THE INTERNATIONAL FORECASTER 14, DECEMBER, 2002 (#2)

http://www.goldseek.com/cgi-bin/news/InternationalForecaster/1039857013.php

An international financial, economic, political and social commentary.

Robert Chapman, Editor Vol. 6- No. 10- 2 ( 47pgs.)

Phone & Fax: 941 639 4756

E-mail: bif4653@comcast.net

(Proofreading services provided by jasondrp@aol.com)

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....

US MARKETS

Never any jail time, only fines. The SEC, NASD and NYSE have fined Deutsche Bank, Goldman Sachs, Morgan Stanley, Salomon Smith Barney and US Bankcorp Piper Jaffrey each $1.65 million. That is $8.25 million for destroying e-mails that could have well put them behind bars. These companies stole billions of dollars and receive a slap on the hand. The old boy network screws the public again. This certainly is encouragement to break the law again. Incidentally, the public won’t see a cent of that money.

Out intel sources tell us a parallel court system will be set up by the federal government to secretly try, imprison and punish suspected terrorists without allowing them legal counsel and the right to know the evidence against them. There will be no form of due process. This means the system will be much more extensive than we have been led to believe. There will be a system of military courts in cities and towns all over the country to handle local cases. Once they get neighborhood informer committees set up (you really didn’t believe Ashcroft had dropped the idea, did you?) they will produce plenty of suspects. That is anyone who is a true patriot. These courts will also try civil cases. The excuse will be national security. This means the case has the potential for a large fine and the military courts will take it over. In what way does this differ from having to pay off the local warlord? The answer is none. Americans, this is where we are headed, so prepare yourself and start forming single-cell units.

Washington continued its unequal partnership with the states by under funding federal mandates. Medicaid is wreaking havoc on state budgets as some 14 million illegal aliens take advantage of our health systems and our federal government not only refuses to pay for them but also refuses to remove them from our country. The result is that states and their taxpayers are paying to fund this illegal wave of felons for billions of dollars. Medicaid is part of it. They also refuse to fully fund their responsibility for children’s health insurance, highway construction, election reform, public school accountability, welfare reform and fatherland security.

The rats are abandoning ship. O’Neill and Lindsey don’t want to be on watch when the market and the economy collapse and the gold manipulation cartel are broken. They are both members of the brotherhood so they are or have been participating in what has been going on in the Exchange Stabilization Fund and with the Working Group on Financial Markets. They are responsible and, with the President, stand to be blamed and rightly so. Although the real instigators were Robert Rubin and Larry Summers. This is not a Republican or Democrat contest, it is a joint operation of elitists. They know no party. Rubin and O’Neill ran the ESF. They all probably have visions of being dragged off by the people as was Benito Mussolini and sharing his fate. Quite frankly, it’s all a disgrace. Traders all over the world are now talking about the stock, gold and silver markets being rigged. A London money manager who does business with one of the elitist Wall Street firms said banks are rigging the stock market. Exposure is what these culprits can’t stand. It ends their game. That could be expedited by an audit of US gold reserves. It would be convenient if someone on the inside came forward and told us what really is going on, or if finally the media covered the truth. All we can do is keep informing the public and forcing the issue. It won’t be long before we prevail, because behind the scenes there is chaos and that has to be why these two insiders wanted out.

Referring to our comments on IBM and its funding of its pension plan with IBM shares last week, we have a little to add. As we mentioned the infusion of shares may look good inside the plan now, but they could easily go back to $59.00 where they were a month ago, or to long term support at $38.00 a share. IBM just forgot to mention that the shares deposited in the pension plan would boost their bottom line by more than $250 million next year. This materializes because cash is not used; only stock is. That is the interest that will be received on the funds that didn’t have to be paid out in cash. Of course, you have to be a major corporation to have the muscle to pull such a maneuver. We wonder what IBM will do when their stock is back at $59.00 or $38.00? Twenty-one major corporations will contribute a total of $32 billion in the next few years to their pension plans. Of that, $7.6 billion will be added by year-end. Worst hit will be big, older companies, because that’s where most traditional defined-benefit pension plans are still held. For those who don’t know the ropes, earnings for many major companies will be boosted when they shouldn’t be. Some of those will be IBM, United Technologies, 3M, PepsiCo, Delphi, Boeing, AMR, Delta, Honeywell and ITT. Welcome to the land of corporate chicanery and smoke and mirrors.

If the FED goes wild then we’ll have a spike upward in inflation, which will not last long. Sir Alan and the government have poured $4 to $5 trillion into the economy over the past three years. Yet, so far inflation is only 1.6%. Prices for goods are in negative territory and the price of services have begun to fall. According to the GDP deflator, prices are up less than 1% at the lowest level in 50 years. The last time this happened was in the 1930’s. Government, Wall Street, bankers and CNBC, better known as Tout TV, don’t want us to know there is deflation. That is in spite of all these aggregates being poured into the system. Now that goods and services costs are falling, next naturally will be wages. That is followed by layoffs and unemployment. Then, as you’ve seen over the past three years, come the bankruptcies. This is not the ebb and flow of a free economy. It’s the result of an economy, a financial system that has been ravaged since the 1960s. It is the result of free trade and globalization. We now specialize in exporting jobs and importing illegal aliens. It is going to be difficult to pay off your debts with dearer dollars or even more difficult if you have no job. That’s why we keep telling you get out of debt. Once massive credit default begins then real estate will collapse and the game will be over. We have a fiat currency; these prices will fall over 10% a year just as they did in the 1930’s. At least then we had a gold standard. Today we have Federal Reserve toilet paper. This is where we are headed, like it or not. Get those gold and silver coins and shares, they’ll be a lot more expensive soon.

Under the reformed immigration laws of 1996, people slated for deportation, usually illegal immigrants, can apply to stay in the country by showing they have lived in the country for at least seven years before their deportation cases were settled. Thus, if you are a diligent lawbreaker you are rewarded. Only in internationalist America.

An example of the interconnectedness of the elitists, when Goldman Sachs went public in 1999, 400,000 shares were allocated to William Clay Ford, Jr., CEO of Ford Motor Co. This was by far the largest allocation, worth $52 million at its peak and now worth $29.8 million. This could be explained by the fact that John L. Thornton, president and co-chief operating officer, is an old prep-school friend of Ford. It is interesting that since 1996 Goldman has received $90 million in fees from Ford and that was a very hot underwriting. It should also be noted that Mr. Thornton resigned from Ford’s audit committee two months prior to Congress passing Sarbanes-Oxley. Mr. Thornton is still an independent director of Ford. Goldman’s advice to Ford hasn’t worked out all that well lately. They stockpiled palladium in 1999 near the peak of prices and bought Kwik-Fit in Europe. Kwik-Fit was sold at a loss and between the two purchases Ford lost billions and Goldman received $2.1 billion in fees. Either Goldman is incompetent or something fishy is going on. This is also part of the reason 23,000 Ford workers lost their jobs, plants were closed and Ford took $5.45 billion in write-offs. Ford’s palladium buying is what drove prices over $1,100 an ounce. We wonder if the Goldman trading department was long during this episode or short after the buying stopped? Former Goldman Officer Robert Rubin, currently of Citigroup, also sits on the Ford board. Can you see the tight interwoven relationships of these elitists? And all the time they are playing with shareholder’s funds. These relationships are all kickbacks for the good old boys, the brotherhood.

...

From: LeMetropoleCafe:

Subject: Real Estate Bubble

Hi Bill,

I attended a continuing education class last week and one on of the topics discussed was synthetic leasing. These are financing vehicles used in commercial real estate that became popular during the 1990's as an innovative way for public companies to bolster their stock price and thereby attract more investment capital.

In it's simplest form, a synthetic lease is an off balance sheet transaction that enables a corporation to acquire, construct and expand real estate holdings without having an adverse impact on its stock price. It is generally categorized as an operating lease for financial accounting purposes and a loan transaction for income tax purposes, taking advantage of the best of both words. The company gets off balance sheet treatment for the lease liability but also retains the tax benefits of ownership. The main reason for using a synthetic lease is to avoid showing real estate assets or loan liabilities associated with it on the balance sheet, improving its debt to equity ratio.

Here's how they work. A special purpose entity (ESP) is formed by the company for the sole purpose of holding the real estate. A lender is a party to the deal and loans the money to the ESP to build the facility. The ESP leases the facility back to the company. The loan usually requires interest only payments to the bank pegged to LIBOR and is of fairly short duration, three to seven years or so. At the end of the term, the tenant either buys the property at the original cost, rolls over the lease or pays a penalty to get out of the lease.

Synthetic leases are, strictly speaking, legal although one analyst has described them as "a subterfuge, a way to keep debt off the balance sheet" and they have come under increasing scrutiny of late, especially since the Enron debacle. If the structure as I have described it sounds like an echo of Mahonia, it will come as no surprise to you to learn that JP Morgan, Citibank and B of A are among the big banks with considerable outstanding synthetic lease commitments as revealed in a handout from the class from the Feb 18, 2002 edition of Forbes magazine. It was estimated then that these three banks had over $475 billion at risk on synthetic leases representing, in the case of JP Morgan, 36% of its loans outstanding. These commitments are generating much lower returns than are warranted, on the order of 12 basis points on a $1 billion commitment, based on the amount of risk

involved. Why? So it can win the client's business on its next stock offering or leveraged buyout. And what of the companies, who are paying the equivalent of interest only loans in a slowing real estate market? Among the companies who have taken the bait are KMart, Owens-Corning, Xerox, Lucent and Finova, and we know what happened or is happening to them. Other companies utilizing the synthetic lease strategy include Cisco, Krispy Kreme, Cypress Semiconductor and others.

Enron, Worldcom, Tyco, et cetera brought the cry of full disclosure to the lips of stockholders everywhere. I expect there are many more companies in financial trouble than are known and that as the facts come to the surface, many more investor lawsuits will follow. The purpose of synthetic leases is to hide financial obligations not from the lenders who are accomplices to the scheme and which would be illegal, but from the shareholders.

Several Cafe contributors have commented on HUD and Fannie Mae's place in the perceived real estate bubble. I believe that synthetic leases tie together the real estate bubble, corporate accounting and Wall Street at even one more level and further explains the banksters motivations for continuing to attempt to convince us all to get out there and buy some stocks. There is a lot more excrement yet to hit the airscrew.

*****

STATISTICS

United Airlines has filed for bankruptcy.

American Airline employees have been asked to forgo pay raises next year in an effort to cut $4 billion in losses. The increase that is coming in the budget deficit over George Bush’s four years in office will be greater than the deficit for WWII. Consumer credit increased $1.4 billion, the lowest increase in 16 months. Still US household debt is up 9.6%, led by a 12.8% increase in mortgage debt. Both the largest increases since the fourth quarter of 1989. It’s no wonder social security has problems. People are living too long; 3,200 reached 100 years old in the UK, up from 255 in 1952. Here in the US the figure doubled from 25,000 in the 1990s to 50,000. Four out of five are women. The UAL casualties have already surfaced. EDS will write down $440 million for aircraft-lease investments tied to UAL.

...

GOLD, SILVER, PLATIUM, PLADIUM AND DIAMONDS

At $331.10 an ounce, gold has broken out to the upside. Needless to say, CNBC gave it exactly 30 seconds of coverage. No one seems to have a reason other than it was about time. If you remember we predicted a breakout in mid-September and presto here it is. The rumors have it that it could have been a reaction of Muslim states moving to the gold dinar by 2005, or Swiss bullion dealers not rolling over their gold loans anymore or perhaps it was a delta hedging issue, where dealers or gold producers need to buy in order to cover their liabilities. The post mortem will come and everything and everybody gets carved up before we leave here. Then, of course, there is the physical demand, which has been unrelenting. Gold has broken up and out of a seven-month consolidation, so get ready for a wild ride.

The German press says six countries; Saudi Arabia, Oman, UAE, Qatar, Kuwait and Bahrain will start a custom co-operation in 2003, two years ahead of schedule. They will try to start a new currency in 2005 with an Arab dinar, which will be fixed against the euro, not the dollar. Rich foreign nations are tired of dollar imperialism and the idiotic antics of the IMF and World Bank. It is significant that the euro has 15% gold backing and the dollar officially has none.

Chancellor Gordon Brown and his Treasury officials have used an internal review to pat themselves on the back for selling more than half of Britain’s gold reserves, despite the fact the process lost the British taxpayers $300 million. Needless to say, the Treasury’s actions were ridiculous. They managed to pick the bottom of the market in which to sell into, a 20-year bottom. After they sold the gold price went up 30%. What a bunch of losers.

According to ComScore Networks, which measure web traffic sales for on-line jewelry sites, sales in November exceeded $80 million, nearly 70% above the level of November 2001. Buyers are reaching for the $5,000 to $30,000 articles.

Thirty-five tons of gold a year worth $360 million is stolen from South African mines each year.

As we reported some time ago, the Central Bank of China has been slowly converting its dollar reserves into euros and gold. It has also begun deregulation of its gold market. Over the next three years gold consumption should move from 200 tons a year to 400 tons and perhaps as high as 600 tons. It looks like the gold manipulating cartel is fighting a losing battle. If China stays out of war, gold consumption over the next 10 to 20 years could be astronomical. As we said a month ago, a sale of $200 billion and a purchase of gold in that amount would collapse the American economy and send gold soaring. America has its military settled into the Middle East and it would be of little use as a destructive force to retaliate against the Chinese and perhaps others. China is moving to back its currency with gold.

Chinese jewelry demand has had a major impact on platinum prices currently trading at $600.00 an ounce. That’s up 34% this year. Of course, European demand for platinum for catalytic converters has increased, which has also put upward pressure on prices. These high prices for the noble metal should finally help put a bottom in on palladium at $225 to $250 an ounce. We recommend as a strong buy *Starfield Resources (SRU-V) and (SRFDF-BB).

Barrick’s accounting trickery didn’t impress us and it also didn’t impress Deutsche Bank, which downgraded the company’s shares from Buy to Sell. The problem is that operations are not sufficiently profitable to justify the generous market cap. What is doubly important is that Deutsche Bank is a major player in the gold bullion market. We believe they see far more problems than they are telling us about. As said six months ago and a year ago, Barrick’s hedging averaged at $300 an ounce. Anything above that was a loser for the company. It’s the derivatives, silly. Barrick is in trouble and the trouble will only get worse. We advise shifting to *Agnico-Eagle (AEM-NYSE), *Goldcorp (GG-NYSE) and *Crystallex (KRY-ASE).

Incidentally, CS First Boston has lowered Barrick’s earnings for 2002 from 38 cents to 16 cents due to higher operating costs and non-cash costs at certain mines, a higher level of ongoing administrative costs and a stronger Australian dollar. We have been recommending the sale of Barrick’s stock for years.

Standard & Poor's will add 23 companies and remove eight from the S&P/TSX Canadian Live GICS Sector indexes, effective after the close of trading on Dec. 20. Among them is: Crystallex International Corp. (KRY.).

*****

“We have mentioned the Prudent Bear Fund numerous times over the last two years as an excellent way to play the market in these unusual and confusing times. Unusual inasmuch as deep recession/depression have not been as frequent in this past century as they were in previous centuries. Confusing because of the mammoth propaganda machine operated by GE, CNBC, Wall Street and government. You seldom get the truth and that is confusing. We believe this is the perfect time to purchase the Prudent Bear Fund and the Safe Harbor Fund. The market has just experienced a strong 30% bear market rally and precious metals stocks seem poised to go higher. The Prudent Bear Fund shorts the market and goes long precious metal stocks. As the market falls and gold and silver move higher those shares will also move higher. It is a perfect and simple way to invest during these troubling times for those who don’t have the experience and fortitude to pick individual stocks. The Prudent Safe Harbor Fund (PSAFX), which invests in high quality debt instruments, denominated in currencies other than the dollar, gives you an exceptional alternative to a falling dollar. You may purchase these funds though Rich Radez at 800-285-1700.”

*****

JAPAN

Third quarter GDP expanded 0.8% after the figures from the previous quarter were Mickey Moused. Annualized official growth should be 3%, led by stronger consumer spending and a smaller drop in business investment. Wholesale prices fell again in November 0.3% from October, extending the run of declines to a 26^th straight month. Bank lending fell 4.4% from a year earlier, while the pace in growth of broad money supply slowed to 3.2% in November versus 3.3% in October. Core machinery orders, a leading indicator of private capital spending, fell 4.1% in October from September. Orders annualized should be off 6.5%.

Venture capital investment fell 18% in the first nine months of 2002. Banks continue to write off bad loans but still have a long way to go. Bank lending has fallen for 59 consecutive months. Presently most domestic banks can’t even reach capital ratios of 4%.

The latest statistics show that Japan owns $349 billion in US Treasuries, $11 billion in real estate and $200 billion in US securities.

AUSTRALIA AND NEW ZEALAND

Australia’s PM John Howard wants to give the auto industry $420 million a year for 10 years to keep it breathing, yet he won’t give the mining industry a shilling.

.....

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http://www.moneyfiles.org/implosion.html

SHUT DOWN OF 5 STATE FED. RES. CLEARING HOUSES IN BOSTON

NOTE BY STEVE HOKANSON: The Chairman of the Boston Federal Reserve shut down 5 State Federal Reserve Clearing Houses. These are checks and balances so the USG can keep an eye on the Federal Reserve. Call your Senators and Congressman to investigate this. Something is going down big-time.

Well, something is going on big-time – it is the beginning of a global financial catastrophe, and the beginning of the global foreclosure process. Here was my reply and a brief explanation:

“Having the regional office of the FED closing ANY clearing/transferring system is a clear indication of a “cross-default” OR, “general default” condition. I have been writing about the collapse of the market due to systemic as well as other problems. As the state and federal incomes dry-up, jobs are lost (sold to china), pensions go un-funded, and foreign holders of dollar based assets redeem those assets for their native paper coupons.

An easy way to say this:

Think of driving down the highway with a friend on the same stretch of road in another vehicle, only they are a few 'miles' behind you. Since you are in front of them you see a MAJOR wreck happen just ahead of you. ALL traffic comes to a halt and stops; but the drivers behind you are not yet coming to the congestion just yet – they have not gotten that far. However, every moment that passes adds to the congestion further adding to the grid-lock conditions. By the time your friend finds out, they are stuck in a traffic jamb that they don’t even see, and are left scratching their heads trying to figure out “what’s going on up there.”

What happens next?

The actions of the Boston Fed are indicative of a “major wreck” Now the ONLY question remaining is: How big is it?

I believe it is a cascading effect of derivative implosions held over from the October lows of 2002. The dealers/market-makers were able to hold off on closing down MAJOR players because of the FED intervention that caused the “violent rally” I wrote about before it happened. But, now that the markets are poised to re-test those lows (they WILL NOT hold), the books need to be settled. I believe this is what is causing problems behind the scenes. Doing an audit on a multi-trillion dollar moving casino is impossible. The days of bank holidays (like Argentina) are just around the corner.

Well after a search that didnt lead to anything, we simply dropped by the FEDERAL RESERVE BANK OF BOSTON website and checked out "new releases, annoucement" and........ BINGO!!
Click on:
Press Release: Federal Reserve Banks Announce
Changes to Increase Efficiency in Check Services
as Check Volumes Decline Nationwide

see page 2, second half of the page:
http://www.bos.frb.org/news/pdf/fspc020603.pdf

BANKS CLOSED IN OREGON AND CALIFORNIA - JUST THE BEGINING...

California Bank Closed by FDIC; Customers Have More Than $30 Million at Risk
The Associated Press - Feb 8, 2003

http://ap.tbo.com/ap/breaking/MGAG1XLUXBD.html

TORRANCE, Calif. (AP) - The federal government has closed the failed Southern
Pacific Bank, casting doubt over the future of more than $30 million in
deposits.

Southern Pacific was the first failure this year of a bank backed by the
Federal Deposit Insurance Corp., officials said. Its three Torrance offices are
expected to reopen this week under Beal Bank of Plano, Texas.

Customers of Southern Pacific will become Beal customers. But the FDIC only
insures deposits up to $100,000 per account. About $30.7 million in nearly
1,000 accounts was uninsured.

FDIC spokesman David Barr said customers may be able to recoup some of the
money. ..... "They could get a portion of that back as we settle the assets," he said
Friday. "Over the past 10 years, uninsured depositors have received an average
of 70 cents on the dollar in bank failures."

ALAS THE ARTICLE WAS MOVED AND WE DONT SEEM TO BE ABLE TO FIND IT BACK

Debt risk forces bank closure

Statesman Journal
February 8, 2003

http://news.statesmanjournal.com/article.cfm?i=56326

BEAVERTON — Federal authorities have revoked lending authority for a
Beaverton-based bank that processes credit cards for clothing and household
goods retailers Eddie Bauer, Newport News and the
Spiegel Catalog.

Under a cease-and-desist order, First Consumer National Bank must dissolve
itself as a bank, losing its lending authority, after an audit of its parent
company found risky levels of debt.

The 14-year-old company founded in Beaverton will be forced to shutter a big
chunk of its headquarters and an Albany call center if it cannot find a buyer.
The bank employs about 1,200 people in Oregon.

Auditor KPMG filed a letter Tuesday with the Securities and Exchange
Commission, saying parent company Spiegel Group, based in Downers Grove, Ill.,
had failed to comply with its debt agreements or
re-negotiate its debt.

Spiegel’s chief financial officer resigned Wednesday.
First Consumers National Bank manages MasterCard and Visa accounts nationwide, and retail credit cards for Spiegel Group holdings, which includes Eddie Bauer and the others.

At the end of 2001, the bank’s credit card customers had $1.3 billion in
outstanding balances and its retail credit card holders had $2.3 billion.

BANKS IN CHASE FOR ELUSIVE PROFITS
Bad debt and dividend worries dog high-street lenders fighting for market share, writes Heather Connon

Sunday February 9, 2003
The Observer

http://www.observer.co.uk/business/story/0,6903,891686,00.html

Interest rates not withstanding, dIvidends, bad debts and revenue growth are the three issues dogging Britain's high-street banks. But those who hope that they will be resolved by the reporting season, which kicks off with Barclays' final results on Thursday, will probably be disappointed. The annual profit statements are likely to offer as much ammunition for the sector's fans as for its critics.

Take dividends. On the face of it, the only issue for debate is how much Abbey National will cut its payout. Until its house broker, UBS Warburg, predicted the dividend could be halved, the consensus was that it would fall by 40 per cent. The other banks will increase their dividends in line with earnings, accompanied by the usual noises about confidence in the outlook and strength of cash flow.

But the real issue is whether these payments are sustainable in the long-term - and the fact that you can earn a better income from buying most banks' shares than you can from opening one of their savings accounts underlines just how sceptical investors are about that.

The biggest question mark hangs over Lloyds TSB, whose shares currently boast an eye-popping 9 per cent yield. City analysts have been rushing out research notes to explain why the bank is keeping on paying that dividend......... 'The big issue for us is revenue growth,' said Derek Mitchell, a fund manager at ISIS. 'Decent growth in lending to the consumer has not been translated into decent growth in revenues for the banks. That points to significant margin pressure.'

The fear is that it could get a lot worse. Lloyds TSB turned up the heat with last week's announcement that it is to pay up to 3.2 per cent interest on current accounts. While some dismissed that as a publicity stunt - only those earning more than £30,000 will qualify, and then only if they bank online - it could be a taste of things to come. HBOS, the merged Halifax and Royal Bank of Scotland group, has won 12 per cent of all current accounts since it started offering generous interest rates two years ago........ The problem is that this growth is being driven by the consumer, who is moving or adding a new kitchen to the mortgage, a sofa to the credit card or a car to the personal loan. But already, there are signs that the housing market is cooling and shoppers are becoming less willing to spend. As Brian Moretta of fund managers SVMJ - formerly Scottish Value Management - says: 'We can't go on borrowing at twice the rate of growth in gross domestic product forever.' As our spending spree slows, so does the banks' revenue growth.That is bad enough. The real worry is that our spending spree ends with a crash rather than a gradual slowdown. That is the fear behind the third worry: bad debts.............

ALARM THE BANK OF ENGLAND JUST HAD TO HEAR

Alarm the listening Bank just had to hear

William Keegan
Sunday February 9, 2003
The Observer

http://www.observer.co.uk/business/story/0,6903,891679,00.html

Initial reaction to the Bank of England's unexpected cut in interest rates last Thursday was grudging. Commentators tended to say 'What does the Monetary Policy Committee know that we don't know?' or 'This is a terrible mistake. It will only encourage the house price boom.'

Such comments are an inevitable ingredient of the City of London menu, and it might be helpful to take them with a pinch of salt. There appears to have been only one economic analyst in the entire City who publicly forecast a cut. The rest had to justify their position. The press was not exactly replete with correct forecasts either.........

It is also a very important signal that the Bank is listening, and may help to assist the overvalued pound in its path downwards to a more realistic level. In recent years imports have been rising much faster than exports, and the trade deficit has been running at potentially unsustainable levels.

In or out of the euro, the UK economy requires an exchange rate correction, and lower rates make London a less attractive place for foreigners to put their money and keep sterling high.

Lower interest rates are of course, unwelcome to British savers. To a certain extent they offset some of the boost to consumer spending that comes from cheaper borrowing. But on the whole, a move towards 'cheap money' helps the small and medium-size firms that are supposed to be the life blood of the economy, and tend to be net borrowers.

This is not to say that one quarter-point cut in interest rates is likely to change the world, or that 3.75 per cent is the bottom rung.

The big worry is that there is recession, or the threat of it, in most of the major advanced industrial economies, and even a Chancellor who rashly gave the impression that he could avoid 'boom and bust' has had to admit that the UK is not immune from the trade winds in the rest of the world.

EXCERPT FROM LE METROPOLE CAFE

Orchestrated Gold Liquidation Continues

You gain strength, courage, and confidence by every experience in which you really stop to look fear in the face. You must do the thing which you think you cannot do...Eleanor Roosevelt

One only need pay attention to the trading events of the past couple of weeks to realize the importance of gold to the world’s financial markets. Far from being a useless relic of the past, it has taken on the role of being the most important financial instrument of all: *The rigging of the gold price was the methodology used to implement Robert Rubin’s Strong Dollar Policy.

*The strong dollar of the past 7/8 years kept interest rates lower than they would have been otherwise in the US, kept US inflation at relative bay and was a key to attracting foreign capital into the US stock market.

*The rigging of the gold price fostered the "The Bubble," which is now unraveling and affecting the financial well being of Americans and citizens of other western nations.

*It was a colossal blunder for America, as it meant the rigging of various US financial markets and the curtailing of a US financial free press that is not allowed, or refuses, to print what occurred. How can America be great when it rigs its financial markets, has no real free financial press, and yet goes around the world pontificating how great our free markets and free press are? We have become a sham.

*The rigging of the gold price and US markets led to corporate greed that led to one scandal after another on Wall Street. Think about how much money was lost in the Dot.com and NASDOG fiasco the past two years and how few firms and people on Wall Street are hurting. Compare that to the amount of financial devastation they purposely inflicted on the American investing public.

*Ariana Huffington has it right in her new book, "Pigs At The Trough." She writes that the big corporations, Wall Street, Washington and the press and become too incestuously intertwined. That is why GATA has had so much trouble gaining the serious attention of our politicians, etc. Big Money rules all these days in America. Our cherished traditions have been thrown out the window.

*Two weeks ago, gold made it to the $380’s and the stock market was reeling. So they change the Comex margin rules, kick the new US Treasury Secretary into action to tank gold and, with the help of The Working Group on Financial Markets, turn the stock market around.

*Gold is critical to the US stock market. P/E ratio’s are very high. The Wall Street bulls justify those valuations citing very low inflation and low interest rates. A soaring gold price is devastating to their arguments. Who knows what it could do to the $24 trillion derivatives postion at JP Morgan Chase?

*A sharply improving price of gold makes it a clear threat as an alternative to the dollar. A sinking dollar is very negative for the US market. In euro terms, the US market already has taken out its lows. Treasury Secretary Snow received a quick introduction from BIG BROTHER about what is good for America.

After Sunday nights attack by The Gold Cartel in the Kangaroo trading time zone, today’s continued sell off was most predictable. It was designed to effect just that. Mission accomplished. Gold trashed again, stock market rallies again.

The liquidation of the trader with the Red December position continues. My sources figure he is now down to 5,000 contracts. This is a very illiquid month, yet he keeps offering size in that month. Why he doesn’t trade the front option and spread out of it is beyond me? The floor keeps selling with abandon as he is selling. He has become the short’s backstop. This trader is telegraphing his exit to everyone. My floor sources tell me the gold rally is likely to be a vicious when he is done selling.

Mon Feb 17, 2003 HOW BAD IS IT? BY JIM SAINCLAIR
Q: Jim. Isn't gold awful? Look at my chart.

A: Gold is presently trading at $346.5-$347. That is holding the next Fib. support line. It traded as low as $340 at 2 AM EDT. Silver is $4.49- $4.50 which is hardly changed from Friday. The US$ on the USDX is at 100.51 which is pitiful action. I respect your analysis on Fib. as the high point of your email. What I lament is that you and this entire gold community spend more time analytically trying to bury gold than you do trying to understand it.....You read my analysis last night so when you put this question to me, you are either totally rude or you are just busting my chops for sport so be nice or go to www.mine-web.com Gold is going over $400 and over $500.

http://www.jsmineset.com/s/QAndA.asp?ReportID=53760

WAR COULD BOMB YOUR POCKET BOOK

LA TIMES - By Joseph E. Stiglitz, Joseph E. Stiglitz is the 2001 Nobel laureate in economics.

February 21, 2003 - FREE REGISTRATION REQUIRED

Expect skittish markets, higher deficits and slower growth. A little more than half a century ago, World War II brought the United States and the world out of the Great Depression, earning for war a positive reputation at least in the realm of economics. At the time, some went so far as to suggest that capitalism needed war and that without war there would be an inevitable slide into recession. Today we know that both propositions are nonsense. The boom of the '90s showed that peace is far better for the economy than war. And the Gulf War showed that wars can actually be bad for the economy. It is far more probable than not that a war in Iraq would be like the Gulf War. World War II represented a total mobilization, beginning from a situation where there were vast amounts of idle resources. An Iraq war, like the Gulf War, is likely to entail very limited resources, probably less than 1% of GDP. Even without these expenditures, though, there are massive deficits, which will be even more massive if President Bush has his way with his tax proposals. There is an increasing consensus -- joined recently by Federal Reserve Chairman Alan Greenspan -- that the country can ill afford even more deficits, so any increased military spending will come at the expense of social expenditures and badly needed investments in research, infrastructure and education.

Accordingly, there is likely to be little if any short-term stimulus, while long-term growth will be hurt. Whatever one can say about whether spending money dropping bombs on Iraq enhances long-term national security, it does not do anything for long-term economic growth at home. Of course, we cannot be precise about the economic effect of a war on Iraq because no one knows how such a war would play out or what its aftermath might look like. Of this we can be sure: The uncertainties we face as we seemingly move inevitably toward war are bad for the economy, coming as they do upon a host of other uncertainties. Our economy has not fared well over the last two years. Almost 2 million private sector jobs have been destroyed; a $3-trillion, 10-year non-Social Security surplus has been turned into a $2-trillion deficit; and if the president's proposals succeed, these deficits will balloon, with deficits as far as the eye can see, even when the economy returns to full employment.Monetary policy has proved remarkably ineffective. Our trade deficit has continued to grow. Corporate, accounting and financial scandals have rocked confidence in our business establishment, contributing to the plummeting stock market. Markets do not like uncertainty; they hold off on investment, waiting for it to be resolved. And because the outcome of this particular military venture appears so uncertain, there is all the more reason to maintain a wait-and-see stance. Consider the most favorable scenario: a short war with no repercussions outside Iraq. A new and democratic regime in Iraq might need to spend billions repairing the damage, not only from the war but from the decade-long sanctions, and it probably will have to depend largely on its own resources. As large new supplies of oil enter the market, the global price would become depressed, hurting the oil-producing parts of the U.S. as well as other oil exporters. In this scenario, the U.S. as a whole benefits, but parts of the nation go into deep recession, similar to the devastation that befell the oil-producing states when oil prices dropped in the 1980s.

Then consider what most observers view as a more realistic scenario: The war lasts longer than anticipated, costs more than we thought and leads to some disturbances elsewhere in the oil-producing Islamic world; and there are some, if limited, terrorist attacks on the West. In this event, we need to recall the consequences of the Arab oil embargo of the early 1970s. And this time it could be far worse. Soaring oil prices can bring on global havoc and recession. In the course of the conflict, or in Saddam Hussein's waning days, the Iraqi oil fields may be left in flames. We may not like the task of nation-building, but could we in good conscience simply walk away?

We will be called upon to spend still more rebuilding Iraq than we spent removing Hussein from power. Some have suggested that one of the motivations for going to war is to seize control of these oil fields. But international scrutiny will be intense. Presumably, the international community will insist that there be competitive bidding for the right to develop these fields. U.S. firms may or may not win these bids, but even if they do, competition should limit their profits. And even if they manage to garner for themselves more than a normal rate of return, the broader benefit to the American economy will be very limited.

Meanwhile, previous experiences have taught us that even limited terrorist attacks can have ruinous effects on the economy. Indeed, they are designed to deliver a big bang for the buck, to scare people. In the attempt to impede terrorism, flows of goods and services across borders will probably be held up; even financial flows may be impaired.

It is not a pretty picture. War seldom presents a pretty picture. But we are a rich country, able to withstand economic mismanagement and even a war that does not go as well as we might like. This war is unlikely to be good for the economy; it is more likely to be bad, possibly very bad. We will probably be poorer, and our growth slower than it otherwise would be. No rational country goes to war to help its economy, but neither should any country wage war without weighing carefully the costs and benefits of going or not going to war, an analysis that brings in a consideration of all the relevant scenarios.We should be thankful. At least we will not experience either the human carnage or material destruction that may well befall Iraq.

FUNDAMENTALS ARE PUSING GOLD INTO A SUPPER-BULL TERRITORY

Market Watch -- Victor Hugo -- SUNDAYTIMES.ZA

http://www.sundaytimes.co.za/2003/02/16/business/markets/markets01.asp

Sceptics who don't believe the bull run in gold will last assume that its price is being driven mainly by war fears and terrorism dangers. I say no, there is a much more fundamental reason. A shift is happening in global investment patterns - out of paper and US assets and into hard assets and other countries. The weakening US dollar and Wall Street are illustrating this shift, telling traders to expect strength out of gold's technically classic "rocket acceleration" pattern. Other macro indicators suggest why money is moving out of the world's largest economy. The next bubbles due to burst are US property prices and US treasury bonds. No country in a declining growth environment can sustain record-high levels of personal, corporate and public debt, a huge trade deficit, the cost of a war on terrorism - as well as potential for a war in Iraq and in North Korea.

The action of the dollar in the past two years suggests the world has decided that the big growth years of the US are over and it is time to move into something else. Some of that money is already moving into gold. Canny traders in China, Dubai and Malaysia last year established active gold exchanges to cater for the demand for gold bullion and coins. Traders on the bullion and futures desks know where the major pressure of buying is coming from. They say that in recent weeks much of it came from China, Japan and the Arab world.

Traders don't act without reason. They take into account that North Korea can now land missiles with nuclear bombs on the US west coast . And they most certainly believe US president George W Bush and his British counterpart, Tony Blair, must know more about the dangers from Iraq and terrorism than they can say. Another factor in gold's favour is that there is some evidence that central bankers the world over have acted in concert since at least the mid-1990s to support a stronger dollar and a weaker gold price - and to achieve returns from what was seen as a depreciating asset. Through complicated short sales, leases, swops and outright sales, a significant portion of reserve assets in the form of gold has disappeared. In its place is merely a claim against a financial institution or bullion dealer for its return. Yet that institution or bullion dealer - now also under pressure in a declining earnings environment - is having to buy in physical gold or its equivalent in futures contracts, very expensively, at a higher gold price than expected. A further dumping of the dollar, for whatever reason, could fuel a rocketing gold price to above 500/oz - which would, in turn, fuel more short covering and more demand for the physical metal.

The mines can produce only so much; they need years to expand production. Since 1996, demand for the metal has exceeded supply. Central banks sold their holdings - and this kept the gold price down - but now those banks are no longer sellers. In fact, they may be sweating about how to buy back the gold that enabled their profitable swops and leases. The fundamentals are in place for one of the biggest gold price squeezes in history. Technical and long-term cycle factors are also strongly confirming this view. An (unlikely) quick war in Iraq won't kill the gold price. While the gold price remains above the $332/oz area, medium- and long-term technical trend profiles indicate that there is a super-bull trend under way.

The fundamentals and cycles suggest there will be more upside in coming months but technically, there is scope for several days or weeks of consolidation before the next push. Even sceptics will want to be aboard when the gold price goes above the $359/oz or other technical resistance levels again. When gold shares fell by 40-50% between May and November last year, fuelled by a stronger rand, it felt like gold bulls had got it all wrong. It was difficult to buy gold shares during that phase because most stockbrokers and many commentators were warning of limited upside.

Nobody has a perfect crystal ball, yet there is lots of evidence that this is a dip-buying opportunity for gold shares. A higher gold price is likely on the technical, cycle and fundamental supply-demand factors mentioned above. Perhaps the biggest risk is that the rand strengthens in coming months as the global community sees prospects of good relative growth in South Africa , as well as good debt discipline. Our analysis systems show tentative behavioural evidence for the rand moving to the R6.50/ area, or even stronger, in the next 18 months.

In that scenario, JSE gold shares may pause and not do much until the rand price of gold shows scope to work above R3 300/oz again. But a stronger rand will be great for long-term growth and inflation. And gold sales will have their day even if the rand strengthens beyond consensus expectations. A gold price of $500 or above - perhaps before the middle of next year - will encourage many a gold bull. In conclusion, I believe gold shares are at useful buying levels. Buy now, and buy more in dips.

Hugo is an analyst at www.HugoCapital.com and www.saGOLDS.com

GOLD DERIVATIVE NEUTRON BOMB, REDUX --LE METROPOLE CAFE - EXCERPT

February 24 - Gold $355.60 up $4.90 - Silver $4.71 up 6 cents

"Youth is the first victim of war; the first fruit of peace. It takes 20 years or more of peace to make a man;
it takes only 20 seconds of war to destroy him." -- Baudouin I of Belgium

Lookin’ good: http://futures.tradingcharts.com/chart/GD/43

Gold came in firm, then was taken down by cabal forces. But, as has been the case recently, buying showed up from all quarters above unchanged and gold surged higher. However, as has also been the case for MANY years, The Gold Cartel capped gold once it reached $6+ higher on the day. For the life of me, I don’t know why $6 is so important, but vet Café members know I have brought this to your attention for a very long time. As they are wont to do, cabal forces then sold the close. Silver, on the other hand, closed on its high and was firm all day long. It looks more and more that the comment from the floor that was brought to my attention, "don’t be short silver under any circumstances," or as it was also put, "don’t be short silver the rest of your lifetime," could be extraordinary advice. Silver has no gaps to fill below. That is very bullish in my book. Sometime soon, silver is going to make like "The Road Runner" and blow through $5.Lookin’ very good, too: http://futures.tradingcharts.com/chart/SV/33

The CRB move has real power in it. Led by soaring natural gas prices, the CRB closed at 251.20, up 3.11. The breaching of 250 is considered to be of significant importance to a very highly regarded Café member, who also happens to be a market technician.For quite some time, MIDAS has brought up the notion that a gold derivatives neutron bomb would go off at some point because of the massive short exposure to an upside move of various big hedgers and bullion banks. Was that notion a right one, or not? After the announcement of the Washington Agreement on September 26, 1999 (15 European banks agreed to sell no more than 400 tonnes of gold per year and to limit further lending increases for five years), gold soared some $87 in less than two weeks. That sent option volatilities through the roof and put certain hedge books, like that of Ashanti Goldfields, way off side. Panic set in all over the bullion-banking world. Bank of England Governor Eddie George summed it up best, "We were looking into the abyss." The bullion/central banks were staring at the visible mushroom cloud of a gold derivatives ATOMIC bomb. The Gold Cartel regrouped with the help of the US Fed and came up with enough physical gold to drive the price right down again.

The recent move up by gold was a bit different. While just as stunning to some, gold rose more gradually, seemingly capped as best as possible along the way by The Gold Cartel. Specs kept piling in. Then, the cabal crowd changed the Comex margin rules and launched an all out attack, bringing gold down $46. There were no distress outcries from the gold industry this time, like we heard in 1999. However, little by little the evidence is starting to pour in that a gold derivatives NEUTRON bomb is indeed going off. There is no mushroom cloud in a neutron bomb, nothing to point at for all to see. Yet, the destruction from that sort of bomb is far more devastating, from what I am told. Gold is ONLY in the $350 to $360 area and look at the damage the detonating bomb has done already. Barrick fired its CEO, the Daughters of Gwalia is on the ropes and may not make it, and now troubles at Ashanti are flaring up again. Don’t these people ever learn: Ashanti Goldfields plans £50m rights issue By Edward Simpkins (Filed: 23/02/2003)

Ashanti Goldfields, the London-listed mining group, is to raise about £50m in a rights issue within the next few weeks as part of a plan to stabilise its balance sheet. The company has been struggling to recover from huge losses caused by its policy of hedging the price of gold. Executives hope that the rights issue will be the final step in restructuring Ashanti, Ghana's largest company and one of the biggest gold producers in Africa. Sam Jonah, the chief executive, said the company had reduced its gearing by 300 per cent and cut the size of its hedge book by 5.7m ounces.

Ashanti's accrued losses on its gold derivatives contracts three years ago caused a financial crisis at the company. However, Jonah said Ashanti is now looking for acquisitions and is reviving gold prospecting projects around Africa.

He added that the wars which have plagued the continent in recent years were now subsiding and that many of the world's best gold reserves were becoming accessible. Jonah said that the company would be keen to participate in joint ventures and that the Ghanaian government's golden share and power of veto over disposals should not deter foreign investors. "The Ghanaian economy desperately needs fresh investment," Jonah said. "The point I have been making is that the consequence of government intervention in the event of anybody showing an interest in Ashanti would be dire for the Ghanaian economy." Jonah said he expected global economic uncertainty to help the price of gold remain strong and added that demand could be boosted by several Islamic countries that were exploring the introduction of a gold dinar as a trade currency to replace the US dollar. –END- Gold is going hundreds of dollars higher. As it rises and when it takes out $388, we can expect to hear a myriad of problems with various hedge books and also from certain bullion banks and option writers. It is going to be a mess. The financial world will feel the stress thanks to The Gold Cartel and friends. There won’t be any mushroom clouds, but there will be financial entity casualties all over the place.

SIR ALAN CLAIMS U.S. BANKS WILL END NOT WITH A BANG, BUT A WHIMPER

RUMOR MILL NEWS COMPILATION POSTED BY ROSALINDA

[source: Fed News transcript, Feb. 26, 2003] .

Testifying before the Senate Banking Committee, Federal Reserve Chairman Alan Greenspan, while acknowledging that no U.S. bank is "too big to fail," babbled that the banks "will be liquidated slowly," so that rather than a sudden collapse, they "will just fail more slowly." In other words, the Fed would be able to unwind the banks' derivatives contracts, he claims, to manage the blow-out of the bankrupt financial system.

GREENSPAN: NO BANK TOO BIG TOO FAIL
Wed February 26, 2003 11:22 AM ET

WASHINGTON (Reuters) - Federal Reserve Board Chairman Alan Greenspan said on Wednesday that no U.S. bank was too big to fail, but that federal authorities have to move more cautiously when liquidating assets of large institutions.

"I agree that there is no such concept of too big to fail," Greenspan said in answer to questions before the Senate Banking Committee. "What there is, however, is that very large institutions will be liquidated slowly.".... "So the time issue is the question here, not whether an institution is ... too big to fail," he said.

GREENSPAN REMARK MAY SIGNAL THE END
MIAMI HERALD BY JOHN CRANFORD -- Sat, Feb. 22, 2003 Bloomberg News

http://www.miami.com/mld/miamiherald/business/5236132.htm
WASHINGTON - Alan Greenspan last week may have signaled the end of his tenure as head of the Federal Reserve. He also may have undermined President George W. Bush's proposed $690 billion tax cut. Deficits matter, Greenspan told members of the Senate Banking and House Financial Services committees. Tax cuts weren't needed to boost the economy and would worsen the budget shortfall, he said. On both counts, he differed from the president. Bush is pushing tax cuts to spur growth and is willing to accept record budget deficits in return. The rare public rift between a Fed chairman and a president suggest Greenspan may not seek reappointment next year, analysts said.

''His statements indicate he is leaving the job,'' said William Niskanen, a former economic adviser to President Ronald Reagan and a Greenspan acquaintance for 30 years. Greenspan, who turns 77 on March 6, hasn't said publicly whether he will seek to retain his position when his current four- year term ends in June 2004. He will have been chairman for 17 years at that point. The White House has said it isn't searching for a successor. Greenspan's remarks were consistent with what he has been saying for years. The difference is that he pooh-poohed the need for tax cuts and played up their impact on the deficit at the same time that Bush has made tax reductions the centerpiece of his domestic policy............

BRITISH GOVERNMENT PROPOSES FINANCIAL EMERGENCY MEASURES FOR "EXTREME SITUATIONS".

[Source: FINANCIAL TIMES 26.2.03]

In its just released consultation paper on financial security planing, the British Treasury proposes that the government should fully take over operations at London stock markets and other key financial centers should London be hit by a
large terror attack. Under the headline, "Brown may run London exchanges in emergency", The {Financial Times} states: "Gordon Brown, Britain's chancellor of the exchequer (finance minister), is seeking sweeping powers to take control of
London's Stock Exchange and other key financial exchanges, settlement and payment systems in the event of a large terrorist attack. This unprecedented right to shut down or take over core parts of the City of London financial district could avoid economic meltdown in `extreme situations', a Treasury consultation paper said yesterday. "The new powers would allow the government to suspend trading -- in effect freezing settlement of any transactions -- on any of the main exchanges. Normal legal rights to sue a counterparty for non-payment, or take legal action against an exchange for failing to opoerate, could be removed. In more severe cases still, ministers would have the power to `direct financial infrastructure ... at the heart of the system,' overriding the normal contractual and trading rules. An example cited in the paper is that clearing banks could be forced to suspend direct debit payments to protect retail customers should
employers be unable to pay salaries because the bank's systems have collapsed." The paper stresses that the new powers would be used only in "extreme circumstances" and not to intervene in a purely financial crisis. Ruth Kelly, a Treasury minister said: "We would only do this if the risk to the financial system as a whole and the wider economy outweighed the cost."

WIESBADEN, Feb. 26 (EIRNS)--THE PLANS FOR EMERGENCY MEASURES RELEASED BY THE BRITISH TREASURY ARE CENTRAL TO THE PSYCHOLOGICAL OPERATIONS FOR THE IRAQ WAR,

but also indicate that something very big, leading to a "meltdown", may soon erupt in the financial system, stated a well-informed City of London source. He told EIR today: "This is a Treasury 'Green Paper', a consultative document, asking for comment from City practitioners. On the surface, what it is about, is that the Treasury, with Army personnel, could take over the City, and run it topdown, if the City is hit with a dirty bomb, or some other big terror outrage.

"But," he went on, "it also reflects concern, that there could be a disturbance somewhere else, where the markets melt
down. Most dicey, is the insurance sector. What happens if there is a mega-disaster, really big terrorism, for example, and there are $100 billion in insurance claims, which drive the insurance companies under? "Then there is the clear element, that this is an attempt to get us into a mood for war. It is the management of psychology, that is typical of the Blair government. They are trying to create an emergency atmosphere. They are especially worried,
because there are significant indications, that there will be a large degree of opposition to Blair, in the Parliament debate
tonight. This is politically risky for Blair. And the way this government operates, is by control of mass psychology."

The City of London source then pointed to one other, most important factor: "I can tell you, that there is some puzzlement in official circles, about where the losses in the bond markets have ended up. The suspicion is that it ended up in the already shaky pension/insurance sector. But there have been so many corporate bond defaults, that this must end up somewhere. There could be something lying in the accounts, that current accounting rules have covered up. This could indicate, that something very ominous is happening out there in the financial system, and it will break publicly soon."

BRITISH CORPORATE INVESTMENTS SUFFERED BIGGEST PLUNGE EVER

[Source: combined wires, Feb. 26]
Since records began in 1986. According to government figures presented on Feb. 25, British investments in 2002 fell by 10% compared to the year before. Manufacturing output in 2002 posted its sharpest decline since 1991. In the fourth quarter 2002, corporate investments dropped to 25.6 billion pounds, the lowest in five years. Manufacturing investment fell 18% in the fourth quarter 2002 compared to 12 months ago. Even in the service sector, investments plunged by 7.6%.

GERMAN STOCK MARKET CRASHES TO LOWEST LEVEL SINCE AUGUST 1996

Ever-more escalating disasters in the banking and insurance sectors and panic selling in respect to specific stocks like
ThyssenKrupp und Bayer have pushed down the German DAX-30 on Tueday below the 2,500 point mark for the first time since summer 1996. Thereby, the DAX has now erased more than two thirds of its March 2000 peak value of 7,600 points. Following the S&P downgrading last Friday, ThyssenKrupp stocks fell by 15% in just two tarding days. Stock prices of the Bayer chemical group suffered its biggest crash in decades on Tuesday, down 14%, after a new legal suit was filed in the US against its Baycol drug, which was withdrawn in 2001 due to serious side-effects. The {Financial Times} quotes the German lawyer Michael Witti representing the German claimants against Bayer, saying: "Bayer is the first to experience the US-German tensions. The industry can now see what the chancellor has brought to them."

Meanwhile, the Duesseldorf state prosecution has started an investigation against Deutsche Bank chief executive officer Ackermann, former Mannesmann CEO Esser and other top managers for bribery in the takeover of Mannesmann by
Vodafone three years ago. The former Deutsche Telekom top management is now being accused of deliberately fooling investors, with the assistance of Finance Minister Eichel, during the big emission of Deutsche Telekom stocks two years ago. Allianz and Muenich Re, the two giant insurance companies, according to reports accelerated the stock market plunge in recent days as the low DAX value triggered a new round of forced stock sales. In Switzerland, Swiss Re, the world's second largest reinsurer, announced on Wednesday that due to crashing stock markets, they will have to cut dividend payments for the first time since the San Francisco earthquake in 1906. Credit Suisse will cut another 1,250 jobs on top of the 8,000 job cuts announced in recent two years, after reporting a 3.3 billion SFr full-year loss, the highest ever recorded by any European bank. British bank Abbey National announced its first full-year loss
since it was founded in 1849.

UNCERTAIN TIMES FOR DEBT, SOMETHING "ELSE" GOVERNS FUNDAMENTALS
By Kate Burgess Published: February 22 2003 4:00 - FINANCIAL TIMES

Demand for bonds has pushed prices to a 10-year high, prompting fund managers to launch large numbers of new bond funds. But analysts worry that a bubble may be forming that would leave investors facing sharp losses........"The current low level of real gilt yields only makes sense if investors believe that the UK might suffer deflation in next five or 10 years," he says..........But not everyone believes a bubble is forming. Bubbles are borne out of irrational expectation and expectations are not irrational at the moment, say some observers.

The price of government debt has risen on the back of falling inflation, causing yields (income as a proportion of price) to rise sharply. The big danger to yields would come if inflation bounced sharply. But that is unlikely. Low inflation is probably here to stay and many analysts forecast a further cut in interest rates.

If inflation rises it will not be substantially above the Bank of England's target of 2.5 per cent in two years. "Debt may be a little expensive, but it's not a bubble," says John Hamilton, bond fund manager at Jupiter Asset Management's head of fixed interest............"It's very easy for investment managers to say bonds look safe. If they look hard at the economy there is no sign of inflation. But the greater risk to bonds is deflation, because of the political response. Then the problem could be stagflation - no economic growth but inflation."........These anomalies, say sceptics, suggest that the markets are being governed by something other than fundamentals.

MONEYFILES: SURE, THEY DON'T DARE TO SAY IT BUT LET'S BET THEY MEAN THAT IT IS OUR CORRUPT MONETARY SYSTEM THE ROOT CAUSE.

DEBT DEFLATION TO DELAY RECOVERY
Feb. 24, 2003, 12:33AM - By SCOTT BURNS, Universal Press Syndicate

http://www.chron.com/cs/CDA/story.hts/business/1790195
AUSTIN -- After spending the better part of an afternoon with economist Lacy Hunt, I pondered, "What does it take to overcome a lifetime of conditioning?" That, as much as factual data, is the issue virtually all of us face. We're conditioned to fear inflation, to assume that recessions are dutifully followed by recoveries and to be wary of higher interest rates.

Hunt and Van Hoisington, the two prime movers at Hoisington Investment Management Co., march to a different drummer. In their view, any recovery will be delayed and slow. Despite the apparent low level of interest rates, they believe rates are likely to decline further. This is far from the conventional wisdom. Nonetheless, the $3.6 billion in fixed-income investments the firm has under management is committed to exactly that future. So listen to the supporting facts that Hunt uses when he talks with his institutional clients. "Right now, we're moving into an economic environment that no one alive has any experience with. I think we're already in debt deflation."

I asked what debt deflation was: "It occurs when debt levels are unmanageable. Money that might be spent comes out of spending and goes into debt reduction. If you look at Japan in the '90s, debt deflation was first. Price deflation followed. It was the same here in the Depression.......

TARGET: ANALYSTS, NOW AN ENDANGERED SPECIES ON WALL STREET
NEW YORK POST: By ERIC MOSKOWITZ

http://www.nypost.com/business/55247.htm
February 28, 2003 -- Research analysts have become an endangered species on Wall Street as cost-cutting investment banks increasingly see them as a waste of money. Yesterday, Goldman Sachs laid off six analysts and suspended coverage on 40 companies, including giants such as AOL Time Warner Inc., Walt Disney Co. and Fannie Mae.

Goldman's not alone; no one seems to like analysts anymore. Fund managers scoff at their work; investors are outraged by recent disclosures that bull-market research was not objective; and their own firms are downsizing them by the day.

A Goldman spokesman said yesterday's move was due to market conditions. With stocks falling AND the market for initial public offerings at a virtual standstill, research departments, are no longer the revenue generators they were in the late 1990s. And, they are still under a cloud of suspicion because they worked in cahoots with investment bankers to bullishly promote underwriting clients' stock prices during the bull market of the late 1990s.....But next week documents highlighting analysts' biased research will reportedly be publicly released - and a slew of civil suits against high-profile analysts will surely follow, say litigators. The analysts who haven't been shown the door by their employers are increasingly frustrated by these lingering investigations, and many have decided to leave their posts as well. Well-regarded Merrill Lynch financial services analyst Judah Kraushaar left. Kraushaar, who still maintains an office at the firm, didn't return calls for comment.

Other defections include: UBS Warburg senior media analyst Chris Dixon, Goldman technology analyst Nathaniel Cohn and Bear Stearns gaming analyst Jason Ader. "How far firms go to reorganize their equity research units remains to be seen, but I can't see them disappearing," Hill said. Extinction talk aside, the lingering issue is how analysts will ever regain their credibility. "Wall Street firms still have ratings on Cisco like average, outperform, underweight cautious," said Richard Bookbinder, who runs the hedge fund Bookbinder Capital Management. "I, and many other institutional clients, don't understand what those words mean.

" New disclosure requirements instituted by the National Association of Securities Dealers and the SEC last September, says Hill, have provided Wall Street's researchers with a leg to stand on......

INVESTORS PANIC OVER 2ND BIGGEST GERMAN BANK SOLVENCY

Cash-call fears hit HVB shares

http://news.bbc.co.uk/2/hi/business/2805405.stm
HVB insists it needs no help Shares in HVB, Germany's second-biggest bank, have plunged to their lowest level in more than 20 years, as investors panicked over its financial solidity. HVB's shares dropped by 15%, amid market rumours that it might seek billions of euros of fresh financing in the form of a new share issue. German banking officials did their best to soothe tattered nerves, insisting that it had sufficient funds to operate without problems. But confidence in Germany's major banks is at a low ebb, and there is increasing speculation that some form of state bail-out may be necessary.

In the past weeks, both HVB and Commerzbank, Germany's third-biggest bank, have unveiled heavy net losses for 2002.

WARREN BUFFET LABELS DERIVATIVES "TIME BOMBS" AS FINANCIAL WEAPONS

OF MASS DESTRUCTION

Apocalypse is nigh, Buffett tells Berkshire faithful By Simon English in New York (Filed: 04/03/2003)

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TELEGRAPH.UK: Warren Buffett is poised to issue his most doom-laden forecast for the state of the world economy yet, including a damning verdict on the derivatives industry he fears could cause a global financial crisis.

In the upcoming annual letter to shareholders of Berkshire Hathaway, Mr Buffett drops his usual folksy style to warn that banks do not understand the hidden risks lurking on their balance sheets. He labels derivatives "time bombs, both for the parties that deal in them and the economic system" and "financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal".

The views of the world's second richest man are closely watched and his apocalyptic vision will do little to steady nerves on Wall Street or in the City of London. Extracts from his annual letter, to be delivered on Saturday but posted on Fortune.com yesterday, reveal that he has little optimism for the stock market."Despite three years of falling prices which have significantly improved the attractiveness of common stocks, we still find very few that even mildly interest us. That dismal fact is testimony to the insanity of the valuations reached during the Great Bubble. Unfortunately, the hangover may prove to be proportional to the binge," he writes.

Until now vague warnings about the pyramid nature of derivatives contracts have led to bland assurance from banks that there is no threat to their stability. Mr Buffett says the banks simply have no idea what their exposure could be. "When Charlie [Munger, his business partner] and I finish reading the long footnotes detailing the derivatives activities of major banks, the only thing we understand is that we don't understand how much risk the institution is taking."

Derivatives are often complex financial instruments that allow investors to take bets on anything from share prices to the weather. Their range is limited, says Mr Buffett, "only by the imagination of man, or sometimes, so it seems, madmen". Enron was especially fond of derivatives, offering contracts that would be settled years in the future and claiming profits immediately. Berkshire Hathaway acquired a derivatives dealer when it bought reinsurer Gen Re. After failing to sell this business, Mr Buffett is now closing it down though he admits this will take years. "Reinsurance and derivatives businesses are similar. Like Hell, both are easy to enter and almost impossible to exit," he says.

Mr Buffett, dubbed the Sage of Omaha, believes that major insurers are exaggerating earnings from derivatives contracts and underplaying the "daisy chain risk" that comes when they lay off business with other firms.His personal fortune fell last year by $5 billion to $30 billion, leaving him second to Bill Gates in the rich list.

BUFFET TAKES BLAME FOR BERKSHIRE DIVE
By Simon English in New York (Filed: 11/03/2002) TELEGRAPH.UK

WARREN BUFFETT, the legendary investor who is the second-richest man in the world, is castigating himself after profits at his Berkshire Hathaway company plunged 75pc because of insurance claims from terrorist attacks....MORE

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