Table Of Contents - Introduction – From The Author - Welcome to the New World - Oil, Geopolitics & War - Gold Stocks Around The World - ETFs – Exchange Traded Funds - Gold & Energy ETFs - Inverse ETFs - How to Trade ETFs by: TheGoldAndOilGuy - Hard Currency Funds & World Bond Funds - Planning & Non-Paradigm Thinking - The World’s Premier Residence Haven - A Complete Guide to Contrarian Investments - Biography

JT Grenough

Here is a preview of the Introduction & Chapter 1…

INTRODUCTION – FROM THE AUTHOR - JT GRENOUGH

“There’s no shortcut to any destination worth going.” UNKNOWN

I wrote this book (New World Order Economics – What You Can Do To Protect Yourself - Crisis Investing for 2009) for a major demographic section of the country – investors who are concerned about their future and their holdings.  At recent dinners (anniversaries and weddings I’ve attended) with large groups of people, the most talked-about topic is the economy and investments.  Everyone is concerned without exception. This book is in-depth and leading edge material and a must-have for anyone with any size of portfolio.

I’ve seen a dearth of material on the market and very few people have a one-stop all-inclusive source of material on international, non-traditional investing that can protect them quite well from the current shock and awe of Wall Street.  This book  will be a must-have, a necessity – for economic survival as the next seven-nine years of this L-shaped credit bubble goes through stages until we reach the far side.

I thought of the title and just to see if it had been requested (via Google), I entered the first keywords of the title and found to my amazement 18,200,000 people who have entered these exact key words in a search.  I’m not talking search results but the number of people who have searched with these words – New World Order Economics.  If you enter New World Order Economic you have even a more amazing discovery – 28,700,000 people have searched using that nomenclature.  That tells me there is an absolutely gigantic number of people out there who are looking for answers. 

This Book Covers:

• Oil & Geopolitics
• World Gold Shares
• Hard Currencies & International Currency Funds
• A Resource Chapter on Gold, Silver, Mining & Energy
• Offshore Real Estate Investing – Safe Havens
• Hedge and Short Fund Investing Strategies
• Gold Funds and Exchange Traded Funds
• Creative Non-Paradigm Planning

I have not found any other books that allow the investor to safely re-balance their portfolio from their home office, without leaving there.  It is written as an eBook, for ease of search ability (just enter Ctrl F and you can find any search term or topic you want), and for ease of research ability – since investing is a continuous process this book has over seventy key links to major sites you will need from time to time for updates.  It also is formatted to allow printing if you wish.

The target audience is American investors.  However, the book may appeal to the British and European audience as well.  The old axiom of “buy and hold” obviously just doesn’t cut it any more. 

I’ve previously published a 90,000 word nonfiction book (copyright now owned by Thomson Reuters) I wrote for ‘scholarly’ purposes and not for royalties, designed for reading by corporate CEOs. I currently hold position at a large privately-held conglomerate dealing with Corporate Risks & Investment Risks in terms of corporate treasury holdings and various other areas.  I was previously with First American as a Regional Audit Director under the recently passed Sarbanes Oxley legislation.

I am not an Investment Advisor and thus have no self-interests.  I’m a writer and a researcher and that’s what you need right now. 

Let’s get started…
JT Grenough

NEW WORLD ORDER ECONOMICS

WHAT YOU CAN DO TO PROTECT YOURSELF - Crisis Investing for 2009

WELCOME TO THE NEW WORLD

 “There are no rules here – we’re trying to accomplish something.”  - THOMAS EDISON

Dr. Tatyana Koryagina, a senior research fellow in the Institute of Macroeconomic Research in Moscow, stated in a Pravda interview that “the U.S. is engaged in a mortal economic game. The known history of civilization is merely the visible part of the iceberg.  There is a shadow economy, shadow politics and a shadow history.”  She went on to say, “It is possible to do anything to the U.S…whose total debt has reached $ 26 trillion.  Generally, the Western economy is at the boiling point now.  Shadow financial activities of $300 trillion are hanging over the planet.  At any moment, they could fall on any stock exchange and cause panic and crash.”  She further stated, “The U.S. has been chosen as the object of financial attack because the financial center of the planet is located there.” 1

This is a very interesting statement from an individual who is known as a personal advisor to Vladimir Putin, the Russian Prime Minister.  What do the Russians know  - what is Vladimir Putin privy to?  Why were institutions and individuals blindsided by the financial tsunami of 2008?  They did not understand that liquidity can be an illusion.  It is there when you don’t need it but “gone with the wind” when you do.

Tatyana is telling us with some dark speech that the only thing we don’t know about investing is the investment history we don’t know.  It’s not necessarily confined to a matrix.  We’re in the very beginning stages, depending on who you listen to, of the worst financial crisis since the Great Depression. It’s the ‘shadow financial system’ that has created the current crisis that we’re in.  The shadow financial system consists of non-bank financial institutions that, like banks, borrow short, and in liquid forms, and lend or invest long in less liquid assets.  They are able to do this via the use of credit derivative instruments.  The system includes SIVs (Structured Investment Vehicles), money market funds, monolines, investment banks, hedge funds and other non-bank financial institutions.  These are subject to market risk, credit risk and particularly liquidity risk.

We have learned that Investment Banks (and active managers in general, such as hedge funds) cannot protect from bear markets.  They themselves were unprotected.  One exception (if you consider a 2-year history) were the Paulson Credit Opportunities and Paulson Credit Opportunities II hedge funds, which produced net returns of about 590% and 352% in 2007 and lesser returns of about 19% and 16% in 2008.  The Paulson Event Arbitrage Fund returned 100%, and the Paulson Merger Arbitrage fund returned 52.0% in 2007. The amount of money generated by Paulson and Co., both for themselves and their partners can only be described as ridiculous. These funds generated tens of billions of dollars in profit in 2007. If the fund operates with a traditional "2 and 20" (2% management fee, and 20% performance fee), that means that the fund likely generated at least 3-4 billion dollars in profits for the principals. Not a bad year. 2008 was more subdued.  The primary leverage against the sub-prime market was effectively utilized in 2007 by these funds.  I list these because they’re an excellent example of principle – innovative think-tank type planning and execution.  Once it was planned it was as good as done. 

The opposite of this thinking is reflected in how the State I happen to be from lost $ 61.4 Billion in state-administered funds last year and a half.  The State Board of Administration protects $ 97.3 billion in pension money for retired state employees, and invests another $ 25.3 billion for school districts and state and local governments.  A close friend of mine sat on the Board for ten years.  Auditors warned them year after year about complex and high-risk investments but these warnings were ignored.  Now I just read in the Sunday paper that in the last 18 months $ 61.4 Billion was wiped out.  The chief internal auditor who wrote one of the more recent reports stated “Risk is an inherent component of doing business.  To appropriately manage risks, organizations should have mechanisms to identify, measure and monitor relevant key risks not only at the business or product level, but at the institutional level.”  The SBA took on real estate and private partnership investments, and added leverage to the equation.  One investment, $ 5.4 Billion into an apartment complex in Manhattan, is now valued at 10% and Wall Street credit firms have downgraded bonds tied to the deal.  They were also using complicated financial instruments called derivates, which billionaire investor Warren Buffet once called “financial weapons of mass destruction.” 

In the 18-month period covered by the audit, the unit handled $ 1.1 trillion of transactions with limited oversight.  One trader bet $ 1.4 billion on a single trade.  The audit also revealed that the unit let an unauthorized trader, a trainee, deal a total of $ 30 billion in securities.  In the audit period, 70% of the trades were done with only four brokers – Bank of America, Goldman Sachs, UBS and the now-defunct Lehman Brothers.  While they delayed finalizing the audit, the 2006 State Legislature passed two bills allowing the SBA to use even riskier financial strategies, and the other made it more difficult for outsiders to scrutinize some SBA investments.  In August 2007 they were finally required to attend risk training.  A former senior investment analyst at one of Canada’s largest pension funds says our state is on a “disaster course.”  Deloitte & Touche, a firm my uncle used to be Washington DC partner of, recently completed a $ 198,750. Investment Performance Risk Review and another firm has been hired for a $ 182,500 contract (plus expenses).  The SBA says it’s a pittance and “money well spent.”2

The auction-rate securities market, hundreds of billions, seized up in 2008.  Indy Mac failed in 2008.  Lehman left the country with a $ 168 Billion bankruptcy in 2008.  The AIG entry into the credit default swap field required a government bailout in 2008.  Hedge fund losses were huge, the worst in 15 years in 2008.  The current crop of LBOs for the most part failed in 2008. 

Let’s look at Mortgage Backed Securities and CDOs.  The complex market for asset-backed securities took a major blow.  A U.S. Federal Judge ruled to dismiss a claim by Deutsche Bank National Trust Company.  The US subsidiary was seeking to take possession of fourteen homes from Cleveland residents living in them, in order to claim the assets.  The Judge asked DB to show documents proving title.  No mortgage was produced, needless to say.  The net result is that hundreds of billions of dollars worth of CMOs in the past seven years are not securitized.  One source places the number at $ 6.5 Trillion. 

Global securitization was a phantom idea – when large banks bought tens of thousands of mortgages, bundled them into Jumbo securities and then had them rated prior to sale to pension funds or accredited investors, they believed they were selling (and the counterparties believed they were buying) AAA or at the least investment grade quality.  They never realized the bundle contained a significant toxic factor rated “sub-prime.”  No one opened the risk models of those who bundled them. 

In 2008 Investment Banks took on more risk than they had ability.  Their baskets of risk were highly correlated.  The leverage made no sense.  When LTCM fell in 1998, this is exactly what happened.  Banks as you know leverage 10:1 or greater. A $200 Billion loss in the financial system leads to a $2 Trillion contraction of credit.  Lehman was at least 30:1 with just assets.  Off-balance sheet risks were not considered which probably brought the leverage to over 100:1.  Systemic damage has been done.

This is the worst financial crises this generation has ever faced.  The housing sector is literally in free fall. New home sales started to fall since the beginning of 2006 and in some regions they are down over 30% since a year ago. The statistics are amazing.  Calculated Risk, a very credible web site, estimates that a 10% drop in prices will create 10.7 million households in default.  A cumulative fall in home prices of 20% implies 13.7 million households with negative equity while a cumulative fall of 30% implies 20.3 million households with negative equity.  What is the size of these losses for financial institutions and investors?  If a 15% total price decline occurs, and a 50% average loss per mortgage, the losses for lenders and investors is in the $ 1 Trillion category.  Assuming a 30% price decline you can double that. 3 The whole spectrum of financial and credit markets is being effected.  Commercial real estate is following the trend of residential. 

You have to consider geostrategic and long-term issues before allocating assets.  This would include foreign policy, energy supply risks and G7 bond and stock markets. You have to consider financial deleveraging on the currency market.  You need to game out the scenarios of the IMF on this chess board, among many other players.  Alternative investments holdings such as non-US denominated bonds (AAA rated in hard currencies), South African gold shares, direct holdings in strong currencies and diversifications into alternative investments are a must if you are to survive the coming seven to nine years as this L-shaped recession moves into progressive phases. 

A synopsis of reasons I believe this is correct is deductive logic from a Global Economic Analysis site:

Roubini nailed three reasons for a severe recession but dismisses "L" because the U.S. acted faster than Japan. I do not buy that argument for these reasons.

• U.S consumers are in much worse debt shape than Japan.
• There is global wage arbitrage now that did not exist to a huge degree in the mid to late 1990's. Even white collar jobs are increasingly at risk.
• The savings rate in the US is in far more need of repair than what Japan faced. This will be a huge drag on future spending and slow any recovery attempts.
• Japan faced a huge asset bubble (valuation) problem. The US faces both a valuation problem (what debt on the books is worth) and a rampant overcapacity issue as well.
• Japan had an internet boom to help smooth things out. There is no tech revolution on the horizon that will provide a huge source of jobs.4

93% of stock market newsletters lost major capital for the readers last year.  As opposed to market newsletters, at a recent conference in Dubai a speaker said that credit crisis losses could hit $ 3.6 trillion, up from $ 1 trillion worth of writedowns and losses estimated by Bloomberg.  If losses are this great, the U.S. banking system is effectively not solvent since it starts with a capital of $ 1.4 trillion.  The Royal Bank of Scotland is facing an estimated  $ 41 billion loss.

In fact, this has indirectly caused a boom in the class-action field.  In 2008, the number of federal securities filings reached a six-year high, with 267 filings.  That’s a 37% increase from the previous year.  Almost half were related to the credit crisis.  Investors are claiming they have lost approximately $ 856 billion, according to the Stanford Law School Securities Class Action Clearinghouse.  That’s a 27% increase over 2007.  Most of the actions are against firms in the financial industry.  A director of Stanford Clearinghouse said he hasn’t seen this much litigation against a single industry in over a decade.  One-third of all major financial firms were named as defendants in these actions.  Most of the cases allege securities fraud, or altering values.  Underwriting practices were allegedly misrepresented.  The firms that sold auction-rate securities, bonds with interest rates reset by bidding, were all hit with class-actions, as the market completely dried up last year.

California is bankrupt ($42 billion deficit) and it’s public knowledge that it is delaying payments as of February 1st on vendor payments and tax refunds.  Active mutual fund managers cannot protect anyone.  In the last twelve months their returns have approached in some cases 50% losses.  Investors, both corporate and individual, took on risks they did not have the ability to handle.  Many investors in the Madoff  scheme were guilty themselves of concentrating virtually their entire portfolios in his hands.  “The only difference between myself and a madman is that I am not mad” - Salvadore Dali stated this but it looks like it will be the defense of Madoff according to his lawyer. 

A memorable quote from Dorothy in the Wizard of Oz is “Toto, I’ve a feeling we’re not in Kansas anymore.”  To re-balance your portfolio you’ve got to come to the same realization.  You’ve got to devote a lot of due diligence to a Performance Review and game out scenarios just like the CIA does every day.  I wrote one of the most detailed treatises of Corporate Risk Management, and the Enron debacle ever published (by the parent company – Thomson Reuters) – a book called “Protecting Your Company Against Civil and Criminal Liability.”  I learned you cannot trust your future to Princeton economic professors – they work best only in ivory towers. 

With regard to bailouts, US dollar injections have not so far encouraged the market.  Unless they are handled properly they can trigger a major devaluation of the dollar or lead the nation further into stagflation, then deflation and ultimately depression.  The UN has predicted a dollar collapse in 2009, according to a team of UN economists who foresaw a year go that this US downturn would bring the economy to a standstill.  They have stated that the US debt position is approaching unsustainable levels. 

Rense, a top alternative news source reference, in an article on economic protocols, reports:

Therefore, if the planet can no longer generate any more liquidity to lend to the United States, one of three things have to happen: A) There has to be a sudden and dramatic reduction in federal spending. There are only two places that can come from. There would have to be an immediate cut in defense spending and entitlements.  This is highly unlikely.

The other option, B, is a dramatic increase in the rate of federal income taxation from the current nominal rate to 65%, which is what the Treasury Department estimated would be required post-2009 to provide the U.S. Treasury with sufficient revenues to continue to service debt. 

The third option, or C, becomes the declaration of a force majeure on credit service of U.S. Treasury debt by the United States Treasury, which is tantamount and would be accurately construed as de facto debt repudiation by the United States of America.  That is the classic definition of a devaluation.  What institutional and large corporate investors (as I work with) call ‘fast market conditions’ would occur.  There would be the declaration of 'no more stop orders,' the declaration of 'fill at any price,' etc. in a desperate bid to maintain liquidity. 5

Let’s Take A Brief Look At 2008:

• Housing – down 18% nationally and 30% plus in cities
• Emerging market funds – down 55%
• Bonds – Rates on 10 year Treasuries dropped 42%
• US Treasury yields – very low and for a time close to zero
• Bond values – down 6-24% on average depending on the funds and quality of bonds
• DJIA – down 33%
• S & P 500 – down 38%
• NASDAQ – down 40%
• Financial sector ETFs – down 55%

Very weak economic data reflecting deteriorating economies continues to be released from the U.S. and the U.K.  As of the end of January 2009 March crude is now at a low of $ 41.67 a barrel.  In the U.S., the S&P/Case Shiller home price index experienced its largest single-month drop in November, indicating no bottom was near in the housing market.  The Conference Board reported that the January consumer confidence index fell to an historic low.  US retail sales fell for a sixth consecutive month in December – retail sales were down by 2.7%.  According to the Federal Reserve’s Beige Book the economy is expected to weaken further into 2009.  The Fed funds rates are expected to be kept at 0 to .25% as the Committee continues to anticipate that economic conditions warrant low levels for Fed funds rates for some time.  US GDP figures indicate the economy contracted by 3.8% in the fourth quarter of 2008.  A recent Federal loan survey indicated tightened lending standards for 60% of the banks on credit card and consumer loans.  Moreover, 80% said they tightened lending standards on commercial real estate loans.  The commercial sector has significant excess capacity.  S & P, based on a substantial worsening of the economy and financial environment, expects the default rate in the US corporate speculative-grade segment to catapult to an all-time high of 13.9%, meaning 209 issuers may default by December 2009.

Protocols for environmental disasters are called 'scaling-circle scenarios.' 'Scaling circles' is a Department of Defense euphemism. It's also used in FEMA, OEM and other emergency management services. The risk has got to start someplace. It's going to start in one very small, specific area. Therefore what happens is that the immediate force containment is the greatest in the first circle, to try to contain the spread of the disaster and keep it within that circle.  That’s what you have to do.

You have to consider macroeconomics before you reposition your assets.  You have to reposition assets.  You have to close all major risks.  Exit the majority of money funds and currency time deposits, step up gold and oil positions, and move into non-US government bonds in First World nations.  Switzerland is a prime consideration, but there are first-class world banks with branches just a short flight from Florida. You have to modify your thinking as if you are on a special ops tour of duty.  Otherwise the current toxic economic environment will continue to deplete non-repositioned assets. Let’s begin this journey together…

PRESS RELEASE - New World Order Economics, Crisis Investing for 2009

1 Nemets, Dr. Alexandra, Russian Expert Who Predicted Attacks Warns of New Ones, http:archive.newsmax.com/archives/articles/2001/10/3/212706.shtml

2 Highlights and links to 39 reviews of the Florida State Board of Administration, http://www.tampabay.com/specials/2009/graphics/SBA-audits/

3 Roubini,  Dr. Nouriel, The Current U.S. Recession and the Risks of a Systemic Financial Crisis, Written Testimony for the House of Representatives, 2/26/08

4  Shedlock, Mike, Case for an L-shaped Recession, http://globaleconomicanalysis.blogspot.com/2008/04/case-for-l-shaped-recession.html

5 Martin, Al, Protocols For Economic Collapse In America, http://www.rense.com/general80/protc.htm