Today's News

On Thursday, the U.S. and Europe moved deliberately and aggressively forward to gather support from the 35 nations that make up the U.N.’s nuclear watchdog agency. And just yesterday, Israel started preparing to cut all diplomatic ties with Iran.

As a result, the diplomats now agree that …

It’s a “Virtual Certainty” They’re Going
To Refer the Iran Crisis Nuclear Program
To the UN Security Council Immediately

That will be a landmark event — not so much because of the UN’s actions but because of Iran’s REACTION.

Late Wednesday, for example, Iran's foreign minister Manouchehr Mottaki threatened “immediate retaliation” against the U.S. for referring its nuclear weapons activities to the United Nations Security Council. In a second statement, Mottaki said that UN Security Council involvement would have “severe consequences” for the U.S. and Israel.

He made it absolutely clear that if the UN didn’t back off,

Iran Will Counter Any Threats
By Using “All Means” at Its Disposal!

This is not idle chatter or sable-rattling. Nor is the West’s superior weaponry a significant deterrent.

Rather, these are strong, serious and very frightening threats coming from a country with the most powerful economic weapon on the planet — oil.

It may be a shock to most. But not to our readers. More importantly, it’s now here ... it’s happening quickly.

Prepare Now for the
Following Three Scenarios

Don’t underestimate Iran. It has over 513,000 troops, another 350,000 in reserves, and over 3,000 missiles already aimed at the U.S. and Israeli targets. It is also the OPEC member controlling the second largest share of the world’s oil, second only to Saudi Arabia.

Here are three possible ways the scenario could unfold ...

Scenario #1: Diplomacy continues for a while longer, with more bickering and threats among Iran, the U.S., Israel and Europe. The UN issues economic sanctions and warnings after exhausting diplomacy. But it fails to achieve the desired results.

Ultimately, either Israel or the U.S. makes the first military strike.

Scenario #2: Much like Scenario #1, with one critical addition: Come March, Iran opens its new oil exchange, the Iranian Oil Burse for trading its oil. But it takes payment strictly in euros and other currencies, rejecting the U.S. dollar.

A major decline in the dollar threatens to send our economy into turmoil, even while inflation continues to rise.

The U.S. decides to make a strike. The aim: Derail the trading of oil in other currencies, and put the kibosh on the Iranian Oil Burse.

Scenario #3: In response to UN sanctions, Iran shuts down its oil production and exports. A U.S. or Israeli initiated strike begins almost immediately thereafter.

Hard to believe? I don’t think so. No matter how you slice it, the likelihood of war with Iran this year is high. And whether it happens sooner or later, the anticipation of this disastrous conflict will likely send oil prices through the roof starting right now.

Iran’s First Weapon of Choice: Oil

All Iran needs to do is cut off its oil supplies to the West, and it can create financial turmoil the likes of which you have not seen in decades. And it could happen so fast it would make your head spin.

Iran exports 2.5 million barrels of oil per day. If Iran throws the “off” switch — the price of oil will explode to $100, perhaps even higher.

Gasoline could soar to $5.00 a gallon ... even $6.00.

Interest rates would shoot up. Real estate prices would crash. The U.S. economy would be shell shocked.

Your Mission: Protect Your Finances
And Fight Back With Profits

The very first thing you should be doing right now is protecting your money. I’ve given you the recommendations before, and I’ll repeat them here.

First, keep a substantial portion of your money safe in money market funds. So you can sleep at night.

Second, get out of the majority of stocks, especially those vulnerable to rising energy costs and higher interest rates.

9/19/05

Alan Greenspan has a dilemma.

The Federal Reserve Board chairman had a plan this autumn: to slowly raise interest rates in the face of mounting inflation and a growing economy.

But Katrina and high energy prices might be giving Greenspan pause.

With the Gulf Coast devastation taking both a human and economic toll - and with consumers increasingly skittish about rising gasoline and oil prices - will Greenspan & Co. elect to forestall higher interest rates in an effort to spur consumer spending and get the economy back on track?

We'll know this week, after the Federal Reserve meets tomorrow.

Many economic observers believe that the Fed will go ahead and raise the short-term rate by one-quarter of a point, to 3.75%. If that happens, economists anticipate that commercial lenders will raise prime lending rates by the same amount, to 6.75%.

That would be the highest prime lending rate in four years. Others think the Fed might go to "Plan B" and sit tight until the aftermath of Katrina and high oil prices blow over.

"I think this is very, very tough for the Fed," Brandeis University economics professor Stephen Cecchetti told the Associated Press. "There's also the compassion issue. You run the risk of looking very callous by raising rates,"

Many economic observers are arguing against higher interest rates, saying that the risk of a flat economy is too great to chance raising rates.

"I think the greater risk is that higher energy prices will cause consumers to pull back, slowing overall economic growth," Kathleen Camilli, president of Camilli Economics, told the AP.

Others counter that argument, saying that the unprecedented government spending plan to bail out hurricane-ravaged Americans near the Gulf of Mexico shows that a rate hike is necessary.

On September 17, the Washington Post wrote:

"President Bush, by proposing Thursday to spend billions of government dollars on Gulf Coast reconstruction, made it very likely that the Federal Reserve will raise short-term interest rates next week, economists said yesterday.

The renowned newspaper went on to say that additional federal spending to help Hurricane Katrina victims will provide a boon to national economic growth in the months to come.

That should work against any short-term slowdown caused by higher energy prices and the loss of jobs, buildings, roads, ports and production facilities as a result of the carnage.

The Post added: "But that extra stimulus, coming as the economy is expanding strongly and unemployment is low, also will fan inflationary pressures, analysts said. That gives the Fed one more reason to move up its benchmark short-term interest rate Tuesday, and possibly to raise it higher than it otherwise would next year to make sure inflation stays under control."

President Bush has proposed spending over $200 billion on Katrina relief efforts.

"That certainly does add to the case for the Fed to hike rates," Ethan S. Harris, chief economist at Lehman Brothers Holdings told the Post.

"The package is so big, there is a significant chance you'll end up with both higher growth and higher inflation next year."

1/3/05

U.S. house prices rose 13% in the year to Q3, including an astonishing 42% leap in Nevada, 27% in California and 23% in Washington DC. Prices have risen a long way on the coasts over the last 7 years with gains of 134% in California, 103% in Massachusetts and 92% in New Jersey and 89% in New York. Inland regions have generally been more stable so the nationwide average gains since 1997 is a more moderate 65%. Nevertheless, with house price inflation accelerating, it looks as though the United States is in the early-to-middle stages of a bubble. In the U.K. and Australia more advanced bubbles are key factors in economic performance and monetary policy. The United States is likely to go the same way.

One of the causes of the bubble is that people seem to have forgotten that house prices can fall as well as rise. And the risks of a significant fall are more acute now than for over 50 years because of the low rate of inflation in consumer prices and the threat of deflation. Between the 1950s and the mid 1990s falling consumer prices, deflation, was virtually unknown anywhere. The world's attention was focused entirely on battling rising prices, inflation, which had become the number one economic problem. But by the late 1990s the battle against inflation was won and deflation had emerged in several countries in Asia including Japan.

Deflation is a new and troubling threat for all of us, brought up in an era of continuous inflation. Almost nobody alive today, even the venerable Mr. Greenspan, was an active market participant or policy-maker in the 1930s, the last time the United States suffered deflation. Yet, during the 19th century and right up to the 1930s, deflation was common, indeed even normal, while inflation was usually only seen at the height of economic booms and in wartime.

In the U.S., deflation is still only a hypothetical possibility, but in Japan it is a painful reality. Japan's stock and property bubbles deflated rapidly in the early 1990s and a series of short-lived upswings were each soon ended by a new downturn. In this weak environment, inflation gradually dropped to zero and then deflation set in, starting in 1995. As of the end of 2004 Japan's price level has fallen a cumulative 10%.

A world of very low inflation, and potentially deflation, makes the current house price bubbles more dangerous than in the past and, from an investor and homeowner point of view, means that houses are a more risky investment. After past price bubbles, house price adjustments were limited in nominal terms by the cushion of high underlying inflation. Indeed in the United States, the nationwide price index has never fallen in nominal terms. In fact, there was a 10% adjustment in real prices in the 1990s, but it was hidden by the high consumer price inflation of the time. In some regions, the real price adjustment was greater and so nominal prices fell too. For example, Californian home prices fell 10% in nominal terms in the early 1990s, with a 24% decline in real terms.

How much effect would a fall in house prices have on the economy? The bursting of the 1990s stock market bubble wiped about $5 trillion off U.S. household wealth. It would take a 33% fall in home prices to have the same impact. A decline of this magnitude cannot be ruled out if valuation ratios for housing, such as the house price-earnings ratio or the house price-rents ratio returned to past cyclical lows, but it would only be likely in the context of a serious recession and a new rise in unemployment. However, wealth effects from declining house prices are usually found to be more virulent than those from falling stock markets, so a fall of "only" 10-20% in house prices could present Mr. Greenspan, or his successor, with a similar headache to the aftermath of the stock crash.

But a housing crash would have other effects too. In past housing downturns residential investment fell sharply, by 40% in 1980-82 and by 24% in 1988-91. This is reflected in the monthly housing starts data, which typically halve during recessions. But starts only ticked down briefly during the 2001 recession and have since risen close to past peaks. Residential investment accounts for about 5% of GDP, so a severe house-building recession would be enough to cut GDP by 1-2% on its own.

How likely is a U.S. housing bust? The economy enters 2005 with considerable momentum and with interest rates still low so it seems likely that house prices will continue to rise for a while, inflating the bubble further. Good news on the economic front will support house prices while rising mortgage rates (likely as bond yields move up) will threaten them. The outcome of these opposing forces will depend partly on how much mortgage rates do in fact rise. Continued good news on consumer price inflation would keep bond yields low and make higher home prices more likely. But house prices will also depend on whether the growing signs of a bubble mentality, now evident in some regions, extend further. When a bubble reaches the euphoric phase, rising interest rates may have little effect because people are entirely focused on the prospect of quick gains.

The ideal outcome from here would be a period where house prices were broadly stable, allowing earnings and rents to catch up and valuations to moderate. A small fall in the market of 5-10% would help that process along, without causing too much hardship, though a nationwide 5-10% fall would almost certainly imply falls of 10-20% in parts of California and New England and other particularly high-priced areas. The most dangerous scenario is if house valuations are still extended when the next major shock hits the U.S. economy. Stock prices would likely be falling too, so that the economy would face a double dose of asset prices effects adding up to a much more lethal mixture than in the aftermath of the stock market bust.

A large correction of house prices at some point, 20% for example, would be a painful process for homeowners as well as investors in housing. Moreover prices would likely only recover gradually since inflation and incomes growth would likely be very low at that point. Hence it is probable that prices would not return to their peak levels for 15 years or more. This might not worry some owner-occupiers. Many will have bought before the peak of the bubble so that, while they will see some erosion of their equity and perhaps suffer some disappointment, they may not be losing much, except on paper. Moreover, since mortgage rates would likely fall, people would be able to refinance at lower rates. However people relying on future appreciation to help fund their retirement could be very disappointed. Moreover some people would find the value of their house falling below the outstanding on their mortgage, i.e. negative equity, because of the greater decline in nominal house prices.

For an investor in housing the scenario above would, to say the least, be a huge disappointment, because there is no capital gain for more than 15 years. Of course, provided he could find tenants and provided rents did not fall, his net rental yield should be positive so there would be some income after costs, though not much given the low level of rental yields, especially in the more bubbly areas. It is difficult to define exactly where the investor would end up, because a great deal depends on how big a loan he has and what rent he could obtain. But there is no doubt that this is what disappointed investors call "a very long term investment", or in other words a mistake! The choice is either sell and accept the loss or wait it out, but then miss the opportunity to make money elsewhere.

A big adjustment like this is most likely when we see a sharp slowdown or recession and especially if house prices continue to rise rapidly in 2005, as seems likely unless mortgage rates rise very rapidly. The United States avoided a major recession in 2001, with the help of massive fiscal stimulus and rapid cuts in interest rates. But another downturn will come one day and, if house building and consumer spending crashes too, the recession will be more severe than in 2001. In a low inflation world, housing bubbles are a much more dangerous phenomenon.

Regards,

John Calverley

5/3/04

Are there some factors that make Japan fundamentally weaker than the U.S.?

Yes. Their banks have more bad debt and less capital. Their construction industry, despite their political pull, is a mess. Their job market is still relatively inflexible.

But there are EQUALLY big factors that make the United States weaker than Japan: Our consumers have less savings and more debt. Most of our tech and telecom industry are still a mess. Our export capacity is shot, even with a weaker dollar.

Plus, there are many MORE factors that we have in common with Japan: Widespread corruption in key financial sectors ... the demographic time bomb ... and HUGE DEBT BUBBLES!

How do countries EVER cut their debt bubbles down to size? Typically it happens in a deep recession. That's when the excesses are cleaned out, paving the way for a real recovery down the road. But our recent mini-recession in 2001 was so brief and so shallow, it didn't even make a dent in the debt pile ... which leaves us with one urgent question still unanswered: Who's going to pay the debt bill?

1/3/04

The Dow finally got back above 10000. President Bush will do everything in his power to make sure it stays that way before his re-election. The market never had a correction to bring stocks down to a fair P/E ratio. Eventually, they will have to come down and that is when all hell will break loose. We thought it would have happened by now, but now we believe this won't take place until 2005. The Fed can't lower rates any more and they are almost out of bullets to do anything else to stimulate the economy. If you buy a "blue chip" stock with an average P/E of 35, you will get your investment back a long time from now. Of course you may loose half of it because its valuation is ridiculous.

11/13/03

Gold stocks are up 489% in the last three years.

I find that number hard to believe. But it's absolutely true. And I'm not cherry-picking a few good stocks... This is referring to the entire gold mining index (the Gold BUGS Index), made up of 15 of the world's major gold stocks.

And that 489% moon shot is just one indicator of gold's shining performance in recent years - to say nothing of its even brighter future.

Take a look at these nuggets...

The price of gold itself is up over 50% from its lows in 1999

Graded gold coins are up 70% in the last three years, and

Futures and options on gold have soared... Who knows how many thousands of percent you'd have made? You'd have stopped counting, and you'd be on a beach somewhere in the Caribbean about now...

Today we'll look at some of the other major factors that make gold a great investment right now - plus examine some specific ways that we as investors can best take advantage of the situation. Let's get started...

6 Reasons to Own Gold and Gold Investments

1. It's super cheap. Gold is cheap, while stocks are expensive. In January of 1980, both the Dow Industrials and the price of gold were at the same level: 800. Now, nearly 24 years later, the Dow is near 10,000, while gold is less than half its January 1980 value. There are some great opportunities, as we'll discuss below.

2. Governments will make our money worth less to pay off their record debts. Governments can print money to pay off their debts. But they can't create gold. The supply of paper money can be infinite. But the supply of gold is extremely limited (they say that the entire gold production in the history of the world could fit on the basketball court at Madison Square Garden). And it's difficult to extract. Bill Gates could buy all the gold mined in the world in a year from his checkbook.

3. Gold should do well in major international conflicts. The price of gold was fixed during World War I and World War II. But silver, for example, rose by over 100% in both world wars. It's been rising for the duration of the War on Terrorism. It all comes back to #2, above...governments ultimately print money to pay for wars.

4. Gold should do well in extreme bear markets. Silver more than doubled in value from 1932 to 1936 during the Great Depression (the price of gold was fixed by the government). The next long bear market was 1968-1980. Silver rose from around $2 in 1968 to a peak near $50 in 1980.

5. Gold will rise during inflation... and during deflation. Gold is good inflation protection... gold rises as the value of the dollar falls. But what many people don't understand is that gold will do even better during deflation, as the government lowers interest rates significantly and wildly prints money (creating inflation) to offset that deflation... leading to substantially higher gold prices. This is where we are now, and gold has done what it's supposed to do.

6. Gold lowers risk in your investment portfolio. In the past, gold has tended to do the opposite of stocks...it skyrocketed in the 1970s, when stocks did horribly. Then in the 1980s and 1990s, when stocks soared, gold lost over half its value. Now in the new millennium gold has soared while stocks are still below their year 2000 highs. Holding a portion of your portfolio in gold will smooth out your portfolio fluctuations.

6 Ways to Invest In Gold

You can make 500% in gold stocks, or 50% in raw gold. You can even make thousands of percent in futures and options-or you can lose it all. Let's cover the various investing options, and the risks and rewards associated with each, starting with the most risky...

1. Futures and options on gold. Yes you can make thousands of percent in these in a gold bull market. And yes you can lose all your money, and then some (in the case of futures). While I don't recommend this route (so I won't discuss it further), if you're interested in pursuing it, someone we trust that has been doing it for 20 years and provides excellent personalized service is Sue Rutsen (www.suerutsen.com 800-345-7026).

2. Junior mining stocks (exploration companies). Phew...these are much too risky for my blood as well. They say only one in 10,000 exploration companies will find a mine and bring it into production. For the lucky one that's found, the average cost of finding and developing a gold mine in Canada, for example, is $100 million (figures from the book Bre-X by Diane Francis). The cards are stacked against you in the junior mining stocks, so I generally avoid them. But they can and do rise many hundreds of percent in a gold bull market. How lucky are you feeling?

3. Blue chip mining stocks. I'm finally comfortable. These are cash-creating businesses. They generally have many mines operating, generating cash earnings. They plow those cash earnings back into the business by buying out junior mining companies that have made a discovery. Why bother doing the exploration yourself? Just buy the juniors after a discovery. That's basically what they do. These include names like Newmont (NEM) and Barrick (ABX).

4. Gold stock mutual funds. This is probably your smartest way into gold stocks. Chances are, you're not an expert in analyzing assay results. That's okay. Guys like Frank Holmes at U.S. Global funds (www.usfunds.com) know how to find the winners. His World Precious Minerals Fund is up 68%, and his Global Resources Fund is up 75% year-to-date-the best performer in its sector by far. Learn more about Frank's three different funds with gold exposure at www.usfunds.com

5. Investment grade rare coins. I consider these to be the best opportunity right now. While gold stocks are up nearly 500%, investment grade gold coins (those that carry a grading of Mint State (MS) 63 or higher from the grading agencies PCGS or NGC) are "only" up 70%. These coins peaked in value in 1989. They subsequently fell by 85%, bottoming in 2001. There is still 100% upside on the table here, and your downside is limited (since you're close to meltdown value). I prefer the least expensive of these with the highest gold content, like the $20 Saint Gaudens. For your safety, stick with the Oxford Club's recommended coin dealers (see the OC website, www.oxfordclub.com).

6. Raw gold (bullion or bars). To own gold directly, you can buy common gold coins or small bars of gold. Common gold coins are known as "bullion" coins. These include popular coins like Krugerrands or Canadian Maple Leafs, and they cost just a few dollars more than the current price of gold. These don't have extraordinary upside or downside - they simply move with the price of gold. But after the huge run-up in mining shares, you may prefer to have the limited downside risk of these. Michael Checkan at Asset Strategies (www.assetstrategies.com 800-831-0007) is a specialist we trust in owning raw gold.

8/25/03

Record bank profits will soon give way to record losses as the bond market crash and interest rate surge squeeze vulnerable banks like vice grips.

If you own shares in any bank, now is the time to get the heck out. Then, turn this looming bank share bust into a profit bonanza.

The banking industry just reported a record quarterly profit.

     Why? Largely because they have been enjoying the lowest cost of funds in 45 years. But that's past. Over. History.

     Now, suddenly, the era of low interest rates has reversed. And the banking industry is facing a host of problems ...

     -- Consumers are beginning to reign in their borrowing, taking out fewer loans and even curtailing credit card purchases. Less loan-making means declining earnings for banks.

     -- Banks have been caught flat-footed in the bond market crash. During the declining interest rate environment, banks loaded up their own portfolios with Treasury bonds ... corporate bonds ... mortgage bonds ... and just about any type of debt instrument you can imagine. Now, as rates rise, those instruments are experiencing sharp declines in value.

     -- Banks face very grave dangers from a real estate bust. Already, mortgage applications have plunged 11.2% in just the last week alone and are down 33.9% from last year, while mortgage foreclosures continue to surge monthly to one record high after another.

     -- Next, I expect banks will begin to see the number and amount of bad loans they've made start climbing due to rising rates. Personal bankruptcies just hit a new record high. Corporate bankruptcies, while down over the past two quarters, are likely to jump again in this rising interest rate environment. More bad loans means big hits to bank earnings.

     And here's the biggest wild card of all: According to the very latest data from the Office of the Comptroller of the Currency (OCC), banks now hold $53.4 trillion of derivative bets that are related to interest rates.

     Rumors are already swirling that several banks and financial institutions may soon disclose large losses on these trades. To give you an idea of how bad the losses could be, consider this ...

If just 1% of the $53.4 trillion in derivatives bets went bad, 67% of the banking industry's total equity capital of $791.6 billion would be wiped out

If just 2% went bad, it would be enough to wipe out the shareholder equity of the banking industry two times over.

     Is it any surprise you're already seeing the share prices of some of the largest financial institutions in the world go into a freefall, with declines of as much as 15% -- in just the past four weeks? For instance ...

     • JP Morgan Chase's share price has plunged from $38.26 to a recent low of $32.40, shedding as much as 15%. That's a 4-week loss of $11.9 billion in market value.

     • Washington Mutual's share price lost nearly 13% in 4 weeks.

     • Citigroup lost as much as 11.7%, its share price swooning from $48.15 to a recent low of $42.48. That's more than $25 billion in market cap lost.

     • Giant insurer American International Group's share price dropped 6.2% -- shaving $10.5 billion in market cap off its value.

     Plus, there are literally dozens more financial institutions whose share prices are vulnerable to a steep decline.

Make sure you do not own stock in any financial institutions. Not one. If you do, SELL now!

If you've purchased any financial stocks -- banks, insurers, credit companies, etc. -- I urge you to get out of them now. Bank shares are at price levels you're not likely to see again for many years to come.

The stock market as a whole is stronger than I expected, and this may continue for a while longer. But if I were you, I'd welcome it as a selling opportunity -- not a time to buy.

5/21/03

Now, we have just gotten new data confirming exactly the same trend: For every one corporate insider who is buying stock in his or her own company, nearly three corporate insiders are selling their shares!

     The amount of selling is huge ...

     * 9 insiders at eBay dumping more than $41 million worth of shares

     * 3 top insiders at Integrated Circuit Systems -- over $58 million worth of insider shares

     * Microsoft -- 5 top insiders, more than $311 million worth of shares

     Then, there's Ted Turner -- bailing out on AOL Time Warner by dumping 60 million shares, a $784 million hoard of the company's stock.

This huge surge in insider selling -- coupled with an 8-year low in insider buying -- is a clear-cut signal that corporate execs themselves do not believe their shares are worth the investment.

     Can you blame them? Hardly! The S&P 500 stocks are trading at a valuation that would take them an average of more than thirty years to earn back the equivalent of their share price. That's almost as overvalued as these stocks were at their all-time highs!

     The same goes for the Dow. The Dow blue-chip companies are trading at nearly 28 times their earnings, also just as overvalued as they were at their record highs.

     And the tech-heavy Nasdaq -- well, it still doesn't even have a price-to-earnings ratio ... because taken as a whole, the stocks in this index are still losing money hand over fist! No wonder so few corporate execs are buying! No wonder so many are bailing out!

3/31/03

The "CNN effect" that has taken over since the war began has Americans focused totally on the war.

Investors are so engulfed in every firefight, bombing, and air raid that they have largely ignored the TON of bad economic news rearing its ugly head.

Certainly, we've been watching the war coverage as well. But we're also keeping a close watch on what's happening to the economy. For example:

* Durable goods orders plunged 1.2 percent in February. Orders plunged in nearly every industrial sector -- from aircraft and motor vehicles to computers and communications equipment.

* Consumer confidence remains at its lowest level in nearly a decade. According to the Conference Board, confidence has fallen for four straight months and nine out of the past 10 months.

* The housing sector is shaking at its core! New and existing home sales plunged in February. Home foreclosures recently reached a record high. Mortgage applications dropped 9.1 percent.

* Jobless claims remained above the 400,000 mark for the sixth week in a row. Plus, the index of help wanted ads declined in February.

Once the war draws to a close, investors are going to wake up from their stupor and realize that the economy is in a shambles.

Here are just a few other developments that Wall Street has missed ...

* The federal deficit is skyrocketing as war heats up. The Bush Administration announced that it will ask for a hefty $75 million. And that's just the first installment!

* Mounting debt loads are starting to crush consumers. Credit card delinquencies rose to 4.07 percent in the fourth quarter of 2002.

* If you think consumer confidence will bounce at the end of the war, think again. At the end of the first Gulf War in 1991, consumer confidence meandered for two and a half years. That's because, like now, the economy continued slumping well after the war's end.

* Corporate earnings aren't seeing a big bounce, either. Earnings warnings for the next quarter are coming at their fastest pace in the past five quarters, according to Thomson/ First Call.

2/17/03

Some reassuring info re bio & chemical threats From SFC Red Thomas (Ret), Armor Master Gunner

To alleviate your fear, if you are fearful . . .

Since the media has decided to scare everyone with predictions of chemical, biological, or nuclear warfare on our turf I decided to write a paper and put things in perspective. I am a retired military weapons, munitions, and training expert.

Lesson number one: In the mid 1990s there were a series of nerve gas attacks on crowded Japanese subway stations. Given perfect conditions for an attack, less than 10% of the people there were injured (the injured were better in a few hours) and only one percent of the injured died.

60 Minutes once had a fellow telling us that one-drop of nerve gas could kill a thousand people. Well, he didn't tell you the thousand dead people per drop was theoretical. Drill Sergeants exaggerate how terrible this stuff is to keep the recruits awake in class (I know this because I was a Drill Sergeant, too).

Forget everything you've ever seen on TV, in the movies, or read in a novel about this stuff, it was all a lie (read this sentence again out loud!). These weapons are about terror. If you remain calm, you will probably not die. This is far less scary than the media and their "experts" make it sound.

Chemical weapons are categorized as Nerve, Blood, Blister, and Incapacitating agents. Contrary to the hype of reporters and politicians they are not weapons of mass destruction, they are area denial and terror weapons that don't destroy anything. When you leave the area you almost always leave the risk. That's the difference; you can leave the area and the risk, while soldiers may have to stay put and sit through it and that's
why they need all that spiffy gear.

These are not gases, they are vapors and/or airborne particles. The agent must be delivered in sufficient quantity to kill/injure, and that defines when/how it's used. Every day we have a morning and evening inversion where "stuff" suspended in the air gets pushed down. This inversion is why allergies (pollen) and air pollution are worst at these times of the day. So, a chemical attack will have its best effect an hour or so either side
of sunrise/sunset. Also, being vapors and airborne particles they are heavier than air so they will seek low places like ditches, basements and underground garages. This stuff won't work when it's freezing, it doesn't last when it's hot, and wind spreads it too thin too fast. They've got to get this stuff on you, or get you to inhale it for it to work. They also have to get the concentration of chemicals high enough to kill or wound you. Too little and it's nothing, too much and it's wasted. What I hope you've gathered by this point is that a chemical weapons attack that kills a lot of people is incredibly hard to do with military grade agents and equipment so you can imagine how hard it will be for terrorists. The more you know about this stuff the more you realize how hard it is to use.

We'll start by talking about nerve agents. You have these in your house, plain old bug killer (like Raid) is a nerve agent. All nerve agents work the same way; they are cholinesterase inhibitors that mess up the signals your nervous system uses to make your body function. It can harm you if you get it on your skin but it works best if they can get you to inhale it. If you don't die in the first minute and you can leave the area you're probably gonna live. The military's antidote for all nerve agents is atropine and pralidoxime chloride. Neither one of these does anything to cure the nerve agent, they send your body into overdrive to keep you alive for five minutes, after that the agent is used up. Your best protection is fresh air and staying calm. Listed below are the symptoms for nerve agent poisoning.

Sudden headache, dimness of vision (someone you're looking at will have pinpointed pupils), runny nose, excessive saliva or drooling, difficulty breathing, tightness in chest, nausea, stomach cramps, twitching of exposed skin where a liquid just got on you. If you are in public and you start experiencing these symptoms, first ask yourself, did anything out of the ordinary just happen, a loud pop, did someone spray something on the crowd? Are other people getting sick too? Is there an odor of newmown hay, green corn, something fruity, or camphor where it shouldn't be?

If the answer is yes, then calmly (if you panic you breathe faster and inhale more air/ poison) leave the area and head upwind or outside. Fresh air is the best "right now" antidote. If you have a blob of liquid that looks like molasses or Karo syrup on you, blot it or scrape it off and away from yourself with anything disposable. This stuff works based on your body weight. What a crop duster uses to kill bugs won't hurt you unless you stand there and breathe it in real deep, then lick the residue off the ground for a while. Remember they have to do all the work, they have to get the concentration up and keep it up for several minutes while all you have to do is quit getting it on you/quit breathing it by putting space between you and the attack.

Blood agents are cyanide or arsine which affect your blood's ability to provide oxygen to your tissues. The scenario for attack would be the same as nerve agent. Look for a pop or someone splashing/spraying something and folks around there getting woozy/falling down. The telltale smells are bitter almonds or garlic where it shouldn't be. The symptoms are blue lips, blue under the fingernails, rapid breathing. The military's antidote is amyl
nitride and just like nerve agent antidote it just keeps your body working for five minutes til the toxins are used up. Fresh air is your best individual chance.

Blister agents (distilled mustard) are so nasty that nobody wants to even handle it let alone use it. It's almost impossible to handle safely and may have delayed effect of up to 12 hours. The attack scenario is also limited to the things you'd see from other chemicals. If you do get large, painful blisters for no apparent reason don't pop them. If you must, don't let the liquid from the blister get on any other area, the stuff just keeps on spreading. It's just as likely to harm the user as the target. Soap, water, sunshine, and fresh air are this stuff's enemy.

Bottom line on chemical weapons (it's the same if they use industrial chemical spills); they are intended to make you panic, to terrorize you, to herd you like sheep to the wolves. If there is an attack, leave the area and go upwind, or to the sides of the wind stream. They have to get the stuff to you, and on you. You're more likely to be hurt by a drunk driver on any given day than be hurt by one of these attacks. Your odds get better if you leave the area. Soap, water, time, and fresh air really deal this stuff a knock-out-punch. Don't let fear of an isolated attack rule your life. The odds are really on your side.

Nuclear bombs. These are the only weapons of mass destruction on earth. The effects of a nuclear bomb are heat, blast, EMP, and radiation. If you see a bright flash of light like the sun but where the sun isn't, fall to the ground! The heat will be over a second. Then there will be two blast waves, one out going, and one on its way back. Don't stand up to see what happened after the first wave; anything that's going to happen will have happened
in two full minutes. These will be low yield devices and will not level whole cities. If you live through the heat, blast, and initial burst of radiation, you'll probably live for a very long time. Radiation will not create fifty foot tall women, or giant ants and grasshoppers the size of tanks. These will be at the most 1 kiloton bombs; that's the equivalent of 1,000 tons
of TNT. Here's the real deal: flying debris and radiation will kill a lot of exposed (not all!) people within a half mile of the blast. Under perfect conditions this is about a half mile circle of death and destruction, but, when it's done it's done. EMP stands for Electro Magnetic Pulse and it will fry every electronic device for a good distance, it's impossible to say what and how far but probably not over a couple of miles from ground zero is a good guess. Cars, cell phones, computers, ATMs, you name it, all will be out of order.

There are lots of kinds of radiation, you only need to worry about three, the others you have lived with for years. You need to worry about "ionizing radiation," these are little subatomic particles that go whizzing along at the speed of light. They hit individual cells in your body, kill the nucleus and keep on going. That's how you get radiation poisoning, you have so many dead cells in your body that the decaying cells poison you. It's the same
as people getting radiation treatments for cancer, only a bigger area gets radiated. The good news is you don't have to just sit there and take it, and there's lots you can do rather than panic. First; your skin will stop alpha particles, a page of a newspaper or your clothing will stop beta particles, you just gotta try to avoid inhaling dust that's contaminated with atoms that are emitting these things and you'll be generally safe from them.

Gamma rays are particles that travel like rays (quantum physics makes my brain hurt) and they create the same damage as alpha and beta particles only they keep going and kill lots of cells as they go all the way through your body. It takes a lot to stop these things, lots of dense material; on the other hand it takes a lot of this to kill you. Your defense is as always to not panic. Basic hygiene and normal preparation are your friends. All canned or frozen food is safe to eat. The radiation poisoning will not affect plants so fruits and vegetables are OK if there's no dust on them (rinse them off if possible). If you don't have running water and you need to collect rain water or use water from wherever, just let it sit for thirty minutes and skim off the water gently from the top. The dust with the bad stuff in it will settle and the remaining water can be used for the toilet, which will still work if you have a bucket of water to pour in the tank.

Finally there's biological warfare. There's not much to cover here. Basic personal hygiene and sanitation will take you further than a million doctors. Wash your hands often, don't share drinks, food, sloppy kisses, etc., with strangers. Keep your garbage can with a tight lid on it, don't have standing water (like old buckets, ditches, or kiddie pools) laying around to allow mosquitoes breeding room. This stuff is carried by vectors, that is bugs, rodents, and contaminated material. If biological warfare is as easy as the TV makes it sound, why has Saddam Hussein spent twenty years, millions and millions of dollars trying to get it right? If you're clean of person and home, you eat well and are active, you're gonna live.

Overall preparation for any terrorist attack is the same as you'd take for a big storm. If you want a gas mask, fine, go get one. I know this stuff and I'm not getting one and I told my Mom not to bother with one either (how's that for confidence?). We have a week's worth of cash, several days worth of canned goods and plenty of soap and water. We don't leave stuff out to attract bugs or rodents so we don't have them. These people can't conceive
a nation this big with this much resources.

These weapons are made to cause panic, terror, and to demoralize. If we don't run around like sheep they won't use this stuff after they find out it's no fun. The government is going nuts over this stuff because they have to protect every inch of America. You've only gotta protect yourself, and by doing that, you help the country.

Finally, there are millions of caveats to everything I wrote here and you can think up specific scenarios where my advice isn't the best. This letter is supposed to help the greatest number of people under the greatest number of situations. If you don't like my work, don't nit pick, just sit down and explain chemical, nuclear, and biological warfare in a document around three pages long yourself. This is how we, the people of the United States, can rob these people of their most desired goal, your terror.

SFC Red Thomas (Ret); Armor Master Gunner; Mesa, AZ
Reproduction and distribution is authorized and encouraged. Just give me credit for my work.

2/09/03

The government reported Thursday that the gross domestic product (GDP) grew a measly 0.7% in the fourth quarter -- way, way down from the 4% growth seen in the third quarter. Clearly, the economy has taken a turn for the worse!

What's most significant is that consumer spending posted the weakest gain since the first quarter of 1993. For an economy that relies on
consumers to drive two-thirds of its growth, that's ominous news.

And the fact is that all the signs say that this trend will continue. Consumer confidence just fell for the second month in a row, plunging to its lowest level in 9 years. Consumer expectations of a better job market, improving business conditions, rising incomes, and a turnaround in the overall economy have collapsed.

Can you blame them? The unemployment rate has risen to 6% and job creation is dismal. Many prominent businesses have reported lackluster earnings and expect continued poor results. And while personal income and savings are generally higher, investments have fallen flat.

Plus, consumers are drowning in debt. Personal bankruptcies are soaring, and home foreclosures have reached their highest level in the past 30 years.

And credit market debt now equals 295% of GDP -- that's even higher than it was during the Great Depression, when credit market debt was
264% of GDP. That's an outrageous amount of debt outstanding in relation to the growth of the economy!

These poor fundamentals alone will drive the economy down deeper -- no matter what the Administration or the Fed does to try to stop it.

Take a look at some of the other recent developments in the economy ...

* Accounting scandals still pervade the markets. The SEC filed charges against KPMG, one of the four remaining "independent" audit firms in the U.S. The SEC alleges that KPMG, as lead auditor for Xerox, looked the other way from 1997 through 2000 as Xerox padded its earnings with accounting tricks. The SEC's lawsuit comes too little, too late for investors who've watched Xerox's share price plunge over the past few years. But it reminds us that perhaps Arthur Andersen wasn't the only auditor out there covering up earnings lies.

* Corporate earnings just get worse! AOL Time Warner recorded the largest loss in U.S. corporate history for 2002 -- $98.7 BILLION! The company had two of the largest write-downs in U.S. history in 2002 -- $54 billion in the first quarter and $45.5 billion in the fourth quarter. Only JDS Uniphase came close to that when it wrote down $50.1 billion in 2001 -- until this year, JDS Uniphase held the dubious distinction of having the largest loss in U.S. corporate history -- its loss was a mere $56.1 billion!

* Consumer confidence continues to plunge. The Conference Board's Consumer Confidence Index dropped to 79.0 in January. That's the
second month in a row the index has fallen, and the lowest the index has been in nearly a decade. Consumers are uncertain about the future: War, the economy, and the stock markets are all BIG QUESTION MARKS in their minds. And when consumers are uncertain, they begin slamming shut their wallets.

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Americans enjoy a level of consumption they cannot really afford. If they had invested more of their money in new plants and equipment - capital improvements that increase income and profits - the situation would be different. But they didn't; rather than save and invest, they consumed.

And now the world's only superpower depends on the kindness of strangers in order to keep its citizens living in the style to which they have become accustomed. But the strangers are becoming less kind...or less stupid. Last year, foreigners bought $45 billion of U.S. equities,
Zulauf tells us, "but that will change at some point. When people realize there are fundamental problems in the U.S. economy, the dollar will begin to decline in a major way."

The dollar has already lost 20% of its value against the euro. But Zulauf thinks the biggest drop in the dollar will come against gold.

"Other central banks will at some point then try to support the dollar, because if it declines too much, it hurts their exports. They will be forced to adopt the same policy as the U.S. central bank, and you will have the whole world creating more fiat currencies. That's when gold will really run."

How far? In 2000, the ratio of an ounce of gold compared to the Dow stocks was 45 to 1. It took 45 ounces of gold to buy the Dow. Now, the ratio is down to 25 to 1.

"I don't know exactly how low it will go," admits Zulauf, taking the words right out of our mouths, "but I'd guess somewhere between 1 to 1 and 1 to 3. We'll see in 10-12 years."

We Americans can borrow and spend better than anyone. In fact, borrowing money from foreigners and spending it on CD players and
all-you-can-eat shrimp dinners is one of our greatest national talents.

- Better still, we get to repay our foreign debts with money that we print ourselves. That's a pretty sweet deal, all in all. Unfortunately, we don't always have a lot to show for all of our borrowing and spending. That's because we tend to spend far more money consuming things than building things.

- This week's issue of Barron's quantifies America's growing debt burden from several different angles. Herewith a sampler:

** "Total U.S. debt...an aggregate of the borrowings of all households, businesses and governments (federal, state and local), zoomed up from about $4 trillion at the beginning of 1980 to $31 trillion as of 2002's third quarter.

** "Credit-market debt now equals 295% of gross domestic product, compared with 160% in 1980 and less than 150% during much of the 1960s.

** "Debt as a percentage of GDP exceeds the previous record reading of 264% from early in the Great Depression.

** "Corporate revenues, the raw material of debt service, have fallen to just 113% of corporate debt levels - the second worst reading in debt-repayment capacity since the Great Depression."

- Meanwhile, default rates are on the rise everywhere. Corporations as well as consumers are defaulting in record numbers.

- "At what level does debt turn lethal?" Barron's asks provocatively. "No one knows for sure." As long as our foreign creditors eagerly accept the dollars we print, our foreign debts could remain manageable for years to come. Unfortunately, it's looking like a few foreigners have
already become less enthusiastic about accepting our "Benjamins," "Andrews" and "Abrahams."

- Many foreign creditors, especially the Japanese, are shifting assets out of dollars into euros. As Barron's Vito J. Racanelli remarks, "Investors in the Land of the Rising Sun are increasingly disaffected with U.S. assets and have suddenly warmed up to the allures of Europe. Data from
Japan's Ministry of Finance show that Japanese residents invested $9.1 billion in eurozone assets in November, primarily bonds, compared to $5.3 billion in U.S. securities, while selling $600 million in U.K. assets.

- "For the fiscal year (which begins in April in Japan) through November," Racanelli continues, "[Japanese] investment in the U.S. was double that of [their investment in the] eurozone, but in August, October and particularly November, more cash went to Europe than America."

- Is it any wonder the dollar is stumbling? If the Japanese stop plugging the foreign exchange leaks springing from America's massive current account deficit, the dollar's problems will become very severe very quickly.

- The dollar is but the latest victim of America's post-bubble economy. Given the fact that our economy is beset by the twin evils of excess capacity and feeble demand for goods and services, the near-term investment prospects aren't terrific. And that means that foreign capital will
flee the U.S. looking for better opportunities elsewhere.

- "The key factor to remember in assessing the economic and stock market outlook is that this is not a typical post-war bear market, but the unwinding of the mania that occurred in the late 1990s," Comstock Partners reminds us, "and we are now suffering from the consequences. That is why mainstream economists and strategists who ignore the bubble and continue to use the post-war period as their framework
are missing the big picture and making so many erroneous forecasts. We believe that the unwinding of the bubble is far from complete and that the market still has a long way to go on the downside."

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Send mailto:customerservice@stockoptioninvesting.com with questions or comments about this web site.
Copyright © 2007 Stock Option Investing
Last modified: May 12, 2007