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UNDER THE RADAR OR BEHIND BLACK CURTAINS?

A couple of weeks ago, an article by Dawn Kopecki surfaced in BusinessWeek Online titled, Intelligence Czar Can Waive SEC Rules, which caught my eye.

What I found disturbing about this article was the revelation that,

President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.

The potential implications of this are nothing short of “astounding.” It raises questions like; exactly what constitutes national security? Would the deteriorating financial position of a public financial concern [like J.P. Morgan or Goldman Sachs?] engaged in the trade of crude oil, natural gas, 48 Trillion Dollar Derivatives books or precious metals be considered “in the national interest?”

Few Answers, Many Guesses

Regarding the timing of the May 5 Presidential memo, White House spokeswoman Dana M. Perino stated,

"There was nothing specific that prompted this memo.”

Additionally,

“The White House wouldn't comment on whether Negroponte has granted such a waiver, and BusinessWeek so far hasn't identified any companies affected by the provision. Negroponte's office did not respond to requests for comment.”

Interestingly, this development comes on the heels of numerous warnings from such reputable financial organizations as the I.M.F. [International Monetary Fund] – who warned in early 2004 that huge American trade and budget deficits could pose a risk to the global economy.

Instead of heeding these warnings, Treasury Secretary John Snow did little more than pay “lip service” to these and other warnings by promising,

“.. to cut the deficit by half within five years.”

Well folks; that was January 2004 when the U.S. National Debt was under 7 Trillion Dollars. Today, the Debt stands at more than 8.3 Trillion and counting and by all appearances, Mr. Snow’s successor, Treasury Secretary Hank Paulson, is going to have a tough time delivering on Mr. Snow’s promise.

As recently as May 23, 2006 – In a Forbes article, the OECD [Organization for Economic Co-operation and Development] warned,

“..in its world economic outlook that the depreciation faced by the dollar could be 'of the order of one-third to one-half.”

Could it be that broken promises and strained foreign confidence in the U.S. financial house prompted the ouster of Mr. Snow in favor of ex-Goldman Chairman, Mr. Paulson?

The New York Post’s John Crudele recently penned a piece titled, PAULSON'S OTHER JOB AS WALL ST. PLUNGE PROTECTOR, where he outlines how whenever the stock market was in trouble someone seemed to ride to the rescue. He identifies that someone as one particular firm – GOLDMAN SACHS, stating,

“Often it was a Wall Street firm that seemed more courageous than fiscally responsible. Often it appeared to be Goldman Sachs, which just happens to be where Paulson and former Clinton Treasury Secretary Robert Rubin worked.”

With the Fed now sending mixed signals about their intentions regarding future interest rate increases and a yield curve that has shifted again toward backwardation [long rates lower than Fed Funds or overnight rates], all of the above warrants close scrutiny on the part of all investors.

Today's Market

Overseas equity markets began the week on a positive note with Japan's Nikkei index adding 82 points to close at 14,833. North American markets began the week on a sour note with the DOW off 99.34 to 10,792,58, the NASDAQ off 43.80 to 2,091.30 and the S&P off 15.90 to 1,236.40. NYMEX crude oil futures lost 1.27 to end the day at 70.36 per barrel.

In foreign exchange markets, the U.S. Dollar Index gained .11 to close at 85.82.

The interest rate curve moved toward inversion with the 2-year bond closing at 5.02%, the 5-year at 4.95% and the 10-year ending the day at 4.99%.

Precious metals fared poorly with COMEX gold futures closing down 1.40 at 607.50 per ounce while COMEX silver futures lost 0.18 to close at 11.13. Precious metals equities were also "hit" with the XAU giving up 3.71 to 124.71 while the HUI trimmed 11.40 to close at 288.31.

On tap for tomorrow, May PPI data is due to be released at 8:30 a.m. Headline expected +.5% vs. prior +.9%. Inventories are due, expected .7%. Finally at 8:30 a.m., May retail sales data is due, expected +.1% vs. prior +.5%. Ex-autos expected +.7%.

Wishing you all a most pleasant evening, good luck and wise counsel navigating these treacherous financial waters!

Rob Kirby

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