US MARKETS

          Another MSNBC report has surfaced that we are close to capturing ABU al Zarqawi. They have been close to capturing him and bin Laden several times over the past couple of years. They always make such announcements when the dollar is under acute pressure. This is the CIA at work in behalf of the elitists, who run our government. We are victims of perpetual lying. This is not democracy and freedom when our media is dictated to by our corporate fascist government. These elitists are self-serving crooks. They cannot allow the free market to be free. No matter what they do in the end, they will lose. The dollar will fall and the only safe havens will be gold and silver.

            In some instances, government can intervene in markets for the sake of our financial survival, but not every day in every market with the help of corporate interests. The major brokerage houses, investment banks and bullion banks make fortunes on this insider activity and are guaranteed against loss. There is nothing legal or constitutional about this fleecing of the American public. This shows you how important our regulatory agencies really are and when they function, it is to protect the interests of these insiders.

            Besides, the skiing Davos and the World Economic Forum has turned out to be quite a sounding board for the G-7 meeting, which we will address later in this issue. An example is Swiss media headlines: “Bank of China’s Zhu Says He Does Not Think China Will Revalue in the Next 6-18 Months.” That is explicit. Eighteen months from now, they expect the cut to only be 5%, which is hardly worth it, a crumb, a token.

            The Social Security Administration has violated federal law prohibiting agencies from using funds for propaganda purposes unless those funds have been specifically designated for such use by an act of Congress. This issue was exposed in testimony by the officers of the union representing the agency employees. The bottom line is that employees are instructed by the agency to provide the American public with information that is designed to promote the idea that Social Security is in crisis and that privatization is the answer. This, of course, is wrong and illegal. Again, we are sickened by the state of government we are enduring.

            Insider selling in December was massive and back-to-back weeks of $1.1 billion in cash outflow from stock mutual funds is signaling a stock market decline. In addition, investor sentiment is 62.9% bullish, the highest level since January 1987. There has been strong insider buying in energy stocks and those of small banks. Another factor in January was last January we saw an inflow into funds of $28 billion. This January there was an outflow of some $10 billion, which is not induced to higher prices. We expect the January Dow lows will be tested and broken and thus, we should proceed to 9500 on the Dow. The violation level is 10,368. This is why the Fed and the Plunge Protection Team were strongly in the market all last week.

We hear that higher house prices are the result of running out of land, population growth, which in fact has been steady and gradual, and the cost of building and interest rate cuts. We are not running out of land, our population growth is normal; the increase in building costs is the abnormal result of Chinese industrialization and lack of exploration. The real reason homes are going up is transitional low interest rates and government inspired speculation to build a wealth culture. Real home prices rose 52% from 1997 to 2004. From 1985 to 2002, the median price of homes rose from 4.9 years of per capita income to 7.7 years in the eight most volatile US states. Thus, in these states that account for more than a quarter of the country’s population, there are significant new stresses on family budgets in making mortgage payments. In these regions, 70% or recent loans have been for adjustable rate mortgages. If we are correct and 30-year lending rates rise this year to 7% to 7-1/2%, the ARMS will rise to 6%. Upon renewal, higher rates mean higher payments. That and even a moderate fall in home values could cause many bankruptcies. Home prices do not always appreciate. Over the past 100 years, prices have appreciated an unimpressive 0.4% a year. Since 1948, the appreciation has only been 1% a year. Home prices today have risen to the point when they consume 40-50% of owner income and that debt load is simply unsustainable. Thus, as interest rates climb house prices will decline. In the time period immediately ahead that means stock and bond markets will decline as will the general economy. That will put further pressure on housing prices. It is time to get your financial house in order there are difficulties ahead.

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