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Posts Tagged ‘bridges to hope foundation’

Brother, can you spare a pat of butter?

That’s no idle question in Japan, as Mariko Watanabe has discovered. The Tokyo housewife went to the local supermarket for butter this week, intent on baking a cake. Much to her surprise, the shelves were bare.

“I went to another supermarket, and then another, and there was no butter at those either,” she said. “Everywhere I went there were notices saying Japan has run out of butter. I couldn’t believe it — this is the first time in my life I’ve wanted to try baking cakes and I can’t get any butter.”

The Age, a respected Aussie newspaper, reports, “Japan’s acute butter shortage… is the latest unforeseen result of the global agricultural commodities crisis.”

With news like this, the old question of “guns or butter” takes on a strange new meaning. It’s kind of funny in a way — but in other ways it’s not funny at all. Could a nation really get up in arms over something as innocuous as, well, butter? Hmmm… Why not? How many basic staples can a citizenry be deprived of before the food hits the fan?

Shortage has hit the USA, too. The New York Post reports, “Major retailers in New York, in areas of New England, and on the West Coast are limiting purchases of flour, rice, and cooking oil as demand outstrips supply.”

Yikes. We’re headed for frightening territory here. It’s one thing to hear about food riots in faraway places. It’s another to hear about troubles at the corner grocery.

In a way, though, this twist is good news for the poor countries of the world. It brings a sense of urgency to the problem that might not have existed before. When push comes to shove, the world’s wealthy have trouble embracing issues that don’t directly affect them… and so poor country troubles are observed with raised eyebrow, but mostly shrugged off.

It takes a real battering ram to break through the twin logjams of politics and complacency. Perhaps the wakeup call of bare shelves in rich-world supermarkets could serve as that battering ram. Will European farm subsidies and U.S. biofuel subsidies be rethought? Let’s hope so.

 

Bridges to Hope Foundation Newsletter and Blog

www.BTHF.org

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The United Nations’ Food and Agriculture Organization (FAO) said that world cereal production may jump a record 2.6% this year as farmers boost plantings.

In other words, supply is fine.

Except … wait a minute … what’s that other report I read last month? The one that said world cereal demand is growing at 3% a year.

Today, I’ll explain why this seemingly insignificant gap between supply and demand scares the bejeezus out of me, and how you can protect yourself.

The gap is only four-tenths of a percent. What could possibly go wrong, you ask?

Well, for starters …

The World’s Food Supplies Have Collapsed …

Worldwide stockpiles of cereals (wheat, corn, etc.) are expected to fall to a 25-year-low of 405 million tonnes in 2008. That’s down 21 million tonnes, or 5%, from their already reduced level last year.

U.S. wheat stockpiles are at a 62-year low, even though farmers are planting from fence-to-fence. And with the U.S. dollar falling fast, foreign buyers are lining up to scoop up as much of Uncle Sam’s grain as they can carry away. Wheat recently soared to the highest price in 28 years.

Food Prices

Meanwhile rice, a staple food for three billion people, is becoming increasingly scarce. World stores of rice have shrunk from 130 million tons eight years ago to today’s stockpile of 72 million tons — enough for only 17% of annual global demand. Result — the price of rice is up 70% in the past year.

And as for corn — well, more and more of that is used for ethanol. The price of corn is up over 70% in the past year and has more than doubled in the past two years.

So to summarize — stockpiles are at record lows. The supply on hand can be measured in days! And growth in production can’t keep up with growth demand.

Now, let me ask you this question …

What If Something Goes Wrong?

What if the increasingly freaky weather the world has been enduring causes droughts on one side of the world and floods on the other? What if there’s blight or some other major crop failure?

Rising Food Prices

You can see why I believe we are one bad harvest away from a serious global food crisis!

People will put up with a lot, but they won’t put up with going hungry … not when they have guns. In fact, blood is already being spilled over food …

Arrow Egypt — food riots! In the time of Julius Caesar and Cleopatra, Egypt was the bread basket of the Mediterranean. Boy, how times have changed. Food inflation is so bad in Egypt that people are rioting over sky-high prices. The government-owned Egyptian Gazette newspaper says that seven people have died since the beginning of the year in brawls in bread lines.

And it’s not just Egypt. The World Bank says 33 countries from Mexico to Yemen have already experienced unrest because of spiraling food costs, and 37 countries may face more social upheavals if food prices continue to rise.

Arrow China says “no” to hungry Filipinos. The Philippine government recently asked China to provide 200,000 metric tons of milling wheat, equivalent to about 10% of annual consumption. Beijing declined, leaving the Philippines scrambling to find more wheat.

Trouble in Uncle Sam’s breadbasket. Cold weather is chilling the fields in the Midwest, and too much rain is sending rivers near their flood levels. Farmers who try to till or plant in soils that are too wet will risk compacting their crops and other problems that result in lower yields. Last week, I’ve seen   a note from a farmer who complained that he STILL can’t get a crop in the ground:

“In 2006, we finished planting my crops on April 23. In 2007, we were done on April 18. I don’t want to be the first guy planting, but I don’t like being third, either. Early (timely) planting won’t happen this year if the weather forecast for the coming weekend proves accurate. Soils are completely saturated to the point of that erosion has already occurred and will get worse with additional heavy rains, and are COLD. I can’t tell you how cold because I’ve not even checked temps yet. If planting is not done by May 1, there will be some nervous farmers in LaSalle County and I’ll be one of them.”

Now sure, that’s a local story, but it’s not the only one. In fact, just this week, the USDA reported that corn and rice plantings are being delayed by excessive rain. A hungry world is depending on a good U.S. crop — if we don’t get one, those 37 countries the World Bank is talking about could erupt in food riots.

How We Got Here …

Global food prices surged 57% last month from a year earlier, according to the FAO. There are a number of forces driving that price explosion …

Weather: Part of it is weather. Too much rain in the U.S. in 2007, flooding in Indonesia and Bangladesh and drought in Canada and Australia curbed world stockpiles. As a result, the poorest countries may spend 56% more on grains this year than a year ago. Global warming will affect crop yields, and mostly not in a good way.

Food or fuel? Ethanol production is on course to account for some 30% of the U.S. corn crop by 2010. The International Monetary Fund estimates that corn ethanol production in the U.S. fueled at least half the rise in world corn demand in each of the past three years. As corn prices go up, animal feed goes up, and prices of other crops rise as farmers switch their fields over to government-supported corn.

As the economic boom in China raises the standard of living, 1.3 billion people have drastically increased their consumption of meat.
As the economic boom in China raises the standard of living, 1.3 billion people have drastically increased their consumption of meat.

Rising Demand: World Bank President Robert Zoellick recently told a conference: “As the Indian commerce minister said to me, going from one meal a day to two meals a day for 300 million people increases demand a lot.”

And he’s only talking about the poorest of the poor. There are 1.1 billion people in India, and they’re all improving their diets and eating more Western foods. Meanwhile, 1.3 billion people in China are eating a lot better and eating a lot more meat — and it takes 7 pounds of grain to make one pound of meat! It’s no wonder why food prices in China jumped 28% in February.

Political pressures: China isn’t the only large, populous country that is curbing exports to ease prices — and internal unrest — at home.

  • Vietnam, one of the world’s three biggest rice exporters, will reduce shipments by a million tons this year to 3.5 million tons to ensure supplies domestically and curb its highest inflation in more than a decade (20% year over year — ouch!). The government also said it’s considering a tax on rice exports. Egypt, Cambodia and Guyana have all also put export bans on rice in place.

  • Kazakhstan just suspended its wheat exports to tame domestic inflation. Kazakhstan is the breadbasket of Central Asia, and the only state in the region that exports grain, about 50% of the 21 million tons it says it harvested last year.
  • Ukraine stopped wheat exports this month and reduced barley exports.
  • Argentina — the world’s fourth largest wheat exporter — has effectively pushed back the date that new shipments can leave the country.
  • India has already put restrictions on its rice imports. And its wheat output, second only to that of China, may drop 1 million tons to 74.81 million tons in the March-April harvest because of a drop in acreage.
  • Coming Next — Hoarding!
    Food Prices

    What’s more, India may import up to two million tons to build stockpiles — up from imports of 1.8 million tons in 2007 — with an eye on creating a strategic reserve of five million tons of wheat and rice to meet emergencies. Pakistan is also talking about doubling its wheat imports this year.

    If other countries start building strategic reserves, it could send prices skyrocketing. And that raises the specter of countries fighting each other over food reserves.

    Speaking of reserves, since China reportedly has as much as 200 million tons of grain reserves, you have to wonder why they turned down the Philippines’ request for wheat exports … unless, maybe, they don’t have as much as they say they have.

    Why would they lie? How about a powder keg with 1.3 billion hungry people sitting on it!

    Or maybe the Chinese can see the way that forces in the agriculture market are falling into place and they believe that no stockpile can be big enough!

    How You Can Protect Your Portfolio …

    No one wants to get rich off hunger. But you do want to protect your portfolio from market turmoil, and the profits on agriculture could cushion the blow for other sectors you own that might be getting hurt.

    One way to do it is with the PowerShares DB Agriculture ETF (DBA). It tracks an index composed of futures contracts on corn, wheat, soybeans and sugar. It’s up 17% year-to-date — pretty good compared to the 9.5% loss for the S&P 500.

Good luck, and GOD Bless!

Bridges to Hope Foundation Newsletter and Blog

www.BTHF.org

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Is there anything the U.S. Federal Reserve WON’T do? That’s the question I’m asking myself here as I watch it go further and further down the “extreme activism” road.

As I’ve pointed out, it’s not just the Fed, either. Congress and the Bush administration are stepping up their plans to intervene and support the housing and mortgage markets, too.

I’m half-expecting to wake up one day and read that the government has decided to buy and then bulldoze every foreclosed house in the country to rid us of the inventory overhang.

Seriously, though, I’m fine with some of the things being done. They make sense.

But …

Other measures are a clear violation of the free market principles this country was founded on. And some may not even be legal!

Not to keep flogging the Wall Street Journal or anything, but there was another great story this week called “Fed Weighs Its Options in Easing Crunch.” It said the Treasury Department might sell excess debt — beyond what it needs to keep the government running — and deposit the money at the Fed. The Fed would take those funds and buy Treasuries in the open market.

The Fed’s aim? To replenish its rapidly dwindling pile of top-quality debt securities. It’s shrinking because the Fed has opened the door to just about any old crummy paper Wall Street and the nation’s top banks can throw its way (More on this in a minute).

Federal Reserve Chairman Ben Bernanke is confident that government regulations and incentives will compel Wall Street participants to be more honest.
Federal Reserve Chairman Ben Bernanke is confident that government regulations and incentives will compel Wall Street participants to be more honest.

The Journal also said the Fed is considering selling its own debt securities, then using the money to buy assets or make loans.

Some on Wall Street want the Fed to go even further — actually buying mortgage-backed securities outright as opposed to temporarily taking them off the hands of primary dealers and banks.

But if you can believe it, the Fed might not even stop there. There’s the possibility the Fed could go the route of the Bank of Japan in a real emergency. Specifically, it could print vast amounts of money, drive the federal funds rate to near-zero percent, and go hog-wild buying securities or making loans — a process called “quantitative easing” in econo-speak.

The fact these measures are even being discussed shows just how serious this credit crisis is.

And That’s Just the Half of It!

Take the Term Securities Lending Facility, or TSLF. That’s the series of auctions at which the Fed swaps its Treasuries for other debt securities.

The auctions were initially going to be focused on things like residential mortgage backed securities. The idea was that investors were irrationally dumping everything, including top-quality debt backed by prime-credit, conventional mortgages. So the Fed “had” to step in and help liquefy things to enable mainstream borrowers to purchase homes.

Sounds good, right? But since then, the TSLF plan has morphed into something else. It appears that after some lobbying and coaxing from self-interested parties, the Fed decided to expand the eligible collateral to include commercial mortgage backed securities (CMBS).

What do CMBS have to do with the housing crisis? Nothing. But Wall Street is taking a pounding on the value of those securities — which they made billions of dollars bundling and selling over the past few years, by the way. So the call for relief from the Fed went out, and voila, the Fed obliged.

But that’s not all. A Bloomberg story this week, citing analysts at Morgan Stanley, chronicled how Wall Street firms are apparently starting to bundle corporate buyout loans into securities for the express purpose of turning around and using those securities to borrow from the Fed!

Specifically, Morgan Stanley noted that at least one Collateralized Loan Obligation (a bundle of loans, including those used to fund takeovers) appeared to have been structured so that it could be used as collateral at the Fed’s Primary Dealer Credit Facility. The PDCF was just rolled out to allow non-bank institutions to access Fed liquidity — something that hasn’t happened since the Great Depression.

What do these new moves mean? In plain English, the Fed has gone from ostensibly trying to help poor, little old ladies on Main Street who are facing foreclosure … to greasing the credit wheels for developers who want to build high-rise office properties and Wall Street dealmakers who spend their days plotting the takeover and restructuring of America’s corporations.

And don’t even get me started on a provision in the Senate’s latest housing and mortgage reform bill. It would allow corporate home builders to take losses they’ve racked up in recent times and use them to offset profits earned up to four years ago.

In other words, they’d be able to qualify for potentially billions of dollars in refunds of taxes they paid during the bubble days!

After intense lobbying efforts, the National Association of Home Builders was recently rewarded as Congress rolled out a proposal designed to bailout builders.
After intense lobbying efforts, the National Association of Home Builders was recently rewarded as Congress rolled out a proposal designed to bailout builders.

Why did this provision find its way into the Senate bill? Does it make good policy? The line from the home building lobby is that this is good for the housing market and will save jobs.

But I don’t believe it — the last thing we need is for builders to continue operating on taxpayer-funded life support. We need to cull the weak from the herd. That will help further reduce construction activity, and get inventories under control — the only recipe for stabilizing prices in the long run.

One more sidebar here: The National Association of Home Builders announced in mid-February that it would “cease all approvals and disbursements of BUILD-PAC contributions to federal congressional candidates and their PACs until further notice.”

I’m sure it’s pure coincidence that this builder bailout proposal was rolled out just a few weeks after the home building lobby said it will stop funneling reelection money to Congress.

Where Does It All End?

Look, I get that we’re in a crisis here. The International Monetary Fund — a group not exactly known for exaggeration and hyperbolic predictions — just released a report pegging the total cost of the credit crisis at an eye-popping $945 billion! Said Jaime Caruana, head of the IMF’s Monetary and Capital Markets Department:

“Financial markets remain under considerable stress because of a combination of three factors … First, the balance sheets of financial institutions have weakened; second, the deleveraging process continues and asset prices continue to fall; and, finally, the macroeconomic environment is more challenging because of the weakening global growth.”

So maybe this is just a case of desperate times calling for desperate measures. But don’t we have to stand up and ask: “Where does it all end?” How far are we going to allow the Fed to go to subsidize Wall Street? What the heck happened to free markets? Capitalism?

Maybe investors aren’t being irrational. Maybe they’re shunning all the paper Wall Street is burdened with because they’re making a perfectly rational investment decision: Namely, they’ve decided it’s not worth much.

They can see house prices falling … commercial real estate values starting to decline … the economy slumping into recession … and the multi-year credit binge we’ve been on coming to an end. So they’re not buying crummy, complicated debt securities anymore. Maybe, just maybe, the Fed shouldn’t be standing in the way of the crunching of all those debts.

Legendary former Chairman of the Fed Paul Volcker warned in a speech earlier this week that the Federal Reserve is at the very edge of its lawful powers.
Legendary former Chairman of the Fed Paul Volcker warned in a speech earlier this week that the Federal Reserve is at the very edge of its lawful powers.

I’m not the only one that’s concerned about what is going on here, either. The legendary former Chairman of the Fed itself — Paul Volcker — gave a speech this week warning about what the Fed is doing, as well as its consequences. A key quote:

“The Federal Reserve has judged it necessary to take actions that extend to the very edge of its lawful and implied powers, transcending in the process certain long-embedded central banking principles and practices.”

And he took no prisoners when critiquing the Bear Stearns bailout, saying:

“What appears to be in substance a direct transfer of mortgage and mortgage-backed securities of questionable pedigree from an investment bank to the Federal Reserve seems to test the time-honored central bank mantra in time of crisis: lend freely at high rates against good collateral; test it to the point of no return.”

Moreover, it’s not like what the Fed is doing is consequence-free …

Dangerous Precedents Are Being Set …

Look at what has happened to the dollar … to oil prices … to food prices and so on. There are fundamental economic reasons for the moves we’re seeing in commodities. But those moves are being turbocharged by the easy-money policies of the Fed.

Indeed, one measure of U.S. money supply — M2 — surged at a 17.9% annualized rate in February. I have a Bloomberg chart that goes all the way back to 1959 on this indicator. It has only risen this quickly a handful of times in U.S. history.

The Fed is clearly playing a perilous game by slashing rates and shifting the presses into overdrive at a time when inflation pressures are high, the dollar is weak, and commodities are through the roof.

So Wall Street may appreciate what the Fed is doing. They may like the fact that they’re on the receiving end of all this Fed largesse. But the rest of us are taking a real hit to our standard of living as a result … and we’re setting some dangerous precedents for the future.

Until next time, GOD Bless;

Bridges to Hope Foundation Newsletter and Blog

www.BTHF.org

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The heated debate continues. Are commodities merely enjoying the pause that refreshes, or has the bubble burst? 

To gain some perspective on this question, let’s look to some commodity bull markets of the past.

When most folks think of a big commodity bull run, their minds turn to the 1970’s. They remember OPEC, long gas lines, high silver prices, and the Hunt brothers’ spectacular rise and fall. All told, the 1970s commodity bull market was about 9 years in duration. 

But now let’s go even further back — and I mean way, way back. If you could get your hands on commodity price charts going back to the 1700’s, you would soon see that nine years is a historically short time frame for a commodity bull. The majority of cycles over the last 200 years have been longer. Looking back at soybean prices, corn, cotton, gold, silver, base metals and so on, the historic evidence suggests that 18 to 23 years is a much better benchmark for how long a commodity bull can last. 
 
A Fact to Remember

So where does that leave us today? For starters, the trend is still young. We are only 8 years into a potential twenty-year cycle.

Furthermore, we’ve got explosive demand growth in the developing world — newly minted consumers clamoring for all the comforts the West takes for granted.

The key fact to remember is this: we have one billion people hogging two thirds of the world’s available natural resources. Another 5.6 billion people get by on the other third.

It’s that 5.6 billion that want more of the essentials. More calories. More protein. Heating and lighting and air conditioning. Cars to drive and garages to park them in.

Fast-growing, emerging market countries need infrastructure to accommodate all this. It will take massive natural resource commitments to build out the necessary transportation links, power plants, buildings, ports, and so on. The challenge is easy to see: demand is huge and resources are limited. That’s what makes a bull market.

Globetrotting for Winners
 
From rural poverty to new industrial opportunity, China’s people are flooding into cities and creating wealth in the process. As these new urbanites increase their discretionary spending, the demand for housing and transportation shoots up. The same storyline is playing out in other countries too. This translates to major demand for base metals. 

Mining companies are fully aware of these mega trends, and the raging demand for base metals that follows. As a result, big mergers and buyout deals are sweeping the mining world. These deals aren’t just big. They’re very, very big. 

For example Marius Kloppers, CEO of the largest mining company in the world, wants his company to get even bigger. BHP Billiton, the $218 billion dollar mining giant run by Kloppers, is currently bidding for the $171 billion dollar Rio Tinto (another mining monster). Should this deal goes through, it will be the second largest merger in all of corporate history. When put together, BHP Billiton and Rio Tinto would become the world’s single largest producer of copper and aluminum, and the second largest producer of iron ore. 

Rio Tinto jumped on the merger bandwagon recently with their purchase of Alcan, the large aluminum company. And they’re not the only ones to get bitten by the merger bug. A major iron ore producer, Companhia Vale do Rio Doce, has snapped up Canada’s Inco Ltd., a major nickel producer. There’s also the Swiss-based player Xstrata, who acquired Canada’s Falconbridge in 2006. 

Top Hedge Funds Want In

Ospraie Management, a highly regarded $9 billion hedge fund, sees big things ahead for commodities too. They are getting into the agricultural business in a big way. Through their “Special Opportunities Fund”, Ospraie paid billions of dollars for a highly profitable “trading and merchandising” unit of ConAgra Foods.

This multi-billion dollar purchase is very a smart move. It gives Ospraie a direct window of visibility into the world of commercial grain markets. For a savvy fund that knows how to make use of information, new access could prove very profitable indeed.

Better still, the ConAgra buy puts Ospraie on a level playing field with the “big boys” — the deep-pocketed commercial players who know grains inside and out. By getting heavily involved with physical commerce, as opposed to just staying on the derivative side of things, Ospraie gets an up close and personal look at just who’s doing what in the grain business. That could give them a trading edge that will last for years to come. 
 
Still on Course
 
Last but not least, don’t forget about inflation. Economic stimulus, falling interest rates and a pumped-up money supply are the clear trends. And according to the Wall Street Journal, global inflation levels are at new  decade highs:

“Consumer prices in the U.S., Europe and other rich countries are projected to rise 2.6% this year, the highest inflation rate since 1995…. In the U.S., consumer prices in February were 4% above year-ago levels. The 15 countries that share the euro currently see inflation of 3.5%, a decade high and well above the European Central Bank’s preferred range. Even Japan, long plagued by flat or falling prices, is seeing modest inflation.”

When you put it all together, the twenty-year commodity cycle looks quite intact. Perhaps this is why legendary investor Jim Rogers argues that “we’re in the 4th inning of a 9 inning game.” 

Commodity markets can certainly be volatile. We could see more crazy ups and downs as the “weak hands” get shaken out. Some commodities may break while others rally… and commodity markets in general can occasionally go sideways for a while (especially after big upside moves).

But make no mistake — regardless of the bumps along the way, this powerful trend will endure for many years to come.
Bridges to Hope Foundation Newsletter and Blog

www.BTHF.org

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Long May You Run

  • Oil is predicted to stay above $100, and base metals have touched off a mini crime wave.
  • With commodities heating up again, could a full-blown mania be ahead?
  • The commodity cycle is still young, and that means the best is yet to come.
  • Although these changes have come
    With your chrome heart shining in the sun
    Long may you run.

      — Neil Young

    The EIA (U.S. Energy Information Administration) now predicts the price of crude will average $101 for the rest of the year. That’s a big bump up from past estimates. In addition, the retail “price at the pump” for gasoline is now at record highs… and could eventually hit $4 a gallon. (That’s in terms of national average. Gas prices have already hit $5 a gallon in the town of Gorda, California.)
     
    Meanwhile, other commodities are soaring. Corn is at record highs. Copper, otherwise known as “the metal with a PhD in economics,” is near record highs. (China is expected to import record amounts of copper this year.) Natural gas is at multi-year highs. Rough rice is at all-time highs… the list could go on.

    In stranger news, the high price of metals has touched off a mini crime wave. In the U.S., thieves are gutting empty houses for the copper in the walls. In Europe, they’re stealing valuable strips of lead from the rooftops of British churches. And if you park your car in New York city, it’s no longer the stereo or the hubcaps you have to worry about. The hot black market item now is the catalytic converter, thanks to the platinum it contains.

    Given all that, does it sound like the commodity bull market is over to you?

    CRB Futures Index

     

    It certainly doesn’t sound that way to BCA Research, a Montreal based research firm. In a recent note, BCA (www.bcaresearch.com) argued that commodities are “on an eventual path toward a mania-like overshoot.”

    In plain English, that means the truly crazy upside is yet to come. With oil holding above $100, the dollar headed for more pain, and commodities bouncing back smartly from their recent tumble, conviction and excitement levels could soon be stronger than ever. When will commodities be in a full blown mania? Believe me, you’ll know. What we’ve seen so far is just a warm-up.

    A handful of very smart players are putting their money where their mouth is. These players, who are very up close and personal when it comes to commodities, are making long-term bets with billions. That’s a sign that what we see now is the real deal — not some temporary flash in the plan.

    Bridges to Hope Foundation Newsletter and Blog

    www.BTHF.org

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    Beware.

    The greatest threat to your financial future is not the danger you see or the beast you know. It stems from all those realities that you don’t see or don’t know.

    This great uncertainty is not your fault. Quite the contrary, I lay the blame squarely on …

    1. Washington’s distortions of its most vital economic data …

    2. Wall Street’s deceptive evaluations of most of your investments, and …

    3. The outright lies that officials of both Washington and Wall Street tell you on a daily basis to cover their tracks or protect their turf.

    Take Friday’s news, for example.

    If you thought that the surge in the U.S. unemployment rate to 5.1% was a shock, consider John Williams’ Shadow Government Statistics.

    First, Williams points out that the total job loss the government reported on Friday wasn’t just 80,000. It was 147,000. Reason: The previous two months of job losses had been greatly understated, forcing the government to revise them by a combined 67,000.

    Second, he argues that these huge revisions are no accident. They are the consequence of the government’s continuing misuse of seasonal adjustments.

    “If the process were honest,” he writes in his Flash Update issued to paid subscribers on Friday, “the differences would go in both directions. Instead, the differences almost always suggest that the seasonal factors are being used to overstate the current month’s relative payroll level, as seen last month and the month before.”

    Third, his analysis shows that the job numbers have a built-in bias based on a model that makes assumptions about birth and death rates. Without those distortions, he calculates there would have been additional job losses of 135,000 in February and 142,000 in March.

    Fourth and most important, as you probably know, the government excludes “discouraged workers” from its count of the unemployed; and the definition of “discouraged” is highly questionable — anyone who has not looked for a job in just the past four weeks!

    His conclusion: The true unemployment rate in America is not 5.1%. It’s 13%, or over two and a half times worse than officially reported.

    The government’s distortions of other critical data are no less egregious, says Williams.

    Annual Consumer Inflation

    Inflation: The government reports that the Consumer Price Index (CPI) is essentially the same as it was two decades ago: It was approximately 4% in 1987, and it’s near 4% right now.

    But without the cumulative affect of a series of questionable adjustments made in recent decades, Williams calculates that the CPI has actually risen to almost 12%, or about three times higher than the official figures.

    Economic growth: The government reports that, except for a brief interlude in the early 2000s, the U.S. economy has escaped recession throughout this decade, growing by 2% to 4% each year.

    But Williams shows how, without the government’s distortions of the GDP data, the opposite would be true: Except for brief interludes of mediocre growth in 2000 and 2004, the economy has been stuck in a recession throughout the entire decade.

    These are vital stats that could make or break your financial future. To the degree that the shadow government stats are closer to the truth than the official versions, it means that

    • The value of your bonds is overstated because of a national complacency regarding consumer price inflation …

    • The value of your stocks is overstated because of false optimism regarding the nation’s employment and economic growth. And perhaps most dangerous of all …

    • Trillions of dollars in derivatives — predicated on the true value of assets like stocks and bonds — could be even shakier than often feared.

    This alone should be more than enough to send thousands of officials into the confessional and give millions of investors sleepless nights. But the unfortunate reality is that …

    On Top of Washington’s Data Distortions,
    Wall Street Adds an Equally Dangerous

    Layer of Investor Deceptions

    First, most of the derivatives owned by commercial banks, investment banks and so-called “non-bank banks” are kept off their balance sheets. This means that …

    The actual value and stability of the nation’s largest and most important institutions are largely unknown — and probably greatly overstated.

    Second, with only the rarest of exceptions, the hundreds of thousands of bond ratings issued by Fitch, Moody’s, and Standard and Poor’s are uniformly bought and paid for by the very same companies that are being rated. As I’ve written here many times, the result is that …

    There is a built-in bias in the entire system, causing inflated ratings, delayed downgrades and the continuing deception of millions of investors.

    Third, brokers and brokerage firms, despite a clear self-interest to keep their clients in the stock market, are routinely allowed to play the role of “objective” advisers and managers. The result is that …

    Investors are almost universally encouraged to buy when they should be holding and to hold when they should be selling. Despite a plethora of guidelines, rules and laws created to encourage fairness, the very structure of the system continually promotes unfairness.

    Lies, Lies, Lies

    In this environment, the unrelenting pressure — even the mandate — to transform well-meaning public officials into chronic liars is undeniable, and the examples are many:

    • High-ranking government officials in the 1970s who swore the S&Ls were safe, even as thousands of thrifts were failing all around them.

    • FDIC and Federal Reserve officials in the 1980s who vehemently denied the threat to commercial banks, even as the bank failure rate surged to the highest since the Great Depression.

    • State insurance regulators in the 1990s who swore to the safety of annuities and life insurance policies, even as six million policyholders were being trapped in failed companies.

    • Major Wall Street firms of the early 2000s that consistently affirmed “hold” and “buy” ratings for the shares of hundreds of companies that were going bankrupt. 

    • Auditing firms like Arthur Andersen, KPMG, and Deloitte and Touche that facilitated or even encouraged accounting distortions and cover-ups. 

    Today, the names and places may have changed. But the systemic deceptions have not.

    This leaves you just two choices: Believe them and risk almost everything. Or strike out on an independent path to safety, protection and the potential for very substantial profits.

    Good luck and God bless!

    Bridges to Hope Foundation Newsletter and Blog

    www.BTHF.org

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    It’s amazing; truly amazing.

    Ever since the Fed bailed out Bear Stearns and cut interest rates by “only” 75 basis points a couple of weeks ago, Wall Street’s most infamous Pollyannas have been coming out of the woodwork.

    “The credit crisis is ending!” they proclaimed.

    “The crash in the U.S. dollar is behind us!” they crowed.

    “The great boom in oil, gold and other commodities is toast!” they declared.

    Then, just last week, the truth hit Wall Street like a ton of bricks.

    On Friday, the U.S. Labor Department lowered the boom — reporting that, while economists were predicting that businesses erased 15,000 jobs from their payrolls in March …

    1. Employers actually slashed 80,000 jobs — the biggest number in five years and the third straight month of job losses …

    2. The national unemployment rate has rocketed higher — from 4.8% to 5.1% in March — the highest since Hurricane Katrina wiped out thousands of Gulf Coast businesses in 2005 …

    3. Job cuts in both January and February were far worse than previously reported. Payrolls for January and February were revised lower by a total of 67,000 jobs, and …

    4. Altogether, employers have cut a whopping 232,000 jobs from their payrolls since January.

    Suddenly, investors all over the world realized that Emperor Bernanke has no clothes — and that by all appearances …

    Check The U.S. economy has NOT hit bottom: It’s actually growing weaker by the month — despite Washington’s historic money-pumping …

    Check Washington will have to print billions more paper dollars to fight this slowing economy: The snowstorm of funny money we’ve seen so far could easily be just a drop in the bucket compared to what we’re likely to see in the weeks and months ahead …

    Check The collapse of the greenback is FAR from over: As the White House, Congress and the Fed paper the world with newly printed paper dollars, the greatest declines are likely still ahead — and …

    Check As the dollar swoons, commodity prices should soar: This historic explosion in oil, gold and just about every other natural resource and commodity under the sun still has a long, LONG way to run!

    Heck: When the Labor Department report was released at 8:30 AM on Friday, even Larry Kudlow — CNBC’s eternally bullish analyst — began referring to the dollar as “The U.S. peso!”

    Can you SEE why Dr. Weiss, Sean Brodrick and I have been telling you that the recent softness in commodity prices is nothing more than a minor, short-term correction in a massive bull market that’s likely to drive prices higher for years — or even decades?

    Can you see why we’ve been urging you to not only hold onto your natural resource positions but to buy more on pull-backs?

    If I’ve written this once, I’ve written it 1,000 times:

    Box As long as global demand from three billion new consumers in China, India, throughout Asia, across Eastern Europe and in Latin America continues to soar …

    Box As long as global supplies of these critical resources — things we can’t live without — continue to plummet …

    Box As long as the U.S. government continues to print money like it’s going out of style; destroying the greenback’s value relative to these resources …

    Box I’m betting my bottom dollar that this great explosion in commodities will continue to make investors richer than Midas.

    Right now, we’re biding our time — waiting for a clear signal that oil, gold, manufacturing and construction materials and food commodities are about to begin exploding higher again.

    It could happen tomorrow … or later on this week — and when it does, we’re set to release new recos aimed at helping you multiply your money in the next phase of this great Super-Boom.

     

    Bridges to Hope Foundation Newsletter and Blog

    www.BTHF.org

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