June 4, 2002

US MARKETS The Bush Administration has to be the most secretive executive body ever. They recently decided not to tell Americans how much business the Chinese Army does inside the US. They have shut off information normally available under the Freedom of Information Act regarding a Chinese Air Force front company. There have been numerous arms sales to a number of countries, which the administration simply refuses to disclose.

Massive government debt is back in vogue. George Bush wants an extra $27 billion for defense spending yet more billions are needed for Medicare, Medicaid and prescriptions. In England $58 billion has been promised to the National Health Service, yet in both the US and UK tax receipts are plunging. The US Treasury will issue $424 billion in new bonds this year up from $292 billion last year. The world bond markets grew last year to $33 trillion up 5% from 2000. These rising government deficits that include almost every government in the world should lead to more bond issuance putting upward pressure on interest rates. We believe that interest rates on the 10-year and 30-year Treasuries will be 1/2% to 1% higher before the year is over. The reason for higher rates is to reflect the freefall in the dollar and the continual fall in tax receipts as the US and world economies slip back into recession. The expert assumptions are that tax receipts will rise again and governments will return to balanced budgets. We thoroughly disagree, again. When the experts’ perception is found to be incorrect, particularly in the US, the impact will be dramatic for government bonds and interest rates.

First quarter spending on commercial building fell 19% from the first quarter of 2001 the largest year-to-year decline since 1991. Real spending on new office construction fell 30.8% year-on-year, while spending on private industrial building development was down 40%, the biggest decline on record. Vacancies are rising and rents are slipping, but owners figure rents will rise in a couple of years as demand expands again. We hope they have patience, because it will be long haul. The State of Connecticut has filed a lawsuit to stop Stanley works from reincorporating in Bermuda. The state owns 16,600 shares of Stanley. The move would allow Stanley to avoid millions of dollars in state and federal taxes.

American corporations are generally going to have flat to lower earnings for some time to come. Not only is the economy again faltering after having massive amounts of monetary aggregates injected into it, but also major corporations are going to have to deal with losses in their pension plans that could take 10-30% of their earnings away. It is impossible for corporations to get 7-10% returns on investment when markets are falling like a rock. In addition, dividends are a paltry 1.9% and junk bonds do go into default. Less than 15% corporate growth in earnings is going to be with us for at lest the next few years, so believe those companies who’s P/E ratios are currently 30 to 100 times earnings, are going to fall to 14.5 times earnings. In addition, all the Mickey Mouse bookkeeping will be laid bare to the public, which will compound the downside. How do US companies that reported $54.4 billion in pension fund profits justify doing so when their investments declined $35.8 billion? These sort of deceptive reports will only prolong the agony of financial and economic correction.

The PPI for April showed a drop of 0.2%. Now if, and that’s a big if, an exercise in faith, that government figure is correct, it bears out what we predicted two years ago, deflation, depression and a flight to quality to gold. As we also predicted over the last year commodity prices would not sustain their rally and they haven’t, they are faltering. This is also borne out by a 2% annualized drop in business sales and unemployment that we believe will be 6.8-7% by year-end. We also have a falling dollar, which normally would be inflationary, but if you have consumers mega-overextended financially and prices are rising, they will cut back on buying. If you believe those productivity figures you need serious medical attention. This is the biggest deflationary scenario since 1961 and it in our estimation will be worse than 1930-1936. We are almost all alone in our deflationary prediction. We have only seen six other such prognosticators among economists, strategists, analysts and newsletter writers. Deflation is why the FED can’t raise interest rates. Interest rates will rise in the market 1/2 to 1% over the next seven months because of deteriorating credit quality and a continued rush to sell bonds as the only way for corporations to raise cash for operations. This is not a happy story, but we are not in a feel good business. We want to try to protect your assets and your future financially and otherwise. Take care of your health. Eat a proper diet and use vitamins, minerals, herbs and hormones. Be out of most of your stocks. Be short the market and selected stocks. Be long special situations and gold, silver, platinum and energy stocks. If you need a broker for commodities or a broker who specializes in precious metal stocks let us know. We’ll help you and we don’t accept kickbacks of fees of any kind for advice or these services.

E-Trade looses money and will continue to do so. Its Chairman made $80 million last year. He now says he’ll forfeit $21 million of that $80 million and accept no salary for the years 2002 and 2003. This shows you what heat from shareholders can accomplish. It gives corporate bandits religion. The VA previously filled a prescription for $2.00. It is now $7.00. Inflation in medical costs is astronomical. Workers and retirees are being asked to pay more of medical costs. Drugs account for 40- 60% of employer’s overall spending on Medicare-age retirees’ health care. Medicare does not pay for most drugs. As a result, current health care costs for retirees’ are increasing 18% annually. Large corporations have reported total liability for future retiree health care costs of $400 billion and only 3% of small companies with fewer than 200 workers supply benefits. Retirees now pay all or part of the costs in eight out of ten company health plans. Employers with falling earnings are looking for ways to force more of the costs on to employees. Some companies are using caps such as AT&T. $3,950 for those over 65 with families and $1,725 for individuals in the same bracket. All we can say is that today no one should contemplate retirement until they are 70 years old, unless medically unfit to do so. Tom DeLay (R.TX), the House majority whip, has assisted the Appropriations Committee in authorizing the President to use force to rescue any American held by the new International Criminal Court and to bar arms aid to nations that ratify the court treaty. He said the nation should never see an American soldier or elected leader dragged before this court, which he called a rump or rogue court. He must have been reading the IF. The addition would bar the extradition of anyone sought by the court. The House liberals were trounced on the issue 38-18.

The Plunge Protection Team did its magic on Wednesday 5/8/02 based on the senseless, groundless Cisco earnings. They beat analysts’ estimates by $.02. What the media and Wall Street failed to make an issue of was the earnings, which in the real world were $.10 a share. We went short up 150 on the DOW and a gain near plus 300 points and we covered Thursday with a profit. It’s just like falling off a log it’s so easy. Rallies instigated by fallen tech stars have to always be suspect. The capper was Richard Bernstein of Merrill Lynch who said “the environment represents one of the best times to buy equities in the last 16 or 17 years”. Now remember that. We won’t let him forget it later when the market recedes to its proper level. Then again after current revelations by the New York AG, how can anyone believe anything Merrill Lynch says? Cisco had slightly higher revenues but product sales dipped and the company’s book-to-bill ratio was below 1, which is not a good place to be. In addition, profits are deceiving when you compare 2002 to 2001. Last year they wrote off $2.2 billion. Profit in the future is a question and at 50 times projected earnings, we’d rather be short than long.


Over the next eight years the US and world will be like a slowly sinking ship as the world economy struggles to keep from sinking. President Bush, followed by other national leaders, will create the greatest debt in human history. At the current rate of accumulation it could be well over Japan’s current 157% of GDP. Our country is being deliberately led into enormous debt. If our debt is that bad with few exceptions, the rest of the worlds will be worse and the world economy will be enveloped in a debt collapse and depression In order to affect economic revival, debt has to be liquidated and that will happen. The time is past for monetary stimulation and monetizing the debt, it is simply too late. You can see this has already occurred over the last 20 years with credit downgrades of the debt of major corporations never mind governments. As time goes on even US Treasury paper will be downgraded as will most other sovereign debt. At the moment the only currency capable of maintaining its stability is the Swiss franc. We’d expect under these circumstances the Swiss would again institute negative interest. The dollar will not be the investment vehicle of last resort, gold will be that instrument. We can assure you that all those mega sales of gold by central banks ended up in the coffers of the elitists. Who would have great enough wealth to make such purchases? The world and particularly Americans are about to get a painful wakeup call. Many think this can’t happen. It is already happening in other countries. The credit ratings of Japan, Canada, Australia and New Zealand, among other historically strong lenders, have already been lowered to less than AAA ratings. Stability is slipping and it will accelerate as the stock market slowly slips to new lows. In order to offset the decline in the value of assets in the market investors have opted for illiquid real estate, which we can assure you will soon begin to decline in value as the stock market sinks to lower depths. As this goes forward the foreign flow of funds into the US will reverse, which has already began. It will turn into a torrent once the dollar corrects 15-20%. This leaves little in the way of an ultimate alternative, which will push more and more investors and savers into gold and silver related assets. Don’t be misled not only by the media, government and Wall Street, but don’t let the relative strength of foreign stock markets fool you. The DAX, FTSE, CAC and AEX will all show relative strength as a temporary alternative, but they have to eventually follow the US market down. We are seeing that unfold presently. Just in the last month these foreign markets have shown relatively more strength than the DOW. We have been charting our own corporate index on these markets for over 35 years. As we said some time ago George W. Bush is unelectable and two years from now our economy will be in deep recession and in a shambles. While all that is going on money will be leaving the US and there will be no way to sell and service debt. Interest rates will rise to compensate for risk and the economy will grind to a standstill. Our premium capital advantage will be gone and with it perception and confidence. This means power and wealth will concentrate more than ever into elitist hands and living conditions for everyone else will deteriorate. You certainly don’t want to hear this and we didn’t want to write it, but we believe this is where this is all headed. Your protection is gold, silver and platinum stocks, coin and bullion, special situations in the market. Be short the US dollar, stock indexes and individual shares; hold the Prudent Bear Fund and the Safe Harbor Fund. Get out of debt have emergency food available and be able to defend yourself. There is no telling where this could all end up. This is not the random result of economic misfortune and cycles. This has been planned and is being executed by the elitists for a reason and that reason is to implement world government. Remember gold is the ultimate store of value, the ultimate currency of last resort and the ultimate vehicle for retention of purchasing power. You are being deceived at every turn by media, government, Wall Street and corporate America. Every day a new scandal breaks at the highest levels of corporate America. Everywhere you turn there is fraud. All we get is lies and more lies from all these entities. Isn’t it about time we recognized our government is out of our control? It is in the hands of others who want their own agenda served.