HSL / Newsletter Sample

Big Picture
Dec, 2007

3. The recession will probably bleed into a depression far worse than 1930-33. Globalization assures it.

4. Excessive/easy credit is the leading-edge cause & the present unsolvable problem—which will last, according to ex White House advisor Summers, “to the end of the decade & beyond.” Credit went from too easy (thanks to the stupidity or cupidity of the Fed spinners) to now too hard to get. The finance sector was as dependent on easy credit as a junkie on heroin. 5. Why unsolvable? Largely because of derivatives. 516 trillons of $’s of them around world (US 43%, EU 40%, Asia 20%) & most are either not carried on the books of companies or carried with model prices, not marked-tomarket, because there is no mkt for them!!!!!!!! If U don’t understand that point U understand nothing about the crisis. They are MickeyMouse structures that are sort of like insurance against failures, among other things. But without a mkt, they serve to deceive, not protect! Get it?

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6. Banks now don’t trust each other, won’t loan to each other, as they fear the other guy has hidden derivatives in his balance sheet—that he may not know about. 98% of those who own derivatives don’t understand them, the risk potential, & the lack of mkt for them. Even many gold mines (esp. juniors) have derivatives with lending banks & haven’t a clue what they mean. 7. Press is ½ captive to their bank controllers & ½ without a clue about all the above; they aren’t monetary experts, nor are any of the politicians—so poor public gets neither leadership nor media info of benefit. CNBC & Bloomberg swing from saying things are getting better or worse every 2 hours. Don’t expect wisdom. Remember the saying: “If a jackass looks into a mirror, a jackass looks back out.” Judge the source. Trust not easily.

8. Biggest danger to U is having cash, time deposits, CD’s in banks, as warned before. They can be lost in bank closures, or at best frozen for 6mos to 3 years. Some banks already quietly closed. It’s govt policy not to reveal any bank vulnerability in case it scares off possible buyers of a bank—so U will never get a warning. Safest is switch to shortest-term govt bonds (90-day if pos) of any 1st world country. But not US, due to Amero threat, US$ downtrend & FXC. Inflation-indexed govt bonds are fine. 2nd biggest danger is owning US$’s in any form, which has crashed & going much lower. But all my family readers have surely gotten out of $’s by now? Use $-rallies to exit $’s or sell short (see futures section pg 11). This is not a time to seek profits, but to protect what U have. Profits will come from precious metals & the Swiss Fr. The SwissFr is the safest currency. Advisor Bob Chapman (International_forecaster@yahoo.com) thinks the Swiss will again tax U for holding SwFrancs, ie, U will pay to own them, get no interest. It happened in the 70’s. But as SwissFr rises, U gain. Don’t worry about interest, worry about safety.

9. Change your mind-set. Pretend we are in the worst economic & monetary crisis in 275yrs, because IMO we are! It is just starting. When lightweight TV faces talk of big profits or high production of this or that, remember that all crashes, recessions, depressions begin when steel, for example, is at record production & price levels. Steel yourself against media telling U “the worst is over” now&then, just as they did from Nov 1929 to Sept 1931. We’re into a replay, but on a bigger stage with more nations, population & worse: globalization. 10. Is it possible it won’t come to this dire situation? I doubt it, but while we wait to see, don’t bet your assets/future/life on it. Pretend it’s for real & wait for 2years to see if things improve, before we let our guard down. 11. Look for some govts to fight the financial tsunami with controls: tariffs, fines, exchange controls, travel restrictions, taxes, int.rates, duties.

12. Money-mkt funds pose a huge danger. Many are mostly in US$’s & not in safe govt bonds. If U are in one such, get out in the next 20mins. Unlike banks, US money funds aren’t FDIC insured. 13. The speed & seriousness of the scene was grasped by the IHT whose 11/29 pg 1 lead headline was: US credit drying up, raising fear of recession. Subhead: Financial arteries constrict at fastest pace ever recorded. Smaller declines than this in commercial paper have preceded 3 recessions back to 1975. Credit makes the wheels go. Today it’s absent. 14. Robert Shiller of Yale, author of Irrational Exuberance, predicting the 2001-2 Dot.com stock crash, estimates US housing prices may fall by 50% in many areas. IMO, that’s certain& a minimum. 15. Soon 1 or all of the Middle East oil exporters will end their US$-peg or $-oil pricing, & switch to a basket of currencies or euros. They must, for survival. That will unofficially end US$ status as a reserve currency. On that date the $ will probably fall 10-15% in a day. •••• Dec 15-31 may be bad time for stks, as hedge funds will be selling stocks to meet redemption demands put in by clients in Aug/Sept. Forced selling in thin mkt could beget a fire sale. Step out.

16. Morgan Stanley strategist G.Cooper says “The credit crisis is becoming systemic,” as I’ve long warned was coming. IOW, the financial system itself has become dysfunctional. GC warns: what is a problem for banks today will soon be a problem for govts as they’re forced to rescue companies. Bob Chapman fears the govt could end up owning all the mega banks. 17. Most recent years GNP “growth” was from excess credit. Now, with credit unavailable, growth goes negative by mid-08. If so, stagflation will cascade thru recession & into depression in record time. 18. With no mortgage freebies, some car loans will be paid via credit cards. Watch for some credit card co’s to go under, as late/non payment soars. In UK, c/c delinquencies rose 50%. 19. Goldman Sachs (with good record) predicts another $48bil of biz write downs to come betw’n now & Xmas 2008. Don’t be surprised if it’s twice that. ••• Accountants now live in fear of oking balance sheets with funny numbers, & derivatives based on smoke. So we’re getting transparency by accident, not conscience. That’s how we’ll get back on the gold standard—by force of perilous circumstances, not because govts decide it is wise.

20. The Economist mag rightly says the biz & credit crunch is: “at the gates of hell.” That’s how it will feel to those unprotected by the measures I have recommended. 21. I predict US jobless numbers will double in 08, triple in 09. 22. Europe will be affected by the US econ decline, but more by the falling $. EU may erect tariff barriers to protect from cheap Asia goods, & use FXC to stop $-inflow. Asia will still grow, but much less. China will somewhat ignore the world, turn inward to rebuild its infrastructure, a de facto new Great Wall of/around China. They will slow/stop major US stk buys. Other buys will be small. 23. Stock buybacks will stop & the stupidity of them revealed as corps scramble for cash they wasted buying their own stock. CEO’s will look like midgets. Cash/stock mergers/acquisitions will shrink by 80%. But bankrupt repossessions will increase 1000%. Huge profits possible in mid-08-09 buying foreclosed homes at 15-20% (?) of value. If U buy ’em, be prepared to hold’em for a long while. Put friends/family/sitters in ’em.

24. Biggest risks are largest banks, finance & insur companies, as they took on the bulk of the structured packaged mortgages. But, even some small banks hold excess/weak mortgages. If home owners lose job? Greed& free lunch psychology feeds all bubbles & busts. Ask your bank for detailed, transparent balance sheet. And ask re their off-balance sheet positions. They can’t refuse; if they do, close acnt. 25. Interest rates are going lower almost everywhere for some time to come. 26. Fannie Mae & Freddie Mac will crash; govt will bail ’em out.

27. Author Wm Engdahl says “The $690 billion of interest- only ARMs mortgages due for interest rate hikes betw’n now & July 08 are mostly not sub-prime, but a bit higher quality. There are $1.4 trillion in interest-only ARMs says First American Loan Performance. Study calculates these ARMs face staggering higher interest costs in next 9 mos, over $325 bil of the loans will default leaving 1 million property owners in technical mortgage default. But, if banks are unable to reclaim the homes as assets to offset non-performing mortgages, via a new court ruling, the US banking system & a chunk of global banking system faces a financial gridlock far beyond recent events.” (Govt trying to freeze sub-prime rates. But free zes make things worse.)

•••••Well, dear family, there’s a lot more, but if all this doesn’t persuade U to take radical action, U are into dangerous denial. I’m sure most of U have done a lot; now go do the rest of the necessary. Bon voyage

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