Thursday, January 22, 2009 - Vol. 11,
Another Dream Trampled Underfoot
That's Right folks; it's Just as Bad Over
Dear A-Letter Reader,
It was nice while it lasted.
After all, it seemed like a nice arrangement. We
Americans wanted the opportunity to rail on the misdeeds
and poor judgment of our leaders - both economic and
political - and the Europeans wanted to crawl out of
history, into the forefront of the present.
And if anything, the story was convincing. That as
America declined as the hegemonic epicenter of world
financial power, this noble union of experienced and
storied governments would take its place, eventually
rousting the dollar from its standing as world reserve
currency. From here, people customized.
Accredited experts cited euro liquidity, the fact
that it was actually capable of being a world reserve
currency. Rap superstars like Jay-Z and supermodels like
Giselle Bundchen demanded payment in euros or flashed
stacks of the colorful bills in their music videos. Some
fringe groups used it as the springboard for tenuous
arguments of dollar hyperinflation.
But unfortunately, like all other grand illusions,
this one had to come to an end.
It was already starting to come apart - as a few
astute insiders and experts were able to see - as early
as fall of last year, but the pace of decline has
escalated thanks to a few ill-timed reports and a
handful of Sovereign Credit Rating downgrades. Even as
the party comes to a close, many (perhaps even Trichet,
the governor of EMU policy) still cling to myths of euro
strength while conveniently overlooking the union's
But that's never been the policy here at The
Sovereign Society. And it's not necessarily because
we're geniuses or Perry Mason or anything like that. No,
friends, it's mostly due to the fact that we're in the
business of continuously scouting the world's banks and
currencies to find the best opportunities. So we never
have the luxury of allowing our opinions to be
determined by our emotions.
Instead, we're stuck with the cold, hard facts of the
situation. Facts that have been apparent since fall of
Euro Weakness in Plain Sight
On October 14th of 2008 - in Bob Bauman's "Swiss
Banks Survive European Blame Game" - Bob wrote,
"According to one commonly used yardstick to measure
borrowing, the ratio of assets to equity, some European
banks employed more than twice as much leverage as their
""The same mechanisms that led to the crisis in the
United States were operating here," said Arnoud Boot, a
professor of finance and banking at the University of
Amsterdam. "It's totally misplaced for European leaders
to put the blame on the Americans.""
In our year-end series "2008: the Year in
Volatility," currency expert Jack Crooks - Editor of
World Currency Options and Exotic FX Alert
- shared our uncommon perspective on the European
Union and its corresponding currency...
"This is the first major test of the euro as a
currency during a major down cycle..." Jack said, "don't
be surprised if it fails."
Harsh words that have drawn some incredulous
criticism from Jack's readers and peers. We only ask
that you bear this in mind; Jack got the exact
same kind of criticism when he predicted the dollar
would rally in 2008...a trend he played for windfall
profits as the Credit Crunch came to the forefront of
And he explained his perspective with observations
that are becoming eerily foreboding... "The euro is the
key currency competitor against the dollar. When the
euro does well, the dollar does badly, and vice versa.
But as global demand continues to shrink, I expect key
member countries - either Italy, Greece, Ireland,
Portugal, or Spain -" note that three of these five were
the countries who've thus far received credit downgrades
from S&P "to completely abandon all fiscal
responsibilities they must maintain as members of the
European Monetary System. And that will hurt the
"Euro member countries have no sovereignty on
monetary policy...and the big member country - Germany -
is railing against providing a major stimulus to support
the rest of the union members. Why should Germany pay
for other countries lack of discipline?"
Now, thanks to the sharp industrial downturn now
facing the Union, Germany has changed its tune. But this
fundamental shortcoming remains in place...
"This is the Achilles Heel of the European
Monetary Union - Since member countries have no
fiscal responsibility, they can spend all they want and
the ECB has no say or power to stop them."
Fast forward to the present. The EU economy is
officially undergoing its first contraction since being
established only ten years ago, three countries have
seen their credit ratings slashed, even more are
planning fiscal stimulus, and Ireland's banking sector
is headed for full nationalization faster than you can
There's no two ways about it; the euro's party is
coming to a close. No amount of wishful thinking or
careful ignorance can refute the fact that the global
recession is sinking its teeth into the EU along with
the rest of the world. At this point one can safely
expect the euro to start trading closer to what it's
really worth, abandoning "grand illusion"
levels and potentially overcorrecting as the EU is
forced to sober up and re-join reality.
To Trichet and the rest of the EU, we'd like to
officially welcome them to the club.
Sic Transit Gloria Mundi
(For more information on Jack Crooks' World
Currency Options service and the weird reason why
you only have a few more days to save US$1,250 click
On January 26th, 2009 Something Important
is Happening. Don't Miss Out!"
Depending on which side of the fence you're on.this
could potentially upset you or excite you to death,
cause great anger or enlighten you to an opportunity
that has continually escaped.
How you will react, I don't know, and frankly I care
not to guess.
In today's economy that lies battered, bruised, and
(possibly) on the verge of collapse - I'm ecstatic to be
able to say - we're making a 'radical' (although
controversial) move to further help smart, astute
individuals to stay "agile" in an otherwise "sloth"
It's unfortunate that it comes at the expense of
some, but (in times like these) THIS is about helping
those who welcome the "recession" with open-arms, by
sharpening their axe, who seek out, research, and truly
want to implement NEW "outside-the-box" tools and
strategies - are you ready??
respond BEFORE January 26th, 2009 to be
Buying Opportunity: Corporate Bond Correction
Inflation-Protected Securities have been on a tear
since November, and topsy-turvy action in the credit
markets has been providing some great opportunities in
the area of investment-grade corporate debt. This from
Investment Director Eric Roseman, who's been riding that
wave since late last year...
"Since November, I've been allocating fresh funds
into distressed investment-grade corporate bonds in the
United States. Along with gold and TIPs (Treasury
Inflation Protected Securities) that's about all I've
been buying over the last three months."
"In Europe, the investment-grade corporate bond
market has not bottomed. The European economic cycle in
many ways is deeper entrenched in this crisis than the
United States with bond yields remaining under pressure.
The U.S. debt market offers a better risk-adjusted
"In the United States,
investment-grade corporate debt has corrected about 5%
over the last two weeks (excluding interest income)
offering new investors a good entry point. The Dow Jones
Corporate Bond Index now yields 6.6% while the Barclays
U.S. Corporate Bond Index yields 7.3%. Both indexes
offer rich spreads of 4.1% and 4.8%, respectively, over
benchmark 10-year Treasury bonds. The last time spreads
were this wide was back in the 1930s."
"I'm still buying the best quality credits I can
find, namely in investment-grade bonds, TIPs and even
nibbling at junk bonds. The latter will witness a major
spike in default rates this year as the economy
continues to deteriorate. Yet with yields of about 16%
on high-yield debt, even if half of the issuers default,
I'm still getting about 9% on my money -- a pretty good
speculation. Again, junk bonds should be purchased at
these bombed-out levels but with a view that defaults
will rise in 2009 and that it's highly likely you'll be
building this position again later in the default
"Overall, stick to high quality investment-grade
corporate bonds. As the stock market eventually heals
one day it will be preceded by a rally in non-Treasury
debt securities. This is a credit crisis after all and I
expect riskier bonds to lead us out of this mess."
And on a side note - congratulations here's Eric -
"This week, I assumed the role of editor for The
Sovereign Society's Accelerated Income weekly VIP
letter. Whether you're conservative or aggressive,
there's a host of great opportunities now in
fixed-income markets. With credit spreads still pretty
wide it should be an exciting year for this service in
an otherwise dismal global marketplace."
Hidden Taxes Exposed!
Legal Counsel and Resident Offshore Expert Bob Bauman
recently pointed out some of the hidden costs imposed by
the IRS, as learned from personal experience...
"A year or so ago, I got one of those
computer-generated IRS notices claiming that during the
previous year I had missed paying one of my monthly
self-employment tax payments," Bob explained.
"While I didn't pay on the same date each month, I
had made two payments during one month after I was
hospitalized for surgery for several weeks, (for which
the IRS charged a late fee, plus interest). It took some
time, but I got together my paperwork that showed
clearly, with canceled checks, that I indeed had made 12
"For weeks my accountant fought with the local IRS
agent, but to no avail."
"This lady IRS agent/dictator insisted one payment
was missing, that if I did not pay what she
said I owed, (plus interest and penalty), she
would have my business and personal bank accounts seized
by the IRS. My accountant told me it would take months,
if not years to appeal, so I better pay up -- which I
did -- with anger and a feeling of being victimized by
an agent of Big Brother government who didn't give a
damn about the truth."
Bob went on to list some of the shocking known and
unknown facts about income taxes in the US:
* In 1999 individuals and businesses spent
4.3 billion hours complying with the
income tax; estimated compliance costs of $125
* In 1999, 6.3 million taxpayers with incomes in the
top 5% paid over 55% of all income
* The top 1%, those earning $293,415
and up, paid 1/3 of all taxes while
their share of the national income was 19%.
* The richest pay an average top rate of
38.6%. Most low earning taxpayers pay an
average top rate of 15% and millions pay no taxes at
* Taxpayers in the bottom 50% paid only 4% of
income taxes in 1999. These 63 million
taxpayers average income less than $26,415 a year.
* By 2006, taxpayers earning over $100,000 a year
will pay almost 59% of all income
* In 2000 individual income taxes consumed
10.2% of the U.S. GDP.
We received several comments from readers who wanted
to know more about the "Herring" case, and how -
specifically - the Supreme Court's decision negated your
4th amendment rights. Well, ask and ye shall receive. In
today's Special Comment, our man on the litigious
frontier, Wealth Preservation and Tax Consultant Mark
Nestmann, explains in detail how this case played out,
and what it means for your constitutional rights...
Yours in Personal Sovereignty,
MATTHEW COLLINS, A-Letter Editor
P.S. The window of opportunity is closing. Click
here to find out about the "weird" reason
why there are only a few days left to take advantage of
an opportunity that will save you US$1,250...
Wanted: America's Next Great Financial
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Re-Visiting Barney Fife and the Fourth
By Mark Nestmann
Growing up in the 1960s, Deputy Barney Fife was a
weekly visitor to my home, courtesy of The Andy
Griffith Show. Overly ambitious and nervous, but
also highly inept, Barney-masterfully played by actor
Don Knotts-eventually became a symbol of police
over-reaction and incompetence.
In the fictional town of Maybury, North Carolina,
Sheriff Andy Taylor (Griffith's character) kept Barney
under control. But now, in a razor-thin 5-4 plurality
opinion, the U.S. Supreme Court has created what might
be called the Barney Fife excuse for sloppy police work.
The court ruled last week that evidence seized in an
arrest based on an expired warrant in a police database
can be used against the person arrested, so long as the
error resulted from "isolated negligence." This decision
is one more nail in the coffin for the so-called
"exclusionary rule," which in 1961 a very different
Supreme Court held to be binding in state as well as
federal courts. In essence, the exclusionary rule denies
prosecutors the right to introduce evidence obtained
through unauthorized search and seizure.
The latest blow to the exclusionary rule began on a
hot afternoon in July 2004, in Coffee County, Alabama.
Bennie Dean Herring showed up at a police storage lot to
retrieve some items from his impounded truck. Officers
checked to see if Herring was wanted by police and found
an arrest warrant in a nearby jurisdiction. Shortly
after he drove away from the lot, police arrested him.
Under the "search incident to arrest doctrine,"
police may search anyone they are arresting. They may
also open any "containers" the person being arrested has
in their pockets or otherwise is carrying. In Herring's
case, police found illegal drugs in his pocket and a
pistol (which as a convicted felon he couldn't legally
own) in his truck.
A few minutes later, police learned that the warrant
they had relied upon to arrest Herring had been
withdrawn months ago. Herring's attorneys tried to
exclude evidence gathered in the search in a subsequent
trial in which he was convicted of federal gun and drug
possession charges. Now, the Supreme Court has rebuffed
There appears to be little doubt that Herring is
guilty of the offenses for which he was charged based on
the faulty warrant. But that's not the point. The
Supreme Court has now told police departments nationwide
they don't need to worry about the mistakes made by the
Barney Fifes in their employ.
The exclusionary rule is often the only way that a
criminal defendant can effectively contest a violation
of his or her Fourth Amendment rights to not be subject
to unreasonable searches and seizures. And, it's now
been seriously undermined.
What Does the "Barney Fife" Exception
Mean to the Rest of the World?
The "exclusionary rule" is a means to enforce your
right to be free of unreasonable searches and seizures.
This right is guaranteed under the Fourth Amendment to
the U.S. Constitution. But the "Barney Fife" exception
changes all that. Essentially, if police mistakenly
arrest you based on faulty information, they can still
use any evidence they seize against you in a subsequent
prosecution. The only requirement is that the error
results from "isolated negligence."
Imagine that you're driving down the highway and
police stop your vehicle. Based on faulty information on
their computers, they arrest you based on a warrant that
never existed, or that has expired. Under the search
incident to arrest doctrine they search you and your
car. They also copy all the information in your laptop
and your cell phone. But, after a few minutes, they
"Oops, we made a mistake...there was no warrant. But
you're under arrest anyway, for conspiracy, because we
found a text message in your phone to someone we
arrested last week for drug trafficking." Under the
newly created Barney Fife exception to the U.S.
Constitution, this is now perfectly legal.
It's also not hard to imagine police deliberately
neglecting to update arrest warrant records. This
couldn't happen too often-otherwise it wouldn't be
"isolated negligence." But what if police decided to
embark upon an informal policy of not updating records
to reflect expiring warrants of selected criminal
suspects? These suspects might be selected on the basis
of the crimes they commit, their political beliefs,
their race, their religion, or any other criteria police
devise. Whether conducted in good faith or otherwise,
under the Supreme Court's reasoning, such a policy-so
long as it could be attributed to "isolated
negligence"-would probably pass legal muster.
Back in 1965, Judge Henry Friendly, a highly regarded
appellate judge, wrote, "The sole reason for [the]
exclusion[ary rule] ... is that experience has
demonstrated this to be the only effective method for
deterring the police from violating the Constitution."
And, I might add to protect us all from any real harm
that might be perpetrated by the well meaning, but
poorly executed law enforcement efforts of the Barney
Fifes of the world.
MARK NESTMANN, Privacy Expert,
President of The
THE SOVEREIGN SOCIETY OFFSHORE
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Bauman, Legal Counsel
Collins, Managing Editor .
Eric Roseman, Investment Director
Sean Hyman, Currency Analyst
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