Fed’s Hoenig Says United States Has “Deeply Undermined Free-Market Capitalism”

Posted By on February 23, 2011

Federal Reserve Bank of Kansas City President Hoenig is one guy that knows!










Cumberland Advisors – Nowhere Near Over!

Posted By on February 23, 2011

Nowhere Near Over
February 23, 2011

This is nowhere near over.  

By “This”, we mean the regional contagion, spreading violence and rising geopolitical risk in the Middle East and North Africa.    Reports say that Libya has stopped producing oil and that pipeline delivery to Europe (Italy) is interrupted.  Libya seems headed for complete dismemberment and full-blown civil war.

Note that China is evacuating 15,000 workers.  China!  Imagine that we learn there are as many workers from China in Libya as there are workers from Egypt.  Anyone still think this is a local idiosyncratic event.

We are watching a “sea change” occur among one tenth of the world’s population and among the world’s low cost marginal producers of the world’s energy.  Scenarios with benign outcomes and peaceful transitions appear remote.

Note how the region’s worst of the bad actors seize their opportunities where they find them.  Every success emboldens them.  A case study is Iran’s two ships transiting the Suez.  Also, note how the most suppressive regimes like Syria, Iran, Saudi Arabia, Libya have learned how to suppress social networks, cut off cell phones, block internet traffic and reverse or alter the information flows. 

Consider that suppressive regimes are not an encouraging environment for business risk taking and capital investment.  This true around the world.  Despots maintain their power with only harsh methods whether in the Middle East or North Korea or Venezuela.  Simply put: a thug is a thug. Their actions eventually stymie and persecute thoughtful and creative internal forces.  Despots raise costs and lower production.  In addition, the energy dependent western democracies are now learning that despots are also not reliable longer-term partners. 

Also, consider that success by demonstrators and protesters leads to additional demonstrations and increasing demands for reforms.  We believe that the turmoil and regime change in the region has a long way to go.   We also believe that forecasting the outcomes is a highly problematic exercise.   Do we end up with open democracy or Islamized fundamentalist states or something else?   This is going to be determined on a case-by-case basis.  We do not know the outcomes.  History says that emerging democracies are rare in the Middle East.

A sea change can bring on a protracted period of higher oil and energy pricing.  The US economy is ill prepared for it.  Our policies border on madness.  We do not drill for oil off our coast.  In the Gulf, deep water drilling is encouraged in Cuban national waters but not in American waters.  On American land, we spend billions subsidizing an uneconomic program called ethanol.  We raid the federal treasury to put money in the pockets of the politically connected few.  In addition, we raise the price of corn and farmland and global Ag output to increase the starvation of millions of people.  Thank you Washington and specifically a few members of America’s congress.

Back to the Middle East.  Consider that a 1-penny increase in the price of a gallon of gasoline acts as a sales tax on consumers at the rate of 1.2 billion dollars a year (Naroff Economics estimate).  A one-dollar rise in the price of oil eventually leads to a 2.5-cent increase in gasoline on average (Moody’s estimate).  It is easy to get to a $4-$5 range for gasoline in the US.

Add that to the food price surge and we have a shock.  We have already consumed about half of the 2% payroll tax cut.  It appears higher gas prices will use up the other half and more by Memorial Day.  Gasoline at 4 to 5 dollars a gallon will be enough to turn the improving consumer sentiment numbers into deteriorating ones and will hurt the fragile economic recovery.  It will also set back any hope for stability in the housing sector.

If we flirt with a double dip recession, the Fed may be debating QE3 by late summer.   So far, QE2 seems to have little impact.  It may turn out to have been too small to do very much.  A few hundred billion in a mass of many trillions is not very much. 

Consider that there has been no significant increase in the amount of federal debt reaching the markets.  To get to that conclusion, add up all the new treasury issuance, subtract the shrinkage of Fannie and Freddie debt and subtract the Fed’s purchases.  The net result is that most of the federal deficit is being financed without increasing the publicly traded portion. 

So why have treasury bond interest rates risen since QE2, if they are not driven by the deficit.  They may be driven by inflation expectations or flight from the dollar or re-allocation of portfolios.  However, they do not seem to be higher due to direct federal borrowing from the markets.

So where is this going?

Any slowing of the US economy from this energy shock may act to lower interest rates and dampen inflation expectations.  Higher energy prices can mean that something else does not get purchased.  We may see substitution and not inflation.

At Cumberland, our US ETF accounts are in the highest cash position they have seen in over two years.  We think being full invested when there is a shooting war in a major oil producing country is folly.  There is one position that must be maintained.  We are high in energy overweight.   We are underweighted in consumer discretionary exposure. 

This is nowhere near over.

David R. Kotok, Chairman and Chief Investment Office


Copyright 2011, Cumberland Advisors. All rights reserved.

The preceding was provided by Cumberland Advisors.  This report has been derived from information considered reliable, but it cannot be guaranteed as to accuracy or completeness.

It is not our intention to state or imply in any manner that past results and profitability are an indication of future performance. This does not constitute an offer to sell or the solicitation or recommendation of an offer to buy or sell any securities directly or indirectly herein.

Cumberland Advisors supervises about $1.5 billion in separate account assets for individuals, institutions, retirement plans, government entities, and cash-management portfolios. Cumberland manages portfolios for clients in 47 states, the District of Columbia and in countries outside the U.S. Cumberland Advisors is an SEC registered investment adviser. For further information about Cumberland Advisors, please visit our website at www.cumber.com.

Please feel free to forward this Commentary (with proper attribution) to others who may be interested.


A Broken System…Bottom 90% Of Americans Average $31,244 In Income!

Posted By on February 22, 2011

How Rich Are The Superrich

A huge share of the nation’s economic growth over the past 30 years has gone to the top one-hundredth of one percent, who now make an average of $27 million per household. The average income for the bottom 90 percent of us? $31,244.

PIMCO’s El-Erian Says We Can Not Assume The Dollar Will Retain Its Reserve Currency Status

Posted By on February 22, 2011

Mohamed El-Erian appeared on Bloomberg Surveillance with Tom Keene,  talking about the developments in the Middle East, “we have to appreciate that in the west, what is happening in Egypt and North Africa results in stagflation in the short term. So higher inflation and lower growth because of higher oil prices that take away purchasing power and transfer wealth somewhere else; because of higher geopolitical risk, which tends to diminish animal spirit and therefore impact investment; and let’s not forget that the Middle East is a market, particularly for European exports. So from an economic perspective, it is important for the west to understand that these are stagflationary winds that have been added to the global economy.” “It is a warning shot to America that we cannot simply assume flight to quality, flight to safety. That people are starting to worry about the fiscal situation in the U.S., worrying about the level of debt and what they’re hearing about states and municipalities. I would take this as a warning shot that we cannot assume that we will maintain the standing of the reserve currency as we have in the past.”

From Bloomberg TV:

On unrest in the Middle East:

“I think that a common factor that’s been driving all of that is a combination of youth unemployment, high food prices, and political repression. But as you say, Libya is different. The revolutions in Tunisia and Egypt were relatively peaceful. Libya is far from being relatively peaceful.  There is a tremendous amount of human suffering and casualties there, making this protest more unpredictable and more dangerous. In addition, Libya is a major oil exporter, so suddenly developments in North Africa and the Middle East have a systemic impact on the economy.”
On other oil producers in the region:

“Everyone in the Middle East and beyond understands that this is a movement that has to be taken seriously. That it is better to be ahead of the curve rather than behind the curve. The story of Egypt, Tunisia and Libya have been regimes that have been consistently behind the curve. The lesson that has gone out to not only other Middle Eastern countries but to the whole world, is take seriously these economic and political issues.”
On political and economic intelligence for Libya:

“On the economic side, the data that you can confirm on the other side, particularly trade data where there is a trading partner and therefore you get another number, tends to be pretty good. It tells you that Libya is an export of about 1.5 million barrels per day, which is not insignificant. This is one of the top 10 or 11 oil exporters. When it comes to internal data–GDP numbers, inflation numbers–then it becomes more difficult. On the political aspects, what we have learned is that western intelligence has been behind the curve in terms of understanding the dynamics in those.”
On what the western world can do over the next 48 hours regarding the unrest in Libya:

“Three elements. One is the reality that in countries like Libya, the rest of the world cannot do very much other than condemn and try to put pressure, but ultimately that’s not going to bear very much.  Second, In countries that have gone to the first phase of revolution–Tunisia and Egypt–the west is able and willing to step in to help the process towards democracy. It is encouraging that the British prime minister went to Egypt yesterday. Thirdly, we have to appreciate that in the west, what is happening in Egypt and North Africa results in stagflation in the short term. So higher inflation and lower growth because of higher oil prices that take away purchasing power and transfer wealth somewhere else; because of higher geopolitical risk, which tends to diminish animal spirit and therefore impact investment; and let’s not forget that the Middle East is a market, particularly for European exports. So for an economic perspective, it is important for the west to understand that these are stagflationary winds that have been added to the global economy.”
On persistent stagflation as the new normal:

“The new normal is just a recognition that the western world is not going to grow as rapidly as before. That unemployment will be a persistent issue. That social safety nets will be very stretched. And that government intervention will continue in the economy. What we’re getting on top of that now are headwinds from higher oil prices, higher geopolitical risk, and a concern that one of the reactions to higher commodity prices will be for consumers to stockpile. So I suspect that right now a lot of airlines are likely saying that with oil where it is now, should we be hedging now? What you get is an overshoot, just like we saw in 2008. That is a concern in terms of the stagflation headwinds.”
On Pimco’s strategy and how to react to unrest as an investor:

“Last week, Friday in particular, when the crisis started impacting countries like Bahrain, we recognize that things were morphing. That it would impact commodity prices and oil prices in particular. We identified a process of morphing that went on. When the crisis was focused on Egypt and Tunisia, when those countries were going to their peaceful revolution, they were not systemic in nature. The influence on the global economy was limited.  They were not large economies. They were not major exporters of commodities.  And they did not owe anyone lots of money. When the crisis and turmoil started to hit Libya and Bahrain, this whole phenomenon has morphed.  And it has morphed into something that in the short term means higher oil prices, greater risk aversion, and a somewhat flight to quality.  Although it’s interesting to see that the dollar has not benefitted that much.”
On higher oil prices:

“The global economies are going to have to live with these for a while. That is just a reality of the world we are living in today.”
On the events in Egypt over the past week:

“They have taken important steps. You’ve seen ministerial changes, you’ve seen a timeline announced.  And most importantly, you’ve seen the protest movement saying that we will be the check and balance. We’re going to make sure that this revolution that was started will end up with democracy and greater individual freedom. We’re seeing progress. It’s a bumpy road that does not happen overnight. But every day we are seeing progress.”
On what the weak dollar is signaling:

“It is a warning shot to America that we cannot simply assume flight to quality, flight to safety. That people are starting to worry about the fiscal situation in the U.S., worrying about the level of debt and what they’re hearing about states and municipalities. I would take this as a warning shot that we cannot assume that we will maintain the standing of the reserve currency as we have in the past.”


The Math Comes Up Short For Most Retirement Plans

Posted By on February 21, 2011

The average person doesn’t realize the shortage they will likely be faced with in retirement! 

New Zealand Hit With Magnitude 6.3 Earthquake

Posted By on February 21, 2011

WELLINGTON, New Zealand (AP) — A strong 6.3-magnitude earthquake rocked the southern New Zealand city of Christchurch on Tuesday, and there were reports of damage to some buildings.

Radio New Zealand reported that a church near the city center collapsed. The station also said staffers in its Christchurch newsroom had to cling to their desks during the shaking, with large filing cabinets toppling over.

“What I can see from where I am in the central city is that there are significant amounts of additional damage,” Christchurch Mayor Bob Parker said.

The U.S. Geological Survey said the temblor was centered 3 miles (5 kilometers) from the city at a depth of 2.5 miles (4 kilometers).

Warning: Get Ready For A ‘Global Katrina’…. Biggest Ever Solar Storm Could Cause Power Cuts Which Last For MONTHS

Posted By on February 21, 2011

Earth is overdue a massive solar storm as the sun enters its most active period…..We’ve been talking about this for a while.  

Heads up everybody…..Have cash on hand and 30-60 days of food, water, toilet goods etc, and lots of flash lights and batteries and keep your car gas tank at least half full at all times………what’s so hard about being prepared for something when you’ve been warned! If it doesn’t happen, so what you were prepared. Are banks going to be open if the power grid goes down, NO.  Will grocery stores be open, No. Will gas stations be open, NO.  Get the point!

Chaos will be flowing if this massive solar storm hits the power and communications equipment.  We are more relent on wireless and electricity then ever before in the history of mankind!

Professor Sir John Beddington, the government’s chief scientific adviser, said: ‘The issue of space weather has got to be taken seriously. We’ve had a relatively quiet period of space weather – but we can’t expect that quiet period to continue.   ‘Many things that we take for granted today are so much more prone to the process of space weather than was the case in the last solar maximum.’

‘At the same time over that period the potential vulnerability of our systems has increased dramatically, whether it is the smart grid in our electricity systems or the ubiquitous use of GPS in just about everything we use these days.  

The world is overdue a ferocious ‘space storm’ that could knock out communications satellites, ground aircraft and trigger blackouts – causing hundreds of billions of pounds of damage, scientists say.

Astronomers today warned that mankind is now more vulnerable to a major solar storm than at any time in history – and that the planet should prepare for a global Katrina-style disaster.

A massive eruption of the sun would save waves of radiation and charged particles to Earth, damaging the satellite systems used for synchronising computers, airline navigation and phone networks.  If the storm is powerful enough it could even crash stock markets and cause power cuts that last weeks or months, experts told the American Association for the Advancement of Science.

Read more: http://www.dailymail.co.uk/sciencetech/article-1359136/Global-Katrina-Biggest-solar-storm-cause-power-cuts-MONTHS.html#ixzz1EdIqcVQq

Volcano Bulusan Eruptes In The Philippines

Posted By on February 21, 2011

Thousands of people in the Philippines fled their homes as a volcano erupted on Monday, sending a spectacular column of ash high into the sky, residents said.

The eruption of Bulusan, a 1,559-metre (5,115-foot) volcano, turned mid-morning into night for about 20 minutes across largely farming areas around its slopes, regional army spokesman Major Harold Cabunoc told AFP.

“There was a major ashfall. There was zero visibility,” Cabunoc said.

State volcanologist Ramil Vaquilar told AFP that rumbling sounds accompanied the ash column that rose between two and 2.5 kilometres (1.2-1.6 miles) above the crater.

About 2,000 residents were evacuated from three farming villages in the area as the government banned people from within four kilometres of the crater, said Lieutenant-Colonel Santiago Enginco, the local army commander.

Philippine Institute of Volcanology and Seismology director Renato Solidum said on national television that planes should avoid the skies over Bulusan, as ash might clog jet engines.

Bulusan is among 23 active volcanoes in the Philippines, which is located in the so-called Ring of Fire of volcanic activity around the Pacific.

British Foreign Minister Reports Gaddafi On Way To Venezuela…Gaddafi Says No, He Is In Tripoli

Posted By on February 21, 2011

Inquiring minds want to know what happens to the Libyan Gold….Uh, one guess…It follows Gaddafi out of Libya.  Duh!

Libya had 143.8 tonnes of Gold and is (was) the ninth largest oil producer!

George Soros Says Obama `Has Lost Control Of The Agenda’

Posted By on February 20, 2011

George Soros….whether you like him or hate him, he has earned our respect with his success over the years.  He came to the U.S. as a poor boy, and has earned the wealth he has.

Soros says Iran’s ruling regime will topple within the year, though he warned the situation there could become “very ugly” before this happens. 

Soros also said the economic recovery is most likely short lived in the United States based on what he is seeing with states becoming the next area of major concern.  

Oh, and just in case anyone wonders…..George Soros is a die hard Democrat and contributed $27 million to Democrats during the 2004 elections, according to Congressional Quarterly’s Moneyline.

George Soros, said Democratic President Barack Obama “has lost control of the agenda” on the U.S. economy, leaving it “now in the hands of the Republican Party.”

Republicans “are going to pursue a very strong effort to cut services by refusing to have any tax increases,” Soros said in an interview with CNN’s “Fareed Zakaria GPS” program.

“This agenda will be successful,” though it will be “more directed at cutting services and achieving the ideological purposes of the Republicans rather than to get the economy going,” Soros, 80, said, according to a transcript of the interview released by CNN. “This will have a negative impact on the economy.”

The U.S. government is facing a situation in which it may not be able to tap the bond market for funds, according to the Hungarian-born billionaire financier.

“That’s more or less in the cards because we aren’t applying fiscal stimulus, because of the ideologies that the government can’t do anything right, so we can’t expect the government to help,” Soros said. “So you have idle resources, and the Federal Reserve is providing quantitative easing. Well, I think when it expires, they won’t give it any more.”

Interest rates ultimately will rise and “choke off the economic recovery,” Soros said.

Soros also predicted that Iran’s ruling regime also will topple within the year, though he warned the situation there could become “very ugly” before this happens.

“Opposition leaders could easily be killed through a false judicial process because the regime is fighting for its survival, because they know that they have committed such crimes that it’s either them or the people,” he said. “But I don’t think that they will be able to succeed.”


Gadhafi’s Son Warns of Civil War in Libya

Posted By on February 20, 2011

Guess it doesn’t matter if they burn the oil wealth when it all goes to the ruler anyway!  Sounds like Gadhafi should ride out of Dodge while he can!

The son of Libyan leader Moammar Gadhafi says protesters have seized control of some military bases and tanks. Appearing on Libyan state television Sunday night, Seif al-Islam warned of civil war in the country that would burn its oil wealth.

Another Economic Tidal Wave Coming Towards California

Posted By on February 20, 2011

How Congressional Budget Cuts Will Effect California


Under the GOP House proposals, about $1.5 billion in federal funds for California would be trimmed, affecting such things as Pell grants, Head Start, K-12 education and rail projects.

Reporting from Washington— University of California students would take a nearly $55-million hit from reductions in Pell grants. A $20-million check promised for bringing a rail line closer to the L.A. airport would be taken back. Head Start cuts would eliminate about 14,000 slots for low-income children in California.

Those are among the possible effects on California in the budget-cutting bill approved Saturday by the House’s new Republican majority — legislation that would cut about $1.5 billion in federal money going to California, according to one estimate.

California would face reductions of at least $125 million for kindergarten through 12th-grade schools under an approximately 16% nationwide cut in education funding, according to watchdog groups.The National Education Assn. estimated that the cuts would eliminate 13,840 Head Start slots for low-income children and eliminate after-school programs for 26,139 students.

World Wide Turmoil

Posted By on February 20, 2011

Things are coming unglued in the Middle East as revolution is spreading like wildfires.  The U.S. isn’t immune from this as we are seeing large protests in Madison Wisconsin over budget cuts that effect unions, entitlements and retirements.  Just imagine what happens in California (if) the special election to extend temporary tax increases gets voted down in June! Massive budget cuts in California if that happens!


Protests Spread to Morocco

Thousands of protesters took to the streets in Morocco on Sunday to demand sweeping changes to the nation’s constitution, defying predictions that this thousand-year-old monarchy would prove an exception to the demands for greater democracy that are sweeping the region.

China rounds up 100 activists to rapidly quash pro-democracy ‘Jasmine Revolution’ …..Chinese authorities moved quickly and with force to quash a pro-democracy ‘Jasmine Revolution’, believed to have been inspired by the recent uprisings in the Middle East and North Africa.

And the word “Jasmine” has been banned from the Chinese Internet!

Libya… Death Toll Surges, Protesters Shot, 100’s Killed!

Iran …….For a second time in a week, Iran’s opposition drew tens of thousands of supporters to the streets across the nation on Sunday calling for the end to the Islamic Republic’s rule.

“This was the most violent protest we’ve had by far, and people were also really angry and fearless,” said one witness from Tehran, adding that the public seemed resolved to stay on the street.

Wisconsin….Budget Protests in Wisconsin for Fifth Day

Thousands of protesters gathered outside the Wisconsin Capitol Saturday for a fifth day of demonstrations against a budget bill that would strip public employees of most of their bargaining rights.

To combat a $3.6 billion deficit, the governor has proposed legislation that would require most public workers to pay for nearly 6% of their pension costs, up from none now, and around 12% of their health-care benefits, up from 6% today. He argues that the changes would merely put public employees in line with most private workers.

But the bill would also take away the unions’ right to bargain for anything other than pay. Wisconsin was the first state, in 1959, to pass a comprehensive collective-bargaining law. When protests erupted this week, the governor threatened to call out the National Guard, if needed, to man prisons and take over other services provided by unionized employees, a move that amplified anger among unions.

MacroMavens Stephanie Pomboy Talks Real Estate In This Weeks Barron’s

Posted By on February 19, 2011

Here is an interesting piece on Real Estate in this weeks Barron’s column Up and Down Wall Street… by ALAN ABELSON

For most people, their house, be it ever so humble, is their largest single investment. (And all these years we’ve been suffering under the delusion that a house was, pure and simple, to live in. It came to wear an “investment” label during the wild years of the last decade, when it was viewed as an ATM and an asset that could only appreciate in value.)

As Stephanie Pomboy in her always lively MacroMavens dispatch points out, the acrid aftermath of the big bust in housing has failed to dissipate and adamantly hangs on. The average homeowner with a mortgage, she notes, has a scant 2.6% equity in his house, and the already towering delinquency and foreclosure rates seem headed for a new thrust upward, with interest rates creeping up and jobs remaining anything but easy to come by.

Hardly surprising, then, that demand for mortgages has sagged to a 27-month low, an evil omen for something even vaguely resembling a decent recovery in housing.

What’s more, if CoreLogic is right, things are a heck of a lot worse than most of us dreamed. CoreLogic, in case you wondered, is a demon data collector of, among other things, property and mortgage info that it peddles to business and Uncle Sam. Last week, it released a report that expresses grave doubts as to the accuracy of the widely followed calculations of home sales and other critical items by the National Association of Realtors, claiming they are seriously flawed, tending to understate the bad news, while inflating not-so-bad by 15% to 20%.

By way of example, according to the Realtors’ reckoning, existing-home sales last year declined 5%, to 4.9 million. By CoreLogic’s count, however, existing-home sales totaled a meager 3.6 million, a drop of 12% from the ’09 total. The disparity between the two is also graphically evident in their respective gauges of the size of the inventory of unsold houses.The Realtors figure the overhang is around nine months worth of supply, but CoreLogic counts the visible inventory of homes with a “for sale” out in the front yard at 16 months. Normal is six or seven months.

CoreLogic suggests the wide spread between itself and the Realtors is possibly explained by the difference in how the two gather the data and by out-of-date benchmarks (which the Realtors say they aim to recalibrate). The Realtors canvass multiple listing services and large brokerages. CoreLogic compiles its data from publicly available records stored in courthouses. Historically, CoreLogic adds, its survey pretty much agreed with 85% to 90% of the Realtors’ count, but began to diverge in earnest about 2006, when the housing market was smoking.

Home prices, meanwhile, have been caught in another downward spiral, reflecting a lack of demand and a huge supply, the bitter fruit of the great bust that followed the wild and woolly boom and a prime victim of the jobless recovery in the economy at large. If current trends persist, those already sharply lower prices,CoreLogic predicts, by spring will be down more than 10% from last year’s comparable stretch.

A Little Perspective Is In Order Here!

Posted By on February 19, 2011

The President ordered the cabinet to cut $100 million from the $3.5 trillion federal budget!  So we thought a little perspective might be in order. 

In comparison, if I have about a $4,000 a month budget for groceries, medicine, bills, etc, and I cut my spending at exactly the same ratio – 1/35,000, here’s what I would be sacrificing…..after doing the math, it looks like I’m going cut twelve cents out of my budget!  Yep, twelve cents!  That leaves me with $3,999.88.  Honestly, do you think anybody is going to notice it?  The answer is NO. 

The problem we have here is that nobody in government can do basic math.  They think $100 million is a big number to cut, but what we really need is a big percentage cut.  The numbers lie, they look big but they aren’t, the percentages look small and they are. So TPTB  just don’t get it. As Ross Perot would have said, there in lies our problem.


Pelosi Aide Says U.S. Government Shutdown Likely….

Posted By on February 18, 2011

This could create a Black Swan set of events if it happens.  Looks like the Democrats are playing with Dominos…..and here’s the thing, they know it!
Speaking at a meeting of top aides to Congressional Democrats on Capitol Hill, an aide to former House Speaker Nancy Pelosi said that a government shutdown is likely and that Democrats need to start planning accordingly. 
Politico Reports:

That became the focal point of the meeting, sources said, with the other aides asking only questions about “the possibility of a government shutdown and the logistics” — i.e., what it would mean for their offices and government services — according to one chief of staff who spoke to POLITICO on the condition of anonymity.

The aide said the message of a likely shutdown did not appear geared toward ginning up the staffers for political purposes. 

“It was genuine,” the aide said. 

Read more: http://www.businessinsider.com/pelosi-aide-says-government-shutdown-likely-2011-2#ixzz1EMksZDAa

The Swine Flu Can Spread Four Times Faster Than Other Viruses

Posted By on February 18, 2011

Swine Flu Can Spread at ‘Unbelievable’ Rate: The WHO (World Health Organization) says the swine flu spreads four times faster than other viruses and 40 percent of the fatalities are young adults in good health,  this according to top health officials.

“This virus travels at an unbelievable, almost unheard of speed,” World Health Organization Director General Margaret Chan told France’s Le Monde daily in an interview.

“In six weeks it travels the same distance that other viruses take six months to cover,” Chan said.

“Sixty percent of the deaths cover those who have underlying health problems,” Chan said. “This means that 40 percent of the fatalities concern young adults — in good health — who can die of a viral fever in five to seven days.

While 90 percent of severe and fatal cases occur in people aged above 65 in seasonal flu, most of those who die from swine flu are under the age of 50.

A “very severe form of disease” affecting the lungs and causing severe respiratory failure among young and healthy people was being reported, WHO said Friday, adding that highly specialised care was required.

Time To Revisit: The Flu Fighters…….Making Sure Your Diet Has The Right Nutrients

Posted By on February 18, 2011

This hopefully should be a helpful guide to minimizing the flu when it hits you. 

The Flu Fighters—In Your Food


While many people are still waiting for swine-flu vaccine to become available in their area, there is a lot they can do in their own kitchens to help fight off disease and build a strong immune system.

Scientists in the growing field of nutritional immunology are unveiling new evidence of the complex role that nutrition plays in fighting off infectious diseases like influenza. A diet rich in nutrients such as vitamin A, found in colorful fruits and vegetables, and zinc, found in seafood, nuts and whole grains, can provide the critical fuel the body needs to fight off disease, heal injuries, and survive illness when it does strike, experts say.

Scientists are still studying all the complex ways in which nutrients interact with the immune system. There is still much that they don’t know about minerals such as zinc, for instance, including how they are absorbed and all the roles they play in the body. But scientists do know that certain vitamins and minerals can improve the body’s ability to fight off infection: Studies in healthy elderly adults, for example, have shown an improved immune response to vaccination and fewer infections after receiving extra doses of vitamin E.

To create immune cells to fight off a specific infection, the body has to rapidly draw nutrients from the bloodstream, says Anuraj Shankar, a researcher at the Harvard School of Public Health. “If you don’t have an adequate intake of vitamins and minerals, you won’t be able to produce the number of immune cells you need, and the immune cells you do produce may be compromised,” Dr. Shankar says. That makes it impossible to mount an effective response to infection, he says.

The benefits of good nutrition may have been recognized first by Hippocrates, the ancient Greek physician who declared “let food be thy medicine, and medicine be thy food.” An 18th century naval surgeon’s discovery that citrus fruits could cure scurvy in sailors was later recognized as a vitamin C deficiency, and after the 1930s, when dairies began to fortify milk with vitamin D, the disease known as rickets was virtually eliminated in the U.S.

Researchers warn that malnourished people may be a breeding ground for more dangerous infectious diseases. Animal studies at the University of North Carolina show that in a host with poor nutrition, viruses mutate in the face of a weak immune response to become more powerful. And once those mutations occur, even well-nourished hosts are susceptible to the newly virulent virus. “A lot of people may think malnutrition on the other side of the world isn’t their problem,” says Melinda A. Beck, a researcher at the University of North Carolina, Chapel Hill. But malnutrition “is a driving force in emerging infectious diseases that are spreading around the world,” she says.

The human body doesn’t have to be starving to suffer from malnutrition. Studies show that obesity, in addition to its other health risks, may also make people more susceptible to infections like the flu. A diet heavy on processed and fast foods may be low in the vitamins and minerals important for health. And diets that are high in saturated fat appear to actually depress the body’s immune response, increasing the risk of infections.

Dr. Beck says studies of mice show that only 4% of lean animals infected with the flu virus die. That compares with a death rate of between 40% and 60% in obese mice infected with the virus. And after a small study showed that obese people vaccinated for the flu didn’t mount a strong immune response, the University of North Carolina is expanding its trials to compare vaccination response rates in lean and obese people.


When obese people fall ill, “their immune function may not be strong enough to mount an effective response,” says Donald Hensrud, a Mayo Clinic specialist in preventive and internal medicine and editor-in-chief of “The Mayo Clinic Diet,” a new book promoting weight loss through a healthy diet that allows unlimited quantities of fruits and vegetables.

Dr. Hensrud and other experts caution against loading up on supplements to add vitamins and minerals to the diet. While a multivitamin is a good addition to any balanced diet, individual supplements and vitamin pills may not be as well absorbed by the body as nutrients in foods. Some supplements also can have toxic effects in too-high quantities. An excess of zinc, for example, can interfere with absorption of other nutrients, including iron and copper. And too much of the mineral selenium can cause nerve damage and has been linked recently to an increased risk of diabetes.

There is no single test to measure if your body has enough vitamins and minerals, and assays for individual nutrients are generally expensive and unreliable. Blood tests used to screen for blood-cell abnormalities can pick up changes that are linked to possible vitamin or mineral deficiencies, but they can’t necessarily identify the cause.

Scientists have long known that some vitamins, minerals and other nutrients can play a key role in the immune system by acting as antioxidants. These protect and repair cells from oxidative stress, the damage caused by molecules known as free radicals.

But nutrients work in ways beyond acting as antioxidants, says Dr. Beck. For example, vitamin A can enhance the immune system “by stimulating specific proteins necessary for immune function by activating specific genes,” she says. So, if vitamin A is deficient, then the immune cells that require vitamin A to function properly won’t work as efficiently. Animal studies show that a deficiency of vitamin B-6, which helps maintain the health of organs that make white blood cells, can decrease antibody production and suppress the immune response. And selenium in small amounts can help stimulate immune cells and may prevent the growth of some tumors.

Nutritional experts generally agree that the best way to get the right balance of nutrients is a balanced diet that includes plenty of fresh fruits and vegetables, lean proteins and dietary fiber. The federal Centers for Disease Control and Prevention’s www.fruitsandveggiesmatter.gov Web site offers a calculator to determine how many servings are ideal based on calorie needs for age, sex and activity level. Harvard’s Nutrition Source Web site includes a healthy eating pyramid based on the most up-to-date knowledge of nutrition requirements. And the National Institutes of Health’s Office of Dietary Supplements Web site (dietary-supplements.info.nih.gov) offers detailed information on the risks and benefits of supplements, along with tables that list food sources for each vitamin and mineral.

A survey by the CDC in 2007 showed that the majority of adults consume less than the government’s recommended five servings of fruits and vegetables daily. But quantity matters: A 2004 Harvard study of 110,000 men and women showed that people who averaged eight or more servings of fruit and vegetables daily were 30% less likely to have had a heart attack or stroke than those who had only 1.5 servings daily.

Nutrition experts say to boost immunity it is also important to avoid processed foods, and to minimize trans fats and unhealthy saturated fats from animal products and vegetable oils like palm and coconut. Instead, they say, people should eat foods rich in unsaturated fats such as olive oil.

Some advice for a healthy diet can seem contradictory. For example, heart-healthy diets typically include unsaturated fats such as omega-3 fatty acids, which are found in fish such as salmon and trout and in flaxseed and walnuts. For people who don’t want those foods, nutritionists may recommend fish-oil supplements, which can be beneficial in suppressing chronic inflammation in the body, a condition that can lead to coronary artery disease and arthritis.

But those same anti-inflammatory properties of fish oil can also suppress the immune responses necessary to combat an acute viral infection. Studies at the University of North Carolina have shown that mice fed with fish oil have an impaired resistance to infections, including the flu. “If I suppress the immune response and get a viral infection, I’m worse off,” says Dr. Beck, who is studying the links between fish oil and resistance to influenza.

One nutrient hard to get in food is vitamin D. Even with the fortification of milk, orange juice and other food products, some experts have been sounding the alarm in recent years about wide deficiencies, especially in children. Tests are available for about $100 to determine vitamin D levels, but their accuracy is in question. And just how much vitamin D different people need is the subject of considerable debate. The federal government’s current recommendations range from 200 international units daily for children to 600 IUs for adults, with a safe upper limit of 2,000 IUs daily. The American Academy of Pediatrics recommends 400 IUs for children, and vitamin D experts at Oregon State University and elsewhere recommend 2,000 IUs daily for all adults. The Institute of Medicine, a government advisory group, is expected next year to update the recommendations.

Adrian Gombart, a researcher at Oregon State University’s Linus Pauling Institute, says vitamin D, in addition to building strong bones and fighting off a variety of diseases, appears to activate proteins that help the body fight off infection. “Vitamin D won’t prevent you from getting the flu, but it might allow you to mount an optimal immune response, suffer less of the effects, and resolve the infection more quickly,” says Dr. Gombart, who is researching the nutrient’s role in stimulating immune cells.

From www.wsj.com

The Swine Flu Is Back, Here’s How It Works…….

Posted By on February 18, 2011

Heads Up……We are hearing of  cases now of the Swine Flu, but nobody is talking about it.  It’s medical name is Influenza C and sub types of influenza A (H1N1 variations).

Wisconsin Senate Fails Vote…State In Chaos

Posted By on February 18, 2011

OK, let’s look at the options, the State of Wisconsin is broke,  and the Democrats and Republicans can’t agree on needed changes of things that were agreed to at a different time and under quite different circumstances 50 years ago.  A state isn’t like a federal government in that it can’t print its own money, therefore they either do one or more of the following: go borrow it, raise taxes, cut services or close down the state while trying to decide.  Right now it looks like they’re shut down.

Just wait until the June special election in California to extend the temporary tax increases from a few years back.  Most likely it gets voted down in our opinion. If so, California will be forced to make massive, absolutely massive cutbacks.   You haven’t seen anything yet.  Guaranteed!

The Wisconsin Senate failed to muster enough members to vote for a second day Friday, holding up legislation that would strip state workers of most collective-bargaining rights and prompting Republicans to criticize their absent Democratic colleagues.

“There are five and a half million people losing out,” he said. “They’ve shut down government.”

On Thursday, the 14 Senate Democrats fled the state to avoid a vote on Republican Gov. Scott Walker’s “budget repair” bill, which would force most unionized state workers to pay more for health and pension benefits while limiting their collective-bargaining rights to wages.

You All Know The Drill….A Picture Is Worth A Thousand Words! In This Case, We Have A Picture That Even A Kindergardener Will Understand…Well, Then Again Maybe Not!

Posted By on February 17, 2011

A quick look at the second chart below shows why (interest on debt) the yellow area, is a sledge hammer to an economy. 


USC Transplants Kidney Into Wrong Person…Inquiring Minds Wonder, Well You Know What We’re Wondering

Posted By on February 17, 2011

University of Southern California USC Hospital shut down its kidney transplant program last month after a kidney was accidentally transplanted into the wrong patient, according to a spokesman for the program that coordinates organ transplants in Los Angeles.

In a statement, the hospital confirmed that it had temporarily and voluntarily halted transplants Jan. 29 after a “process error” was discovered.

Could This Really Happen?

Posted By on February 17, 2011

Ok…We Believe You! Do The Democrats?



Talk Of Government Shutdown Increases


House Speaker John Boehner says he will not support a stopgap measure to continue funding the government at current levels — a solution that would give the House and Senate more time to resolve differences before funding dries up March 4.


When we say we’re going to cut spending, read my lips: We’re going to cut spending, Boehner (R-Ohio) said.



Bernanke: I’ll Say It One More Time, Inflation Is Not A Problem (Currently)!

Posted By on February 17, 2011

Uh, Ok Chief…..What ever you say.  Here’s a list of things that are not, repeat…are not a problem. 
Our math must be a little sideways though, because just looking at the figures below seem to indicate that we (currently) look to have a BIG problem.
January 2009
% chg
Avg. retail price/gallon gas in U.S.
Crude oil, European Brent (barrel)
Crude oil, West TX Inter. (barrel)
Gold: London (per troy oz.)
Corn, No.2 yellow, Central IL
Soybeans, No. 1 yellow, IL
Sugar, cane, raw, world, lb. fob
Unemployment rate, non-farm, overall
Unemployment rate, blacks
Number of unemployed
Number of fed. employees, ex. military (curr = 12/10 prelim)
Real median household income (2008 v 2009)
Number of food stamp recipients (curr = 10/10)
Number of unemployment benefit recipients (curr = 12/10)
Number of long-term unemployed
Poverty rate, individuals (2008 v 2009)
People in poverty in U.S. (2008 v 2009)
U.S. rank in Economic Freedom World Rankings
Present Situation Index (curr = 12/10)
Failed banks (curr = 2010 + 2011 to date)
U.S. dollar versus Japanese yen exchange rate
U.S. money supply, M1, in billions (curr = 12/10 prelim)
U.S. money supply, M2, in billions (curr = 12/10 prelim)
National debt, in trillions

What Makes Up 57% Of The U.S. Budget……

Posted By on February 17, 2011

Medicare, Medicaid and Social Security programs have ballooned to 57 percent of the government budget this year and are widely cited as the most significant contributors to the federal deficit.  By the way, this is something nearly all Americans want to see aggressively brought under control.

But….Fifty-six percent of Americans oppose changes to Medicare benefits and 64 percent oppose changes to Social Security benefits, according to a poll by the Kaiser Family Foundation and Harvard University School of Public Health.

NASA: Huge Solar Flare Jams Radio, Satellite Signals

Posted By on February 17, 2011

A powerful solar eruption that triggered a huge geomagnetic storm has disturbed radio communications and could disrupt electrical power grids, radio and satellite communication in the next days, NASA said.
 A strong wave of charged plasma particles emanating from the Jupiter-sized sun spot, the most powerful seen in four years, has already disrupted radio communication in southern China.

The Class X flash — the largest such category — erupted at 0156 GMT Tuesday, according to the US space agency. 

“X-class flares are the most powerful of all solar events that can trigger radio blackouts and long-lasting radiation storms,” disturbing telecommunications and electric grids, NASA said Wednesday.

Geomagnetic storms usually last 24 to 48 hours — but some could last for many days, read a statement from the US National Weather Service.

“Ground to air, ship to shore, short-wave broadcast and amateur radio are vulnerable to disruption during geomagnetic storms. Navigation systems like GPS can also be adversely affected.”

NASA’s Solar Dynamics Observatory said it saw a large coronal mass ejection (CME) associated with the flash blasting toward Earth at about 560 miles per second (900 kilometers per second).

The flare spread from Active Region 1158 in the sun’s southern hemisphere, which had so far lagged behind the northern hemisphere in flash activity. It followed several smaller flares in recent days.

“The calm before the storm,” read a statement on the US National Weather Service Space Weather Prediction Service.

“Three CMEs are enroute, all a part of the Radio Blackout events on February 13, 14, and 15 (UTC). The last of the three seems to be the fastest and may catch both of the forerunners about mid to late … February 17.”

The China Meteorological Administration reported that the solar flare caused “sudden ionospheric disturbances” in the atmosphere above China and jammed short-wave radio communications in the southern part of the country.

The CMA warned there was a high probability that large solar flares would appear over the next three days, the official Xinhua news agency reported.

The British Geological Survey (BGS) said meanwhile that the solar storm would result in spectacular Northern Lights displays starting Thursday.

One coronal mass ejection reached Earth on February 14, “sparking Valentine’s Day displays of the Northern Lights (aurora borealis) further south than usual.”

“Two CMEs are expected to arrive in the next 24-48 hours and further… displays are possible some time over the next two nights if skies are clear,” it said.

The office published geomagnetic records dating back to the Victorian era which it hopes will help in planning for future storms.

“Life increasingly depends on technologies that didn’t exist when the magnetic recordings began,” said Alan Thomson, BGS head of geomagnetism.

“Studying the records will tell us what we have to plan and prepare for to make sure systems can resist solar storms,” he said.

More: http://www.breitbart.com/article.php?id=CNG.d91e3775fd5b821f0b35dc7f0cbb52fc.21&show_article=1

Chaos In Wisconsin Over Cuts To State Workers

Posted By on February 17, 2011

An estimated 25,000 protesters showed up for this vote in Wisconsin….So is it a surprise that the workers don’t want to give up anything…No!  It’s really the fault of the morons that negotiated these contracts for the state that, they are at fault.  Obviously none of them ever passed a basic math class in college or this mess wouldn’t be happening all over the country.  Expect more of this kind of thing as virtually every state is in the same predicament.

Democratic lawmakers in Wisconsin blocked passage of a sweeping anti-union bill Thursday, refusing to show up for a vote and then abruptly leaving the state in an effort to force Republicans to the negotiating table.

As ever-growing throngs of protesters filled the Capitol for a third day, the 14 Democrats disappeared around midday, just as the Senate was about to begin debating the measure, which would eliminate collective bargaining for most public employees.

The proposal marks a dramatic shift for Wisconsin, which passed a comprehensive collective bargaining law in 1959 and was the birthplace of the national union representing all non-federal public employees.

In addition to eliminating collective-bargaining rights, the legislation also would make public workers pay half the costs of their pensions and at least 12.6 percent of their health care coverage — increases which are called “modest” compared with those in the private sector.

The state’s largest teachers union Wednesday night called on all 98,000 of its members to attend rallies in Madison on Thursday and Friday, which led school districts — including Madison — to cancel classes for Thursday.

“This is not about protecting our pay and our benefits,” Wisconsin Education Association Council President Mary Bell said at a press conference on the Capitol Square. “It is about protecting our right to collectively bargain.”

Saying It Like It Is!

Posted By on February 17, 2011

”Life’s tough pilgrim, and it’s even tougher if you’re stupid.”  — John Wayne

Cumberland Advisors: Khamsin

Posted By on February 17, 2011

We’ve been talking about this for a while….Rapidly rising food prices triggered the latest round of civil disorder around the world, as it did the first round during 2008.  The picture may get bleaker over the next few years.

Cumberland Advisors

February, 17, 2011

“This is not just a warm wind, but a dust-laden, suffocating hot wind! It blows in the desert regions of certain Arab-populated countries. Khamsin is the Arabic word for “fifty” and it is quite appropriate since this far from friendly wind blows for fifty days and during its “occupation” of the area all activity ceases and there is no outward sign of life. The natives merely remain inside their dwellings and resign themselves to waiting for Khamsin to use up the allotted time. It should be evident that the denizens of such a region have all learned how to count up to half a hundred…The music itself has a sort of lonely quality which is intended to portray the hopelessness of a situation that can only be met by perseverance and a determination to outlast the ever present Khamsin.”

Source: liner notes: third movement of ‘Warm Winds’ by Lyle Murphy, recorded by the Hollywood Saxophone Quartet in the 1950s.   Wikipedia.

Khamsin is the hot wind of North Africa and the Middle East.   Wikipedia will give you the details.  Google will take you there.  I’ve personally felt its parching bite on trips to the Middle East.  But I was just a visitor.  Today, country-by-country, residents plan their ways to deal with this period.  They are trying to survive multiple tornadoes.

Khamsin arrived two months early this year.  It blew in on the back of food riots.  It mixed with ethanol thanks to the madness of US policy of spending  many billions of taxpayer subsidy to grow food in order to distill it and put it in fuel tanks.    Iowa Senator Grassley (R) and Iowa Senator Harkin (D): how much global blood is on your hands?  Yours is a true bi-partisan effort when it comes to hunger and strife.

Now we have a firestorm raging in a dozen countries.  And now we see know about the true colors of murder and mayhem revealed in Iran, Syria, Libya, Lebanon (Hezbollah) and others.   When you do not see TV the images, when a young person uses a social network at personal peril, you can assume the very  worst. 

We set out to write more and then saw Ed Yardeni and his pen do the job for us this morning.  So we credit him with the following four paragraphs. Thank you Ed for summarizing what I am now calling true contagion and not just young people demonstrating peacefully for some human rights.  We fear this gets worse before it stabilizes.

Ed Yardeni, www.yardeni.com   wrote:

“Iran’s Mad Mullahs need a diversion. The pro-democracy Green Revolution remains a big threat to their regime, especially after the Egyptians deposed their autocrat. So their game plan may be to stir up a conflict with Israel and to drag Egypt into the mess. Why not send a couple of Iranian gunboats through the Suez Canal and at the same time escalate tension between Israel and Lebanon? Yesterday, Israeli Foreign Minister Avigdor Lieberman claimed that two Iranian gunboats were planning to sail to Syria through Egypt’s Suez Canal in what he called a “provocation.” Israeli Prime Minister Benjamin Netanyahu said Iran is trying to push Egypt into breaking its 32-year-old peace treaty with Israel. On Tuesday, Israeli Defense Minister Ehud Barak toured his military’s northern command and told soldiers there that the quiet along the frontier might not last. In Lebanon, Hezbollah’s leader, Sheik Hassan Nasrallah, told his Shiite guerrilla group Wednesday to be prepared to invade northern Israel “if war is imposed on us.” This morning’s Washington Post reports that the Iran warships cancelled their request to transit the Suez Canal.

“There is a serious potential for continuing and widespread civil disorder in the Middle East. Now that Mubarak has been deposed, the Egyptian economy faces a new challenge of widespread labor strikes. Yesterday’s WSJ reported: “Egypt’s unofficial labor unions have a record of using walkouts to wring concessions from government-owned companies. The labor movement first joined political protesters on February 10 to demand increased wages, improved benefits and the sacking of corporate bosses who many workers believe enjoyed corrupt relationships with the former ruling regime.” Even some Iraqis seem to want a revolution, even though George W. Bush deposed Saddam Hussein and brought the semblance of democracy to Iraq. Iraqi groups on Facebook are calling for a coordinated protest on February 25.

“Rapidly rising food prices triggered the latest round of civil disorder around the world, as they did the first round during 2008. Today’s WSJ observes that American farmers are preparing to plant their next crop and that “[o]nly a limited amount of idle land can be brought into production, further capping supply.” The US provides more than half of global corn exports and over 40% of soybean exports.

Globally, current corn stocks amount to about 5% of annual use, far below the average of 13.6% over the past 15 years, according to the USDA. Last year, 5 billion bushels of corn produced in the US went for livestock feed; ethanol production approached 5 billion bushels; exports, 2 billion; sweeteners and corn starch, 1.2 to 1.3 billion. That added up to about 13.5 billion bushels of demand for corn, while American farmers produced about 12.4 billion bushels last year, a shortfall of about 1 billion. Ethanol is eating up 40% of America’s corn crop to meet no more than 10% of America’s gasoline demand! So our ethanol policy is exacerbating the global food fight, destabilizing the Middle East, and pushing up oil prices. Is that insane, or what?”

At Cumberland, we believe regional firestorm is now becoming large enough to impact world growth.  And it will certainly cause higher prices for oil.  Brent is telling the oil price story of over $100.  WTI is distorted by Cushing, Oklahoma inventory problems.  We expect higher gasoline prices will accompany the Khamsin.  Markets seem too sanguine for us.

We are maintain a cash reserves in US ETF accounts.   We continue to be overweight the energy sector.   

David R. Kotok, Chairman and Chief Investment Officer

Copyright 2011, Cumberland Advisors. All rights reserved.

Cumberland Advisors supervises about $1.5 billion in separate account assets for individuals, institutions, retirement plans, government entities, and cash-management portfolios. Cumberland manages portfolios for clients in 47 states, the District of Columbia and in countries outside the U.S. Cumberland Advisors is an SEC registered investment adviser. For further information about Cumberland Advisors, please visit our website at www.cumber.com.

Please feel free to forward this Commentary (with proper attribution) to others who may be interested.

Things Are Heating Up…No Pun Intended

Posted By on February 16, 2011

LOS ANGELES (CBS)….After years of relative quiet on our nearest star, activity has picked up as of late, resulting in a solar flare that marks the strongest since 2006.

After the initial blast of radiation accompanying the coronal mass ejection (CME) — the first of its magnitude to occur in the new solar cycle of activity — a huge cloud of charged particles is headed toward Earth and is expected likely to arrive on Feb. 17-18.

Among the many potential problems that can come from a massive CME disturbance in the planet’s geomagnetic field are malfunctioning telecom and GPS satellite equipment.

While forecasters predict no major impact on our telecommunications infrastructure, scientists have pointed out the sun is now ramping up ahead of an expected solar maximum around 2013.

In The Dumpster

Posted By on February 16, 2011

Mortgage Refinance Demand Lowest Since Summer of 2009…..This should be a sign to the wise.


Mortgage application volume slipped 9.5 percent on a seasonally adjusted basis during the week ending February 11, according to the latest weekly survey from the Mortgage Bankers Association.

On an unadjusted basis, the home loan application index was off 7.9 percent compared to one week earlier. The refinance index plummeted 11.4 percent to its lowest level since the week ending July 3, 2009, while the seasonally adjusted purchase money mortgage index decreased 5.9 percent.

The unadjusted purchase index fell 0.9 percent from the previous week and was 18.2 percent lower than the same week last year.That pushed the refinance share of mortgage activity to 64 percent of total applications, down from 66.6 percent a week earlier.It was the fourth successive decline in refinance share, despite a slight easing in mortgage rates.

The popular 30-year fixed mortgage dipped to 5.12 percent from 5.13 percent, and the 15-year fixed increased to 4.34 percent from 4.29 percent.

Mortgage points (including loan origination fee) increased to 0.85 percent from 0.84 percent on the 30-year, and fell to 0.85 percent from 1.02 percent on the 15-year.

The mortgage rates above are good for mortgages at 80 percent loan-to-value – but pricing adjustments can lower or raise your actual interest rate.

Keep in mind the MBA’s weekly survey covers more than half of all retail, residential loan applications, but does not factor out duplicate or rejected apps, which have surely risen since the mortgage crisis got underway a few years back.


Anti-Gadhafi Protests In Libya

Posted By on February 16, 2011

Libya may be next to go…….demonstrations that swept away the Tunisian and Egyptian ­presidents now target Libya, the oil-exporting north African country ruled by Muammer Gaddafi since 1969.

A succession of rallies and demonstrations, in Egypt, Jordan, Yemen, Algeria, Bahrain and Iran have been inspired directly by the popular outpouring of anger that toppled Tunisian President Zine al-Abidine Ben Ali.

The online edition of Libya’s privately owned but pro-regime Quryna newspaper, which is based in Benghazi, said 14 people were hurt in Tuesday’s rioting, including 10 police officers.

The paper reported youths shouted anti-Gadhafi slogans and burned and smashed five cars. Arab satellite news network Al Arabiya reported 38 people were injured in Benghazi, citing medical officials.

Iran Sending Warships Through The Suez Canal For First Time Since 1979

Posted By on February 16, 2011

Tension is rapidly building in the Mid East. 

JERUSALEM—Iran is sending two warships through the Suez Canal en route to Syria, Israel’s foreign minister said Wednesday, calling the act a “provocation” that Israel cannot ignore.

The Iranian plan described by Foreign Minister Avigdor Lieberman would take the warships past Israel’s coast. While it would pose no significant military threat to Israel, he said that such a close encounter between forces of the two countries had not occurred in many years.

“To my regret, the international community is not showing readiness to deal with the recurring Iranian provocations,” he added. “The international community must understand that Israel cannot forever ignore these provocations.”

No Iranian naval vessel had passed through Suez since Iran’s Islamic Republic was established in 1979, causing a bitter rift between Iran and Egypt.


The Collapse of America’s Labor Force

Posted By on February 16, 2011

This review does a good job explaining the U.S. Government “ statistical magic” used in unemployment statistics.  We can also call it Vodoo Economics.

Benson’s Economic & Market Trends

By: Richard Benson, SFGroup

America continues to face a true national tragedy as tens of millions of unemployed people have been literally discarded because of big business outsourcing to China, India, and elsewhere.  Worse yet, the unemployment statistics are manipulated every month in a cruel hoax to make it look like the unemployment rate is far lower than it really is.  A high unemployment rate is embarrassing and would depress workers and business psychology, so workers are surgically removed from the labor force and hidden from view. 

While the financial press states that we need to create at least 150,000 jobs a month to keep up with a growing labor force, they have failed to report that the number of workers no longer employed jumped by two million last year to 85 million, from 83 million in 2009.  Some of these workers hidden from view are in welfare programs, and millions more simply vanish from the workforce using the government’s statistical magic. 

Following are some examples of how statistical magic is used to shrink the labor force and lower the unemployment rate: 

►The rush to start collecting social security at age 62:  When you begin collecting social security, you drop out of the labor force.  A few years ago, the forecast was that social security tax would exceed payments until 2016, yet the program ran a deficit last year for the first time ever of $41 billion.  While a good part of this year’s social security deficit is related to a one-year two percent social security tax reduction to individuals, a sizable part of the deficit has been caused by less people working, and early filers.  Filings were up over 10 percent last year because adults over 62 years old can’t find work.

51.2 million Americans are currently collecting social security benefits and of that amount, 7.7 million are early retirees, or young survivors of retirees who have passed away.  This group is not in the labor force and the vast majority will never return. 

►Filing for Social Security Disability or SSI:  If you are Caucasian, 55 years old, and a permanently-trashed factory worker, this is about the only place you can hope to go and survive as state and local governments gut welfare. In 2000, before employment fell off the cliff, it was reported that 1.4 million a year filed for SSI (only about 50 percent of applicants are approved).  In 2010, three million filed. 

Looking at the government statistics for social security and SSI, of the 51.2 million people currently collecting social security, 5.2 million are “disabled” and collecting SSI.  Remember, if you’re retired or on SSI you’re not counted as unemployed or in the labor force, so SSI is a neat place to hide over five million desperate workers.

►Workers dropped from the labor force:  If you haven’t looked for a job for a few weeks, the government, in their ultimate wisdom, assumes you don’t want a job so they drop you from the labor force. Yet, if you were to ask all those people who didn’t look for a job – because there are no jobs – they would surely tell you they wanted one.  There are 6.65 million people in this category and if they were added back in, the unemployment rate would immediately jump from 9 percent, to 12.8 percent. 

►The self-employed counted as working:  Even though they’re self-employed and have no income, this group is counted as working.  The number of self-employed people (who have an unincorporated business) has been rising by a few hundred thousand a year since the recession began.  The total number is up to a staggering 9.7 million and many in this category have discovered that to have a job, all you need to do is print up a business card and hand it out. 

An industry conference we attended recently had over 5,000 attendees. The industry turns assets like car loans, credit cards, and mortgages into securities, but there are not a lot of deals being done. In looking at the business cards, we estimate that 1,500 of the attendees were consultants (without clients) looking for a real job.

The self-employed job category includes barbers, construction workers, real estate agents, etc.  For them, there seems to be a lot less work, than people.   In Palm Beach where I reside, there are twice as many registered real estate agents as there are homes for sale and that doesn’t bode well for income levels.  We estimate that of the 9.7 million self-employed,   a few million are probably doing fine, a few more million are hanging on, and at least four million are not covering their costs and operating at a loss. 

►Counting part-timers as full-time:  Part-timers are lucky to have a job at all, but their luck is overstated.  Part-time work only pays for a part-time life, and the number of people working short-term for economic reasons in January of this year was 9.2 million. 

► Escalation in the number of people relying on a government check:  The food stamp program is a startling example of how many people have stopped supporting themselves.  Since 2006, when 26 million people were receiving food stamps, the number has shot up 63 percent.  As of November 2010, the number was up by 16.5 million to 43.5 million collecting. This means that out of a population of 311 million, 14 percent are on food stamps!

When you add up the number of recipients receiving a government handout, there are now over 100 million people (almost a third of the population) relying on Uncle Sam to survive.  The only problem is Uncle Sam is poor and running another $1.6 trillion deficit this year.

While the government has focused on blowing up American factories and moving all new factories overseas, the Federal Reserve has created stock market and housing bubbles to give the American economy a false rosy glow. Working their Keynesian magic together, our leaders have managed to lead America and its struggling workers to the poor house. 

The table below shows what the federal government and Federal Reserve policies have done to America: 

Unemployed, Underemployed and Hidden Workers(Latest Available Data as of January 2011)
Total Unemployed Americans(not seasonally adjusted) 14,900,000(only 4,000,000 get an unemployment check)
Not in the labor force who want a job 5,650,000
Park-timers working for economic reasons 9,200,000
Workers marginally attached to the labor force 2,550,000
SSI Disability recipients 5,200,000
Early social security claimers                                    2,000,000  (rational estimate)
Self-Employed with little or no income counted as employed                                    4,000,000  (rational estimate)
Unemployment Measures:US Government’s Unemployment Rate  9%
Actual Hidden and Underemployment Rate 23%

So, what is the real unemployment rate? 

First, we adjusted the labor force back up from the 153 million reported for January 2011 by adding back in workers who are either marginally attached and/or collecting SSI or early Social Security.   This brings the total to 163 million.  When you divide the total of labor force collapse of 38.3 million by 163 million, we get a real measure of unemployment and under employment of 23 percent!

Number of People Surviving on a Government Check 
Social Security including SSI recipients 51,200,000
Unemployment checks (before they ran out)  4,000,000(Note:  Over 10 million unemployed are not receiving benefits)
Food Stamp recipients 43,600,000
Number of Americans living the American Dream that has turned into a nightmare 98,800,000 *(our rational estimate)

Judging from these numbers, much of the collapse of the American labor force looks permanent, and the majority of job seekers will be lucky if they earn 60 percent of what they made in their last full-time job.

There’s no end in sight for the housing collapse either, and most experts are in agreement that without a recovery in housing, there will be no real economic recovery.  Unfortunately, with so many people surviving on a small crummy government check, the question remains who will be able to afford any of those 10 million vacant homes, or 6 million foreclosures yet to come, particularly with mortgage rates and required down-payments going up.

Time is running out and it may already be too late but the leadership in Washington needs to step up to the plate and put Americans back to work before our country turns into “The Banana Republic of the North”. 

Mr. Benson graduated from the University of Wisconsin in 1970 in the Honors Program in Math, and did his doctoral work in Economics at Harvard University. Mr. Benson is a member of the Harvard Club of New York and Palm Beach.

The Specialty Finance Group, LLC is a Florida Limited Liability Company and is registered with the FINRA/SIPC as a Broker/Dealer.


Wholesale Prices Roar To A Two-Year High

Posted By on February 16, 2011

Producer prices in the U.S. climbed during January to their highest point in more than two years. And to think, the government says we have no inflation problem!


“We do not now have a problem…. Inflation made here in the US is very, very low”– Federal Reserve Chairman Ben S. Bernanke, February 10, 2011


Headline: Wholesale costs in the U.S. increased for a seventh consecutive month in January, led by higher prices for fuel.


Clif Droke Reviews Where We Are In The Kress Cycle….

Posted By on February 15, 2011

This is a must read for everybody.  It’s an outline of the future.  It doesn’t have to be right, but a good plan is better then a bad plan and any plan is better then no plan. 

Crisis High In 2011

By: Clif Droke

Posted Tuesday, 15 February 2011After two years of issuing “sell” ratings on equities and making bearish pronouncements on the year-ahead economic outlook, Wall Street has finally turned bullish again.  Recent analyst polls reveal the consensus outlook for 2011 is for another year of double-digit stock market gains.  Even stalwart bears are starting to sound a more optimistic note on the prospects for continued economic recovery in 2011 and beyond. One analyst who doesn’t share this newfound optimism is far from the conventional Wall Street type.  He correctly predicted the 2008 credit crash and also turned bullish in March 2009 following the crisis low.  He has made a career of going against the consensus and he’s once again staking his reputation against the Wall Street establishment.  He believes that far from being the dawn of a bullish economy, 2011 will witness the end of the post-credit crisis economic recovery.  He also believes 2011 will witness a “crisis high” in the stock market and most likely a turning point within the context of the long-term cycles.  That analyst is none other than Samuel “Bud” Kress of the SineScope advisory (SJK Capital, 15 Phoenix Ave., Morristown, NJ 07960).  His tenth and latest Special Edition is aptly titled, “Crisis High 2011-2014.” In the more than 10 years that Kress has been writing his Special Editions we’ve seen the long-term sequence of yearly cycles which bear his name unfold according to schedule.  We saw the Kress 12-year cycle bottom hard in 2002, producing a major bear market low.  We saw the 10-year cycle bottom in 2004, producing a mini-cyclical bear market and another leg of the bull market following its bottom.  We saw the 6-year cycle descend into 2008, adding downside impetus to the credit crisis and producing another cyclical bull market in 2009.  This year’s notable cycle event is the peaking of the 6-year cycle, which takes on special significance since the 6-year cycle is the last of the major yearly cycles to be in the ascending phase.  Once the 6-year peaks later this year, each one of the Kress yearly cycles (with the exception of the 4-year) will be in the final “hard down” phase until late 2014. Until the 6-year cycle peaks, the next few months are likely to witness the transfer of wealth from the insiders to the outsiders.  Private equity groups, for instance, will be looking to offload debt via the IPO market.  Institutional traders who bought stocks around the lows of the last bear market in late 2008/early 2009 will be looking to sell to the public, which is only just beginning to return to the equities market after spending the last two years in low-yielding bond funds.  Such tactics are always employed in critical years when the major yearly cycles are peaking and 2011 should prove to be no exception. 

Kress sees 2011 as being the last year of the financial recovery that began in March 2009.  He uses the metaphor of a storm to describe the 2008 credit crash and believes the financial storm of that year arrived beginning with the “leading edge,” which gave way in 2009 to the benign “eye of the storm.”  As with a hurricane, the storm’s “eye” isn’t the end of the storm; rather it’s merely a temporary respite as the storm’s “trailing edge” follows at some point.  Kress believes the “trailing edge” of the financial storm will begin by next year and he says it could be a tsunami.

In section two of the latest Special Edition, Kress provides an in-depth look at the major yearly cycles which comprise the 120-year Grand Super Cycle scheduled to bottom in 2014.  When analyzing the impact of the yearly cycles it’s important to keep in mind that the final 12% of the duration of any cycle is the “hard down” phase.  The 120-year cycle’s hard down phase began 14 years prior from 2014, which was 2000.  This says Kress, “was the peak of the nation’s economic expansion, the beginning of economic winter, and the terminal high.” 

The 120-year cycle includes two 60-year cycles, which also answers to the economic long wave (also known as the Kondratieff Wave, or K Wave).  The K Wave tracks the four economic phases of the credit cycle from boom to bust.  Applying the 12% “hard down” rule of thumb, 7 ¼ years retroactive from the scheduled 2014 Grand Super Cycle bottom is mid-2007.  “This period began the ‘hard down’ phase of economic winter prior to the ‘credit crash’ and the beginning of deflation,” writes Kress.  “Of greater significance,” he adds, “the current 60-year [cycle] is the fourth which completes the series which began with the first 120-year which transformed America into an independent country as we know it today.”  The inference here is that when the current 120-year/60-year cycles bottom in 2014, the United States will experience a revolutionary transformation, of which Kress has more to say elsewhere in the report. 

The 120-year cycle has also aptly been termed the “revolutionary cycle” since its bottom is always accompanied by a revolution of socio-political and economic import.  Concerning the upcoming 2014 revolutionary cycle low, of which the recent Middle East uprisings are merely a portent, Kress asks: “Could wealth creation become a rarity; could the American Dream become a fantasy; could we become a socialistic economy; could a WWII equivalent develop; could our political structure be reformed; could it be the end of the Federal Reserve; could the U.S.A.’s premier world power become subordinated to second rate???”

In regard to the 6-year cycle, Kress points out that the present 6-year cycle began in later 2008 and is scheduled to peak in late September/early October this year.  He says the peaking of the 6-year cycle should begin the second half of the credit cycle, and that “depression could accelerate the decline of the final three years of all the higher cycles comprising the 120-year Grand Super Cycle in later 2014.” 

Kress observes, “With all of SineScope’s cycles being in the down phase for the first time since 1890, the potential for the worst of anything to occur exists.  This elicits some very disarming implications for the U.S.A. and our lifestyles for the next three years.” 

The latest Special Edition by Kress also discusses the outlook for consumer spending in light of the long-term cycles.  “With the consumer representing approximately 70% of our economy,” he writes, “growth is dependent on consumer spending, which is a function of credit expansion and increased employment.”  The credit crisis, however, elicited a sea change of consumer attitude toward debt.  As Kress observed, “Consumers not only ceased incurring additional debt, they also began reducing it, which is referred to as ‘deleveraging’ but in reality is liquidation of capital resulting in reduction of consumer spending.” 

Kress says that recent earnings gains have been mainly from cost savings realized from deleveraging and employee downsizing, with revenue gains being only a token rate reflection of low consumer spending.  He believes that corporate cost savings have nearly run their course.  “If [consumer] spending continues to decline,” he writes, “corporations might have to close plants which would complete liquidation of the three assets comprising our economy — human, capital, physical — and the U.S.A. [will] effectively be in liquidation.”  He adds that if oil and food prices continue to rise it will further curtail consumer spending, and that an additional “red flag” would be an increase in the unemployment rate. 

The most provocative aspect of Kress’s latest Special Edition is the discussion of how low the S&P 500 could decline by the time the “revolutionary low” is reached in 2014.  Prior to addressing this Kress writes, “Hundreds of equity mutual funds manage trillions of dollars of equities with positions in increments of 100,000 shares.  What happens if and when these managers decide to sell — and to whom?”  Accordingly, Kress believes that capital preservation is the watchword for the years 2012-2014 as opposed to capital gains. 

Concerning the outlook for gold, Kress points out that two opportunities exist during the 60-year Super Cycle to buy gold.  The first is during the hyper-inflationary period of the cycle, in which gold is the ultimate hedge against the ravages of inflation.  This period occurred during the inflationary period of 1966-1981 when the gold price increased approximately 23 times measured in price per ounce.  Gold then entered a bear market until 2000.  “If gold increases the same amount during the same 15 year period of economic contraction from 2000-2014,” writes Kress, “gold would achieve over $5,000 per ounce.” 



Banks Want Home Buyers To Actually Put Down (More) Cash

Posted By on February 15, 2011

This was a no brain’er, sooner or later you just knew the banks were going to want a larger down payment on the purchase of a house.  How novel to think it might improve delinquencies….Inquiring minds say Duh. 

By S. MITRA KALITA    (From The Wall Street Journal)

The down payments demanded by banks to buy homes have ballooned since the housing bust, forcing many people to rethink what they can afford and potentially shrinking the pool of eligible buyers.

Last week, the Obama administration called for gradually raising down payments to a minimum of 10% on conventional loans, meaning those that can be bought or guaranteed by mortgage giants Fannie Mae and Freddie Mac. And mortgage data show that private lenders are already pushing sharply higher the required down payments, mainly to mitigate their risk as home prices continue to fall.

The median down payment in nine major U.S. cities rose to 22% last year on properties purchased through conventional mortgages, according to an analysis for The Wall Street Journal by real-estate portal Zillow.com. That percentage doubled in three years and represents the highest median down payment since the data were first tracked in 1997.

Higher borrowing costs and heftier down payments could send housing prices falling further. Last week, 30-year fixed mortgage rates rose to 5.05%, their highest level since April. “If there is a scenario where the government talks about raising down payments to 20%, you would absolutely crush the housing market,” said Peter Norden, chief executive of Real Estate Mortgage Network Inc.


Iran Police Disperse Tens Of Thousands Of Tehran Protesters

Posted By on February 14, 2011

The list grows….Algeria riots yesterday, Bahrain earlier today, and Iran now.  It’s a rapidly deteriorating situation in Tehran, where protesters are chanting ‘Death to Khamenei.’

 AP:   “Clashes between Iranian police and tens of thousands of protesters wrecked central Tehran on Monday as security forces beat and fired tear gas at opposition supporters hoping to evoke Egypt’s recent popular uprising. The opposition called for a demonstration Monday in solidarity with Egypt’s  popular revolt that a few days earlier forced the president there to resign after nearly 30 years in office. The rally is the first major show of strength for Iran’s cowed opposition in more than a year. Police used tear gas against the protesters in central Tehran’s Enghelab, or Revolution, square and in Imam Hossein square, as well as in other nearby main streets. Demonstrators responded by setting garbage cans on fire to protect themselves from the stinging white clouds.”

Stratfor: Egypt: The Distance Between Enthusiasm And Reality

Posted By on February 14, 2011

By George Friedman | February 14, 2011

On Feb. 11, Egyptian President Hosni Mubarak resigned. A military council was named to govern in his place. On Feb. 11-12, the crowds that had gathered in Tahrir Square celebrated Mubarak’s fall and the triumph of democracy in Egypt. On Feb. 13, the military council abolished the constitution and dissolved parliament, promising a new constitution to be ratified by a referendum and stating that the military would rule for six months, or until the military decides it’s ready to hold parliamentary and presidential elections.

What we see is that while Mubarak is gone, the military regime in which he served has dramatically increased its power. This isn’t incompatible with democratic reform. Organizing elections, political parties and candidates is not something that can be done quickly. If the military is sincere in its intentions, it will have to do these things. The problem is that if the military is insincere it will do exactly the same things. Six months is a long time, passions can subside and promises can be forgotten.

At this point, we simply don’t know what will happen. We do know what has happened. Mubarak is out of office, the military regime remains intact and it is stronger than ever. This is not surprising, given what STRATFOR has said about recent events in Egypt, but the reality of what has happened in the last 72 hours and the interpretation that much of the world has placed on it are startlingly different. Power rests with the regime, not with the crowds. In our view, the crowds never had nearly as much power as many have claimed.

Certainly, there was a large crowd concentrated in a square in Cairo, and there were demonstrations in other cities. But the crowd was limited. It never got to be more than 300,000 people or so in Tahrir Square, and while that’s a lot of people, it is nothing like the crowds that turned out during the 1989 risings in Eastern Europe or the 1979 revolution in Iran. Those were massive social convulsions in which millions came out onto the streets. The crowd in Cairo never swelled to the point that it involved a substantial portion of the city.

In a genuine revolution, the police and military cannot contain the crowds. In Egypt, the military chose not to confront the demonstrators, not because the military itself was split, but because it agreed with the demonstrators’ core demand: getting rid of Mubarak. And since the military was the essence of the Egyptian regime, it is odd to consider this a revolution.

Mubarak and the Regime

The crowd in Cairo, as telegenic as it was, was the backdrop to the drama, not the main feature. The main drama began months ago when it became apparent that Mubarak intended to make his reform-minded 47-year-old son, Gamal, lacking in military service, president of Egypt. This represented a direct challenge to the regime.

In a way, Mubarak was the one trying to overthrow the regime.The Egyptian regime was founded in a coup led by Col. Gamal Abdel Nasser and modeled after that of Kemal Ataturk of Turkey, basing it on the military. It was intended to be a secular regime with democratic elements, but it would be guaranteed and ultimately controlled by the military.

Nasser believed that the military was the most modern and progressive element of Egyptian society and that it had to be given the responsibility and power to modernize Egypt.While Nasser took off his uniform, the military remained the bulwark of the regime. Each successive president of Egypt, Anwar Sadat and Hosni Mubarak, while formally elected in elections of varying dubiousness, was an officer in the Egyptian military who had removed his uniform when he entered political life.

Mubarak’s decision to name his son represented a direct challenge to the Egyptian regime. Gamal Mubarak was not a career military officer, nor was he linked to the military’s high command, which had been the real power in the regime. Mubarak’s desire to have his son succeed him appalled and enraged the Egyptian military, the defender of the regime. If he were to be appointed, then the military regime would be replaced by, in essence, a hereditary monarchy — what had ruled Egypt before the military. Large segments of the military had been maneuvering to block Mubarak’s ambitions and, with increasing intensity, wanted to see Mubarak step down in order to pave the way for an orderly succession using the elections scheduled for September, elections designed to affirm the regime by selecting a figure acceptable to the senior military men. Mubarak’s insistence on Gamal and his unwillingness to step down created a crisis for the regime. The military feared the regime could not survive Mubarak’s ambitions.

This is the key point to understand. There is a critical distinction between the regime and Hosni Mubarak. The regime consisted — and consists — of complex institutions centered on the military but also including the civilian bureaucracy controlled by the military. Hosni Mubarak was the leader of the regime, successor to Nasser and Sadat, who over time came to distinguish his interests from those of the regime. He was increasingly seen as a threat to the regime, and the regime turned on him.

The demonstrators never called for the downfall of the regime. They demanded that Mubarak step aside. This was the same demand that was being made by many if not most officers in the military months before the crowds gathered in the streets. The military did not like the spectacle of the crowds, which is not the way the military likes to handle political matters. At the same time, paradoxically, the military welcomed the demonstrations, since they created a crisis that put the question of Mubarak’s future on the table. They gave the military an opportunity to save the regime and preserve its own interests.

The Egyptian military is opaque. It isn’t clear who was reluctant to act and who was eager. We would guess that the people who now make up the ruling military council were reluctant to act. They were of the same generation as Hosni Mubarak, owed their careers to him and were his friends. Younger officers, who had joined the military after 1973 and had trained with the Americans rather than the Soviets, were the likely agitators for blocking Mubarak’s selection of Gamal as his heir, but there were also senior officers publicly expressing reservations. Who was on what side is a guess. What is known is that many in the military opposed Gamal, would not push the issue to a coup, and then staged a coup designed to save the regime after the demonstrations in Cairo were under way.

That is the point.  What happened was not a revolution. The demonstrators never brought down Mubarak, let alone the regime. What happened was a military coup that used the cover of protests to force Mubarak out of office in order to preserve the regime. When it became clear Feb. 10 that Mubarak would not voluntarily step down, the military staged what amounted to a coup to force his resignation. Once he was forced out of office, the military took over the existing regime by creating a military council and taking control of critical ministries. The regime was always centered on the military. What happened on Feb. 11 was that the military took direct control.

Again, as a guess, the older officers, friends of Mubarak, found themselves under pressure from other officers and the United States to act. They finally did, taking the major positions for themselves. The demonstrations were the backdrop for this drama and the justification for the military’s actions, but they were not a revolution in the streets. It was a military coup designed to preserve a military-dominated regime. And that was what the crowds were demanding as well.

Coup and Revolution

We now face the question of whether the coup will turn into a revolution. The demonstrators demanded — and the military has agreed to hold — genuinely democratic elections and to stop repression. It is not clear that the new leaders mean what they have said or were simply saying it to get the crowds to go home. But there are deeper problems in the democratization of Egypt. First, Mubarak’s repression had wrecked civil society. The formation of coherent political parties able to find and run candidates will take a while. Second, the military is deeply enmeshed in running the country. Backing them out of that position, with the best will in the world, will require time. The military bought time Feb. 13, but it is not clear that six months is enough time, and it is not clear that, in the end, the military will want to leave the position it has held for more than half a century.

Of course, there is the feeling, as there was in 2009 with the Tehran demonstrations, that something unheard of has taken place, as U.S. President Barack Obama has implied. It is said to have something to do with Twitter and Facebook. We should recall that, in our time, genuine revolutions that destroyed regimes took place in 1989 and 1979, the latter even before there were PCs. Indeed, such revolutions go back to the 18th century. None of them required smartphones, and all of them were more thorough and profound than what has happened in Egypt so far. This revolution will not be “Twitterized.” The largest number of protesters arrived in Tahrir Square after the Internet was completely shut down.

The new government has promised to honor all foreign commitments, which obviously include the most controversial one in Egypt, the treaty with Israel. During the celebrations the evening of Feb. 11 and morning of Feb. 12, the two chants were about democracy and Palestine. While the regime committed itself to maintaining the treaty with Israel, the crowds in the square seemed to have other thoughts, not yet clearly defined. But then, it is not clear that the demonstrators in the square represent the wishes of 80 million Egyptians. For all the chatter about the Egyptian people demanding democracy, the fact is that hardly anyone participated in the demonstrations, relative to the number of Egyptians there are, and no one really knows how the Egyptian people would vote on this issue.

The Egyptian government is hardly in a position to confront Israel, even if it wanted to. The Egyptian army has mostly American equipment and cannot function if the Americans don’t provide spare parts or contractors to maintain that equipment. There is no Soviet Union vying to replace the United States today. Re-equipping and training a military the size of Egypt’s is measured in decades, not weeks. Egypt is not going to war any time soon. But then the new rulers have declared that all prior treaties — such as with Israel — will remain in effect.

What Was Achieved?

Therefore, we face this reality. The Egyptian regime is still there, still controlled by old generals. They are committed to the same foreign policy as the man they forced out of office. They have promised democracy, but it is not clear that they mean it. If they mean it, it is not clear how they would do it, certainly not in a timeframe of a few months. Indeed, this means that the crowds may re-emerge demanding more rapid democratization, depending on who organized the crowds in the first place and what their intentions are now.

It is not that nothing happened in Egypt, and it is not that it isn’t important. It is simply that what happened was not what the media portrayed but a much more complex process, most of it not viewable on TV. Certainly, there was nothing unprecedented in what was achieved or how it was achieved. It is not even clear what was achieved. Nor is it clear that anything that has happened changes Egyptian foreign or domestic policy. It is not even clear that those policies could be changed in practical terms regardless of intent.

The week began with an old soldier running Egypt. It ended with different old soldiers running Egypt with even more formal power than Mubarak had. This has caused worldwide shock and awe. We were killjoys in 2009, when we said the Iranian revolution wasn’t going anywhere. We do not want to be killjoys now, since everyone is so excited and happy. But we should point out that, in spite of the crowds, nothing much has really happened yet in Egypt. It doesn’t mean that it won’t, but it hasn’t yet.

An 82-year-old man has been thrown out of office, and his son will not be president. The constitution and parliament are gone and a military junta is in charge. The rest is speculation.

Reprinting or republication of this report on websites is authorized by prominently displaying the following sentence, including the hyperlink to STRATFOR, at the beginning or end of the report.

Egypt: The Distance Between Enthusiasm and Reality is republished with permission of STRATFOR.”

Algeria Next Up?

Posted By on February 14, 2011

Will the growing vacuum in power be filled by the Brotherhood? That’s the big risk here!

Algeria shuts down internet and Facebook as protest mounts…….
Internet providers were shut down and Facebook accounts deleted across Algeria on Saturday as thousands of pro-democracy demonstrators were arrested in violent street demonstrations.

By Nabila Ramdani

Plastic bullets and tear gas were used to try and disperse large crowds in major cities and towns, with 30,000 riot police taking to the streets in Algiers alone.

There were also reports of journalists being targeted by state-sponsored thugs to stop reports of the disturbances being broadcast to the outside world.

But it was the government attack on the internet which was of particular significance to those calling for an end to President Abdelaziz Boutifleka’s repressive regime.

Protesters mobilising through the internet were largely credited with bringing about revolutions in Egypt and Tunisia.

“The government doesn’t want us forming crowds through the internet,” said Rachid Salem, of Co-ordination for Democratic Change in Algeria.


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