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http://www.almartinraw.com/column74.html Denial Ain't Just a River in Egypt; It's a State of Mind with Bush Supporters by Al Martin (Oct 7) The economic calamities continue. The German DeutcheWelle news has reported the German finance minister stating that the central cause of the free fall in the global markets is Bushonomics. He also said that he and other European and Scandinavian finance ministers feel that it is a growing imperative that George Bush and Company step down from power in order to attempt to restore some sort of confidence in the marketplaces worldwide. Of course, this is unprecedented for him to say such a thing publicly. You could tell he was upset because the European markets are being dragged down by the US. It's not any particular anomaly within their own. The lack of confidence in the Bush administration's economic agenda is dragging down the whole world. He also spoke about how Bush doesn't understand the importance of the stock market's relationship to the underlying economies. The situation is quite tense. The Hong Kong and Tokyo markets have been taking a bath, and we were called down two or three hundred at the market's opening last week. Lines started to form outside of brokerage firms' offices in New York and Chicago as people were trying to take their money out. This has happened before in 1987 on Black Monday. We're not hyping the situation anymore. Even though Al Martin Raw.com economic coverage and analysis has been ahead of the curve all along, the curve has caught up to us. Some of the people (radio show listeners) have accused me of spreading rumors and I've replied that time will tell whether I'm a panic monger - or whether my points are valid. But times are getting pretty desperate. Anti-Bush rallies continue around the world, in Rome, London and many American cities. Anti-Bush demonstrations are everywhere, even though American mainstream media tries to say that these are people who are protesting the idea of the United States going into Iraq. CNN-3, the world news network channel, however, showed a selected sampling in their 80-second clip of different anti-Bush protests in capital cities around the world. It's true that a lot of the signs were about Iraq, but a lot of the signs were also about the economy, saying in essence, Bush step down for the sake of the world economy. These anti-Bush rallies in the United States and abroad are not as narrowly focused, as the Bush controlled media would like to have the American people believe. When you watch CNBC and FNN, you get the definitive sense when they interview old-time traders on the floor and in the pits in Chicago, even these old-timers are saying, Bush has got to step down. It's time because the situation is getting out of hand here. There is an inkling of this in the whole nation now. It starts in the financial community, which is obviously where you would see it first. And now the greatest fear of the Bush administration is here - people are beginning to link the Bushonian economic agenda with the massive downturn in the markets. If enough people make that linkage (which is the linkage that I incessantly hammer on), there ain't going to be any more Bush Administration. George Bush is still getting away with being able to say that the reason the markets are under pressure is when he came in there was a speculative bubble and the air was already bleeding out of that bubble (which is true) and that led us into a recession and there was the additional pressure of 9-11 and these have combined to make the problem. In this way he has been able to divorce his economic policies from what is happening in the marketplace. But now more and more people are beginning to understand that although the market is under pressure, the pressure from these events is over -- and has been over for a number of The selling pressure isn't being created through the residual effects of a bursting bubble or the residual effects of a recession or 9-11. The best time to hammer the Bush Administration would be about now, when people are starting to get their 401(K) and IRA statements. We're coming into October, traditionally the worst month of the year for the market anyway. We're coming off what will be one of the worst Septembers (ever) in the history of the stock market. Then when people get their IRA/ 401(K) statements and they still see the market going down in the first week of October, people will begin to throw in the towel. That's when the Democrats (if they're smart) should launch a major offensive. The timing plays in pretty well for the Democrats - if they take advantage of this the right way. They have to be stupid - not to… This is the time when we could really make a difference - when the public is starting to make the linkage that we have consistently said exists all along. Look at what we've said in the past. Look in the archives of our columns. We told you this was happening. The Fake-Out Rallies in the Dow Jones also continue. It should be noted that for the first time in the last four months the nation's manufacturing sector is beginning to weaken. Of course, it was manufacturing that had been one of the very few strong components of the economy. Construction spending also fell again and is now at a new six year low. Al Martin Raw.com is predicting that the end of the housing bubble is certainly in sight. In other words, construction starts (commercial, residential and industrial) have been falling six months in a row, which classically signaled a downturn in the housing market. The last time this happened was in 1932, which obviously didn't bode well for the coming years. Housing starts and housing resales have fallen four months in a row. The commercial end of the real estate market has already turned soft. These are all precursors and indicators that the housing bubble is beginning to break. We must remember that it is the housing bubble and the money provided to the economy through refinancing of mortgages that has been one of the very few things, which has kept economic growth positive, and consumer spending relatively high. This is the traditional theory of economics, one of the underpinnings of the way our economy works and traditionally it is what softens economic downturns. During an economic downturn, interest rates fall and people refinance their mortgage and their payments drop they then have an "extra" amount of money left to commit to consumer spending. What is different in this cycle (and this is something which hardly anyone is looking at or trying to understand the impact down the road) is that this time refinancers of mortgages were not following the typical pattern of the past and simply refinancing. They weren't simply refinancing their existing mortgages; they were taking out money from the equity of their homes. In other words, they were refinancing a mortgage for more money than it originally was in order to bleed cash out of their homes-as the housing bubble caused prices to rise. This is a new phenomenon. This bleeding out of cash is what has sustained big-ticket consumer spending like cars. The downside of this (which we haven't seen before) is that what's going to happen when housing prices come down and equity begins to fall below a new market value, as market values begin to fall, nobody is looking at this impact. Just as there has been a negative wealth effect in stocks, since George Bush has been elected, now we're going to see a negative wealth effect in housing which has traditionally been the biggest household asset. Historically there has been no precedent for this - people sucking out a lot of cash into a rising market. We've seen housing prices go up. As Mike Malloy mentioned on his radio show, houses, which transacted in 1998 and 1999 for $170,000 are now selling for $350,000. People are just bleeding out all the cash because they're seeing the economy going to hell in a hand basket. As the housing bubble begins to burst and as housing prices start to come back to reality, people who have borrowed against home equity lines will have to come up with cash as their debt to equity ratio turns negative. Or you're going to see a hell of a lot of houses on the market. People are simply going to walk away from them. There was an interesting note in the National Realtors Association real estate quarterly report on this very phenomenon, i.e. there is a huge number of people that realtors have seen refinance their houses, taking out all the equity and then some because we are in a consumer credit situation where you can take out 125%. When people have seen the value of their homes increase by $100,000 or more in the last three years, the National Realtors Association even warns about this - that there are a lot of people that understand that at some point this housing bubble is going to burst, who purposely intend to walk away from it. They've bled everything out of it and then some and now they're simply going to walk away from it. We are setting ourselves up for a debacle in the housing market such that we have never witnessed. For those who can put cash on the side, in one or two years, we are looking at potentially the greatest buyers' market in housing to ever come down the pike. But this is an enormous negative effect on the economy. It is a psychological negative wealth effect at a time when consumer and investor confidence is already the lowest it has ever been - even lower than it was during the Depression. Then when the housing bubble bursts and people walk away, there will be an additional 300,000 defaulted units a month - coming into an already falling market. What is the impact of that going to be when there aren't any buyers around? The economy continues to lose jobs at 100,000 per month. The National Consumer Credit Association revised the personal bankruptcy filing estimates for calendar year 2002 from 1.3 million to 1.5 million. This ties into what we have said before about all the negative economic shoes yet to drop. This is a new one being created in housing at a time when banks are beginning to realize the effects of $500 billion worth of defaulted corporate paper. The defaulted real estate notes could be as much as $1.5 trillion. Add to this 2 million personal bankruptcies. The economy is still losing jobs at the rate of 100,000 a month. Bushonomics is becoming more telling. There have been leaks from the Treasury Department about senior unnamed treasury officials expect a double dip recession. Every economic statistic seems to indicate that we are going to the Classic W bottom. All the financial shows on GovNetMedia (Government Network Media) especially CNN, Fox News and MSNBC, have trotted out Republican analysts who kept repeating "buy stocks," when they ignore that the quality of the "rally" was terrible. In other words, volume was lackluster. This was essentially a short-covering rally. There were a lot of buy-stops by short-sellers above the market. The longs saw an opportunity to run it. When the market could not close under the previous low of 7532, it made us absolutely prime for a technical rally in the market. Al Martin Raw.com would still classify the rally in old-fashioned market terms - a dead cat bounce. The most recent dead cat bounce was the time when we traded down to 7532 and rallied all the way back to 8900. This is a phenomenon, which takes place when the market gets excessively short and fails to break below the previous lows. Then the technicians get bullish and there are still shorts in the market and they have to place buy-stops above the markets to protect themselves. The longs (so-called spec or speculative longs) see those stops on the books, they know it's a light volume market, and they just run the stops, and the stops feed on themselves. That brings in a little retail buying (so-called sucker buying) and voila! the classic dead cat The CBO came up with a new estimate for the expenses for a Bush War on Iraq -- $60 to $200 billion up front. The CBO now estimates it will take $9 billion a month in Iraq indefinitely. That is an indefinite expenditure. You add that onto the $2 billion a month we are already spending in Afghanistan and elsewhere in the world fighting the "War on Terrorism." Then you add $1 billion a month being spent on "domestic" war on terrorism and you see that 40% of the net deficit is coming from the "War on Terrorism." Bushonomics combined with the threat of Iraq is going to push the economy back into the Double Dip scenario at a time when the Treasury is already starved for cash. Then the Bush administration will be able to say that they've got to accelerate the Republican tax cuts for the rich in order to provide additional economic stimulus. What they aren't going to say is that the Office of Management and Budget (OMB) calculated that the last $1.3 trillion tax cut for the rich provided only a three tenths of one percent lift to GDP. But Bush is going to say and a lot of people are going to believe it -- we need more tax cuts for the Republican Rich to provide economic stimulus. So he'll be able to get past Congress the acceleration of tax cuts that were already planned for the Republican Rich in 2003 and 2004 and maybe as far as 2006. He could potentially get another trillion dollars worth of tax relief for the Republican Rich. The great First Agenda of the Bush Cabal has been accomplished, namely that the top 1% of the people (78% of whom are Republican) control 2/3 of all the private wealth of the nation. The Second Agenda of the Bush Cabal is to turn the United States into a defacto tax-free nation for the Republican Rich. Bush Jr. will be able to accomplish even more than what was done during the twelve years of his father's regime. It is very bleak, and yet polls indicate that the Republicans may be able to regain control of the Senate and pick up seats in the House, which would put Congress in the position of being nothing more than a rubber stamp. If you think Bush is dangerous now… Remember -- Rubber Stamp Congresses make Bushes extra-dangerous to the wallet of the average American citizen. The American people had better get on their hands and knees and hope that Colin Powell stays Secretary of State. Powell and the little group of people around him are the only moderating voice within the Bushonian Cabal. If Powell goes and Bush replaces him with somebody from the Hard Right, they will have complete control and with a Rubber Stamp Congress - watch out. As Caesar once said, nations do not lose wars because they run out of soldiers, but because they run out of silver. That commentary is very apropos to the current situation - particularly if we go into Iraq and Bush has his way and expands the "War on Terrorism" even beyond that. Even with an army of one and a half million troops, we could actually lose the "War on Terrorism" because the Treasury runs dry -- unless all of the Republican offshore slush funds are repatriated. It's no wonder the Republicans are getting it out. That's what we recommend. If we go into Iraq, Bush should put a special tax (a Republican War Tax) on shadowy offshore Republican controlled accounts. In other cheery news, the Brazilian left-wing candidate Fernando di Silva has won the presidential election. Silva, a communist, has stated that if he is elected he is seriously considering repudiating all of Brazil's $332 billion foreign debt. The presidents of Argentina, Uruguay, Peru and Ecuador, who combined are carrying $1 trillion in debt, have said that if Brazil defaults, they will default as well. This then engendered a comment from Russian President Vladimir Putin who said that if South America should go into a cascading debt default that Russia would most likely be forced to do the same. Putin said that if this scenario were to come to pass, the cascading repudiation of debt, the world's economy would collapse within thirty days. In more cheery news, a broker from Bear Stearns in New York commented on the people lined up in front of brokerage firms, not only selling their stock, but also demanding a check. They've never seen such fear in their lives, he said. Not only are people frightened of the markets, but also because of recent corporate scandals and other revelations of Republican Scamscateerism, they're even frightened of keeping their money at securities firms. They showed lines forming and people pounding on the window yelling give me my money. Now that your 401(K) statements have been turned into 201(K) statements and if you want your 201(K) statements to become 101(K) statements, vote for Republicans in the upcoming election. You could call it the Terminal Economy. The Americans are doing it to themselves and they deserve what they get. <A HREF="http://www.ctrl.org/">www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. 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