Over 300,150 readers

My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have been given the ability to evaluate, study, and interpret world and national events and their influence on the future of the financial markets. This gift allows me to meet the needs of individual and institution clients.  I evaluate situations first on a fundamental basis then try to confirm on a technical basis. In the past it has been fairly successful.

                             SPECIAL BULLITEN:

                             Our President is about to be Tested – Big Time

            The Middle East is about to blow sky high. We have now involved the UN Security counsel plus Germany (called P-5+1) to make Iran negotiate their nuclear weapons program. The due date is September 24, 2009.  To make matters worse the President promised Israel that if they did not take military action with Iran, he would deliver crippling sanctions with Iran.

Big deal. What we withhold, China and Russia will deliver. This is now guts ball diplomacy that will reverberate across the whole world.

            Here is a scary and realistic scenario that could happen while everyone is concerned with what is going on in the kiddy pool of health care reform and economic recovery.

            ISRAEL will never, never allow itself to be at mortal risk. If and when their intelligence concludes the Iranians are close to getting a bomb, diplomacy will end. Russian expansionism has always been in the setting of somebody else’s war. Putin will ignite the match if he ever gets the chance. Imagine. They get Georgia without a contest, and open the door to secure Ukraine, and make trillions of Rubles selling “high test” to Europe after the Iranians close the Straits of Hormuz. It would stir up a real blizzard and they could retake the Baltic region while NATO is off figuring out how to get the gulf oil turned back on.           

 Buy GLD (NYSE-$99+) or CEF (NYSE-$13+) and top off your home fuel tanks.

 Have a strong cash position also.

Richard C De Graff

256 Ashford Road

RER      Eastford Ct 06242     

860-522-7171 Main Office  

800-821-6665 Watts

860-315-7413 Home/Office

rdegraff@coburnfinancial.com

This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.

Over 300,010 readers
My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have been given the ability to evaluate, study, and interpret world and national events and their influence on the future of the financial markets. This gift allows me to meet the needs of individual and institution clients.

Economies Change Principles Never Do

In my July 2009 letter I wrote that I would not write a letter about investing for a year. Well, economies may change, but never the principles behind them. We have had the worst recession/depression since 1981-1982 and many have called an end to it.
Let me make one point vitally clear. Today’s stock markets are only for individuals who have extra funds. Funds that are “dear” should remain in a savings account at your local bank where you can watch it. We need a new congress to enact honest reforms that protect us.
Today’s economists look at all kinds of statistics and come up with many wrong conclusions. Alan Greenspan, former Federal Reserve Chairman, loves the picture of himself in the bathtub surrounded by stacks of financial garbage. If only he had walked around any random town or talked to any local bank or asked a few questions, things might be better today.
I turned bearish in January 2001 when the Fed lowered the discount rate Jan. 2 and again Jan. 3, 2001. That is the only time it was ever done two days in succession, I believe. Edson Gould’s “3 steps and stumble” rule was transformed into my “2 steps in a row and drop dead” rule.
So this letter will be more of my opinion and where I stand based upon clear observations.
Let me state right out that using today’s standards, the economy has bottomed. I use the word bottomed. We should see a mild recovery before we turn down again. The mainstream media will not tell you this because they are all selling something.
Small businesses grow into big business if they are fairly successful. They hire instead of layoff. They don’t need big bonuses, because the challenge is success and stock ownership. IBM is the only corporation to remain top-dog for over 60 years. J P Morgan is a close second.
Here is the problem, which we should have learned from the Japanese Economy. Government spending does not mean a hill of beans. What is a hill of beans? Nothing!
I believe Dr Bernanke’s helicopter speech was meant for the general public – not the politicians in Washington D.C. The “cars for clunkers” was an overwhelming success – short term. I believe this is why the economy bottomed or stopped going down- temporarily.
If the general public was given a trillion dollars and was told to pay down debts and to spend the remaining moneys wherever they wanted – you would see the overall economy pick up. We might have lost a few car companies, but that is “creative destruction” as one famous economist (Schumpeter) calls it. Small businesses hire and pay employees. Large corporations try to downsize and cut expenses after they have grown. Their earnings are shown with mirrors.
So there will be no follow-through with all the wasted government spending and this, coupled with more government borrowing and weaker dollar, will cause the economy to slide down again.
When I started in this business there was a very ugly word and it had to be used sparingly. It was USURY. Banks operate under the Rule of 72. Take whatever interest rate you are paying and divide it into 72. So if you have a 7% mortgage then 7/72 would mean that the bank would double its money every 10.29 years.
Millions of people who own homes today are getting crushed by Credit Card Companies reaping an immoral return on huge Satanic interest rates. Divide 15% into 72, that is 4.8 years for them to double their money. Paying lobbyists to bribe our Congress is child’s play to these companies. However, the homeowners are careful about what they spend in these scary economic times. They are waiting for price cuts, which is how deflation starts. Cutting prices brings in business, but that puts pressure on employees and companies to stay profitable let alone grow.
All economic bubbles create a deflationary trend wherever that bubble occurred. We have had several and the world has had its share. This makes consumers cautious. This slows down the economy while owners try to work down excess inventory. This is deflationary.
The US Government has to borrow trillions of dollars to pay for the misbegotten stimulus funds. Now take the interest rate THEY are paying. Divide that into 72 and that will give how many years it will take the bondholder to double his money. So, sooner or later we must borrow to pay interest rates. What goes around comes around. We are digging a bigger hole for ourselves and we don’t even have a shovel.
Bank Bonus versus Salaries
This is a simple problem. Brokers of any sort should never be put in charge of any financial institution. That is worse than putting a fox in the chicken coup. Bankers love a steady salary and following rules. They have their own code of conduct. Brokers hate salaries and a steady paycheck. They need the challenge of competition with a commiserate reward. Most brokers are left hand column readers. The left hand column normally has the sales credits and they check the fattest one first. Good left hand column readers get promoted and end up in management.
Banks should be able to form their own syndicate to bid on bonds and preferred stocks but not common stocks. Banks should be in charge of Money Market Funds and Brokers should not have cash management accounts. My point is that banks and brokers should be able to compete on a level playing field, but the more aggressive ones can go belly up in bad times. No government bail outs.
OFF Shore Drilling- Way out
Two deep water oil wells have recently been discovered in the middle of the Gulf of Mexico that hold billions of barrels of recoverable oil. Also Brazil has discovered light crude 200 miles off shore and they will become a major exporter in a few years. They will be competing with Saudi Arabia.
It is believed the outer continental shelf on our eastern seaboard holds giant finds. Just think, with our own over-supply of oil our President would not have to bow to oil kings.
Derivatives
My long time readers know that I hate derivatives with a passion. They are the Judas of the financial world. It is a complex transaction that derives something to give to someone else. It is a con-job designed to maximize sales credits (commissions) while placating the unwary (on both sides) into a false sense of security and pleasure (believing they have outsmarted everyone else), which is encompassed by a soap bubble that will be pricked over time.
All or almost all financial problems and disasters have the root cause in derivatives, from the Orange County California to Sub-prime and consequent bubbles. This has cost us more than Health Care ever will. We should ban all future derivative trades right now and then wait five years to see how much better off we are. The President can issue an edict. It is not how much money one makes but how you make it. There is no such thing as a free lunch.
More advice…..
Stay away from funds. Remember the sub prime mess started when the mixed AAA debt with junk bonds or sub prime notes.
The economy is struggling on a lower level and the debt coverage of many bonds is now suspected. Only the CFO and chief executive officers really know what is going on, and some cases they don’t even know. Directors only know what they are told. I have seen directors go down with the ship and they can’t even swim.
Buy Gold. GLD on the NYSE and CEF are my favorite choices. (Check out on the internet or consult with me about your concerns.) WE are not buying gold because of inflation, but as a hedge that the dollar collapses because of too much debt and a loss of confidence in it. Going back on the gold standard would shut the spending congress down.
Governments in the future will save for future social projects. This is due to the mess we are in now.
President Obama did the correct thing when he nominated Benjamin Bernanke for a full term as Federal Reserve Chairman. The Fed is supposed to be politically neutral. The chairman’s former students at Princeton thought he was a democrat when President Bush nominated him. This makes up for the error Donald T Regan, then Secretary of the Treasury under President Regan, made for canning Paul Volker because he was a democrat. Chairman Volker miffed, named Greenspan as his replacement as a joke, and they fell for it.
I love preferred stocks. Especially Amerco $2.125 cumulative preferred selling under its call price of $25. It is listening on the NYSE and is currently yielding in the 8% range. 85% of the dividend is considered tax free. That amount to an 11% tax free return. Remember the rule of 72! An easy way to keep tabs on this company is to check out the common stock. The common stock is U-HAUL. The symbol is UHAL. If it takes a sudden dive of 10% or more; it is a good chance the company is in trouble.
I love the Canadians because they have a strong pro-business economy. Their stocks got clobbered also, but their financial system is strong because their bankers thought before they acted. There is a lot of value up there.
Then there are some local small cap products that have a unique product that can have a positive affect in its application. Companies that provide a need where today there is a black hole. These are very speculative and can be bought in small lots until their fortunes improve over time.
Finally there is cash and lots of it. In deflationary times there are moments when the chance of a lifetime emerges IF you have CASH.
So right now I would keep as much cash available where you can retrieve it by writing a check or walking into your local bank for a cashier’s check.
I still believe we have a rough two years ahead of us with many false starts as far as investments go. The players today believe a new era has started and most are playing by the same rules. A major rule though is that most past leaders fade in the new market. They become a source of funds for new ideas and investments. Stocks that tanked into the teens and single digits have a high marble wall to surmount and you have an ice pick.
We could have a double dip, but the market could make new lows.
That is it for now.

Breaking News:
The Financial Times Headline dated September 15, 2009

OBAMA;
WALL ST
must
change

Compliance sought
with financial overhaul

developing ………………….
Cheerio !~!!!!

Richard C De Graff
256 Ashford Road
RER Eastford Ct 06242
860-522-7171 Main Office
800-821-6665 Watts
860-315-7413 Home/Office
rdegraff@coburnfinancial.com

This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.

Over 300,001 readers
My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have given the ability to evaluate study, and interpret world and national events and their influence on future of the financial markets. This gift allows me to meet the needs of individual and institution clients. I evaluate situations first on a fundamental basis then try to confirm on a technical basis. In the past it has been fairly successful.

This is a classic letter. Please read it. Cheerio !!!!
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Thoughts from the Frontline Weekly Newsletter
An Uncomfortable Choice
by John Mauldin
August 28, 2009

In this issue:
An Uncomfortable Choice
What Were We Thinking?
Frugality is the New Normal
And Then We Face the Real Problem
The Teenagers Are in Control
Choose Wisely
Argentina, Brazil, Uruguay, New Orleans, Detroit, and More
We have arrived at this particular economic moment in time by the choices we have made, which now leave us with choices in our future that will be neither easy, convenient, nor comfortable. Sometimes there are just no good choices, only less-bad ones. In this week’s letter we look at what some of those choices might be, and ponder their possible consequences. Are we headed for a double-dip recession? Read on.
An Important Announcement
But first, I want to make a very important announcement. There are not many times in a career when you can say that something new has been created in the financial services industry and that you have been a part of it. But now I can say that and, I must admit, with a little pride in helping to bring a new creation into the world.
For years, Steve Blumenthal and I have shared a passion for bringing Absolute Return Strategies to all investors, not just the wealthy and institutional investors.
I want to introduce you to a new mutual fund, one that is different than the typical long-only equity mutual fund. My friends and partners at CMG have created a mutual fund that is comprised of 9 different trading strategies, a “fund of trading strategies,” so to speak; and it’s one that I believe will be strategically suitable for the economic environment that I think we face. And, as a mutual fund, it is open to all investors.
You can learn more about it by reading a report I have prepared, entitled “How to Deal with Volatility in Extraordinary Markets – Introducing the CMG Absolute Return Strategies Fund.” Simply click here.
If you are an investment advisor or broker, you especially should read about this new fund and contact CMG directly for more information and reports. Full disclosure: as a consultant to the Advisor to the fund, my investment advisory firm does participate in the fees. And be sure and read all the disclosures and risk factors in the document.
And now, let’s look at the choices we face.
An Uncomfortable Choice
As our family grew, we limited the choices our seven kids could make; but as they grew into teenagers, they were given more leeway. Not all of their choices were good. How many times did Dad say, “What were you thinking?” and get a mute reply or a mumbled “I don’t know.”
Yet how else do you teach them that bad choices have bad consequences? You can lecture, you can be a role model; but in the end you have to let them make their own choices. And a lot of them make a lot of bad choices. After having raised six, with one more teenage son at home, I have come to the conclusion that you just breathe a sigh of relief if they grow up and have avoided fatal, life-altering choices. I am lucky. So far. Knock on a lot of wood.
I have watched good kids from good families make bad choices, and kids with no seeming chance make good choices. But one thing I have observed. Very few teenagers make the hard choice without some outside encouragement or help in understanding the known consequences, from some source. They nearly always opt for the choice that involves the most fun and/or the least immediate pain, and then learn later that they now have to make yet another choice as a consequence of the original one. And thus they grow up. So quickly.
But it’s not just teenagers. I am completely capable of making very bad choices as I approach the end of my sixth decade of human experiences and observations. In fact, I have made some rather distressing choices over time. Even in areas where I think I have some expertise I can make appallingly bad choices. Or maybe particularly in those areas, because I have delusions of actually knowing something. In my experience, it takes an expert with a powerful computer to truly foul things up.
Of course, sometimes I get it right. Even I learn, with enough pain. And sometimes I just get lucky. (Although, as my less-than-sainted Dad repeatedly intoned, “The harder I work the luckier I get.”)
Each morning is a new day, but it is a new day impacted by all the choices of the previous days and years. Tiffani and I have literally interviewed in depth well over a hundred millionaires, and talked anecdotally with hundreds over the years. I am struck by how their lives, and those of their families, come down to a few choices. Sometimes good choices and sometimes lucky choices. Often, difficult ones. But very few were the easy choice.
What Were We Thinking?
As a culture, the current mix of generations, especially in the US, has made some choices. Choices which, in hindsight, leave the adult in us asking, “What were we thinking?”
In a way, we were like teenagers. We made the easy choice, not thinking of the consequences. We never absorbed the lessons of the Depression from our grandparents. We quickly forgot the sobering malaise of the ’70s as the bull market of the ’80s and ’90s gave us the illusion of wealth and an easy future. Even the crash of Black Friday seemed a mere bump on the path to success, passing so quickly. And as interest rates came down and money became easier, our propensity to acquire things took over.
And then something really bad happened. Our homes started to rise in value and we learned through new methods of financial engineering that we could borrow against what seemed like their ever-rising value, to finance consumption today.
We became Blimpie from the Popeye cartoons of our youth: “I will gladly repay you Tuesday for a hamburger today.”
Not for us the lay-away programs of our parents, patiently paying something each week or month until the desired object could be taken home. Come to think of it, I am not sure if my kids (15 through 32) have ever even heard of a lay-away program, not with credit cards so easy to obtain. Next family brunch, I will explain this quaint concept. (Interestingly, I heard about a revival of the concept on CNBC radio, coming back from dropping Trey off at school this morning. Everything old is new again.)
As a banking system, we made choices. We created all sorts of readily available credit, and packaged it in convenient, irresistible AAA-rated securities and sold them to a gullible world. We created liar loans, no-money-down loans, and no-documentation loans and expected them to act the same way that mortgages had in the past. What were the rating agencies thinking? Where were the adults supervising the sand box?
(Oh, wait a minute. DThat’s the same group of regulators who now want more power and money.)
It is not as if all this was done in some back alley by seedy-looking characters. This was done on TV and in books and advertisements. I remember the first time I saw an ad telling me to call this number to borrow up to 125% of the value of my home, and wondering how this could be a good idea.
Turns out it can be a great idea for the salesmen, if they can package those loans into securities and sell them to foreigners, with everyone making large commissions on the way. The choice was to make a lot of money with no downside consequences to yourself. What teenager could say no?
Greenspan keeping rates low aided and abetted that process. Starting two wars and pushing through a massive health-care package, along with no spending control from the Republican Party, ran up the fiscal deficits.
Allowing credit default swaps to trade without an exchange or regulations. A culture that viscerally believed that the McMansions they were buying were an investment and not really debt. Yes, we were adolescents at the party to end all parties.
Not to mention an investment industry that tells their clients that stocks earn 8% a year real returns (the report I mentioned at the beginning goes into detail about this). Even as stocks have gone nowhere for ten years, we largely believe (or at least hope) that the latest trend is just the beginning of the next bull market.
It was not that there were no warnings. There were many, including from your humble analyst, who wrote about the coming train wreck that we are now trying to clean up. But those warnings were ignored.
Actually, ignored is a nice way to put it. Derision. Scorn. Laughter. And worse, dismissal as a non-serious perpetual perma-bear. My corner of the investment-writing world takes a very thick skin.
The good times had lasted so long, how could the trend not be correct? It is human nature to believe the current trend, especially a favorable one that helps us, will continue forever.
And just like a teenager who doesn’t think about the consequences of the current fun, we paid no attention. We hadn’t experienced the hard lessons of our elders, who learned them in the depths of the Depression. This time it was different. We were smarter and wouldn’t make those mistakes. Didn’t we have the research of Bernanke and others, telling us what to avoid?
In millions of different ways, we all partied on. It wasn’t exclusively a liberal or a conservative, a rich or apoor, a male or a female addiction. We all borrowed and spent. We did it as individuals, and we did it as cities and states and countries.
We ran up unfunded pension deficits at many local and state funds, to the tune of several trillion dollars and rising. We have a massive, tens of trillions of dollars, bill coming due for Social Security and Medicare, starting in the next 5-7 years, that makes the current crisis pale in comparison. We now seemingly want to add to this by passing even more spending programs that will only make the hole deeper.
Frugality is the New Normal
I could go on and on, but I think you get the point. The time for good choices was a decade ago. It would have been more difficult at the time, so that is not what we did. And now we wake up and are faced with a set of choices, none of them good.
Reality is staring back in the mirror at the American consumer, and especially the Boomer generation. The psyche of the American consumer has been permanently seared. We are watching savings beginning to rise and consumer spending patterns change for the first time in generations. Even as the authorities try to prod consumers back into old habits, they are not responding. Borrowing and credit are actually falling. Banks, for whatever reason, now want borrowers to actually be able to pay them back. Go figure.
Frugality is the new normal. We are resetting the underpinnings of a consumer-driven society to a new level. It will require a major overhaul of our economy. The normal drivers of growth – consumer spending, business investment, and exports – are all weak, and it is only because of massive government spending that the second quarter was not as bad as the two previous quarters and that the coming quarter will be positive.
But what then? How long can we continue with 10%-plus GDP deficits? We have an economy that is in a Statistical Recovery, fueled by government largesse. In the real world, we are watching unemployment rise, and it is likely to do so through the middle of next year. Deflation is in the air. Capacity utilization is near all-time lows. Housing numbers are only bouncing because of the government program of large tax credits for first-time home buyers and lower home prices. It will be years before construction is significant.
We will be faced with a choice this fall and early next year. If you take away the government spending, the potential for falling back into a recession is quite high, given the underlying weakness in the economy. A few hundred billion for increased and extended unemployment benefits will not be enough to stem the tide. There will be a groundswell for yet another stimulus package. Another 10% of GDP deficit is quite likely for next year.
As I (and Woody Brock) have made very clear in these e-letters, deficits that are higher than nominal GDP cannot continue without dire consequences. Good friend Richard Russell writes today:
“The US national debt is now over $11 trillion dollars. The interest on our national debt is now $340 billion. This is about at 3.04% rate of interest. In ten years the Obama administration admits that they will add $9 trillion to the national debt. That would take it to $20 trillion. Let’s say that by some miracle the interest on the national debt in 10 years will still be 3.09%. That would mean that the interest on the national debt would be $618 billion a year or over one billion a day. No nation can hold up in the face of those kinds of expenses. Either the dollar would collapse or interest rates would go through the roof.”
That would be at least 30% of the national budget. How would your household do, paying that much as interest? How can you operate when interest payments are 30% or more of the budget? Do you borrow to pay the interest? And the Obama administration openly admits to deficits of over a trillion a year for the next ten years, under very rosy growth assumptions. Anyone outside of Washington and rosy-eyed economists think we will grow 4% next year? I am not seeing many hands go up.
And Then We Face the Real Problem
If we do not maintain high deficits, it is likely we fall back into recession. Yet if we do not control spending, we risk running up a debt that becomes very difficult to finance by conventional means. Monetizing the debt can only work for a few trillion here or there. At some point, the bond market will simply fall apart. And it could happen quickly. Think back to how fast things fell apart in the summer of 2007. When perception of the potential for inflation changes, it changes things fast.
The problem is that we are now in a very deflationary world. Deleveraging, too much capacity, high and rising unemployment, falling real incomes, and more are all the classic pieces of the formula for deflation.
Let’s look at what my friend Nouriel Roubini recently wrote. I think he hit the nail on the head:
“A combination of higher official indebtedness and monetization has the potential to yield the worst of all worlds, pushing up long-term rates and generating increased inflation expectations before a convincing return to growth takes hold. An early return to higher long-term rates will crowd out private demand, as lending rates on mortgages and personal and corporate loans rise too. It is unlikely that actual inflation will emerge this year or even next, but inflation expectations as reflected in long-term interest rates could well be rising later in 2010. This would represent a serious threat to economic recovery, which is predicated on the idea that the actual borrowing rates that individuals and businesses pay will remain low for an extended period.
“Yet the alternative – the early withdrawal of the stimulus drug that governments have been dispensing so freely – is even more serious. The present administration believes that deflation is a worse threat than inflation. They are right to think that. Trying to rebuild public finances at a deflationary moment – a time when unemployment is rising, and private demand is still contracting – could be catastrophic, turning recovery into renewed recession.”
There are no good choices. Nouriel, optimist that he is (note sarcasm), suggests that there is a possibility that the government can manage expectations by showing a clear path to fiscal responsibility that can be believed. And thus the bond markets do not force rates higher, thereby thwarting recovery.
And technically he is right. If there were adults supervising the party, it might be possible. But there are not. The teenagers are in control. Instead of fiscal discipline, we are hearing increased demands for more spending. Please note that the very rosy future-deficit assumptions assume the end of the Bush tax cuts at the close of 2010. But raising taxes back to the level of 2000 does not make the projected future budget deficits go away.
I mean, seriously, does anyone think Pelosi or Reid are going to lead us to fiscal constraint? Obama talks a good game, but he has not offered a serious deficit-reduction proposal, other than further tax increases. And by serious, I mean we need cuts on the order of several hundred billion dollars. The Republicans lost their way and their power (deservedly, in my opinion). Just as at the high school prom, the very few adults are being ignored.
It is the proverbial rock and the hard place. Cut the stimulus too soon and we slide back into a deeper recession. Let the budget spin out of control for a few years and we will see inflation return, with higher rates and a recession. Raise taxes by 1.5-2% of GDP in 2010 and we are shoved back into recession.
There are no good choices. If we do the right thing and cut the deficit, it means very hard choices. Can we keep our commitments to two wars and our massive defense budget? Medicare and Social Security reform are not painless. Education? Research? The “stimulus”? But cutting the deficit by hundreds of billions while raising taxes by even more than is already in the works, is not the formula for sustainable recovery.
Have we grown up? Are there adults in the room? Sadly, I don’t think there are enough. We are still a nation of teenagers. We will do whatever we can to avoid the pain today. We will kick the can down the road, hoping for a miracle. Will we grow up? Yes, but the lessons learned will be hard.
There are no statistical signs of an impending recession. We are not going to get an inverted yield curve this time, which made it relatively easy for me to predict recessions in 2000 and 2006. We are in a deflationary, deleveraging world. A far different world than in the past.
I see little room for us to avoid a double-dip recession. It would take the skill and speed of former Cowboys running back Tony Dorsett hitting a very small hole in the line to break us into the open. I see no running back in our national leadership with such ability. As I have outlined above, recession could be triggered again in any number of very different economic environments. It all depends on the choices we make. But the choices lead to the same consequences, at least in my opinion.
As I wrote in August 2000 and August 2006, I write again in August 2009: there is a recession in our future. I was early both of those times and I am early now, maybe two years early, though I doubt it. And as I pointed out both of those last times, the stock market drops an average of over 40% during a recession. When I was on Kudlow in October of 2006, I was given a hard time about my recession call and prediction of a bear market. I think it was John Rutherford who dismissed my bearish vision. And he was right for the next three quarters, as the market proceeded to rise another 20%. I looked foolish to many, but I maintained my views.
You have choices. You can buy and hold (buy and hope?) or you can develop a strategic alternative. The next bear market, as I wrote in 2003 and in Bull’s Eye Investing, will likely be the bottom. (It takes at least three of them to really take us to the bottom.) But the next one will change perceptions for a long time. Valuations will drop. Savings will rise even more. And a generation will grow up. The adults will return. Chastened. Scarred. Shaken. But we will Muddle Through. That is what we do. Even my teenagers.
Choose wisely.
Argentina, Brazil, Uruguay, New Orleans, Detroit, and More
Only a month ago my fall schedule looked surprisingly light. And then reality hit. I will be at the Schwab conference in San Diego on September 15. If you are going to be there, drop me a note. That is my only trip in September. But then it gets interesting. I celebrate my 60th birthday the first weekend of October, then fly to New Orleans to be at the annual New Orleans Conference, October 8-11. The speaker line-up is better than ever. I find this to be one of the best conferences I go to very year. I have been attending on and off for over 25 years. You should think about this one. http://www.neworleansconference.com/speaker-eblast-JohnMauldin/
Then I will spend the next weekend in Detroit, then probably go to New York, then Philadelphia for a CMG conference October 20, then down to Houston, over to Orlando, stop to change clothes and pack at home, and then fly off on a whirlwind trip to Argentina, Brazil, and Uruguay, speaking at a series of CFA conferences. Orlando in mid-November … and nothing else so far. Switzerland and London in January.
I recently did an interview with King World News that was quite frankly one of the best interviews I have ever done. Eric King really got me going. It is in two parts. I give you the link to the first part, and the second is in their archives. There are also interviews with a very serious group of names. I am flattered to be included. Click here.
It is time to hit the send button. I am resisting the temptation to launch into politics, so I need to quit before I do. Suffice it to say, we could see some big changes as we work through our teenage years, back to adulthood.
Speaking of good choices, the wedding last weekend was fabulous. I am delighted with my new son-in-law. Life goes on, even as my kids struggle to get enough hours of work and money. Henry is at UPS, and work hours are way down and they have a new son. Chad finally got a new job, which may give him enough hours to survive, but not a lot of money. For those of you who think I live in an ivory tower, I do have a view into the lives of seven kids who are very real people, as well as those of lots of friends. I am very well aware of how tough it is out there, and realize how blessed I am.
You have a great week. Tomorrow I get to go the Dallas Cowboys game in the new stadium in a suite, courtesy of a friend who got the seats from Jerry Jones himself. Not sure where, but it sounds cool. Sometimes life gives you lucky breaks.
Your amazed to still be writing after all these years analyst,

John Mauldin
John@FrontLineThoughts.com
Copyright 2009 John Mauldin. All Rights Reserved

Note: The generic Accredited Investor E-letters are not an offering for any investment. It represents only the opinions of John Mauldin and Millennium Wave Investments. It is intended solely for accredited investors who have registered with Millennium Wave Investments and Altegris Investments at www.accreditedinvestor.ws or directly related websites and have been so registered for no less than 30 days. The Accredited Investor E-Letter is provided on a confidential basis, and subscribers to the Accredited Investor E-Letter are not to send this letter to anyone other than their professional investment counselors. Investors should discuss any investment with their personal investment counsel. John Mauldin is the President of Millennium Wave Advisors, LLC (MWA), which is an investment advisory firm registered with multiple states. John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS), an FINRA registered broker-dealer. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). Millennium Wave Investments is a dba of MWA LLC and MWS LLC. Millennium Wave Investments cooperates in the consulting on and marketing of private investment offerings with other independent firms such as Altegris Investments; Absolute Return Partners, LLP; and Plexus Asset Management. Funds recommended by Mauldin may pay a portion of their fees to these independent firms, who will share 1/3 of those fees with MWS and thus with Mauldin. Any views expressed herein are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest with any CTA, fund, or program mentioned here or elsewhere. Before seeking any advisor’s services or making an investment in a fund, investors must read and examine thoroughly the respective disclosure document or offering memorandum. Since these firms and Mauldin receive fees from the funds they recommend/market, they only recommend/market products with which they have been able to negotiate fee arrangements.
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Thoughts from the Frontline
3204 Beverly Drive
Dallas, Texas 75205

Richard C De Graff
256 Ashford Road
RER Eastford Ct 06242
860-522-7171 Main Office
800-821-6665 Watts
860-315-7413 Home/Office
rdegraff@coburnfinancial.com

This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.

Over 300,001 readers
My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have given the ability to evaluate study, and interpret world and national events and their influence on future of the financial markets. This gift allows me to meet the needs of individual and institution clients. I evaluate situations first on a fundamental basis then try to confirm on a technical basis. In the past it has been fairly successful.

John Mauldin’s Weekly Letter

Some of the best things in life are free. John Mauldin’s weekly letter is one of them. I have been one of his early readers and his letters have kept me out of a lot trouble. He has a million readers world wide from every walk of life and some of his books have made the best seller list.
So while we wait for a true market bottom, John could be one of the first to clue us in.

www.frontlinelinethoughts.com

Now you will see a box to enter your email address. Do it please. Then press enter . You now have his latest letter and will be one of the “over 1 million readers.
If you have any questions please do not hesitate to contact me.
Cheerio !!!

Over 300,001 readers
My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have been given the ability to evaluate, study, and interpret world and national events and their influence on the future of the financial markets. This gift allows me to meet the needs of individual and institutional clients. I evaluate situations first on a fundamental basis then try to confirm on a technical basis. In the past it has been fairly successful.

Prepare for the Worst it is Survival Time !

Dear and Faithful Readers;
This will be my last Poor Richard’s Report that will concern the US stock markets and investments for at least one year. I might, from time to time, make a comment or two on current events on a personal basis, but my financial advice is here and now.
There are two main reasons. The first is that everything as we know it is going down a rat hole because of our past excesses. We must all share the blame. The second is that I have been elected Secretary of the Willimantic Rotary Club of Connecticut. That is a demanding office that requires a lot of learning and paperwork. It is a one-year office, but after the learning period comes Vice President and President after that. Those are the easy jobs, because then one is in a position of authority to delegate responsibilities.
Before all the bubbles had burst we were in euphoric stock markets. Price to earnings ratios (PE’s) went to all time highs. We were placing bets because it was going to go up. We did not pay attention to earnings, sales, and debt ratios.
Now the bubbles are still bursting, we have a credit crunch, and we are now putting our faith in two brilliant men, one of which does not believe in paying taxes. Our President is only as good as the people surrounding him. That is why former presidents did not want “yes” persons surrounding him. Some wanted both sides in order to decide.

WE ARE DEFINITELY HEADING TOWARDS SOCIALISM WHICH MEANS WE ARE LOWERING OUR STANDARDS. EXPECT MORE GOVERNMENT INTERVENTION INTERFERRING IN OUR DAILY LIVES.
The stimulus money does not produce continuous jobs. The majority of the jobs are one time shots. I believe the Government should have given the public the trillions of dollars to pay down debts of high usury rates that are actually legal extortion. Senator Dodd – where were you?
As the general public gets squeezed tighter and tighter on meeting payments on a declining home value, they will sell the highest price stock they have to meet payments. This also means real estate is dead as we know it. Transactions can be done between individuals outside the banking system – that is why one sees so many for sale signs “by owner”.
When I write that we are lowering our standards I really mean it. This has to do not only with what is a normal PE ratio, but a general slowing down of business. This in turn means lower sales, which entails lower debt coverage. This can lead to a spate of bankruptcies brought on by bond defaults. This can be a hazard for all types of funds because the fund managers have no idea where the “next shoe will fall”.
Municipal debt is also suspect because the voters keep rejecting budgets until they are at the bare minimum. California is right now (July 9, 2009) on an IOU that many banks will not honor. Money can be made or lost by a change in the credit rating of a bond.
Corporations will have a hard time competing with government debt for their debt offerings. This is happening world wide. Corporations that will be able to borrow will be paying high rates. This can force lesser companies to sink to the bottom.
One relatively safe place is the 10 year Treasury. It is yielding a paltry 3.50% area. The core deflation rate is 1/1/2% so combine the two you come up with a real 5% rate of return. With the real economy sinking even further in the months ahead these bonds could yield even less; that means to you, savvy purchaser, higher prices. Govt. bonds at this printing are under owned. That is a real positive.
The “professionals” are telling you not to stay in cash. What they mean is that they need you to buy their junk. Cash is king. Here is an ideal tale. Huntington Hartford was the chairman of the Great Atlantic and Tea Company in the 1920’s. Starting in 1928, I believe, he started selling his A&P grocery stores property and leasing them back. Everyone laughed. Then in around 1932 he started buying them back for pennies on the dollar. Cash will be king.
Even if we throw out every politician that will be running for reelection in 2010 it will still take a few years to level the playing field.
The SEC could pay a “finders fee” for successful whistle blowers. If that was the case, the SEC could not have ignored Bernie Madoff. That would make everyone squeaky-clean overnight.
Bring back the short sale rule.
Bring money market funds under bank supervision. They are really unregulated banks.
Separate brokerage and banks, but have them able to competein an equitable manner, and have the rules revisitewd by the Congress every 7 to 10 uyears. The Investment Company Act of 1940 should be abolished. That law was passed to protect the nascent mutual fund industry. Now it is a baby gorilla without diapers.
The best idea I have read and written about is having a short term trading penality of 80% gradually working down to zero after a holding period of 5 years and one day. That has the potential of leveling the playing field overnight. It would be like the Navy Seabees of World War II fame.
The bureaucrats in Washington are so scared of emails that they now communicate with little pieces of paper crumbled up in their pockets that have no meaning except to the person reading it.
The preferred I have mentioned in previous letters is still attractive at current prices because the income is 85% tax free and we are going to be taxed to “kingdom come”. Do not believe our President, but watch what he does. “Tricky Dick” Nixon will now be “Outrageous Obama”.
The Canadians never fell for our sub prime crap, so they have a pretty good system. Sure they are hurting, but they are pro business. To qualify for citizenship you must have money, investments, and a job. Oh, by the way, you must also be able to speak English. Their universal health care system is falling apart and if we go on one they surely will reverse theirs because their citizens will have nowhere to go when sick.
The comparison with the great depression of the 1930s is really ominous. The problem then was that the Federal Reserve was leaderless. The real man who was really in charge of the Federal Reserve was the President of the NY Federal Bank of New York, who died in 1928. It is often said he would have raised margin rates. Back then margin rates were 10%. Today margin rates are 10% for Government bonds and certain commodities. The reason for the 10% rate was that there was little movement. If the government really wanted to restore confidence back into the world markets and restore leadership and respect worldwide all they have to do is raise margin rates to realistic levels and raise taxes on short term trading while at the same time reward long term holders with no taxes.
These exchanges were formed on the theory that they would benefit individual businesses not promoting speculation.
When our systems were developed it was understood that short term speculators were needed to balance the market place, but excessive use and over indulgence are fatal flaws.
Only a veto-proof Congress can pass these laws today. They can and should take control and pass these consumer protection laws (that is us, dear reader) and if the President vetoes these laws, then they override it. These votes should be bipartisan.
During my years with Smith Barney they decided that it was very important to hire someone who knew what was going on in Washington. One analyst remarked that “if I knew the FDA was doing that , I would not have recommended the stock..” Good idea, but wrong people. They rubbed management the wrong way including some of our clients. The last person was Kevin Philips who used to be a speech writer and political advisor for Richard Nixon. He was very good, but way out of the main stream. So we dropped that idea, but continued to muddle through on our own.
My point is that one has to be aware whyat is going on in Washington D.C. in order even think of investing successfully.
Then there is an outside phenomenon to be aware of. It is called EL NINO. It occurs when a warm-water current in the southern part of the Pacific Ocean every so often changes its pattern. It is like if the Gulf Stream stopped flowing north for a year. Our weather patterns in the northern Atlantic region would change drastically. It is speculated that Magellan was able to sail around the world because El Niño had calmed the waters at the southern tip of South America. The economic consequences can be awesome. The anchovies swim in these waters, and when they are hard to find, or the catch for year dwindles because the current moved too far out to sea, the price of anchovies rises. Anchovies are not only food that is added to all kinds of feed, but they have certain chemicals that are an important source in basic manufacturing materials. So if the price of anchovies goes up because of scarcity, then we will have an honest inflation problem in a slowing economy.
To summarize bluntly – we are in the eye of a perfect storm. The price to earnings ratios will continue to drop over the next year or so until the sellers stop selling. The problem is that there is nothing to bring back the buys at this time.
My recommendation is to sell stocks. Buy the Canada Fund (CDE-NYSE -$11-$12 area) it is a closed end fund that owns Gold and Silver bars held in one of Canada’s largest banks. I would buy the Spider Gold Exchange Traded Fund (GLD- NYSE – $90 area). It sells for 1/10th the price of gold. The reason for gold is that I believe paper currencies will soon become worthless unless we move back to some form of a gold standard. The UBS bank in Switzerland estimates that if the US went back on the gold standard the price of gold would go to over $6,000 an ounce. Wise investors should hedge their accounts just in case paper currencies falter.
AMERCO $2.125 preferred (AO NYSE $22 area) can be bought below its call price of $25.00
85% of the dividend is tax-free. That is an 8.68% tax-free return.
I also favor certain securities in Canada because if their business friendly attitude and their bankers are smarter than the average banker. They were not greedy, and thought things through like Peyton Patterson’s New Alliance Bank (NAL – NYSE- $12 area) and avoided the sub prime and most of securitization mess. Most of these Canadian stocks don’t qualify for hedge fund shenanigans so they can qualify for long term holdings in my opinion. These securities can provide an investor with positive surprises over time. Newalta Corp (Nasdaq- NWLFT-$4.5 area) or (Tor NAL $ 5.15 Canadian) is a fine mid size company.
US Government Bonds are under-owned by the institutions and I would buy the 10-year or shorter, depending on the size of the funds you have.
I would hold on to plenty of cash, because as Huntington Hartford discovered along with Joe Kennedy, when the bottom hits, cash is king.
This is my last major letter for at least a year because I dislike writing negative letters and the markets have to take their due course. We are like a giant oil supertanker that takes 20 miles to change course in the open ocean.
I will be available for private free consultations at the addresses listed below. My mission is to help you protect your funds – not misuse them. It is better to be fore warned – than blindsided.
Keep the faith.
Cheerio!!!

Richard C De Graff
256 Ashford Road
RER Eastford Ct 06242
860-522-7171 Main Office
800-821-6665 Watts
860-315-7413 Home/Office
rdegraff@coburnfinancial.com

This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.

Poor Richard’s Report

Over 300,001 readers
My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have been given the ability to evaluate, study, and interpret world and national events and their influence on the future of the financial markets. This gift allows me to meet the needs of individual and institutional clients. I evaluate situations first on a fundamental basis then try to confirm on a technical basis. In the past it has been fairly successful.

Prepare for the Worst it is Survival Time !

Dear and Faithful Readers;
This will be my last Poor Richard’s Report that will concern the US stock markets and investments for at least one year. I might, from time to time, make a comment or two on current events on a personal basis, but my financial advice is here and now.
There are two main reasons. The first is that everything as we know it is going down a rat hole because of our past excesses. We must all share the blame. The second is that I have been elected Secretary of the Willimantic Rotary Club of Connecticut. That is a demanding office that requires a lot of learning and paperwork. It is a one-year office, but after the learning period comes Vice President and President after that. Those are the easy jobs, because then one is in a position of authority to delegate responsibilities.
Before all the bubbles had burst we were in euphoric stock markets. Price to earnings ratios (PE’s) went to all time highs. We were placing bets because it was going to go up. We did not pay attention to earnings, sales, and debt ratios.
Now the bubbles are still bursting, we have a credit crunch, and we are now putting our faith in two brilliant men, one of which does not believe in paying taxes. Our President is only as good as the people surrounding him. That is why former presidents did not want “yes” persons surrounding him. Some wanted both sides in order to decide.

WE ARE DEFINITELY HEADING TOWARDS SOCIALISM WHICH MEANS WE ARE LOWERING OUR STANDARDS. EXPECT MORE GOVERNMENT INTERVENTION INTERFERRING IN OUR DAILY LIVES.
The stimulus money does not produce continuous jobs. The majority of the jobs are one time shots. I believe the Government should have given the public the trillions of dollars to pay down debts of high usury rates that are actually legal extortion. Senator Dodd – where were you?
As the general public gets squeezed tighter and tighter on meeting payments on a declining home value, they will sell the highest price stock they have to meet payments. This also means real estate is dead as we know it. Transactions can be done between individuals outside the banking system – that is why one sees so many for sale signs “by owner”.
When I write that we are lowering our standards I really mean it. This has to do not only with what is a normal PE ratio, but a general slowing down of business. This in turn means lower sales, which entails lower debt coverage. This can lead to a spate of bankruptcies brought on by bond defaults. This can be a hazard for all types of funds because the fund managers have no idea where the “next shoe will fall”.
Municipal debt is also suspect because the voters keep rejecting budgets until they are at the bare minimum. California is right now (July 9, 2009) on an IOU that many banks will not honor. Money can be made or lost by a change in the credit rating of a bond.
Corporations will have a hard time competing with government debt for their debt offerings. This is happening world wide. Corporations that will be able to borrow will be paying high rates. This can force lesser companies to sink to the bottom.
One relatively safe place is the 10 year Treasury. It is yielding a paltry 3.50% area. The core deflation rate is 1/1/2% so combine the two you come up with a real 5% rate of return. With the real economy sinking even further in the months ahead these bonds could yield even less; that means to you, savvy purchaser, higher prices. Govt. bonds at this printing are under owned. That is a real positive.
The “professionals” are telling you not to stay in cash. What they mean is that they need you to buy their junk. Cash is king. Here is an ideal tale. Huntington Hartford was the chairman of the Great Atlantic and Tea Company in the 1920’s. Starting in 1928, I believe, he started selling his A&P grocery stores property and leasing them back. Everyone laughed. Then in around 1932 he started buying them back for pennies on the dollar. Cash will be king.
Even if we throw out every politician that will be running for reelection in 2010 it will still take a few years to level the playing field.
The SEC could pay a “finders fee” for successful whistle blowers. If that was the case, the SEC could not have ignored Bernie Madoff. That would make everyone squeaky-clean overnight.
Bring back the short sale rule.
Bring money market funds under bank supervision. They are really unregulated banks.
Separate brokerage and banks, but have them able to competein an equitable manner, and have the rules revisitewd by the Congress every 7 to 10 uyears. The Investment Company Act of 1940 should be abolished. That law was passed to protect the nascent mutual fund industry. Now it is a baby gorilla without diapers.
The best idea I have read and written about is having a short term trading penality of 80% gradually working down to zero after a holding period of 5 years and one day. That has the potential of leveling the playing field overnight. It would be like the Navy Seabees of World War II fame.
The bureaucrats in Washington are so scared of emails that they now communicate with little pieces of paper crumbled up in their pockets that have no meaning except to the person reading it.
The preferred I have mentioned in previous letters is still attractive at current prices because the income is 85% tax free and we are going to be taxed to “kingdom come”. Do not believe our President, but watch what he does. “Tricky Dick” Nixon will now be “Outrageous Obama”.
The Canadians never fell for our sub prime crap, so they have a pretty good system. Sure they are hurting, but they are pro business. To qualify for citizenship you must have money, investments, and a job. Oh, by the way, you must also be able to speak English. Their universal health care system is falling apart and if we go on one they surely will reverse theirs because their citizens will have nowhere to go when sick.
The comparison with the great depression of the 1930s is really ominous. The problem then was that the Federal Reserve was leaderless. The real man who was really in charge of the Federal Reserve was the President of the NY Federal Bank of New York, who died in 1928. It is often said he would have raised margin rates. Back then margin rates were 10%. Today margin rates are 10% for Government bonds and certain commodities. The reason for the 10% rate was that there was little movement. If the government really wanted to restore confidence back into the world markets and restore leadership and respect worldwide all they have to do is raise margin rates to realistic levels and raise taxes on short term trading while at the same time reward long term holders with no taxes.
These exchanges were formed on the theory that they would benefit individual businesses not promoting speculation.
When our systems were developed it was understood that short term speculators were needed to balance the market place, but excessive use and over indulgence are fatal flaws.
Only a veto-proof Congress can pass these laws today. They can and should take control and pass these consumer protection laws (that is us, dear reader) and if the President vetoes these laws, then they override it. These votes should be bipartisan.
During my years with Smith Barney they decided that it was very important to hire someone who knew what was going on in Washington. One analyst remarked that “if I knew the FDA was doing that , I would not have recommended the stock..” Good idea, but wrong people. They rubbed management the wrong way including some of our clients. The last person was Kevin Philips who used to be a speech writer and political advisor for Richard Nixon. He was very good, but way out of the main stream. So we dropped that idea, but continued to muddle through on our own.
My point is that one has to be aware whyat is going on in Washington D.C. in order even think of investing successfully.
Then there is an outside phenomenon to be aware of. It is called EL NINO. It occurs when a warm-water current in the southern part of the Pacific Ocean every so often changes its pattern. It is like if the Gulf Stream stopped flowing north for a year. Our weather patterns in the northern Atlantic region would change drastically. It is speculated that Magellan was able to sail around the world because El Niño had calmed the waters at the southern tip of South America. The economic consequences can be awesome. The anchovies swim in these waters, and when they are hard to find, or the catch for year dwindles because the current moved too far out to sea, the price of anchovies rises. Anchovies are not only food that is added to all kinds of feed, but they have certain chemicals that are an important source in basic manufacturing materials. So if the price of anchovies goes up because of scarcity, then we will have an honest inflation problem in a slowing economy.
To summarize bluntly – we are in the eye of a perfect storm. The price to earnings ratios will continue to drop over the next year or so until the sellers stop selling. The problem is that there is nothing to bring back the buys at this time.
My recommendation is to sell stocks. Buy the Canada Fund (CDE-NYSE -$11-$12 area) it is a closed end fund that owns Gold and Silver bars held in one of Canada’s largest banks. I would buy the Spider Gold Exchange Traded Fund (GLD- NYSE – $90 area). It sells for 1/10th the price of gold. The reason for gold is that I believe paper currencies will soon become worthless unless we move back to some form of a gold standard. The UBS bank in Switzerland estimates that if the US went back on the gold standard the price of gold would go to over $6,000 an ounce. Wise investors should hedge their accounts just in case paper currencies falter.
AMERCO $2.125 preferred (AO NYSE $22 area) can be bought below its call price of $25.00
85% of the dividend is tax-free. That is an 8.68% tax-free return.
I also favor certain securities in Canada because if their business friendly attitude and their bankers are smarter than the average banker. They were not greedy, and thought things through like Peyton Patterson’s New Alliance Bank (NAL – NYSE- $12 area) and avoided the sub prime and most of securitization mess. Most of these Canadian stocks don’t qualify for hedge fund shenanigans so they can qualify for long term holdings in my opinion. These securities can provide an investor with positive surprises over time. Newalta Corp (Nasdaq- NWLFT-$4.5 area) or (Tor NAL $ 5.15 Canadian) is a fine mid size company.
US Government Bonds are under-owned by the institutions and I would buy the 10-year or shorter, depending on the size of the funds you have.
I would hold on to plenty of cash, because as Huntington Hartford discovered along with Joe Kennedy, when the bottom hits, cash is king.
This is my last major letter for at least a year because I dislike writing negative letters and the markets have to take their due course. We are like a giant oil supertanker that takes 20 miles to change course in the open ocean.
I will be available for private free consultations at the addresses listed below. My mission is to help you protect your funds – not misuse them. It is better to be fore warned – than blindsided.
Keep the faith.
Cheerio!!!

Richard C De Graff
256 Ashford Road
RER Eastford Ct 06242
860-522-7171 Main Office
800-821-6665 Watts
860-315-7413 Home/Office
rdegraff@coburnfinancial.com

This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.

Over 300,001 readers
My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have been given the ability to evaluate, study, and interpret world and national events and their influence on the future of the financial markets. This gift allows me to meet the needs of individual and institution clients. I evaluate situations first on a fundamental basis then try to confirm on a technical basis. In the past it has been fairly successful.

Sir Winston Churchill- Hansard, November 11, 1947
“Many forms of Government have been tried, and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government except all those other forms that have been tried from time to time.”

How true!
My long time readers know that I have been upset over the policies going on in Washington. I was euphoric over Republican victories. That would soon turn to utter betrayal as if I had personally been violated. These self serving idiots increased their benefits while ours decreased. Greedy lobbyists stuffed their pockets with ill begotten gains from unsavory laws that protected rapacious players from botched derivatives that could be spawned world wide.
Fear not, dear reader, for during panics leaders assume the mantel of justice. The fluff is out of the economy and it is now working at lower and more sustainable levels. It is onward and upward from here…slowly. The problem is that we are now riding in a WWII jeep and they can turn over quickly. Others, however, will slosh through the swamps and come out winners.
The problem is that OP&R (Obama Pelosi & Reid) gave the stimulus money to the bureaucrats in Washington to spend, instead of to us.
The stock market has a few years to go before it resumes its upward trend. However, don’t despair my friends, because on the bottom there are several “submarines” that in time will surface to become mighty aircraft carriers.
Why am I becoming positive when every one else is finally so upset?
This is a democracy- no matter who is President. Politicians are afraid of losing their power. Not money, but power. No bribes can forestall the loss of power. We could have an entirely new congress in 2010 made up of “independent” thinkers that could take control away from the President. Though, it would have to be veto proof. Now that would be a real positive change!
I watched Dr. Ben Bernanke, Chairman of the Fed, spar with various congressmen over the Bank of America and the Merrill Lynch deal. Everyone, except for a few on each side, was trying to get the other to say Ken Lewis (Chair of B of A) was a nincompoop (and a liar). It has become rather obvious to me, and to others, that Mr. Lewis was way in over his head and tried to get so big that he became “too big to fail”. This will be a continuing saga for the business journals and the “bad boy” image. I foresee many so-called prominent businessmen going to prison while others commit suicide. You might even find a congressman or two with them as the cracks in the floorboards open wider.
Listening to Dr. Bernanke, I realized how many checks and balances there are in our government. Dr. Ben was giving straightforward, honest answers in clear sentences. Usually it was a simple yes or no. I loved it.
The next positive event for me was reading an article in Bloomberg quoting Louis Gerstner, the worthwhile former Chairman of IBM.
One of his positive comments was to combine the 16,000 or so school districts into 70 or 80. He says, “I could not have run IBM with 16,000 profit centers.”
The next idea was the one that stirred all the fine memories of yesteryear. He proposed putting a CAPITAL GAINS TAX of 80% on short term trades. After six months it would drop to 60%. Securities held for 5 years would have no tax. This would stop all the greed and speculation that is going on today. Derivatives and sub prime would become dead meat and most of the discount brokerage houses would fall by the wayside.
When it comes to finances we must have the strictest laws in the world with an easy way to enforce them. Easy money attracts slothful guttersnipes.
So you see we have a lot of winners out there that will be heard. Some of them are just hot air, but I believe men like Mr. Gerstner are raising “trial Balloons” and must be taken seriously. It took the Congress almost 10 years to enact the laws and this time around I believe it could be done in 5 to 7 years. That depends on how fast the Congress is turned out and in.
Today you do not need a lot of services throwing junk at you to become a successful long term investor. You don’t need a chart either, unless you can get hold of the point and figure chart that Dorsey Wright does.
What you do need is common sense. Look around you. What are the necessary items for everyday use? What is the price of the stock? Selling below $15? Dividends?
There was a man who, in 1937, bought 300 shares of Standard Oil of NJ for seven dollars. At the end of the year the broker suggested he take a profit at $21.00. He did. If he had held on to it he would have been a multi-millionaire. He would have owned thousands of shares of EXXON. That is why I am not a multimillionaire today. Looking back at it; if dad had sold just 100 shares he would have had his investment back, and he would still be wealthy even today.
Another true story is about a wise lady, who when she received enough of her dividends to make an investment, she would first visit her banker and ask him what stock he liked. Then she would visit her broker and asked him what stock he liked. When they agreed she bought. The only one she did not buy was IBM. Her heirs are wealth even today.
Then there is Sir John Templeton. The story about him is that after the Battle of Midway he walked into a brokerage house and plunked down $100,000 cash. (Today the cops would come.) He Told his broker to buy 100 shares of every stock on the American Stock Exchange that is selling at $5.00 or under and do not touch them until he gets back when the war is over. He amassed a small fortune that would soon become the Templeton Fund.
I have hundreds of good stories like this that came out of the depression. Some successes were common sense while others were good investigative situations. None of these individuals invested to become rich overnight, but believed in the capital system of long term growth without any gimmicks or “funny money”.
So when the investment waters become very muddy- it is time to explore the bottom to find those US Naval submarines that have the potential of becoming tomorrows super nuclear powered aircraft carriers. These should be considered INVESTMENTS not bets.

Internet Tip:
When you have a problem and you’re told to “call this number”. When the phone rings, the first thing you hear is that this conversation may be recorded for training purposes & Press one for English ……

Well here is the tip- DO NOTHING. After a minute an operator will come on the line and take care of your problem – Cheerio!!!

Richard C De Graff
256 Ashford Road
RER Eastford Ct 06242
860-522-7171 Main Office
800-821-6665 Watts
860-315-7413 Home/Office
rdegraff@coburnfinancial.com

This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.

Over 300,000 readers
My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have been given the ability to evaluate, study, and interpret world and national events and their influence on future of the financial markets. This gift allows me to meet the needs of individual and institution clients. I evaluate situations first on a fundamental basis then try to confirm on a technical basis. In the past it has been fairly successful.

How to make Wall Street Safer

I am writing this in the hopes that some of you have contacts with influential members of Congress.
These ideas are simple to implement and will have positive effects.
These letters will be short and right to the point.

Have all firms that do transactions in securities on exchanges in the United States be PRIVATE PARTNERSHIPS.
If the partners are putting up their own money they will think twice about doing a sub prime deal. It will not be how big is the commission, but how big the risk will be to their own pocketbook.
Cheerio!!!

Richard C De Graff
256 Ashford Road
RER Eastford Ct 06242
860-522-7171 Main Office
800-821-6665 Watts
860-315-7413 Home/Office
rdegraff@coburnfinancial.com

This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.

Over 300,000 readers
My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have been given the ability to evaluate, study, and interpret world and national events and their influence on future of the financial markets. This gift allows me to meet the needs of individual and institution clients. I evaluate situations first on a fundamental basis then try to confirm on a technical basis. In the past it has been fairly successful.

How to make Wall Street Safer

I am writing this in the hopes that some of you have contacts with influential members of Congress.
These ideas are simple to implement and will have positive effects.
These letters will be short and right to the point.

Have all firms that do transactions in securities on exchanges in the United States be PRIVATE PARTNERSHIPS.
If the partners are putting up their own money they will think twice about doing a sub prime deal. It will not be how big is the commission, but how big the risk will be to their own pocketbook.
Cheerio!!!

Richard C De Graff
256 Ashford Road
RER Eastford Ct 06242
860-522-7171 Main Office
800-821-6665 Watts
860-315-7413 Home/Office
rdegraff@coburnfinancial.com

This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.

Over 300,000 readers
My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have been given the ability to evaluate, study, and interpret world and national events and their influence on the future of the financial markets. This gift allows me to meet the needs of individual and institution clients.

AS I SEE IT

O.K. Here is some straight talk about the economy and the stock market. The economy is bottoming out. Notice I said bottoming, not rebounding. Think of it this way: you own a swimming pool that has sprung a pretty good leak. By the time you have stopped the leak you have lost 5% of your water. The problem is you have been experiencing a dry spell and your reservoir (credit) is almost empty. You now have just a glass full of water to refill your pool, just one cup at a time, slowly.
Now, has our Congress come to the rescue just in time? They have redefined the credit card industry, which makes it a little harder for the companies to gouge us. They left the interest rates the same. Before 1974 it was called USURY. That was and should be a very bad word. Who do they think they are conning? We are not that dumb. Both parties are on the take. They use a once honored term- Lobbyist. Today that stands for bribery. Everyone in Washington feels they can just keep on printing money. If we were on some form of a gold standard, where excessive debt meant a weaker dollar and less trade, they would think twice about padding their own boudoir.
I am not a true economist and I must rely on sources that I know are competent. I have studied and learned from them for over 48 years.
One thing is very clear. When a US Treasury bill has a negative yield; we are in deep trouble. The last time that happened was 1932. This means big money is scared and they are paying the government to hold on to their money. Today, May 29, 2009 the 2 year Treasury note is yielding 0.97%. Buying bonds today is an instant loss.
When most bonds were issued, it was when business was booming and the revenues at that time supported the intended interest rate. Now with business at a snails pace the debt coverage of these bonds is in serious jeopardy. Debt coverage means how many times the liquid assets can cover the bond interest payments. The greater the coverage on the bond interest payments – the higher the rating. If a bond cannot pay it’s interest payment then the whole company is in default and they have to find some way to pay the bondholders. They have first crack at a corporation’s assets. What is left goes to the preferred shareholders and common stock holders get the crumbs. So buying a bond fund or any instrument that holds many bonds should be avoided. Even the managers are not sure which bond will go down next. You should only buy bonds, if you must, as individual issues. This makes insurance companies very suspect.
General Motor’s bondholders are getting a royal shafting by being made to accept common stock or “funny money”. This is, in theory, to protect the pension funds, which still own the preferred and common stock. Balderdash! I believe this will end up in the Supreme Court of the United States.
Don’t get me wrong; buying bonds at the appropriate time can reward an investor handsomely. Timing is everything.
Now here is the really bad part. Don’t fret because at the end of this letter I have the answer for you. The stock market has not bottomed in my opinion. In March I called the bottom, and we have had a fantastic rally, but now I have second thoughts. I know we will test the lows by October of this year. Whether they hold, nobody knows. One can only guess. Right now my guess is no.
Speculators and the media believe naively that we are ready to resume a rain-delayed ball game. Too bad we can’t refund our tickets.
The problem is that the mechanic’s of the market place have not been corrected.
You can see the speculators still playing the market – especially the big capitalization stocks – and are swimming in shark-infested waters. These sharks have no regard for ethics or laws or anyone’s skin but their own. At the present time the media is impressed by wealth, but not how it was earned. Financial morals are lower than the bottom of the ocean.
What we have to do is trash the conservatives and liberals at the same time and elect middle of the roaders that work with both sides of the isles. We need some hard nose politicians that are not afraid to speak plainly and openly. The problems of today are here because we had weak-kneed bureaucrats that were either paid off or lacked the intestinal fortitude to right a wrong. When you are around money, unless the laws are strictly enforced, slimy eels mess up your boat badly.
We now need global enforcement so that citizens of countries that do not comply are blackballed. The US was once known as the safest haven with the toughest laws in the whole wide world. Sadly, the keepers of the faith retired.
So until we have a global regulatory agency that will protect investors, the stock markets for the most part are a crapshoot, or like picking a single number on a roulette wheel.
Buying a bond is going to be an instant loss at best. We have to borrow trillions of dollars to finance this socialist experiment. Who wants to borrow the first trillion? China and Brazil want to trade in their own currency. When a central banker sells a government security he receives dollars. They then sell the dollar to pay for the gold. That is why you see gold go up when the dollar goes down.
The whole world is in debt.
My big fear is that in January Obama will try to get rid of Bernanke who is Chairman of the Federal Reserve. That is like changing horses in mid stream to borrow a quote from yesteryear. Right now the whole world is listening to him. He has made honest mistakes and corrected them quickly. In the past when a stock analyst made a mistake I would pay careful attention to him, because I knew he was trying very hard to make up for the previous mistake and had learned from his error. Then there were some that could turn a load of manure into gold bars. Caveat Emptor.
In my last letter I recommended buying Spider Gold Trust (NYSE GLD $96.16) and today I am adding Central Fund of Canada (NYSE CEF $12.56) which hold gold and silver bars in one of Canada’s largest bank vaults.
My reasoning is this: they keep increasing their benefits while decreasing ours and refuse to really fix the inequities. By going back on some form of the gold system this puts pressure on them to perform properly. If they spend too much it will weaken the dollar and send them out of office quicker than you can blink.

In 1950 we held 68.2% of the worlds’ gold at Fort Knox. Today it is less than 28%. The whole world is awash in debt and dollars and sooner or later something has to give. To protect yourself, your family, and your job or business you should consider buying some gold stocks that own gold.
If countries decide to go back on some form of the gold standard the price could increase two to tens times the current price or more. If the Government tries to confiscate it like they did in 1932 they went from $21 to $35. That is a pretty good percentage increase- so I would not worry about that now.
Remember when things get really bad, they can only get better.
Those needing income should look at preferred stock of sound companies selling below their call price. The sharks can not mess around with these with ease. Many are qualified preferred’s which means 85% is tax free. I prefer AMERCO $2.125 preferred list on the NYSE. The Symbol is AO-A. They own U-Haul Trailer Company. That is also traded on NASDAQ- UHAL-$36.85. A good way to keep track of the preferred is to watch for any sudden shift in UHAL.
There are also lots of values north of our borders in Canada. The Canadians did not monkey around with their banking system so many of their companies are in fairly stable condition versus the United States.
A word of caution; I was having my Saturday morning breakfast at the Woodstock Country Store when I met this gentleman who told me this amazing tale. In his business he has to buy nickel, about 400 pounds per year. This year he placed his order and found out the price had dropped 50%. I found out later that China had stopped buying.
This example is just another reason why we should be moving to some form of a gold standard. It puts a ball and chain on our politicians, who cannot get a real job, and gives a solid standard of living for us and for our grandchildren.
Buy some gold as a protection and a hedge. If you have any problems you can contact me personally at the numbers listed below.
Thank you and Cheerio!!!

Addendum

Chairman Bernanke’s plan if we ever had a depression again was to go into a helicopter and spread dollar bills all over the country in every town, village and farm. This is what he wrote his thesis on while getting his doctorate at M.I.T.
Nothing goes as planned. He has his depression, and he has the chance to implement his ideas, but there is always a catch. An election came and a populace president and his party were swept into office.
Now everyone wants on the ‘gravy train’, which is actually more like a giant lemming lumbering towards the seaside cliff. States are now knocking on the door like hobos of the past for a needed handout. Except this time there will be no thank you, instead they will simply rush to get in line again for more.
The mighty dollar is ready to be downgraded to compete with the Chinese Yuan and the Mexican Peso and the Italian Lira. Interest rates will catapult over night as computers change the price of our bonds in the twinkling of an eye.
The idea of the good Doctor Bernanke was to distribute funds into private hands that would create jobs where needed, which is certainly not in Washington D.C. Washington should be responsible for creating rules and umpires to make sure the game is played honestly.
The lesson we learned from the 1930’s was that our banks and credit system had to be sacrosanct. Once those standards were lowered the blood sucking vampires landed in Washington DC. They are called Lobbyists. What is your interest rate?

Richard C De Graff
256 Ashford Road
RER Eastford Ct 06242
860-522-7171 Main Office
800-821-6665 Watts
860-315-7413 Home/Office
rdegraff@coburnfinancial.com

This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.

Over 300,000 readers
My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have been given the ability to evaluate, study, and interpret world and national events and their influence on the future of the financial markets. This gift allows me to meet the needs of individual and institution clients.

A CASE FOR GOLD
Hi:
I have been trying to write this market letter for over a week now. My problem is that I want to keep it simple and right to the point without causing a panic or looking foolish. Tough Job!
So here goes my fourth and hopefully my last try.
We have been experimenting with fiat currency since August 15, 1971 when President Nixon took us off the gold standard. This allowed politicians and financiers to create all sorts of funds without any solid backing except the US Dollar. So, four decades later the world economies are awash in dollar debts that have become tainted to say the least. We are in a horse race that has come up lame. The problem is that some of the other thoroughbreds play by their own rules.
The major players have suffered huge losses that they have not been accustomed to for a very long time. It is the major players that carry monstrous debt and it has trickled down to you and me. The whole world is tapped out as far as standing in a banking line for credit.
Cadbury (The British Chocolate Company) came to the bond market the same time the British government did. Cadbury got the better rate. Microsoft (NASDAQ –MSFT) will probably do better than the US Government Bond offerings since MSFT is a true AAA rated security. When corporations can borrow money at a cheaper rate than their governments something is very wrong.
We are in a worldwide recession, which means business is slow and unemployment is rising. This also means people’s spending habits are changing.
We are in, I believe, a topping out process of a major bear market rally. The second leg down could bring blood in the streets. It could start as a major corporation fails to pay its interest on a semi annual debt payment. When business slows down this could hurt their debt coverage and put it in jeopardy because their interest payments estimates might have been based upon higher sales and earnings.
There are as few as five corporations that have debt rated AAA (Highest, or best rating). This fact means that with a slow economy, many corporations will not be able to pay their debt payments. Wall Street watches dividends, I watch bonds. Bonds come first, then Preferred stock followed by common stock. Bonds are considered safer than common stocks, so when a bond defaults it could send shock waves throughout the world.
This could cause a collapse of stocks as mutual funds will just sell- hit the bid- and currencies falter and precious metals rise. Especially gold.
I have noticed that when the dollar weakens gold rises. I believe that central bankers sell our debt and then convert our dollars into gold bullion.
Going back to some form of the gold standard will put a break on government spending by any government. Too much spending will make that currency worthless. Either way it is a tough choice.
UBS (a Swiss Bank) estimates that if the US went back on the gold standard, gold would go to $6,000 an ounce. Add in China and Japan and we are looking at $9,000 and ounce. Gold is presently selling at a little under $900.
We can buy the Spider Gold Trust (NYSE-GLD-$90) that trades at 1/10 the price of gold. It trades dollar for dollar with the price of regular gold. If gold trades down GLD will trade down. If gold trades up the GLD will trade up. All you pay is NYSE commission. No fancy management fees and all that garbage. You can sell anytime and receive a check in three days after the sale. This can be your personal hedge. You do not need a lot of money for personal protection. Buying too much would be a speculation, which could sink you, if it happens. There are no sure things in this world, as we sure are learning now, so don’t be foolish.
If you have any problems, please do not hesitate to get in touch with me.

Richard C De Graff
256 Ashford Road
RER Eastford Ct 06242
860-522-7171 Main Office
800-821-6665 Watts
860-315-7413 Home/Office
rdegraff@coburnfinancial.com

This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.

Over 300,000 readers
My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth, while providing needful income, is my primary goal in these unsettled times. I have been given the ability to evaluate, study, and interpret world and national events and their influence on the future of the global financial markets. This gift allows me to meet the needs of individual and institution clients. I first evaluate situations on a fundamental basis and then I confirm them on a technical basis. In the past this has been reasonably successful.

A History Lesson to Be Relearned?
In the darkest days of the great depression Socialism first started to creep into our form of government. It seemed that Capitalism had failed and the educated elite were experimenting with Communism. They were called “pinkos” and Senator Eugene McCarthy would go on a boozed-up onslaught of slander against them 20 years later.
The point I am trying to make is that socialism does not work. It stifles creativity and tries to create a classless society to be governed by fat and nasty bureaucrats who consider the rest of the population as meager.
Capitalism is not dead. What our leaders failed to do was to properly supervise the so-called “new debt instruments”. The robber barons of the 19th century are the hedge fund operators of today. A bail out is a way of covering up for one’s mistakes. (I thought bail out meant getting out of jail.) All we are doing is supporting a bunch of losers. When giant corporations sink, it stings like a nest of hornets, but some of the strong always resurface. A couple of great bankruptcies will be remembered for decades if not centuries. We have been conscious of wealth creation, but not how we have fashioned it.
In my last letter I noted that the market had turned up. I did not expect the voracious rally that ensued. I did have cold feet and urged caution because with no “uptick rule” the shorts were caught in a massive squeeze, which sent prices soaring into outer space. I now believe that the market has bottomed, but the popular average may not have.
I wrote in my November 25, 2007 letter that markets top out stock by stock. Now the reverse is happening. The small and mid-capitalized stocks are bottoming and firming up. The large capitalized stocks are the last to surrender their gains. This is because the sellers of smaller stocks seek safety in larger companies. It is the greed factor and they just can’t wait patiently on the sidelines.
As I recently looked back over my previous letters I was impressed, and yes, even proud of my stock and market calls. I was equally surprised at most of my political comments. Some were so bad they were downright funny. Jay Leno would have a ball reading them. So, I want to apologize for being a bad politician, but I suspect that some of my regular readers don’t take my political comments too seriously. I hope.
FDR called economists “economic royalists” but Spiro Agnew (remember him?) had a few choice phrases that could be applied today. (Spiro, you were 40 years too early.) Try “netering nabobs of negativism” or better yet an “effete corps of impudent snobs”.
This is a brand new ball game, with new players, new managers, and new owners. The new game is how to avoid paying taxes legally. We are going to be taxed from hither to yon. Some old stand-bys might go bye-bye. Home mortgage deductions? Many charities will probably have to prove they really provide a service.
If you belong to a major denominational church with a solid history of service I can not think of better place to contribute. You get to watch your money while earning a deduction.
Preferred stocks with a qualified dividend selling below its call price will provide you with an 85% TAX DEDUCTION. A preferred yielding 10% means an 8.5% tax-free return to you. A municipal bond yielding that much is heading for the sewer. I would only buy municipal bonds if you plan to hold on to them for at least two years. Muni traders do not like to buy back what they have dumped on you.
Don’t do any business that depends upon the government of a country that is a dictatorship. Dictators run it for themselves, not for you. In the United States, the House has the real power. They vote on the budget. Your local congressman might be in favor, but the other 400 odd members can be against it. If the house does not pass it, forget the senate even considering it. Remember that the public believes the Congress is really “the pits”, EXCEPT their own Congressperson.
I tend to favor Canadian Stocks right now. The Canadians stand proud and tall and have not wallowed in the same mud we have. They have companies that are well managed, with extremely low valuations and healthy dividends. I believe the Newalta Corp (Nasdaq NWLTF), which I have mentioned at a higher price, has now bottomed.
One of the many truisms in this business is that most past performers do not participate in the next bull market; they become a source of funds for buys of smaller companies. One of the reasons for this is that large corporations find it more difficult to change direction, just as it takes a giant super-tanker 20 miles to change course.
Mutual funds are really in a tough bind. They mostly all own the same stocks and, since they have chased the individual investors to the sidelines, they have no one to sell to. If they have too much redemption they can legally distribute stock instead of cash. This is another reason why the popular averages might be making new lows, while the general market has bottomed.
In March of 2000 the NASDAQ Index was 5132 and today it is around 1652. In the same time period the S & P 500 Index was at 1553.11 and today it is in the 856 area. This is a graphic example of when governments fail to supervise the financial markets. Much damage has been done, but no one has stepped forward with concrete proposals to stop the slaughter.
Our guilt is not going unpunished. At the G-20 just completed in London, President Obama agreed on international “high standards” for the regulation of “Systemically Important” companies to be sponsored by a new global Financial Stability Board (FSB). The United States will be just one of the 20 chairs on the FSB board. Whatever the consensus is with the other central bankers from the G-20 nations in respect to any regulations put forth, our Federal Reserve and the Securities Exchange Commission (SEC) will then impose them on our economy. (Does the US Senate have to ratify this? I think not.) What our Congress has to do is re-introduce the safeguards put in place in the 1930’s and modernize them so that we will never have to suffer this ignominious affrontage again. To regain our regal throne we must set out standards once again higher than others, so that all nations will again trust us.
We must adapt to new philosophies. We buy a home to live in and enjoy our surroundings. We must buy a home that we can afford – not on a wing and a prayer.
We must learn to save. Cash is king.
Any corporation that has accepted funds from the Government is dead meat – at least for 5 years- maybe 8.
We buy stocks because they have a useful product, provide a useful service, and pay a handsome dividend with the expectation of further increases.
The stock market has bottomed, but all that means right now is that the slide is basically over with.
The President has taken a big political and economic gamble. For this to work he must have the backing of the Democrats in Congress. He could get BUSH-WHACKED!
Gillian Tett, an award-winning reporter for the Financial Times writes about the Gold Standard Debate Roars linked here: Gillian.tett@ft.com. Many responsible investors believe that this is the way to solve our financial crisis. The four-decade experiment with a fiat currency based upon governments being credible is being pushed to its limits. The US reserve of gold is so small, relative to its monetary base, that a price of $6,000 an ounce would be needed to reintroduce a gold standard. To implement that standard in Japan, China and the US, the price would be more than $9,000.
“But what this debate does show is just how much cognitive dissonance-and utter uncertainty- continues to stalk the markets. It might seem almost unthinkable to propose a return to a gold standard, in other words. However, the key point is that the last 18 months have already produced a stream of unimaginable events,” she writes.
So while we have this crisis, I do not see gold collapsing far from these levels of $900- unless we find a viable cheap energy substitute.

Cheerio !!! Monday, April 13, 2009

Richard C De Graff
256 Ashford Road
RER Eastford Ct 06242
860-522-7171 Main Office
800-821-6665 Watts
860-315-7413 Home/Office
rdegraff@coburnfinancial.com

This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.