how much they produce each year or how much they could produce if they wanted to push it to the max.

It's all secret. Experts try to figure out how much oil the Saudis sell by monitoring tanker traffic in and out of the world's ports. That's how little we know for sure.

But wait, it gets worse!

After the Saudis took over, an even funnier thing happened...

Their figures for proven reserves kept going up and up and up — even though they didn't find any major new oil fields!

In 1979, the Saudis adjusted proven reserves upward by 50 billion barrels. Then eight years after that, their proven reserves magically grew by another 100 billion barrels.

Their estimated reserves increased by 150% in nine years — to a total of 260 billion barrels. And they didn't find a single major new oil field!

And here's the funniest thing of all...

For the last 18 years, they've claimed they own 260 billion barrels of proven oil in the ground. The figure never goes down, even though they pumped out 46 billion barrels during that period.

Let me see...260 minus 46 equals 260. Saudi math!

Based on these bogus figures, the Saudis claim they can produce as much oil as the world wants for the next 50 years. As recently as 2004, they claimed their reserve estimates are actually conservative.

That's why most of the world's governments and intelligence services believe the Saudis could pump 20 million barrels of oil a day if they wanted to. Trouble is, we've got no proof except their say-so.

If it were true, we wouldn't have a thing to worry about. But it's not.

It's horse hockey

Before Aramco's American owners were shown the door in 1979, they told Congress that Saudi Arabia had proven reserves of 110 billion barrels. There have been no major new discoveries, so 110 billion barrels was probably about right. And since then, about half of that has been used up.

So why do the Saudis insist everything is just fine and they have 260 billion barrels of reserves?

One reason is they wanted to discourage non-OPEC nations from looking for more oil or switching to alternatives.

It was a devious plan, and it worked perfectly.

But that wasn't the only reason the Saudis lied about their reserves. They did it because everyone does it! Everyone in OPEC, that is.

The Biggest Lie of All: OPEC's Imaginary Oil

In the 1980s, OPEC's claim of total reserves magically leaped from 353 to 643 billion barrels without a single major discovery. Industry experts call it the quota war.

You see, OPEC had to limit how much oil each member could sell, because prices were too low. The quotas were based on... each member's oil reserves!

That's right: The amount of oil OPEC would let a member pump depended on how much that member had in the ground. So it paid for OPEC members to claim the biggest reserves they could. And that's what they did.

The Saudis alone jacked up their estimate by about 100 billion. Kuwait added 50% to its reserves in one year, 1985. Venezuela doubled its reserves in 1987. Iraq and Iran doubled their estimates, too.

What's more, OPEC members did like the Saudis and kept their reserve estimates the same year after year, as if no oil were being pumped out and sold.

Everyone claimed to have a bottomless well.

Now, if you're like me, you prefer to base your financial decisions on the real world, not on a fantasy.

Let's look at how much oil there really is...

In the 1970s, when Western managers were still in charge, they believed for a time that Saudi output could reach 20 million barrels a day. But by the time the Americans lost control in 1979, they figured the peak would be 12 million.

They also predicted that peak production would last only 15–20 years. 1979 plus 20 is 1999. We're past the peak, if these men were right. But we already know they were too optimistic.

The truth is that Saudi production never got to 12 million. "In all probability, output peaked in 1981 at an unsustainable level of about 10.5 million barrels per day," according to Matthew R. Simmons, a leading oil industry authority.

And yet the lies go on...

In 2004, Saudi officials claimed they boosted production to 9.5 million barrels per day and maintained that level for five months.

It's almost sure they were lying. The International Energy Agency is the group that keeps an eye on these things for the developed, oil-importing countries. The IEA could find no sign the Saudis were selling more oil.

As far as anyone can tell, they pump only around 5 million barrels a day, and that's all they've pumped for years.

It's déjà vu all over again

In spite of being lied to at least once, the IEA, the U.S. Department of Energy and other forecasters believe the Saudi claims. ALL their projections of our energy future ALWAYS assume the Saudis could produce 15–20 million barrels a day.

The lies have worked. Not only do Western politicians believe them, but so do many oil industry experts and investors with huge amounts of money at stake. They've been had.

You'll get the full story in a FREE special investment report called Crude Awakening: How to Survive the Total Global Energy Crunch. It's just one of four free special reports with my 10 best recommendations.

The three picks in Crude Awakening are already moving up. The profits have just begun.


We went through three recessions from 1973–1983.
Care for a repeat?

Our whole economy is at risk. Your investments are at risk. Your retirement plans are at risk.

America has been so prosperous the last couple of decades, a lot of people forget what the energy crisis of the '70s was like. Let me remind you: The price of a barrel of oil shot up 400%. Long lines formed at gas stations practically overnight.

Folks had to pay four times as much for a gallon of gas, and there came a week when one out of every five gas stations in the United States had no gas to sell at any price.

The U.S. had three major recessions within 10 years after the first oil crisis in 1973. And those recessions were deep, with double-digit unemployment, double-digit interest rates and double-digit inflation.

Think 10–12% unemployment.

Think 15–18% mortgage rates.

Got the picture? That was the ‘70s. Not fun. My take is that a similar crisis will rock the nation before we solve our problem with clean coal, liquefied natural gas, oil from tar sands, high-mileage cars and safe nuclear plants. More than likely, the politicians will quarrel for years before they do what has to be done.

My picks are already way up, even though our energy problems so far are nothing compared with what's on the way. At the risk of looking kind of cynical, the worse the crisis gets, the higher my recommended stocks will climb.

So I urge you to send for the four free special investment reports, including Crude Awakening: How to Survive the Total Global Energy Crunch. Then buy the recommended stocks and hang onto them, because...

Most of the rest of your investments will tank...

You may lose your job...

Gasoline could race beyond $6 a gallon...

Houses, including yours, will lose value. It could be a paradise for bargain hunters, but not if you're broke...

Groceries and everything else you buy may cost a fortune...

What's more, you might need to buy a gun to protect yourself.
The 10 energy investments you'll get in Crude Awakening and three other free Special Investment Reports are the best insurance I've been able to come up with. I can't guarantee you'll make money. No responsible investment analyst will do that. But my newsletter had the best documented track record in the United States over a five-year period.

In fact, we were one of the first newsletters to realize that the long-awaited promise of oil sands was becoming a reality. Since the late 1960s, geologists and scientists had searched for an economical way to separate usable oil from a giant pool of sand, water and clay in Canada. Some oil forecasters had been predicting giant profits from the project for almost as long.

Outstanding Investments, however, didn't see any compelling reason to jump in until just a few years ago. That's when a scientific breakthrough sent processing costs plummeting... just as conventional oil prices were skyrocketing. It was clear to us that oil sands' time had finally arrived...

Not long after, the U.S. Department of Energy agreed, and for the first time it calculated Canada's oil sands as reserves — putting it just behind Saudi Arabia.

Since then, we've watched our pick go from a mere $6.35 to $24.20. But you're not too late; the fun has just begun. Join Outstanding Investments today, and you'll see this one still listed as a buy.

And inside the FREE reports you'll receive, you'll discover another hot buy:

Operations in All the Right Places

A Brand-New Oil & Gas Operation With Some Old Successful Faces

Investors have already figured out most of the oil story. While there are few precious gems left, most of the best companies have already been discovered and overbought.

However, in typical Wall Street fashion, some great secondary plays are still completely overlooked.

Consider the case of natural gas. For over a decade, its price has moved more or less in tandem with oil. Just a few years back, in fact, investors used that fact to secure some pretty hefty gains. The memory didn't seem to stick, however... because natural gas is ready to move again.

To my eye, natural gas is undervalued... and that's why I'm so excited about the relatively new stock I've uncovered...

20% by Next Year — Just for Starters!

Once part of an energy giant, this company went off on its own in late 2007. But it took a pretty hefty chunk of real estate with it.

This company now controls some of the most important natural gas pipelines in North America, able to send natural gas from Houston, Texas, all the way to Halifax, Nova Scotia. It has mining operations, transfer terminals and even storage facilities in all the right places.

In short, it has the kind of infrastructure that would be nearly impossible for another company to create.

As if that weren't enough reason to love this gas play... just take a look at the numbers this company has racked up — even as natural gas prices have declined.

The Numbers Speak for Themselves

With a market cap of less than $20 billion, this company sports a profit margin of 12.4% — nearly unheard of in the gas industry. Several major institutions are predicting a steady influx of cash, too. In fact, one major analyst expects 9% earnings growth for the years to come.

We think that might be a tad conservative. For one thing, gas prices are on the verge of breaking out. More importantly, this company has big plans for branching out. It's already a pretty big player in Canada, and could benefit nicely from oil sands growth... not to mention any appreciation in the Canadian dollar.

Obviously a play this fantastic won't be overlooked for long. Once the mainstream catches on to what they're missing, we could easily see results matching that oil sands play that has quadrupled already.

I'd hate for you to miss out. So send for your FREE copy of Crude Awakening: How to Survive the Total Global Energy Crunch. And here's a recommendation you'll find in another one of your free reports, Tailpipe Riches: The Race to Build the Car of the Future...

A Secret Way to Invest in the Car of the Future

The hybrid engine isn't it. And the hydrogen car
isn't, either

The race is on to design the car of the future. Every player in the industry is scrambling for the prize, and the winner will dominate the world car market for decades.

The three big contenders are the hydrogen fuel cell, the electric hybrid vehicle and the diesel. You're going to be surprised when I tell you the most likely winner.

What's more, I've identified a "secret play" on the winning technology, ready for your portfolio right now. Let's take a look at the three cars in this race...

The hydrogen fuel cell gets the most hype

Detroit put all its chips on fuel cell technology, and it's been telling us since the late 1990s that a breakthrough was just around the corner.

In 1997, German-owned DaimlerChrysler actually predicted 100,000 fuel cell engines on the road by 2005. In 2001, General Motors projected about the same timeline.

Even George Bush got into the act, declaring in his 2003 State of the Union message that "America can lead the world in developing clean, hydrogen-powered automobiles."

It didn't happen and it probably won't

The short explanation for Detroit's failure is that the engineering problems were bigger than it thought. On top of that, the fuel cell engine costs 10 times as much as a conventional engine.

Worse yet, there's also the problem of building a national network of fuel stations where you can fill the tank with hydrogen. Hydrogen isn't found in nature in a usable form, and it's very expensive to produce. A national hydrogen rollout could cost $100 billion.

There's still hope that hydrogen will come through in the end, but the National Academy of Sciences believes the "hydrogen economy" is decades away.

Meanwhile, electric hybrids roar ahead

When Toyota announced a heavy investment in electric hybrids a few years back, Detroit snickered. To Detroit, it just seemed like a halfway solution on the way to the fuel cell car.

Wrong.

I don't need to tell you that the electric hybrid Prius is a sensation, and Detroit is now rushing to play catch-up. It'll come out with a number of hybrid models in the next few years, many of them using technology licensed from Toyota.

What's more, the electric hybrid is not just an underpowered small car. Toyota now offers a high-end SUV hybrid with better acceleration than the standard model!

So hybrids are where it's at, right? Wrong again.

The Prius has problems.

First off, the gas mileage on the Prius is not all it's cracked up to be. Consumers have noticed, and some aren't happy.

What happened is that the EPA tests vehicles under ideal conditions on a flat surface. In the real world, it looks like Prius' mileage is not so hot. Also, most of the hybrid's big mileage gains occur in stop-and-start city traffic. On an open road, the conventional engine actually gets better gas mileage.

When you look at the Prius' true mileage, there are plenty of conventional vehicles that do as well or better.

Add in the high extra cost of the hybrid engine, and some say you have to drive the car a hundred thousand miles to recoup the extra money you pay for the fancy technology.

There's a third alternative, a "sleeper" technology that's going to surprise everyone...

And the winner is...

The humble old diesel engine — the third and final competitor for car of the future.

How can that be? Diesels are loud, dirty and smelly. A pollution nightmare.

You can hear a diesel truck from a mile away, see the soot from halfway down the block and smell the exhaust as it rolls by.

Except — surprise! — those diesels you hear and smell are antiques. Thanks to new technology, diesels aren't so dirty anymore, and the gas mileage is better than ever!

Here's what happened: Europeans have to pay heavy gasoline taxes and they worry about global warming, so they invested in the diesel engine as a stopgap, just in case the hydrogen car hit a snag.

As you know, hydrogen DID hit a snag. Now the stopgap looks like the winner in the great auto race.

You see, diesel gets about 30% more miles to the gallon than gasoline, and those savings are real, in any kind of driving conditions. What's more, people who worry about global warming prefer diesel because it emits up to 20% less carbon dioxide. But wait, it gets even better...

Diesels have a huge, surprise advantage

Diesels now rival traditional gasoline engines for quiet, and European refineries have removed most of the pollutants from the fuel. The engines cost more, but the gas savings almost make up the difference. I'll tell you a sleeper stock — it's not a car company — that's the best way to play the diesel revolution.

But meanwhile, there's an even better way to invest than the hardware under the hood. Diesel's biggest edge is something you'd never expect...

You don't need crude oil to make diesel fuel

You can make it from coal, plant matter or even cooking oil. (No kidding! A restaurant can invest in a cooking oil converter kit that lets you fry a batch of potatoes and later reuse the oil in your delivery truck.)

In a few pages, I explain how liquefied coal is one of the big technologies of the future no matter what, whether the diesel engine wins or not. But if diesel wins the auto race, coal will be the biggest thing since folks traded in their horses for cars. King Crude may be dead, once and for all.

How bad does the world need these new technologies? REAL bad. My readers have already profited, with one energy pick up 306% as this is written, and two others up 168% and 127%.

We reaped those gains because, whatever the future holds, the oil crisis right now is bad enough...

In India they make fuel from cow dung

Every year and, indeed, every month the world will grow more desperate for the alternative fuels and technologies I'm talking about.

India imports more than 75% of its crude oil. It's so desperate for alternatives, it recently promoted cow dung as an important energy source. A new use for sacred cows!

The problem is Asians these days are buying cars like... well, like Americans.

The Chinese would have to buy 650 million vehicles to reach American levels of car ownership. That's not likely. But a fraction of that figure will create an oil and pollution crisis big enough to finish us off.

In the vast markets of India and China, a vehicle that runs without crude oil will be irresistible. But there's still more to the diesel story...

A hybrid diesel engine is the next step

A combination of hybrid and diesel technology will take the fuel savings up a notch. Make that two notches. And it will happen soon.

An MIT study predicts the diesel hybrid could outperform a hydrogen fuel cell engine on both gasoline mileage and carbon emissions — within 10 years.

In other words, the hydrogen fuel cell car may never get to market. It's dead in the cradle thanks to breakthroughs elsewhere.

Is there a catch? And how can you make money?

There is indeed a catch to all this, but the catch is where you'll find the profit opportunity.

The obvious play is to buy the big automakers like Toyota that own the leading hybrid or diesel technologies.

Obvious, but wrong. The auto industry is on its way to becoming a replay of the airline industry. The competition is already cutthroat, with razor-thin margins. Now we're going to see General Motors and Ford file for bankruptcy.

When that happens, they'll walk away from the pension and health care obligations that are killing them. Their plants are in political battleground states so the politicians will help them stay afloat. They're "too big to fail."

Once they're operating under Chapter 11, like the airlines, the automakers will launch profit-killing price wars that may last for decades.

Emissions are the key to profits

No, the way to profit from the diesel revolution is to buy the company that's going to remove the last obstacle that stands in the way of diesel: pollutants.

You see, the Europeans still haven't been able to remove the last bit of filth from diesel exhaust. They've just put up with it for the sake of fuel economy and lower carbon emissions.

Whoever comes up with the best diesel tailpipe solution stands to make a killing. And a high-tech American company has done exactly that. It's come up with a diesel filter that's far superior to what the Europeans now have.

A very surprising angle will make you money

Diesel tailpipes will be a billion-dollar market within two years — an increase of more than 80-fold from the year 2000. As the oil shortage deepens and the world scrambles for fuel mileage, the company I'm telling you about will be on every front page in the country.

This company is a technology leader that created one of the most important inventions of the '90s telecom boom — but I'm not talking about Microsoft or Intel or any of the obvious choices. The company I have in mind keeps a lower profile.

Now it's come up with ANOTHER breakthrough technology that few investors know about.

My crystal ball says its technology is going to wind up in 200 million vehicles. I'll tell you all about the stock in a FREE special investment report called Tailpipe Riches: The Race to Build the Car of the Future. It's one of four free reports you get when you subscribe.

Subscribe now and get your free copy. You'll want to snap up this breakthrough technology before it's too late.

But meanwhile, you can also make a bundle off the liquefied coal story...

The Great Coal Rush

It's clean, cheap and soon will be liquid

While the oil runs out, there's still plenty of coal. The world has enough coal to last for 300 years at current rates. Coal already accounts for more than half of our electricity.

But coal is dirty, right? And there's no way it can power cars, right?

Wrong, and wrong again. Coal can be cleaned up AND it can power your SUV. However, it's not cheap to do. It's only worthwhile when a barrel of oil costs more than $30.

Which means you're in luck if you own stock in a coal company, as my readers do, because oil is way more than $30 a barrel, and it's going to stay that way. Forever.

My readers have already booked 43% gains on this recommendation in just over three months. And that’s just the beginning.

Coal is set to replace oil almost everywhere

You're now one of a handful of people who know about clean coal, and you're going to make a fortune off it. I want to send you all the details in another FREE special investment report called Turning on the Juice: Power Plays for the Electricity Crisis Ahead. It's one of four reports I send to all new subscribers.

Let's look at how big the opportunity really is...

The U.S. and China both have a growing problem with the price of oil and with the unstable countries they have to buy it from. Meanwhile, the U.S. and China both have HUGE reserves of coal.

Add in Australia and Canada and you've got four countries that you could call the OPEC of coal. They own just about all the coal there is.

The U.S. alone has 254 billion tons of proven coal reserves, or about 25% of the world total. Compare that to Saudi Arabia, with 24% of the world's oil (if you believe it).

Meanwhile, the Chinese economy is doubling every 10 years and has a lion's appetite for electricity. The Chinese will have to give up that growth rate or build hundreds of new power plants, one or the other. They have no choice.

China is starved for electricity...and we're not doing so well ourselves!

Electricity could be China's biggest roadblock to growth. Already, blackouts and brownouts happen every day all over the country. Factories by the thousand are forced to shut down from time to time. Many are allowed to operate only during off-peak hours. Children in some cities do their homework by candlelight.

With an economy that grows 8% or 9% every year, and electric usage soaring at the same rate, the Chinese have no choice but to build hundreds of new power plants. And most of those plants are going to run on coal.

In the United States, we have a power crisis of our own. We're at the limit of our generating capacity. We have our own brownouts during peak-demand times. We, too, need to build hundreds of new power plants. Yet the public still doesn't want nuclear power.

A coal boom is inevitable

You do the math: We face a crude oil shortage... nuclear power gives people the willies...we've got plenty of coal in the ground...we've got a choice between more power plants or deep recession and unemployment.

Everything points to coal.

Already my readers have gained 43% on my favorite coal investment in just over three months. You'll get details on the company in the free special investment report called Turning on the Juice: Power Plays for the Electricity Crisis Ahead.

The gains have just begun. We can thank ever-increasing demand for coal and ever-higher prices. All that's left is to solve the pollution problem. And as you'll see in the next few pages, that's about to happen. I've got a way you can play the clean coal technology.

A safe, conservative way to play the Great Coal Rush

The safest way to profit is to own some coal and wait for the price to go up. It will.

I've found a great, long-term stock that came on the market in 2004, as a spin-off from another company. Already, this new kid on the block is one of the five largest coal companies in the United States, with 13 mines in our richest coal regions, plus 100 electric power plants in 29 different states.

This outfit has a staggering 1.8 billion tons of proven and probable coal reserves. That's enough to last 28 years at current rates of production.

The top execs have an average of 26 years of experience apiece. They employ the most advanced technology and achieve some of the highest levels of efficiency of any coal producer on the market.

With an abundant, cheap replacement for oil, these guys just about can't go wrong. Their coal is going to look better and better with oil back at $100 and even $150 per barrel. You'll receive all the details in Turning on the Juice: Power Plays for the Electricity Crisis Ahead.

A Coal Company That's Proven To Sizzle

Now, lets talk about a company that's ready to skyrocket with increased demand for coal. One that's based in the U.S. but stands to benefit from a worldwide demand in coal.

In case you missed the memo, China is a huge player in the energy market. This includes the demand and need for energy sources to fire up their many coal-fired power plants.

With new plants coming online almost every day China has been single handedly spurring the demand for coal. Prices are starting to rise, and the companies that own the coal in the ground stand to benefit. The company that I've told my readers about is just that...

43% Gains in Three Months!

So far this company has shown my readers 43% in gains in just over three months. That's nothing to sniff at. This huge player in the market is ready to keep spiking up higher and here's why...

Simply put this is the largest private owner of coal east of the Mississippi. They have deep roots in the U.S., along with deep seeded logistics that help get their product through the rails, waterways, and roadways of America.

As you can see, this is no fly-by-night coal company.

And their long lasting logistics network has created competition amongst transport companies. This coal behemoth is large enough to make smaller companies scramble to give it better transport prices.

But that's not all this company has going for it...

A Confident Company Poised For Growth

This company is currently in the middle of a huge stock buyout of another energy player — something you like to see from a well managed company.

Combine that with a 42% increase in their dividend in late 2007 and you can see that this company's share price is poised for solid growth in the coming years.

Now is still the time to buy — I'm looking at it as a long-term core holding that will pay for a big chunk of your retirement. But you'll still want to act quickly, this stock has already shot up 43% and there is no sign of it slowing down.

You'll find all of the information, including this lucrative coal company's name, in your special report Turning on the Juice: Power Plays for the Electricity Crisis Ahead.

You can receive this report FREE, plus...

Riding the Natural Gas Boom to Triple Your Money

Tailpipe Riches: The Race to Build the Car of the Future, and

Crude Awakening: How to Survive the Total Global Energy Crunch.

In fact, subscribe for two years — with a full refund guarantee — and you receive six special investment reports free.

You'll discover everything you need to know in the free special investment reports. You see, with the help of these special reports, you can...

Profit from something few investors know

The Chinese are turning their country into an open-air lab to develop new energy technologies. The new technologies that come out of their efforts will be exported all over the world. Later in this letter, I'll tell you about their breakthrough in nuclear technology.

The American company that's helping China liquefy coal is doing the same thing in India, another giant country with almost no oil. It's also got a stake in a big Philippine deal.

In other words, this company is the technology leader in a fast-growing industry most investors don't even know about.

And if diesels powered by liquefied coal become the car of the future, there's no telling how high my coal picks can go!

While most investors expect the price of oil to stay stuck in double digits you can position yourself to profit from the new, long-term energy crisis.

Keep reading and discover...

The fastest-growing energy source in the world. Also the cleanest and safest. But America may be sidelined. I tell you more in a few pages, and everything you need to know in one of your free reports, Turning on the Juice: Power Plays for the Electricity Crisis Ahead.


Goodbye global warming! A Chinese breakthrough may create cheap, safe, clean electric power for the whole world. I've got a safe angle to profit from China's massive investment in electric-generating plants.


A true alternative energy superstar! This dividend-paying company has a market cap of just $923 million. Yet it provides essential components for one of the most popular types of alternative energy. It's order backlog is a jaw-dropping $186.3 million — and growing by the day.


A "minor" sector of the energy market is set to grow 17 times over. I'll give you my best pick.
But please act now. The crisis could hit overnight...

Wild Cards

How oil could go beyond $150 in 24 hours

If you want to bury your head in the sand and pretend Saudi Arabia has plenty of oil, be my guest. But Outstanding Investments is for investors who want to face reality and be prepared.

Every shred of evidence points to no Saudi buffer for world oil markets. And that's a real problem because oil consumption soared from 52 million barrels a day to 82 million in the last 19 years, and it's expected to grow to 120 million in the next 20...

If the oil can be found. Very doubtful.

High-priced oil is here to stay

There are three ways oil could race past $150 a barrel: It may get there gradually...or on a faster pace of a year or two...or overnight, literally within 24 hours.

Pick any one of the three. No matter how you look at it, it's a sure thing the days of cheap oil are over. We're never going to see $30 oil again, and we may never even see $50 oil. Soon oil in the $100s may very well return to stay.

"You never really run out of oil," says a Houston energy consultant named Henry Groppe. "But many years ago we ran out of $2 a barrel oil, then we ran out of $25 oil, and now we're running out of $40 oil."

That's for sure. And that means you need to readjust your holdings. Outstanding Investments has a strategy that will profit handsomely from this inevitable trend. But our strategy could profit even more because...

The disaster could hit very fast

Saudi production could fall over a cliff almost overnight. There could be a deep, sharp reduction in Saudi oil production literally any day.

It's guesswork, but energy expert Matthew Simmons says, "It will take energy forecasters and policymakers by total surprise. Not a single serious energy plan devised in the past three decades has envisioned such a scenario."

He's told interviewers that Saudi output could drop 30–40% from the already low level of just 5 million barrels. Simmons doesn't claim to know for sure, but I believe he's right.

In the big oil crisis of 1973, oil went to $100 in current dollars.

Back then, the problem was just political. Angered by U.S. support for Israel, the Arab oil producers cut our supply. After things calmed down, there was plenty of oil. This time the problem is real and there's no quick fix.

There's a sword hanging over our heads, and most people don't even know. Just consider this...

Three quick disasters could send oil over $150 in 24 hours

I've spotted three trends to watch that could crash markets and cause a recession.

You already know that the 2005 hurricane season was the worst on record, and the one before that was almost as bad. In 2005, there were 27 tropical storms. Weather experts could hardly believe it, but the last one formed in December, a month after the "end" of the hurricane season.

It's not as weird as a blizzard in July. But it's close.

Worse, the storms are more powerful than ever before. It seems that a tropical storm is more likely now to become a deadly Category 4 or Category 5 hurricane.

Two reasons for the monster storms

The first reason is there's a normal cycle of low hurricane activity followed by a period of high hurricane activity. Each phase can last for several decades.

Clearly, we're in the high phase, and it will probably go on for years. That's bad enough, but it's normal. But now you have to add...

Wild card No. 1:

The danger of climate change

Bear in mind that climate change can be caused by either human activity or natural causes. And either way, the jury is still out. Despite what you may hear from the mainstream media, the case for global warming is far from closed.

But global warming believers are already blaming the monster hurricanes on climate change.

They may be right.

The level of hurricane activity we're seeing has no precedent in the hundred years or so that scientists have been counting and categorizing storms. Meanwhile, a big chunk of our energy industry is located in the worst possible place.

Not in my backyard, and soon, nowhere at all

Americans have largely banned oil and gas drilling and liquefied natural gas ports from the Atlantic and Pacific coasts. They don't like oil refineries, either. Plus, it's well known that the Gulf of Mexico is energy rich.

So America ended up with a huge part of its energy infrastructure located on the Gulf Coast.

A lot of it was knocked out by Katrina and Rita. As I write this, the Gulf coast energy industry is still not back to normal.

Just in time for the next hurricane season

If there is a hurricane season like 2005, it could be the end of some 20% of America's oil and gas industry. And it could all happen in 24 hours.

It's hard to picture that oil companies are going to keep on investing in a region where they get knocked out every year. And the onshore plants can't be moved to Boston and San Francisco, where they're not wanted anyway.

We may be staring at a permanent loss of a large part of our energy industry.

Wild Card No. 2:

War and revolution at the chokepoints

World oil supplies are so tight the price could go through the roof if we lose just a couple of million barrels of daily production out of the world total of 82 million.

Production is running full tilt and consumers snap up every barrel that comes out of the ground. There's no buffer (despite what the Saudis claim).

A sudden leap to $150 a barrel, not to mention $150 , could tip us over the edge — and into a deeper recession. The immediate cause could be war or revolution in an oil-producing country.

Toss in another bad hurricane season at the same time and it could be the end of our way of life.

Saudi Arabia itself is a prime candidate for revolution. You might think al-Qaida's main target is the United States, but in fact the main target all along has been control of Saudi Arabia.

The World Trade Center was just a stop on the road to Riyadh, as al-Qaida sees it.

But my own pick for disaster is Nigeria. This African country is the world's No. 12 oil producer, and a big supplier to the United States.

The Nigerian wild card

The country is seething with revolution. The government — if you want to call it a government — admits that thieves steal as much as 200,000 barrels of oil a day and sell it on the black market. Off the record, experts put the bootleg oil as high as 650,000 barrels a day.

That kind of oil generates huge sums of cash, and a lot of the money is plowed into arms for the rebels. There's no shortage of poor, hopeless young men willing to use the weapons. Three Nigerians out of five live in poverty.

Caught in the middle of all this are big oil companies like Shell and Chevron. In some parts of the country their facilities have been shut down and they've been kicked out. If you want to get punched in Nigeria, just tell a native you work for Shell.

Wild Card No. 3:

Terrorism

You won't be surprised to learn terrorism is the third wild card that could create an instant crisis. In fact, a former CIA director recently joined some former oil executives and government experts in a risk-analysis exercise.

They forecast three very likely events that could bring the roof down on our heads.

One of them was civil war in Nigeria.

The other two were both terror incidents.

Intelligence agencies know the terrorists have especially targeted oil facilities and infrastructure. It's an international game of cat and mouse in which the terrorists are looking for a weak point day and night, high and low, while we try to find them and stop them in time.

It's only a matter of time until they succeed. It's like a thief checking every door in the neighborhood every night. One night, he'll find a door that's not locked.

Are you getting the picture? The good scenario is that the oil price will merely hover around $150 over the next few years.

The worst scenario is that it will go there — then much higher — next week, or next month or next year.

Either way, you can gain anywhere from 100–1,000% on the investments I recommend. The only question is HOW MUCH MONEY YOU'LL MAKE and HOW FAST YOU'LL MAKE IT.

The investments I reveal in your four FREE special reports are your ticket to survival, and even wealth, in the midst of recession and chaos. You receive full details on all 10 recommendations as soon as you subscribe to Outstanding Investments.

The Natural Gas Bottleneck

A market set to multiply 17 times, according to
government figures

When oil started getting pricey during the 1970s, America switched to natural gas in a big way. Natural gas now supplies about 24% of our total energy needs, including a big chunk of our electricity.

The move made sense. We had plenty of natural gas, and what's more, it's a clean-burning fuel that cuts down on pollution. But like any kind of fossil fuel, there's only so much of it. Now we're running out.

After the big hurricanes of 2005, everyone can see the U.S. is vulnerable. We didn't have the gas supplies we needed when we needed them. That was a cold, expensive winter for a lot of Americans.

The gas shortage will be hard to solve

America has placed vast areas off limits to drilling. Not only millions of acres of federal lands, but also most of the offshore areas on the Atlantic and
Pacific coasts.

These gas-rich regions are off-limits even though natural gas doesn't create spills. If there's an accident, it just escapes into the air. And drilling rigs are mostly out of sight of the resort properties on the beach.

The regulations have left only the Gulf of Mexico, aka hurricane alley, for offshore drilling and natural gas production. But we've painted ourselves into a corner...

The rest of the world burns up natural gas to get rid of it!

If you saw your heating bills shoot up this winter, you'll be frustrated to learn there's plenty of gas worldwide. It's a byproduct of oil wells, and if an oil field isn't close to a big population center or a pipeline, the gas is just flared off.

The rest of the world burns off as much as 2.5 trillion cubic feet of what is called "stranded" natural gas. That's equivalent to 1.7 billion barrels of oil totally wasted every year!

The problem is that gas, unlike oil, is hard to transport. You can't build pipelines across oceans. And big oceans separate North America from the cheap gas that's now going to waste. This energy bottleneck is your chance to multiply your money up to 17 times.

Because of the bottleneck problem, the price of natural gas is much higher in North America than in the countries that are swimming in the stuff. It's a huge opportunity, and I've prepared a free special investment report to help you profit. I call it Riding the Natural Gas Boom to Triple Your Money.

Take a look at the free report's best play on natural gas...

An easy answer to the gas shortage, with a 45-year
safety record

There's an easy solution to our natural gas shortage, and it's been around for years. It's called liquefied natural gas, or LNG.

If you turn natural gas into a liquid by supercooling it, you can transport 600 times as much gas in the same space. One LNG tanker can carry as much as 600 ships hauling natural gas in vapor form.

And despite what you may have heard, LNG is safe. With 40,000 LNG tanker voyages spanning the last 45 years and crossing 60 million miles of ocean, there hasn't been a single major accident. Not one.

No explosions, no fireballs, no gruesome casualties. Sorry, Hollywood.

You'll learn everything you need to know in Riding the Natural Gas Boom to Triple Your Money, devoted just to this topic. I'll rush you a free copy when you try my newsletter, Outstanding Investments.

A market set to multiply up to 17 times

As things stand now, the U.S. gets only 1% of its natural gas in the form of LNG, but with the energy crunch, things are going to change.

The government's Energy Information Agency believes LNG will provide from 14–17% of our total gas supply by 2025. That means a 14- to 17-fold increase in LNG.

Better yet, that's going to be a higher percentage of a bigger market, too. The EIA projects total gas consumption — LNG and vapor combined — will boom 30% in the next 10 years. And meanwhile, a fierce bidding war has broken out among Europe, Asia and the U.S. for every available ounce of LNG.

Would you to like to sprint from a 1% market share to a 17% market share in a growth industry? I would!

Destined to dominate

The boom was actually under way before the current energy crunch hit. LNG trade soared 55% in the 10 years ending in 2004. This little market is growing like crazy.

Some analysts even predict LNG will surpass King Crude to dominate the world's energy markets. The CEO of Shell says within 10 years, gas will be a bigger part of the company's business than oil.

Please join me and the happy, increasingly rich readers of Outstanding Investments. As I write these words, we're up 109% on my first pick...

The Best Play on Natural Gas

Finding the right investment in the booming natural gas market is not as easy as it sounds. For example Exxon Mobil is so large that buying it as a play on natural gas would be like buying a ranch to own a steer.

We need a pure natural gas producer that can grow 200%, 300%, or even more. And I found it!

Make Several Times Your Money in Natural Gas

My top pick sports a $13 billion market cap. It's one of the top 3 independent natural gas producers, but in the energy business it qualifies as a small, nimble player.

This company is a natural gas powerhouse based in the U.S.

It owes its success to active property acquisition and consistent drilling. This isn't a new strategy, but this company is doing it on a large scale in the right market. This company is a master in every facet of the natural gas business.

I'm not the only one who thinks this company is about to skyrocket...

What's one indicator that great investors have always used to predict upward movements in a stock price? Insider buying.

Who knows the business better than the management of a company? No one. If company execs are putting large chunks of their hard earned dollars into the stock, you know that they believe the price will go up.

This company's CEO has been stocking up on shares. For the past couple years the CEO has been filing SEC form-4's — the forms you have to fill out if you are an insider buying your own company's shares.

Do you think this CEO would be sinking his hard earned money into something that he didn't believe in? No way. He knows what I know about natural gas. And right now it's at a great time to buy.

The Worldwide Natural Gas Boom

This company is in a great position to profit, but they are in an even better market. Natural gas is quickly becoming the energy of choice internationally.

As oil prices increase, natural gas demand will also become a cheaper and more viable energy source. And this company will stand to make money. And here is the kicker...

Alone this natural gas producer is a strong candidate for growth, but it may be an even stronger candidate for a buyout. With a company this well positioned it may just be a matter of time before one of the big guys buys them out...

You'll learn all about it in your free special investment report, Riding the Natural Gas Boom to Triple Your Money. You receive this report and three more to boot when you subscribe to my newsletter. Meanwhile, here's another way to profit...

Earn a 16% Dividend and
Double Your Capital, Too!

LNG is a possible grand slam homer in natural gas. But you can also profit from North American companies that don't need to ship their gas across an ocean.

And if you're fed up with the pitiful interest rates you get on bank accounts and CDs, I've got the best news you've heard this year.

Your free copy of Riding the Natural Gas Boom to Triple Your Money recommends a Canadian gas company that pays a 16% dividend as I write these words.

The company is an energy trust, also known as a royalty or resource trust. The idea is that a group of investors pool their resources to buy a cash-generating asset that provides long-term income.

You're probably familiar with the income trust idea from REITs (real estate investment trusts). Same basic concept: A REIT receives and distributes income from a portfolio of real estate properties, while an energy trust pays income from a collection of oil or gas properties. If the assets appreciate, you can also reap a handsome capital gain.

But you have to watch out for this deadly pitfall

All of this comes with a warning: There's a difference between a real estate trust and a gas trust. Real estate doesn't get used up. Gas does.

That means it's unwise to invest in any old energy income trust. Some of them are just selling off their treasure trove of natural gas and distributing the profits. Eventually, the gas will run out, and your share of the deal may become worthless.

If you look into it, you'll find Canadian energy trusts that pay dividends of 25% or even 30%. Sounds great, until you realize they're paying out all the cash and the business will eventually die.

Buy a gas trust that's in it for the long term

Riding the Natural Gas Boom to Triple Your Money reveals a trust that solves the problem. At about 16%, its dividend is a bit lower, but it retains cash and extends the life of the trust through acquisitions and exploration.

It pays out only about half its cash flow. This trust invests the rest in finding new, long-life, high-quality gas projects. What's more, it's darn good at it.

It's been finding $4 worth of new gas for every $1 it invests

That means you can enjoy the best of both worlds — income and capital appreciation. What's more, the potential for long-term gains is eye-popping.

Just with its current reserves, this trust can keep paying out dividends for another 20 years, compared with 10 years for its competitors. But given its success in finding new gas, and with prices headed up, there's a good chance the dividend will increase and the reserves will too!

You'll be collecting the dividend AND building your assets. The more you learn, the better this company gets.

Best of all, the insiders have been consistent, long-term buyers of the stock. When directors and senior officers put their own money on the line, it's a very good sign they believe in the company.

You'll learn more about this dynamite investment in your free copy of Riding the Natural Gas Boom to Triple Your Money. Read it and reap!

Profit From a Nuclear Breakthrough

Keep reading if you'd like to discover a new technology that sounds like a miracle, even though every word is true.

What's more, this breakthrough can fatten your personal bank account.

If things play out the way I expect, fossil fuel power plants will join wood-burning stoves on history's dustheap. You'll learn all the details in one of your free reports, Turning on the Juice: Power Plays for the Electricity Crisis Ahead. It's the No. 1 way to profit from...

The worldwide boom in nuclear power

After a couple of freak accidents several decades ago, Americans decided they wanted nothing to do with nuclear power ever, anywhere. The accidents at Chernobyl and Three Mile Island killed nuclear power in the United States.

We're just about the only people with that attitude.

The rest of the world took a look at the safety problems, solved them and forged ahead. France now gets 77% of its electric power from nuclear plants. Japan and South Korea get 39% — and the two of them have more than 20 new plants on the way.

Belgium, Sweden, Finland...they've all gone nuclear. It seems like everyone but us is building nukes. China plans to boost its nuclear power capacity by 500%.

In fact, for the past 40 years, nuclear has been the fastest-growing power source in the world. And now it's really taking off.

What's more, all the hundreds of plants worldwide have logged thousands of reactor years without a single accident. You see, Asians and Europeans have discovered something Americans refuse to see: Nuclear power beats fossil fuels hands down.

Nuclear is safer, cheaper and cleaner.

In Turning on the Juice: Power Plays for the Electricity Crisis Ahead, you'll find out how the worldwide boom in nuclear power has sent the price of uranium through the roof. Uranium doubled in the last three years, and it will probably double again in the next two.

Turning on the Juice reveals my best pick among the uranium stocks. The company has huge uranium reserves, plus ready access to China and its massive nuclear program. Best of all, this company controls a production bottleneck the U.S. nuclear industry can't do without.

But exciting as that is, it's nothing compared with my best play on the worldwide nuclear power boom...

Nuclear power plants will roll off an assembly line

The Chinese are charging ahead with a new type of nuclear power plant. I predict utilities will build hundreds, and maybe thousands, of these new plants all over the globe. Electricity will become super-cheap. And eventually we'll see an economic boom worldwide like we've never seen before:

The new plants will be walk-away safe. A meltdown is not just unlikely, it's impossible


There's no danger of radioactivity venting into air or water


There's no chain reaction involved


No need for huge cooling towers or water. No billion-dollar pressure dome


Almost no waste, and what waste there is can be stored safely on the premises


No need to fear a terrorist attack.
You'll learn all the details in your free special investment report, Turning on the Juice: Power Plays for the Electricity Crisis Ahead. The technology uses an alternative way to harvest the energy of the atom — a way that Americans discovered and then rejected decades ago.

The Chinese plan to mass-produce the reactors. The plants will be modular and factory made, built to last 40 years, ready to ship anywhere in the world and assembled like Legos.

A Chinese scientist boasts, "Eventually these new reactors will compete strategically, and in the end, they will win. When that happens, it will leave traditional nuclear power in ruins."

The man has reason to be cocky. They've already tested the prototype by turning off the coolant and letting the plant cool down by itself. That would be totally unthinkable with a conventional reactor.

The ultimate solution to global warming

These plants will get built by the hundreds because the world needs cheap, clean energy. But they'll get built by the thousands if the world decides to get serious about global warming. Selected stocks will take off into the stratosphere.

I think the Chinese will pull it off, and we're going to see a new industrial revolution.

You need to move soon, because the Chinese are plunging full speed ahead. Subscribe now and get your free copy of Turning on the Juice: Power Plays for the Electricity Crisis Ahead.

Get 6 Free Reports
With Your 2-Year Subscription

Every person who subscribes to my newsletter, Outstanding Investments, receives all four of the free special investment reports I've described...

Special Investment Report #1:
Crude Awakening: How to Survive the Total Global Energy Crunch

Special Investment Report #2:
Tailpipe Riches: The Race to Build the Car of the Future

Special Investment Report #3:
Turning on the Juice: Power Plays for the Electricity Crisis Ahead

Special Investment Report #4:
Riding the Natural Gas Boom to Triple Your Money

These four reports reveal all the details on ten specific investments I recommend. You'll learn about the revolutionary nuclear plant the Chinese are developing...

The brand-new gas company with a massive infrastructure other companies can't hope to match! When natural gas prices take off, this one will almost certainly be along for the ride


Why the car of the future will probably be a diesel hybrid — and the high-tech American leader with the breakthrough diesel filter


The uranium company with millions of pounds of undervalued reserves — an almost sure double — even if you forget it owns one of the only 2 reprocessing mills in America


Why most "alternative energy" is not what it's cracked up to be. And how you'll be seeing great energy sector profits for years


The American coal company that's poised to jump way above the 43% my readers have seen. Maybe it'll dethrone King Crude once and for all!


Two natural gas plays positioned for years of outstanding profits and growth! One pays a cash dividend that wallops any CD.
Plus, you will discover even more opportunities if you subscribe to Outstanding Investments for two years.

Two-year subscribers save me the cost of sending them renewal notices. That's why I give them...

TWO ADDITIONAL GIFTS...

Special Investment Report #5:
Two if by Sea: Shipping Stocks That'll Sail on the Oil Boom

If the price of oil is headed up, the obvious play is to buy oil stocks. Problem is, everyone knows that. I've got a better idea. Often the best way to play a boom is by investing in supporting players most people never think about.

When it comes to crude oil, tanker companies are a great way to multiply your profits. While the price of a barrel doubled, the cost of shipping the oil went up nearly four times! Revenues for shippers soared a 1,000% in 2004, and all 1,500 oil tankers worldwide are booked solid.

Let me show you how to profit in Two if by Sea: Shipping Stocks That'll Sail on the Oil Boom. Yours free with a two-year subscription.

Special Investment Report #6:
The Trader's Code: A Secret Technique for Bigger Resource Riches

The special investment reports I've told you about so far are like a master's degree in resource investing. The sixth and last report will make you the equivalent of a Ph.D.

You'll be primed for it, too, after you've seen the money you can make just buying the stocks straight-up, without fancy leverage. My sixth report, The Trader's Code, takes you to a whole new level:

It's a trading strategy that's capable of doubling your money every three months.

Doubling your money every three months is good enough to turn a $5,000 investment into as much as $2.5 million in only three years. Can you imagine?

This system gave readers 17 winning plays in a row. And I don't play games with this sort of thing. Everything I say is vetted by our legal team. They won't let me say anything I can't prove in a court of law.

So sign up for two years...examine this incredible trading system for yourself.

But the most important benefit you receive is...

Professional forecasting vs. crystal-ball gazing

My surprising and often disturbing predictions are more than just talk. This is serious information for serious readers.

I publish this analysis in my newsletter. People act on it. Real people. And when they do, they make money. Real money. Dow Jones, Reuters, The Wall Street Journal and others take me seriously. In 2005, 2006, and again in 2007, an independent tracking and rating service, Hulbert Financial Digest, says Outstanding Investments was the top-performing newsletter over a five-year period.

The situation with world oil supplies is so critical you must act now to protect yourself!

You can do it with my top 10 energy recommendations. I send these top picks to ALL subscribers in the first four special investment reports.

You're going to need them. Short term, nothing can cushion the U.S. economy against the coming oil shock. Not the president, not the Prius. It's simply too late... for the nation as a whole.

Afganistan

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