20 June 2010
Jim Willie CB,  “the Golden Jackass”

* Macro Economic Update
* Crisis Coverage Update
* Golden Potpourri




Special Report #1

GLOBAL CRISIS, BREAKDOWN & FRACTURE

The entire world is undergoing convulsions on many fronts. They come primarily in financial terms, but also in political arenas. They even come from geological and man-made disasters. Social disorder has begun to show its ugly face. The entire monetary system is undergoing a fracture from failure, as paper money supported only by good faith and confidence is fast losing both faith and confidence. A system whereby money is designed as denominated debt is bound to have a limited lifespan. The world is seeing its end. Recent events have put the North American ecosystem at risk, in a gradual loss of control toward potential cataclysm. Wealth of nations seeks better safe haven and security, and is increasingly finding gold & silver. Leaders are scrambling to perserve their power, order, and wealth.

MACRO ECONOMIC UPDATE

◄$$$ FANNIE MAE & FREDDIE MAC MUST DELIST FROM THE N.Y.S.E. FROM SUB-$1 SHARE PRICE. THE DUPLICITY IS THICK, AS IS THE CORRUPTION. ITS CORRUPT CHAMBERS WILL BE HIDDEN DEEPER, OWNED MORE COMPLETELY BY THE PEOPLE. ONE CAN ONLY WONDER IF THE USFED WILL CONTINUE TO TAKE ITS WORTHLESS STOCK AT THE SWAP WINDOW. $$$

Begin with the interpretations, end with the news. This news story tells me the insiders sold all their stock. With the Elite gone from the scene of the crime, no longer invested, it is time to close the store. This means FNM and FRE stock shares are worth zero. A heavy volume darling for Flash Traders will be taken off the board. On given days, the fat duo account for huge swaths of volume, often ranked in the Top10 on the NYSE. Maybe with a move to the OTC Bulletin Board, greater darkness can befall this criminal clearinghouse. Their overseers might have been annoyed at information seeping to the surface from acidic pits that the syndicate wished to remain more buried. Certain 10Q and other SEC filing requirements might have been a nuisance. My guess is $trillion credit derivative losses and related data was demanded for compliance. Rather than provide it, they simply remove from the stage of colossal corruption. It was Christmas that the USDept Treasury raised the Fannie Mae credit line to infinity. One can only surmise that making good on the infinite pledge left it exposed to a climax event. The best place to permit the explosions to occur must be deemed the sub-basements to the USGovt. Their losses were estimated by the Jackass two years ago to be $2 to $4 trillion, a figure to stand by. As the housing market rolls over in a second downleg, the explosions will be triggered sooner than imagined. The rampant homeowner insolvency and strategic defaults are legion. The foreclosure channels are more crowded than ever. And bear in mind, that total darkness will befall the agency that comprises 96.5% of all new mortgage approvals. So the engine of housing is shoved to the sub-basement with no light, no accountability, and no data.

Fannie Mae & Freddie Mac were were ordered to delist from the New York Stock Exchange by the federal agency that oversees the two companies. The regulator for the companies, the Federal Housing Finance Agency, offered only a bland statement. The ostensible reason was their share prices falling below the $1 limit barrier. Remaining below the mark for 30 consecutive days is a criterion. Once the delisting is completed, each security will be quoted on the Over the Counter Bulletin Board, the so-called Pink Sheets of shame. Edward DeMarco is the Fannie Mae acting director. He said, "The FHFA determination to direct each company to delist does not constitute any reflection on either enterprise's current performance or future direction, nor does delisting imply any other findings or determination on the part of FHFA as regulator or conservator. A voluntary delisting at this time simply makes sense and fits with the goal of a conservatorship to preserve and conserve assets." Ok! Then why mention performance or direction? Inquiring minds should think. See the New York Times article (CLICK HERE).

Tyler Durden had some choice words on the matter, leading with the flash trading exploitation, and ending with a slam criticism of its broad usage of FNM stock as collateral in swap facilities. He wrote, "The two stocks that have been a perennial churn magnet for every liquidity rebate collecting, and predatory High Frequency Trading algorithm in existence, and on occasion have amounted to 20% of total market volume, have been halted and are announcing their intention to delist from the NYSE after receiving a directive from the FHFA. Look for some really strange market behavior today as quants have to gut and completely recalibrate their signals. The FHFA noted that the decision to delist FNM and FRE is related to 'stock exchange requirements of price levels, curing deficiency.' How about the decision is based on the requirement to not trade companies which are so bankrupt not even the USGovt wants them on its balance sheet? And as we have reported previously, the Federal Reserve Board of New York is perfectly OK with even taking bankrupt stocks as collateral in the discount window. That tells you something about the quality of the GSE assets." Regard FNM stock as toilet paper.

◄$$$ FANNIE MAE WORST CASE LOSSES ESTIMATED AT $1 TRILLION, THE LOW END OF MY ORIGINAL MINIMAL FORECAST LONG AGO. $$$

The financial analysts, at least the competent few, have begun to see the light on potential losses from Fannie Mae. It is not called a sewage treatment plant without cause. In its vaults lie highly toxic and worthless bonds and loan portfolios. If truth be known, Fannie Mae is the primary clearinghouse for dozens of crime syndicate money flow repositories, sufficient to hide the activity from public view. Their mortgage fraud and their clearinghouse activity were the main reasons for nationalization, thus burying the evidence in the deep bowels of the USGovt, also preventing lawsuit opportunities. The financial community meanwhile has awakened slowly to the $1 trillion loss potential. My analysis back in 2007, repeated in 2008, called for at least a $2 trillion loss suffered by Fannie Mae, in easy math based on their book of loans. If credit derivative coverage is included, the figure is much higher. To date, the official stated loss from the adopted Fat Fannie Mae is under $200 billion, marked above board by USGovt deficits. Sean Egan is president of Egan-Jones Ratings in Haverford Pennsylvania. He has raised the possibility of a mere 20% loss on the FNM loans and guarantees, consistent with other large market players such as Countrywide Financial. The math follows easily to a conclusion. E gan said, "One trillion dollars is a reasonable worst case scenario for the companies." Egan earned respect in 2002 when his firm warned customers away from municipal bond insurers, and again earned respect when the firm downgraded Enron one full month before its 2001 collapse. See the Bloomberg article (CLICK HERE). Egan might be labeled a financial terrorist if not careful. The housing market has more room to fall, given the heavy bank owned inventory and the gathering speed of the commercial property ruin. Losses estimated are conservative.

CRISIS COVERAGE UPDATE

◄$$$ A BRITISH PETROLEUM SUPERFUND HAS BEEN ESTABLISHED AND FUNDED. ULTIMATE LIABILITY WILL BE MUCH GREATER THAN THE INITIAL INSTALLMENT OF $20 BILLION. WRANGLING OVER SECONDARY CLAIMS ONE LEVEL INSIDE THE COASTAL ECONOMY IS ASSURED. $$$

Under great pressure by the Obama Admin, perhaps the only thing the President has done right so far on the Gulf disaster, British Petroleum has established a $20 billion Superfund to compensate victims of the Deepwater Horizon disaster, both workers killed on the oil rig and people whose jobs have vanished due to oil in the seabeds like fishermen. BP has appointed an independent mediator with full authority to resolve claims. The Superfund will be managed by Ken Feinberg, who oversaw the 911 Victims Compensation Fund. The success of the 911 fund was widely credited to the generous payments made. Feinberg is highly regarded, by both supporters and critics to the past 911 incident and crime scene. That incident was different, since payouts resembled a concerted coordinated coverup, complete with massive hush money. Victims had to sign statements in order to receive 911 compensation, like no lawsuits, no public comments, no television interviews, etc. Unlike the Oil Volcano disaster, 911 victim families never were permitted television exposure, period, stonewall. The BP incident will be more difficult, as the entire SouthEast corner of the United States will be affected. They are angry and will be heard, even with disruptions inside the USCongress. The mediation process BP initially outlined will probably not unfold as they plan. See the Indisputable article (CLICK HERE). Personally, the Jackass was a little surprised that the SuperFund for the BP oil disaster cleanup is not to be managed by Halliburton, so faster action would come, expedite resolution, using greater leverage from their size. That would guarantee vast money flows, except most would be pilfered by Halliburton, just like in Iraq, just like for Katrina. Figure $1 of every $3 would be stolen, which as Bush once said, is acceptable.

Reality contrasts badly with the official financial response. Other secondary victims like restaurants, shopkeepers, service firms, and hotels on the coast will face a great challenge. They will have obstacles to prove claims of loss, since the fine line of the law requires a distinction to be made between an ongoing loss and a specific loss from an incident. BP is dodging the ongoing losses, naturally. Despite the hard line by Obama, calling the disaster an epidemic, and despite the appearance of cooperation by BP, the payouts will be less than necessary, slower than necessary, with much wrangling. Just wait until an environmental group tries to make a request for a $billion to clean up seabeds and to restore marine life and wildlife. They will be stonewalled firmly. BP made a statement, committed "to ensure that all legitimate claims in respect in the Gulf of Mexico oil spill are paid out in a fair and timely manner." Another sticky point is the size of the Superfund itself. An old method in insurance is to establish a line and defend it, to make an initial level become a final level. Watch BP try to do that exactly.

Federated is a financial firm among the second tier. They publicized their estimate of the Oil Volcano disaster loss at $50 to $60 billion so far, for bond exposure. Bond refinance will be next to impossible without much higher yields offered. The oil will continue to flood the Gulf for another few months, maybe another year or two. Nothing is done to stop the massive leak, nothing! The ultimate damage will be multiples of $50 billion. Watch BP object to a second installment to the Superfund. Their payments have come from the gigantic corporate cash flow and income stream, largest in the industry. Later on, either bond sales or liquidations will finance the Superfund next installments. By that time, they will be facing calls to seize all BP America assets, converting to Superfund allotments. Contrast to insured losses directly to the equipment on the oil rig itself. The American Assn for Justice (AAJ), formerly the Association of Trial Lawyers of America, also called for establishment of this Superfund in a recent statement. AAJ president Anthony Tarricone said that BP and other corporations need to be held accountable by setting up a compensation program. According to III, insured losses related to the Deepwater Horizon oil rig explosion and subsequent massive leak of crude oil so far are expected to come between $1.4 billion and $3.5 billion. Among the announced Deepwater Horizon insured losses are Lloyds at $600 million, SwissRe at $200 million, MunichRe at $100 million, PartnerRe $70 million, HanoverRe $53 million, ValidusRe $45 million, Catlin $40 million, XLCapital $30 million, Aspen $25 million, Chaucer $25 million, AIG $20 million, EverestRe $20 million, and MontpelierRe $20 million. These are losses from commercial claims. Also, BP is self-insured to some extent from internal funds. See the Property & Casualty article (CLICK HERE).

◄$$$ BRITISH PETROLEUM WILL FACE SECONDARY DAMAGE TO ITS BUSINESS. BATTLES WITH ANADARKO, TRADING PLATFORM ACTIVITY, AND DUAL PARTY CONTRACTS WILL ALL BE AFFECTED. ALSO, THE MORATORIUM ON OFFSHORE GULF DRILLING IS A TYPICAL EXAMPLE OF USGOVT STUPIDITY, WITH AN OBAMA SIGNATURE ATTACHED. $$$

Moodys Investors Service reported that insurance claims will impact a number of lines, including marine hull, marine liability, general liability, environmental & pollution liability, control of well, business interruption, directors & officers liability, and workers compensation. The survival of BP Americas during the coming onslaught is inconceivable. It gets worse. Shared liability with Anadarko has not been publicized to date. Anadarko has 25% of the shared liability from the oil rig. So far BP has delivered bills to the oil services mini-giant, but no indication has come of payment pending. If BP intends to successfully complete bond offerings, for which a mountain is due for refinance, it must properly disclose the litigation risk with Anadarko. Another major damage zone is BP Energy Trading platforms, where the BP subsidiary earned $2 billion in profit last year. Their active trading volume for crude oil alone is three times its oil output. They make money from energy trading that includes gasoline, propane, heating oil, and natural gas. Watch BP Trading to be forced to redirect income streams to the Superfund. Their competitors like ExxonMobil and Shell have trading platforms designed almost entirely for hedging of business activity, so as not to lose money during commodity price shifts in contract exposure. It gets worse. BP has been isolated and targeted in the energy production and trading platforms, as no other parties will enter into a contract with BP having more than a 12-month horizon, not necessarily in deep water, but any contract. The future viability of BP Americas has been put in doubt, like survival. Their counter-party risk has been a hot topic.

My suspicion remains intense that the Obama Admin and the Big Oil players with rooted claws in the USGovt have conspired to some extent to make the situation worse. One could recite a laundry list of errors, delays, and dumb decisions by the USGovt. All expert foreign help has been refused, and no skimmer vessels have been used, utterly stupid. The dumbest USGovt decision of all might be the offshore drilling moratorium. There are 2500 oil rigs in the Gulf of Mexico, and almost all honor, respect, and follow proper safety guidelines, boasting excellent performance records. The moratorium should instead be a temporary (then permanent) shutdown of all BP operations in the Gulf, due to chronic safety violations and responsibility for this ongoing open-ended disaster of historic proportions, even negligent homicide. BP Americas should be forced to liquidate all Gulf of Mexico operations and equipment, sell all leases, discharge all staff, and send every $1 of proceeds to the Superfund for claimants. They will be lined up for claims for another ten years. So a British recklessly run oil services firm was negligent, but all American oil service firms are shut down!! The BP operations can continue under different corporate names, and proper management. The shutdown of Gulf oil rig operations is stupid, and a typical USGovt idiotic decision. Thousands of honest, legitimate, safety conscious workers are denied income. Millions of barrels per day are shut down from the Gulf. The crude oil price is supported, and maybe that is a motive.

◄$$$ THE REAL STORY BEHIND THE BRITISH PETROLEUM MISADVENTURE IS SLOWLY EMERGING. START WITH THE INVOLVEMENT OF SPORKIN, WHOSE BACKGROUND READS LIKE OUT OF A GODFATHER MOVIE. THE TRUE VOLUME OF THE OIL VOLCANO SPEW IS AN ORDER OF MAGNITUDE GREATER THAN THE OFFICIAL DATA. $$$

Catherine Fitts raised a great question: "Why did BP appoint as its ombudsman a former General Counsel of the CIA who is on the record as allowing false affidavits to be filed in federal court?" Check out the background of one Judge Stanley Sporkin, who served many roles, like overseeing the regulatory actions of Fannie Mae (where $1.5 trillion was stolen), like serving as director of the SEC Enforcement Division (where no enforcement took place), like serving as CIA attorney (where narcotics trafficking was protected). Sporkin did confirm numerous safety violations on BP Atlantis, a second oil rig in the Gulf of Mexico, where BP executives saw fit to fire a ranking foreman who raised too many questions. See an expose on the Internet Hotseat series by WhereIsTheMoney (CLICK HERE). Watch and wait to see if BP Atlantis explodes like the Deepwater Horizon, a second massive leak source. Its problems are too similar to be ignored, but they are indeed ignored by the USGovt. A shut down Blowout Preventor can still explode.

Matt Simmons refutes even the latest BP oil spill estimate of 45 to 60 thousand barrels per day. He quotes research by the Thomas Jefferson research vessel which quantifies the leak at 120,000 barrels per day, fully 2 to 3x greater. Even the BP claims on oil recovery are groundless and exaggerated. According to the Jefferson, the oil lake underneath the surface of the water could be covering up to 40% of the entire Gulf of Mexico. He adds that since the oil rig hole has no viable secure casing, a relief well will not halt the flow, and the only possible resolution is to use a small nuclear device to convert the rock to glass. The USGovt has permitted British Petroleum to mismanage the relief well project, after mismanaging all else.

Some cynical sneid comments from the Jackass. In almost no aspect is the truth being told about the BP Oil Volcano and the subsequent grand spew of oil. One can count three simple solutions that were all ignored. In other words, the Obama Admin wanted it to grow worse, much worse, as part of some sick agenda. At best the nation will suffer untold coastal ecological and economic damage, but at worst the coastal region might have to be evacuated. Sounds like another Third World chapter unfolding.

◄$$$ SOME GOOD NEWS ON THE CHEMICAL FRONT, BUT ALSO SOME DEADLY NEWS. THE OIL DISPERSANT COREXIT HAS A RAPID HALF-LIFE. TRAGICALLY, MASSIVE METHANE CONTENT HAS BEEN MEASURED AT THE WELLHEAD LEAK SITE. MARINE LIFE IS CERTAIN TO SUFFER A MAJOR TRAGEDY. A GAS NATURAL BUBBLE PERSISTS AS A THREAT. $$$

The chemical Corexit has been used in huge volumes to disperse the massive oil leak. Aside from the fact that when dispersed, the oil cannot be easily retrieved at the surface, aside from the fact that when dispersed, it more thoroughly permeates the lower water ecosystems, some good news is worth reporting. The Corexit has a brief half-life during its own chemical breakdown process. Corexit is found to have a 78% degradation after 28 days, according to the Institut National de LEnvironment Industriel et des Risques. That means after 56 days, only 4.8% of the chemical would remain, and after 84 days, only 1.0% of the chemical would remain. So every three months, around 99% of the chemical will vanish from the ecosystem. See the Humid City website reference (CLICK HERE).

Massive natural gas content is mixed with the gushing crude oil from the wellhead site at Deepwater Horizon. Thus the bubbly brew on the television clips. The heavy concentration of natural gas will pose a serious threat to the Gulf of Mexico fragile ecosystem. The oil springing from the seafloor contains about 40% methane, compared with about 5% found in typical oil deposits, cites John Kessler, a Texas A&M University oceanographer involved studying the disaster. The marine life will be suffocated, forming dead zones where oxygen is so depleted that nothing lives. "This is the most vigorous methane eruption in modern human history," he said. While British Petroleum claims to recover crude oil (a bold lie), it admits to burning the excess natural gas, evidence of their lie. A BP spokesman said the company was burning 30 million cubic feet of natural gas per day from the source of the leak, totaling 450 million cubic feet since the containment effort began in the first week of June. Unfortunately, much of the natgas has escaped into the water ecosystem. The dangerous volatile gas played a key role throughout the disaster and response. A gigantic bubble of methane is believed to have burst up from the seafloor and ignited the rig explosion at the faulty Blowout Preventer. Methane crystals also clogged a four story containment box that engineers earlier tried to place on top of the breached well, in a Mickey Mouse BP project. The BP firm is dead last in safety and engineering. The decision to permit BP to remain in the lead for managing the site is reckless and stupid.

Marine life is lined up for slaughter. Eventually when oxygen levels drop low enough, the breakdown of oil grinds to a halt, and marine life can no longer be sustained. The small microbes that live in the sea typically feed on the oil and natural gas in the water. In early June, a research team led by Samantha Joye of the Institute of Undersea Research & Technology at the University of Georgia investigated a long plume drifting southwest from the leak site. They discovered methane concentrations up to 10,000 times higher than normal, and oxygen levels depleted by 40% or more. Parts of the plume had oxygen concentrations near the level that tips ocean waters into the category of Dead Zone, a region uninhabitable to fish, crabs, shrimp, and other marine creatures. Results were confirmed by Kessler. Oxygen depletion in deeper waters signals much more dire effects, like entire dead ecosystems. Criminal morons under BP employment disagree. BP spokesman Mark Proegler disputed all findings that the Gulf's deep waters contain large amounts of methane, and even said something scientifically stupid. He said, "The gas that escapes, what we do not flare, goes up to the surface and is gone." What a corrupted moron! Natural gas can be absorbed in the water, and form colloid suspensions. One must wonder if Mark is aware that oxygen is absorbed by blood in the human body, and does not bubble out through lungs. See the Yahoo News article (CLICK HERE).

A potential gigantic threat persists, that the methane bubble might be a release vent from a much larger compressed pocket of methane gas a few miles in diameter, perhaps attached to large methane hydrate sheet of frozen natural gas compounds. The sheet, confirmed by high clearance USGovt geological documents that one contact viewed a week ago, stretches over 100 miles in length and several miles in width, buried beneath the seafloor. A bursted bubble would be lethal to marine life, nearby wildlife, and some human life on the coast. If the submerged gas bubble is ignited, it would contain the force of a nuclear bomb. See a YouTube video clip on the gas bubble threat (CLICK HERE).

◄$$$ THE DISINTEGRATION IN MEXICO ACCELERATES, BUT THE ICING IS BLAME PLACED BY BUSH COMPADRE CALDERON THAT THE UNITED STATES IS RESPONSIBLE, DUE TO ITS HEAVY DRUG DEMAND. MEXICO IS A FAILED STATE IN FULL GALLOP, A PROCESS IN A MIDDLE LEVEL STAGE. ITS OIL PRODUCTION IS INHIBITED BY CHAOS. NORTH AMERICAN OIL PRODUCTION IS CERTAIN TO DECLINE RAPIDLY, LED BY THE GULF OF MEXICO MORATORIUM. $$$

Preface the update on the Mexican failed state with a general comment that the powerful decline in PEMEX oil production has been worse than forecast. In summer 2007, my forecast was for a failed state in Mexico, driven by lost federal income from their oil industry, with drug lords running wild in the void. Forecasts at the time were coming forth that by 2011 or 2012, Mexico would become a net oil importer from the nosedive in the giant Cantarell oil output. My forecast was for faster acceleration the decline, greater chaos from a druglord power grab, bribery, corruption, and violence, resulting in worst oil output declines, worse federal income loss, in a vicious cycle. That is happening now, right now, a failed state to the south of the United States. The US is itself in gross deterioration. With the Gulf of Mexico shutdown to offshore drilling, and Mexico in chaos without clear leadership, the crude oil output from North America depends solely upon Canada. Price pressure is assured from diminished oil supply.

If blame must be placed somewhere, permit two areas to be identified. First, the Bush Admin built strong ties with Calderon with a not so secret narcotics contract. Calderon is a syndicate partner. The Mexican druglords have numerous camps, but the major camps in Veracruz operate in opposition to the Calderon camp in solid rivalry. Second, the natural decline in the giant Cantarell oil deposit has combined with the staggering corruption and inefficiency of PEMEX to result in diminished oil output. The Mexican Govt revenue stream proportion from oil income years ago was consistent at the 40% level. The reduced petro income has brought opportunity for crime and influence to the drug cartel. Accurate statistics would reveal that Mexico is almost a net oil important nationally, right here, right now. Surely, other important factors can be identified with bearing, like difficulty in raising funds in the capital markets amidst disorder and uncertainty. The one constant without debate is the count of murder victims. The deadly violence from Mexican druglord battles has claimed hundreds of lives in recent days. The pace of killing has quickened, as records are being broken in weekly death counts. Any claim of the Mexican Govt serving as a functioning governing body are erroneous. As a quick reminder, with little satisfaction garnered, recall the failure of the Mexican state was a forecast made by the Hat Trick Letter in the summer 2007. It is coming true in a grotesque tragedy.

In reaction to drug related violence, the Mexican President Felipe Calderon has issued a 5000-word manifesto warning that the fight against organized crime must continue or else the nation will be paralyzed in fear. Worse, it will be a failed state with even worse extreme systemic disorder. Think Mad Max. The most recent violent episodes involved the deaths of cartel assassins, local strongmen, and federal troops in running gun battles, highway ambushes, and prison skrimishes. The string of grisly attacks included the execution style murder of 19 drug addicts in a rehabilitation clinic in the northern state of Chihuahua and several assaults targeting police, one that left 12 federal officers dead. In the mountainous state of Michoacan, west of Mexico City, known for heavy narcotics trafficking, burning buses blocked a major highway that enabled the ambush of a convoy of police. Bordertown violence is a scourge. Across the border from El Paso Texas, up to eight people are killed in drug related violence every day. Almost 1200 people have died in Juarez this year alone.

President Felipe Calderon defended his drug war as vital to national security, seemingly their version of the US war on terrorism except that the Mexican scourge is real and the US version is a fabrication. More than 23 thousand people have died in drug related violence since December 2006, when Calderon first dispatched the Mexican military into the streets to combat the druglords. Calderon directly blamed the United States. His manifesto wrote, "The origin of our violence problem begins with the fact that Mexico is located next to the country that has the highest levels of drug consumption in the world. It is as if our neighbor were the biggest drug addict in the world." That addresses the demand side, but the supply comes south of the border, down Mexico way. The supply is provided in heavy volume, with Mexican Govt direct involvement, with organized supply chains from South America, and with uptrending acceleration. The USGovt narcotics supply chain travels by aircraft, using USMilitary aircraft. That is another story, mixed with competition and cooperation.

The drug cartels have grown extremely wealth, while the Mexican Govt has suffered severe loss of income streams. Experts estimate that $10 billion to $25 billion in drug profits flow to Mexico each year from northern sites. Official data claims that about 90% of the cocaine consumed in the United States passes through Mexico supply lines, which nation also accounts over half of the marijuana and methamphetamine sold in US cities. My firm belief is that the USGovt supplies the Mexican narcotics routes in the wholesale distribution channels. So the official data claim might be correct, but the cocaine packets might contain US fingerprints. Furthermore, much of the cartel weaponry, such as grenades and assault rifles, are smuggled into Mexico from the United States. The Obama Admin and USCongress is committed to the battle on the southern border, as the US officially has dedicated $1.3 billion in aid to train police, reform the courts, and supply drug sniffing dogs, armored cars, night vision goggles, even Black Hawk military helicopters.

◄$$$ THE JAPANESE PRIME MINISTER WAS FORCED TO STEP DOWN. HATOYAMA COWERED TO AMERICAN DEMANDS OVER THE OKINAWA MILITARY BASE, AND AGREED TO AN UNPOPULAR COMPROMISE. BUT ALSO, THE JAPANESE ECONOMY IS SPUTTERING ALONG. THE MONETARY ALLY (INTERVENTION ACCOMPLICE) MIGHT STRAY FROM THE ANGLO FOLD. $$$

Notice the total absence of Toyota defects, accidents, and recalls, ever since a new accord was struck between the USMilitary and the Japanese Govt. Curious, right? Sorry, got carried away in thought! The victim in the process is the newly elected Prime Minister Hatoyama, who was forced to step down. Hatoyama initially refused to resign during a meeting of senior party officials. However, Ichiro Ozawa, secretary general of the Prime Minister's political party, pushed Hatoyama to step down from his post. He is expected to resign before an upper house election next month. See the Bloomberg article (CLICK HERE). Despite the musical chairs in the Japanese Parliament, the USGovt is fast losing its monetary accomplice. The United States financial maestros are slowly becoming isolated.

◄$$$ THE OKINAWA USMILITARY BASE TO BE RELOCATED TO A LESS URBAN, MORE REMOTE AREA. A GIANT CONCESSION WAS MADE BY HATOYAMA, WHOSE ACTIONS LED TO THE END OF HIS JAPANESE PRIME MINISTER ROLE. THE FUTURE REMAINS UNCERTAIN, AS LOCAL APPROVAL AT THE RELOCATED SITE IS NETTLESOME. $$$

Prime Minister Yukio Hatoyama lost his post as Prime Minister after failing to keep a principal campaign pledge. He accepted the continued USMilitary presence in Okinawa, with some troop relocation to Camp Schwab in a more rural area. The United States can retain its bases, considered an anchor of stability in the region, and will not have to revamp its regional defense strategy in North Asia. Hatoyama had unnerved the USGovt with talk of closer ties with China and creation of an East Asia community that would exclude the United States. He unsuccessfully worked to reduce the USMilitary footprint on Japanese soil. One can only guess what influence the bizarre controversial (and possible staged false flag) attack on the South Korean naval vessel had on his decision. Also, notice that no more Toyota stuck accelerator problems have occurred on US television, and no more Toyota recalls have occurred, and no more USCongress harangues have occurred. It pays to connect the dots and hold suspicion in today's world. Implications to the Okinawa skirmish could be a fracturing alliance with Japan that might extend to currency management. Strains are in the open, with China in the middle.

The battle waged by the fragile ruling coalition caused enough tension to force Hatoyama's resignation after lost support. His poll ratings fell to 20%, in a plummet after his populist victory earned him a 70% approval. The struggle to gain approval by local officials will be hard fought. The controversy centers upon the relocation of a Marine Corps Air Station currently located in a heavy urban area known as Futenma. In 2006, WashingtonDC and Tokyo agreed to move the station to a less populated area on the Okinawa island. Tension hit an acute level with the local population following a rape case and a helicopter crash. Soldiers involved were simply relocated, after the USMilitary pulled rank and invoked jurisdiction. Hatoyama's ruling coalition sought to remove the Marines off Okinawa altogether. His Social Democratic Party of Japan made opposition to the Okinawa base a central condition for its support. That support dissolved. See the Wall Street Journal article (CLICK HERE).

GOLDEN POTPOURRI

◄$$$ THE U.S. STOCK MARKET HAS GIVEN AN ANNUAL RETURN OF JUST 1% OVER THE PAST 80 YEARS. BETWEEN 1966 AND 1995, NO GAINS AT ALL WERE REALIZED. ZERO NOMINAL GAINS ARE SHOWN SINCE 1999, WHICH MEANS A LOSS IS DUE TO THE CAUSTIC EROSION FROM PRICE INFLATION. MEANWHILE, GOLD HAS RISEN FROM $32 ALMOST 40 YEARS AGO TO $1200 PER OUNCE SINCE 1971, AND HAS QUADRUPLED SINCE THE 2001 LOW. $$$

A truly miserable return on investment has come to the patient long-term investor, despite the propaganda to the contrary. Add in giant pension funds too on the loser parade. Buy & Hold has been a failed bet. Losses since the turn of the new millennium come in the form of price inflation, that nasty erosion from degraded purchase power. The Dow (and US major stocks) have been dead money for two decades. One never sees an inflation adjusted Dow Jones Industrial Index or S&P500 stock index shown either in newspapers or financial networks. Always remember that the CPI on official price inflation is off by a factor of two, under-stating it. So the following chart is biased favorable on the inflation adjusted DJIA index (lower series shown in red). It should suffer a much worse downward adjustment when a more accurate Consumer Price Index is imposed, like the Shadow Govt Statistics version. See the Columbia Journalism Review article entitled "The Real Dow" (CLICK HERE). The truth is emerging.

Yet another perspective is highly worthwhile. If one properly regards the stable store of value to be the gold price, the ultimate stable price in existence, the benchmark of constant value, then the S&P500 stock index suffered a serious decline in 2007 and 2008, and has made no hint of recovery in 2009, only to falter once more in 2010. The US financial networks would never show this chart, since it makes a mockery of their entire enterprise. Observe the EKG of a dead man, or at least a man comotose! Gold is reacting to the galloping loss of credibility for the USDollar, with stock indexes collateral damage in the process. Even US money market (MM) funds are in high speed reverse. In the past week these funds suffered a huge $37.9 billion outflow of, a grand decline of 1.5% in total money market assets. Even more aggressive and shocking is the $456 billion outflow from these funds so far in 2010. Accounting for various inflows in offset, the net difference is a $134 billion exodus so far in 2010. From the peak, current MM holdings have declined by 28%, an amount exceeding a cool $1 trillion. Add in the lost $500 billion in commercial paper, and the US financial system is starving for capital. Lastly, take the Wall Street argument from carnival barkers on the propaganda wagon about money on the sidelines. It is vacant and deceptive. Gold clearly is the destination for some of these hundreds of billion$.

◄$$$ A STUPID MINING FIRM TAX IN AUSTRALIA WAS PROPOSED, BUT THEN REVERSED. THE RESULT IS FROZEN MINE PROJECTS. AGAIN, STUPIDITY IN GOVERNMENT AGGRAVATES A TOUGH CLIMATE. THE IDEA HAS BEEN PLANTED IN SEVERAL NATIONS TO TAX RESOURCE OUTPUT, THE RESULT FOR WHICH WOULD BE LESS TAX REVENUE (NOT MORE) AND HIGHER PRICES (LESS OUTPUT). HOWEVER, SYDNEY BACKED DOWN, REVERSED THEIR RASH RECKLESS DECISION, BUT CAUSED DAMAGE. SOME PROJECTS ARE FROZEN, THE BROADCAST HEARD LOUD & CLEAR. LONG-TERM COMMITMENT IS ESSENTIAL. $$$

Incredible stupidity seems to be the by-product of financial crisis. The Australian Govt attempted to impose a 40% mining operation profit tax starting in year 2012. They are desperate for tax revenue. Little do they realize that such an imposition would result in far less tax revenue. Their stupidity of economic comprehension is utterly flabbergasting! Leaders BHP Billiton and Rio Tinto were targets, eyed by ignoramus politicians for their revenue streams. Attention for a time focused on Canada and Brazil as other tax targets. Note how South Africa mismanaged their electrical utility industry, then compounded the problems for mining firms by imposing a mine profit tax. Let me repeat, extreme governmental stupidity is the primary cause of taking economic problems and aggravating them needlessly. A contagion of tax levy is still a major risk, deemed suicidal by lead analysts.

The movement is called Resource Nationalism, whereby nations claim ownership of the natural resources and wish to take a bigger cut. Little do the clownish politicians realize that lower tax revenue would result in higher material prices, a quick failure on both ends of the economic ledger. Frank Holmes is chief investment officer of US Global Investors, a major promoter of gold investment that manages about $3 billion in funds. Holmes summed the risk up perfectly, saying "It does not matter if it is the Congo or Sudan, or it is Australia or Canada, these projects require commitments by governments that are 30 years. When they move the goal posts, they will have a serious ripple effect. They could stifle the world." Hidden in the financial reeds would be the harmful effect to mining firm bond risk, and thus debt ratings. Moodys acknowledged the potential detrimental effect.

The Chile Govt is proposing a temporary hike in mining taxes, targeting the vast copper mines. They wish to defray costs for reconstruction from the powerful February earthquake. That would mean BHP, Xstrata, and Anglo American would foot the bill in Chile. The Brazil Govt is considering a tax on commodity shipments or an increase on royalties. The target would be vast new commodity deposits, led by iron, as Brazil ranks #2 worldwide in iron export. The proposal by Sydney would have made Australian mines the highest taxed in the world, according to Minerals Council of Australia. The South African Govt taxes mining companies at 33%, Canada at 23%, and China at 30%. The new tax hike would have vaulted Australia to 58%, a shameful world leader. See the Bloomberg article (CLICK HERE). Obviously, mining stocks will tumble down hard if new tax levies are imposed, proportionate to the tax increase. These firms are already challenged with raising funds for projects and mills. Their repeated secondary stock issuances render the shareholders unfortunate victims to a different form of inflation, stock dilution. In some cases, the payoff for dilution is handsomely rewarded with metal output. Not often enough!

A mere three weeks after the Rudd Admin in Australia unveiled its new resource super tax, they reversed the proposal. They will raise the threshold definition of a super profit from 6% to at least 11% after a ferocious campaign by the mining companies to rescind it. What remains of the higher tax might later be eliminated entirely. So the Australian Govt capitulated, probably after being informed what an unmitigated disaster and embarrassment it would have set off. Some analysts argue in lame fashion that the super tax would not have had any effect on projects and investment Down Under. That makes no sense! They argue instead that the outsized drop in the Aussie Dollar tipped the balance on the decision to reverse the tax. The two factors are interwoven. Currency traders see less economic vitality in a nation that strangles its golden geese. See the Zero Hedge article (CLICK HERE).

The harmful effect of the on again off again Aussie mining tax is manifested in a decision by Xstrata. They halted investment in two projects within Australia because of the proposed new tax on mining profits. They intend to shelf investment worth A$586 million (=US$500m) in two mines in Queensland. The investment is part of a much larger series of projects, valued at A$6.6 billion in development. Xstrata claimed they would have created 3250 new jobs. The impact of even the hint of such a tax results in less tax revenue, not more. Around the same timeframe, Australian iron ore miner Fortescue Metals threatened to abandon new projects valued at $15 billion unless the proposed mining tax were abandoned. See the British Broadcast Corp article (CLICK HERE). If these moronic politicians with rotting matter for brains wish for greater tax revenue, they must reduce taxes, thus encouraging investment and development.

Thanks to the following for charts StockCharts,  Financial Times,  UK Independent,  Wall Street Journal,  Northern Trust,  Business Week,  Merrill Lynch,  Shadow Govt Statistics.