Financial Markets

Stocks retreated last week with all the major indices skidding to multi-week lows. The dollar slipped as well but remains tightly range-bound, while gold edged up a bit. And crude oil rallied toward $50 per barrel again while the smart guys running this country and its finances continued to scratch their heads, still bewildered but not bemused about being wrong over and over and over again.

We are almost three full years into the so-called recovery and according to Stephen Roach of Morgan Stanley, we're about 8 million jobs short of where we should be, based on the six most recent recoveries.

Sales gains at U.S. retailers are expected to slow to 4.5 percent this holiday season because of higher gasoline prices and declining wages.

The problems that Fannie Mae is currently experiencing are also occuring throughout the mortgage industry. Most of the mortgages underwritten in the nation today use automated programs designed by Fannie Mae...Fannie Mae is probably not alone in playing fast and loose with financial reality. The system is about to collapse, and, when it does, the American way of life, as we know it, will never be the same.

The price of all commodities is rising, and will continue to rise ito the foreseeable future.

This year's wheat crop of 609 million tons is the second largest on record. But wheat stocks - the surplus amount of wheat in storage - are actually at 30-year lows. Price pressures will soon start building, because wheat stocks have not been dramatically rebuilt. In all of the last four years, world grain production has fallen short of consumption, forcing a draw down of stocks in wheat, corn, rice, , and soybeans. Soybean prices recently hit 15-year highs, and wheat and corn 7-year highs.

The World is beginning to abandon the dollar standard and Asian central banks are dumping our debt. This action will surely result in much higher interest rates.

Prepare yourself.

On the war front

You can wave goodbye to the naïve idea that democracy would take root in Iraq and then spread like the flowers of spring throughout the Middle East. That was never going to happen.

So what is America there for, other than to establish a permanent military stronghold in the region and control the flow of Iraqi oil? The insurgency in Iraq will never end as long as the United States is occupying the country. And America's Iraqi "allies" will never fight their Iraqi brethren with the kind of intensity the United States would like, any more than the South Vietnamese would fight their fellow Vietnamese with the fury and effectiveness demanded by the hawks in the Johnson administration.

The Iraqi insurgents - whether one agrees with them or not - believe they are fighting for their homeland, their religion and their families. They are not unlike the Texicans, fighting Santa Anna at the Alamo. The Americans, unlike the Mexicans, are not at all clear what they're fighting for. Saddam is gone. There were no weapons of mass destruction. The link between Saddam and the atrocities of Sept. 11, 2001 was always in doubt and has been proven so. At some point, as in Vietnam, the American public will balk at the continued hemmoraging of resources and lives, and this tragic and dark circus will become politically unsustainable. Meanwhile, the death toll mounts.

One of the reasons the U.S. effort in Iraq is unsustainable is that the American people know very little about the Iraqi people and their culture and, in most cases, couldn't care less. We seem to be getting very tired of this altercation. The war in Iraq was sold to us as a response to 9-11. As it slowly dawns on a majority of Americans that the link was bogus, and that the motive was always the oil, the political support will all but vanish.

The troops who are fighting and dying deserve better.

Precious Metals

Uranium is the fuel nuclear reactors use to generate electricity. More than 400 nuclear reactors operate in 31 countries and account for about 17% of the world's electricity. In parts of Asia and Europe, nuclear capacity supplies up to 80% of the electricity demand. Nuclear power is the only fully developed non-fossil fuel electricity generating option with the potential for large-scale expansion.

Counties around the world are going to have to find alternative sources of energy. It is in their best interest to find sources of energy that are not located in parts of the world dominated by war and politics. The 2 sources of mass energy that can be used with current technology are coal and nuclear. There is a lot of coal in the world, probably a few hundred years of cheap coal is available. But there is one small problem with coal, It’s an environmental nightmare (Coal-fired plants world wide release over 9 billion tones of greenhouse gases into the atmosphere each year) and given the choice most counties would rather have a brand new state of the art nuclear facility with Redundant and automatic safety systems that releases little more than a bit of steam (of coarse the world still has to figure out what to do with all the nuclear waste being stored at plant sites).

As the world starts to run out of oil and gas all the talk about how environmentally unfriendly nuclear energy is will be put to the back burner until better energy alternatives come to the fore front, but that is decades away from happening.
The current world political crisis, with its inherent threat to world energy supplies and prices underscores the need for domestically produced, non-petroleum based electricity. The recent power crises in California and Ontario have sharpened the focus on the fact that North American power usage continues to rise, as it does throughout the world. These factors in conjunction with pressures to dramatically reduce greenhouse gas emissions have prompted the Bush administration to actively support new reactor construction and development in the U.S.

In Europe, it has become apparent that plans to phase out nuclear power plants are unworkable and so, new reactor developments have been begun once again. In Asia, nuclear power development continues to proceed apace. The development of new simplified reactor designs and the improvement in efficiencies of currently operating reactors have dramatically improved the economics of nuclear power and have actually increased the demand for uranium.

So in my personal opinion there will be a mad rush by countries to get their hands on steady supply of uranium needed to power the many nuclear reactors around the world (440 currently in operation and 30 under construction world wide). In North America alone, rapidly growing demand for power and electricity has reached a point where the grid is increasingly vulnerable to massive failures (everyone knows what happened in California and New York).In the years to come as china and India seek to attain 1st world living standards, what is going to happen when hundreds of millions of people in china and India want to turn the lights on!

As of today nuclear power contributes about 20% of the electricity in the U.S up from 4.5% in 1973 making it the second most used fuel source for producing electricity (after coal). In china, after experiencing electricity demand grow by 15% per year, the country plans to increase its nuclear generating capacity by a factor of 5 by 2020. This means 32 new reactors, or 2 per year. But even then nuclear will only account for 4% of its power generation. If china were to attain the same nuclear share as the U.S (20%) it would require 200 new reactors, or half of today’s globally installed nuclear base.

Energy Resources Of Australia Ltd (ERA.AX)

Cameco Corp (CCJ)

Speaking of Energy

Last week, the oil price touched $50 per barrel for the first time, not because of terrorism in the Middle East but because of gangsterism in Nigeria. A combination of past under-investment and current political strife has left producers struggling to keep up with demand

Oil currently accounts for 40% of the world's energy consumption, and world oil consumption is projected to increase 2.3% per year for the next 16 years - driving the demand to 120 million barrels per day in 2020. Against that consumption, the world is currently producing on the order of 77.5 million barrels a day, but the threats to supplies coming out of the Middle East, Nigeria, Venezuela and elsewhere (for instance, the Strait of Malacca) are growing… and due to reserve depletion, are only going to get more difficult and costly to recover.

To be sure, oil more than doubled in price between 1979 and 1980 and almost quadrupled in 1973, meaning that today's oil shock may not rank among the most dramatic in history.

However, keep in mind that oil has surged more than 300% since 1998. More important, today's lofty price could easily prove to be the most resilient.

This year, global demand for oil — currently at more than 80 million barrels per day and climbing — has come closer than ever to exceeding the world’s known production capacity. Disruptions in oil supply — due to wars or market forces like OPEC embargoes — are nothing new. But with producers pumping as fast as they can, there is little cushion for temporary supply interruptions or heightened demand from industrializing countries like China and India.

The price of natural gas futures surged last week, rising by nearly 9 percent in a runup that traders said was driven more by technical factors than supply-demand fundamentals. Natural gas for November delivery rose 56 cents to settle at $6.911 per 1,000 cubic feet.

“We really are close enough to the edge to have no excess capacity. Demand growth shows no sign of slowing and now it seems to be accelerating,” said Matt Simmons, a Houston-based investment banker. “It’s really important to know what the real story is — as bad as it may be.”

The Fed

Recently, Greenspan speeches center on social programs being scaled back. He recognizes that Social Security, Medicare, Medicaid, and other entrenched programs cannot be funded. He cites a growing federal budget deficit, which causes neither alarm nor desire for reduction. In my opinion, he is actively engaged in a publicity campaign to create an alibi for upcoming failures and systemic shocks. Backroom cleanup efforts must be intense, as the JPMorgan hedgebook and Fanny Mae balance sheet require full-time attention. Such undertakings are kept quiet though, and far from the undiscerning public eye. JPMorgan and Fanny Mae stand as vivid evidence of the failure of the previous two myths.

Financial Survival

If you think, as I do, that there is a fundamental demand/supply imbalance in oil and the price is heading towards $US100 a barrel, sell your investment properties. Sell your shares, too, while you're at it, and any bonds yielding less than cash.

Natural gas use will rise anywhere from 5 percent to as much as 15 percent in the coming winter. Prices will rise anywhere from 10 percent to 20 percent depending on your location. You can ofset these increases with added insulation and alternative fuels, but the cost of being comfortable is going up.

During the next month, expect violent fluxuations in all markets. These fluxuations will occur as a result of the clash of market manipulators with the natual momentum of a free market. Thoughout the month leading up to the elections we will witness an all out attack on the natural order by the Plunge Protection Team, the Fed, through its use of the Repo Pool, COMEX through its use of naked shorts to hold down the price of gold and silver, and whatever any part of the Government can do to put a positive spin of the dire energy market outlook.

The wisest thing to do now would to watch patiently from the sidelines. No one, but the insiders, will have a prayer of coming out ahead. Profits will turn into losses in the blink of an eye.

Have you ever heard of hyperinflation? In January 1919, one ounce of silver cost 12 German marks. Four short years later, on November 7, the day that Hitler jumped on a table in a beer hall in Munich and shouted "The revolution has begun," the same ounce of silver cost a whopping 543 billion marks!

Think it can't happen here?

If you are depending on Social Security, stop.

Get out of debt. Figure out ways to conserve. Take up gardening. Sell everything you don't need.

Follow the course opposite to custom and you will almost always do well...

Its not what you don't know that will screw you up, it's what you know that is wrong. The spin you hear from the mainstream media is intended to mislead you. Open your eyes and face the future. If you leave your head in the sand and ignore it, you are only leaving your butt exposed for the world to kick. This all may sound like gloom and doom, but when you get a handle on what is going to happen, you will have a future filled with opportunity. Fortune favors the Informed.