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An international financial, economic, political and social commentary.

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US MARKETS

As we have said, ethanol and a booming demand for biofuels are turning the entire global food chain upside down. The production of massive amounts of ethanol is affecting the price and availability of everything from popcorn, yogurt, meat, wine and chicken prices. As always the poor are the ones who suffer the most. In the US alone 100 ethanol plants are under construction and vast amounts of corn are being grown to supply them. This soaring biofuels production is in part to blame for the upward spiraling food prices. The IMF tells us food prices have risen 23% over the past 18 months.

It is very evident that ethanol is too costly to be pursuing, which is why North American ethanol producers receive billions of dollars in subsidies. The fuel would not exist without handouts. Why these handouts to farmers when wild, naturally occurring switch grass can yield three times the yield of corn for ethanol? That is because elitist politics are involved.

George and the neocons would have us believe the reason to the switch to ethanol is to be less dependent on foreign oil as well as cutting greenhouse gases. This is the official mantra. The subsidy is $0.51 per gallon that is paid to the blender, usually an oil company that blends it with gasoline for sale. When those 100 ethanol plants are finished the demand for corn will double and food prices will double again.

As you remember in March Mr. Bush met with Brazil’s president to sign a bilateral Ethanol Pact to cooperate in R&D of next generation biofuels technologies and to stimulate expansion of biofuels’ use in developing countries, especially in Central America, and creating a fuel like OPEC cartel that would form a Western Hemisphere ethanol market. Using ethanol will not affect global warming because the physical changes do not exist. That ethanol is better than gasoline is untrue. It has little effect on exhaust-pipe emissions in current car models. It does have significant emissions of formaldehyde and acetaldehyde, a neurotoxin, which has been banned as carcinogenic in California. Ethanol is highly corrosive to pipeline seals and fuel systems of existing car or other gasoline engines. It requires special new gas pumps, so conversion is expensive. It produces 30% less energy per gallon than normal gasoline and a loss in fuel economy of at least 25% for the Ethanol-E 85% blend. The whole episode isn’t worth it. The cost of the subsidy, conversion cost, less power and mileage and exploding food prices. It is a giant boondoggle. In addition, we never hear that Brazil uses sugar not corn for manufacturing ethanol, which is a better substitute and doesn’t drive food prices up. As prices soar reserve stocks of all grains fell at the of end of 2006 to 57 days consumption – the lowest level since 1972.

One fifth of last year’s corn harvest went to bio-ethanol and it met a mere 3% energy needs. In 2006, more than 50% of Iowa and South Dakota corn went to ethanol refineries. This has caused 41% of all herbicides used to be applied to corn. Monsanto is laughing all the way to the bank.

A research study showed a net energy loss of 22% for biofuels. It uses more energy than it produces. The big winners are, ADM, Cargill, Monsanto and Syngenta. This whole show is to enrich these companies and increase food prices and inflation, never mind all the poor souls who will die because they cannot afford the price of food. As Henry Kissinger said, “control the oil and you control entire nations; control the food and you control the people.” In the final analysis this is what ethanol is all about. You should let your elected representative know how we are being taken and demand an end to corn ethanol production and its subsidies.

Very few people realize it, but the currency markets of the world trade somewhere between $2.2 and $2.9 trillion daily. This is ten times the daily trade in world equity markets. Incidentally, bond markets are more than ten times larger than stock markets. April year-on-year trading increased by 38%. It’s no wonder as 18 of the world’s top 20 central banks increase money supply by more than 14% annually. If all this mega volume wasn’t enough, we now have derivatives growing 24% a year in just interest rate, currency and stock indexes to more than $550 trillion in the first quarter yoy.

All these markets are important factors, but the most important markets are the foreign exchange market and the gold market. They delineate what the wealth of a nation really is. It used to be that $50 billion over three days could change the direction of the dollar. That is no longer true, as money supply enlarges each year. It now takes $100 to $200 billion to turn a market like you saw the dollar turned last Thursday and Friday. That might last for 4 or 5 days and then the market goes right back to what it was doing previously.

It is monetary and trade policy of many countries to manipulate their currencies. In fact almost all countries engage in this unfair exercise, particularly Japan and China. They do this to cheapen their currencies and make their products more competitive in their export markets, namely the US market. Congressional Democrats complain about how it has ruined our industry and now our service jobs, but nothing is done about it as the heart of our economy is being ripped out by these crooks. Both currencies and many others are 30% to 50% undervalued. This currency manipulation is a subsidy on foreign goods. The cheaper the currency, the bigger their foreign currency reserves. Japan has more than $913 billion in foreign currency reserves and China has $1.3 trillion. Japan earned $25 billion in interest alone last year by owning foreign bonds. Japan has interest rates at ½% and creates 1.5 trillion yen a day. Japan says they have no inflation, which is a lie. That is the justification for low interest rates and massive injections of money and credit into their financial system. If the truth were known, interest rates would be 1% to 2% higher, the yen carry trade would be history and world markets would fall 20% or more. This policy enriches the transnational conglomerates that are run by the same fascist families that have run the country for hundreds of years.

That brings us to the carry trade. In the yen it is somewhere around $1 trillion; in the Swiss franc it is probably $200 billion. This past week participants got hit badly and it could be a harbinger of even wilder markets as the central banks and particularly, the Fed and the US Treasury, attempt to save what is left of the US economy and financial system. If Abe is ousted on Sunday you can expect an interest rate hike to .75% from .50%. That could easily bring the yen to $1.15 and that would really curtail the carry trade and that would negatively affect investment markets worldwide. Standing pat on a monetary policy for a long time is a sign of weakness, so expect a little face saving. The real reason for the carry trade is directions from the US Treasury and the Fed. They will use the carry trade as long as they can to keep the world economy from sinking. We find it of particular interest that once Nippon Oil agreed to pay Iran in yen, the dollar has fallen 3.5 yen. The US foreign policy that created this monstrosity deserves punishment. Iran is forced by George and the neocons to switch. The question is how many other oil producing nations are going to follow? They have ample reason to tell the US to pay in euros, some other currency or gold. That is justified by the dollar’s fall and producer’s loss in buying power. China buys 15% of Iran’s oil and they have been paying in euros for eight months. You didn’t see that in the media, did you? That means they sell dollars to buy euros to buy oil. We are also sure that the CDO, contagion, debt contraction on Wall Street has a lot to do with other currencies finally catching up to all the problems the US has. They come one after another, day after day, just like the scandals. If one more major oil producer switches to euros or another currency for payment for oil, we can assure you the dollar will break 80 on the USDX. Many foreign entities own CDOs and the ABX, BBB- is trading at $0.39. That is hardly inspiring. They are now well aware of the serious collapse taking place in the US housing market. Paulson’s platitudes won’t work anymore. We saw Art Cashin interviewed on CNBC Friday at the end of the market day and he said this is very bad and we are going lower. Shortly no one will believe a thing the Treasury and the Fed says. The Ponzi scheme is unraveling.

The biggest economy in the world has to increase its money and credit at a 13-14% rate to keep deflation at bay and with the deflationary results of the CDO contagion and the collapse of real estate, the increase is headed to 20% by the US and the other 18 of 20 major central banks. We can assure you they are coordinating their efforts. We have a falling stock market, 11% inflation that will be 15% in a year, higher oil prices, a falling dollar, an economy in recession and monetary and fiscal pressure to say nothing of perpetual wars for perpetual peace – that is profit. Gold has to be the only investment answer. How can it be anything else?

The House must not like its approval rating of 19%. It passed legislation aimed at clamping down on the government’s collecting of telephone and financial records of people it suspects of terrorism or spying. Everyone with a brain knows the government wants the data to suppress dissidents, people who tell the truth about what is going on and speak out about government usurpation of our rights. By a vote of 281-142, The House approved a law enforcement-spending bill. Our president said he’d veto it because the price tag is $53.5 billion, $2.3 billion more than he requested.

The issue of national security letters is still so broad that tens of thousands will be issued this year, most of which target Americans.

As we have heard often, the economy is unbalanced, well so is our president and so is Wall Street. No one has as yet talked about or contemplated the brokerage house and investment bank fallout over the CDOs, ABSs, junk bonds and derivatives. In the CDO sector we are looking at fraud in over-rated securities and revenge will be fast on its way from those who lost more or all of their investments. Not only will we have a repeat of 2000-2001 in the stock market, we are going to have a bond correction of even greater magnitude. In hedge funds for every $1.00 lost another $5.00, $10,00 or $100 million was lost. We do not believe the Fed and the Treasury can stop these locomotives, even though most of the crooks are Illuminists. Like when we forecast in the first week of April 2000, that the stock market would collapse, and like when we forecast a few weeks ago the beginning of another collapse in the stock market, we see a collapse in the bond market as well, so be prepared we are on the way down in these markets. That brings us to gold. Correction or not, over the past two weeks, gold and gold shares are going to run even higher for the rest of the year. The bond markets, brokerage houses, investment banks, banks, insurance companies, and pension and profit sharing groups and hedge funds are going to lose trillions of dollars in their bond holdings. The Fed will come to the rescue, but at a terrible price. This will be a cumulative process, where perhaps a year to three years down the line the financial music will have to be faced. This will be accompanied by the final debasement of the dollar. Contagion is spreading throughout the bond markets and it’s not reversible for some time to come. Next victim is corporate bonds. Incidentally none of the financial press has seen fit to tell you auctions in England for US mortgage bonds has brought sales of bonds at 50% of par value. You might call this criminal exposure. What else you are not being told by the media, or anyone, is that subprime and ALT-A home loans are secretly being purchased by Fannie Mae and Freddie Mac, both of which are now being run by our government. That is so American taxpayers can pay the bill. This way they can illegally neutralize the credit derivative meltdown. Of course, all those who bought credit swaps will get screwed. The warning signal to look for is the demise of several hedge funds in close succession. That will signal Fed action and a dollar collapse. It will happen over the next few years and in all likelihood, in the next year and one-half and when that happens the dollar crashes and gold and silver go ballistic.

While the economic and financial world sits on the edge of oblivion, the Texas Teachers Retirement System, which manages the pensions of a million working and retired teachers, will vote on shifting a third of its asserts into private equity funds with Blackstone, Carlyle and Kelso. Talk about the wrong thing at the wrong time. They are already 15% in real estate and 15% in private equity and hedge funds. Many under-funded pension funds have gone to alternative investments to goose up returns. That is very dangerous as they are about to find out.

America needs Saudi oil and their investments in US denominated assets, particularly Treasury notes. The US provides the Saudis with protection.

The administration is furious with the Saudis for their counterproductive role in Iraq. They have said Shiite Nuri Kamal al Maliki, PM, is an Iranian agent. So what, the Saudis are giving financial support to Sunnis in Iraq. About 40 of 80 foreign fighters entering Iraq each month are Saudis and the Saudi monarchy does nothing to stop them. Whether we like it or not, Sunni-Saudis are fighting against our troops and Sunnis in Iraq are supported by Saudi Arabia. The Saudi won’t support PM Maliki. Again American diplomacy has serious problems.

We have just seen six declining months of vehicle sales caused by the knock-on effect of the housing recession. That is the result of far fewer real estate cash out loans based on fact that consumers have negative savings. Year-on-year vehicle sales are off 20.4% and the decline comes with a 28% increase in cash rebates. Vehicles are being sold slightly above cost and sales are still plummeting. Despite evidence to the contrary, the Fed and the administration tells us that the recession in housing is not affecting the economy. They do not believe that but they are terrified to tell the truth, which will show up a little later, that we are in a recession and have been in a recession for over a year. They are afraid the dollar will collapse if the truth be known. If interest rates were lowered to stop the recession, the dollar would crash, which it’s on the verge of doing anyway, that is the result of no change in interest rates for 14 months. If they raise interest rates the dollar holds and the economy collapses. We do not know which way the Illuminists will go, but either way we are faced with a very bad inflationary recession and we have a good shot at depression.

A Surgeon General’s report in 2006 that called on Americans to help tackle global health problems, has been kept from the public by a Bush political appointee, William R. Steiger, without any background or expertise in medicine or public health, chiefly because the report did not promote the administration’s policy accomplishments, according to former and current public health officials.

The report described the link between poverty and poor health, which urged the government to help combat widespread diseases as a key aim of its foreign policy, and called on corporations to help improve health conditions in the countries where they operate. Steiger did the blocking, but this was another Cheney operation.

Richard Carmona, who commissioned the “Call to Action on Global Health,” while serving as Surgeon General from 2002 to 2006, said as he fought to release the document he as “called in and again admonished via a senior official who said, ”You do not get it.” This will be a political document, or it will not be released.”

Carmona refused to make the demanded changes. He had other head to head fights, especially one on prison health.

They did not reappoint Carmona, needless to say, and Steiger is awaiting a Senate vote on his nomination as Bush’s Ambassador to Mozambique. This shows you where this administrations’ heads are at.

Public health advocates have accused Steiger of political meddling before. He attained notoriety in 2004 by demanding changes in the language of an international report on obesity. The report was apposed by some food manufacturers and the sugar industry.

This is an update on free trade and globalization for new readers and thank goodness there are many of them. The House has acted against the free trade pact entered into by the Bush administration with Colombia. This was a severe setback for President Alvaro Uribe, George Bush and the elitist forces of world government. Congress has also delayed any action on free trade agreements with Peru and Panama.

Free trade and heavy US subsidies has crippled the Mexican agricultural sector causing impoverished former subsistence farmers to become illegal aliens in America. As long as NAFTA and other free trade agreements exist, America will, act as a beacon for illegal immigration. That migration has long been there, but free trade pushes it right over the edge. There is no question that the 20 million plus illegals we have in America are the result of two failed policies, so-called immigration reform and the expansion of free trade.

The Mexican rural farming disaster became worse after 2000 subsidies received by US corn farmers caused over production and another blow to farming below the border. How could they compete against a $10.1 billion subsidy, most of which goes to giant elitist owned agribusinesses? The top 10% of agricultural subsidy recipients, most of whom earn, on average, over $250,000 a year, receive over 70% of the subsidy dollars. As a result of such disastrous policies at the end of 2004 there were 6.8 million, virtually uneducated, unemployed agricultural workers in Mexico. Worse yet since 1993 farm wages have fallen 70% as poverty rates have risen to 81%. Over 13 years to 2004 agricultural employment fell 10%. Rich Mexican farming operations pay neither income tax nor irrigation costs. It is the middle sized to small farmer that has gotten slammed.

Since 2001, over 850,000 jobs have been lost in the Mexican manufacturing industry and real wages have fallen 20%. There is overall prosperity near tourist destinations and that is it. America offers hope and a decent wage even at the lower end of the wage totem pole. The wage difference between California and Guanajuato was 13 to 1 in 2000. In 2005, over $20 billion was sent by Mexicans to Mexico – it was $28 billion in 2006.

What is the answer? Send all Mexicans home and allow the rich of Mexico to invest in their home country by forcing them to bring home their offshore assets hidden in far away places making tax free income. Force the US government to pay illegal aliens to live and resettle in their home country. Put up a barrier along the border that cannot be breached and then start a Green card program for those with skills we need who want to return. Give them the opportunity for citizenship. Allow all Mexicans and others who have been waiting more than five years in line to legally come to America to be admitted. If you have better ideas let us know.

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