Is there another word for synonym?
06.06.04

As the editor of the Silver Bear Cafe, I spend most of my time researching current events. I explore the markets, the war, precious metals, the Federal Reserve and energy. In this weekly column I will attempt to condense the week's events and examine how the news might affect your pocketbook. JSB

With the third largest population in the world, America consumes more oil than both China and India combined. Together, those two nations have 8 times more inhabitants than the United States. The number one item on the average Chinese citizen's wish list is an automobile. When the oil consumption of the combined two nations reaches half that of the US, (and it will within the next few years), gasoline will be $10.00 a gallon.

As global analysist J.R. Nyquist so eloquently stated in one of his recent columns, "America is sliding deeper and deeper into a politically correct, scholastically indoctrinated, regulated, credentialed, homogenized and degenerate hole. If catastrophe does not interrupt this decline (as it surely will), then America shall become a land of subhuman semi-illiterates, utterly dependent on government, profoundly alienated from one another and entertained to the point of stupefaction."

Last week, in an unprecedented move, the United States began putting almost all of its aircraft carrier groups to sea. At the same time, the Federal Reserve expanded the money supply by a staggering forty-eight billion dollars. In the last four weeks the Fed has increases the amount of dollars in circulation by $155 billion. Never before in history, (barring some catastrophic event), has the money supply been increased by this degree, (in the week after 9/11, the money supply was increased by $177 billion). Some have suggested that these moves are in response to an anticipated crisis in the financial system, and this crisis might have a foreknown terrorist attack or something worse as its trigger.

On Thursday the boss of the CIA, George Tenet, announced his resignation and gave a sentimental farewell speech. Tenet was a popular and respected Director of Central Intelligence (DCI). He was not under a cloud. He had the support of the president. He was liked on Capitol Hill. The reason for his departure was said to be “personal.”

I don't have a crystal ball. I'm not sure what's going on. I don’t know if the military exercises, the resignation of the Director of the CIA, or the expansion of the money supply are, in any way, related. But if the government is onto something that they haven't told us, that might explain their recent actions. If the powers that be believed that terrorists were planning an attack on American soil, or a natural catastrophe was imminent, or the stock market was on the verge of collapse, or any number of things that they are privy to that we aren't, they might determine that the citizenry was better off not knowing. Admission of any of the above would incite insurrection, disrupt businesses, trash the real estate market, cause a run on food and water, and generally prompt a wide spread panic. Desperate people do desperate things.

Mr. Niquist goes on to say. "If terrorists have nuclear devices on American soil today, if the terrorists can successfully detonate such weapons, the government would be helpless to prevent panic. What could they do? Over the past five decades, American society has come to depend on a highly vulnerable infrastructure that depends, in turn, on freedom from fear. The power grid is vulnerable. The telecommunications system is vulnerable. Our computers are vulnerable. Our oil supply is vulnerable. Any successful attack against these vulnerabilities will mark a qualitative change in the system and its base requirement: freedom from fear."

In a Constitutional sense, freedom is synonymous with responsibility.

Get out of 401(K), mutual funds, and stocks now unless you just like playing with fire and taking risks. The bond market may collapse in price if interest rates go sharply up and REITS (Real Estate Investment Trusts) are already taking a beating. There are immediate buying opportunities by transferring funds into the energy sector. If you are holding stocks or bonds, arrange with your broker to get paper deeds to your holdings.

The 'carry trade' is a sophisticated gamble made, usually, by large banks, hedge funds and other financial institutions. It involves going long and short on two assets simultaneously - one of which is presumably mispriced - and pocketing the difference. Today, the sharpies borrow U.S. dollars short-term, at the Fed's artificially low rate. (The Fed's key lending rate, at 1%, makes borrowing cheaper than free; the inflation rate is at least twice as high.) Then, they lend the money long-term at higher rates. It is a winning bet as long as short rates don't rise, for then, they are forced to borrow at higher and higher rates in order to pay back the short-term loans. Typically, this is how bankers go broke.

Now you too, dear reader, can go broke... just like a Wall Street financier. All you have to do is to buy a new house with an adjustable rate mortgage. You are borrowing at short-term rates in order to acquire a long-term asset. Even with no formal training, you have gotten into the 'carry trade.'

As of mid-May, 34.8% of existing residential mortgage loans are some type of Adjustible Rate Mortgage, (ARM).

The government just announced a new program where they will make the down payment, up to $10,000, if a poor person wants to buy a home. If and when these people default, and as a result, contribute to the housing market glut, one more domino will fall and there will be all the more more reason for home prices to crater.

Politicians and diapers have one thing in common. They should both be changed regularly, and for the same reason.

Relax precious metals investors. While there are many things to worry about in this world, your choice to invest in precious metals is hardly at risk.

Fresh water is going to become a very big deal in the next two years. Do you have control over any?