Sabbath Message 08/11/31/120B

Dear Friends,

For some time now we have been warning of the collapse of the economic structure at the hands of the banking system both behind the scenes and among its willing accomplices. These are termed “convenient idiots” by their puppet masters.

2008 was the worst year for the US market since the depths of the Great Depression in 1931. In Australia it was the worst ever at some 43% fall in the markets. However, to suggest that the UK and US economies were worst hit is untrue.

Let us try to make some sense out of 2008 and see where we might be headed in 2009-2010.

What national stock markets were the biggest losers in 2008? Below is a list of twenty of the biggest losers published by Agence France-Presse.

- Reykjavik (OMX index) -94.4 per cent - Moscow (RTS) -72.5 per cent - Dubai (DFM) -72.4 per cent - Bucharest (BET) -70.5 per cent - Dublin (IOI) -66.2 per cent - Hanoi (HCMSI) -65.9 per cent - Shanghai (SE Composite) -65.4 per cent - Athens (Athex) -65.3 per cent - Vienna (ATX) -61.2 per cent - Lima (IGBVL) -59.9 per cent - Pakistan (KSE-100) -58.3 per cent - Riyadh (Tadawul) -56.5 per cent - Cairo (Case 30) -56.4 per cent - Brussels (Bel-20) -53.8 per cent - Helsinki (OMX Helsinki) -53.4 per cent - Budapest (BSEI) -53.3 per cent - Oslo (OBX) -52.8 per cent - Mumbai (Sensex 30) -52.5 per cent - Amsterdam (AEX) -52.3 per cent - Istanbul (ISE 100) -51.6 per cent

Thus the US and British Commonwealth markets were not in the top twenty on a percentage basis. All of these falls were more serious than the Great Depression pro rata. Notice Russia was only beaten by tiny Iceland as the greatest loser of the collapse. The losers were from Scandinavia to Arabia and from Ireland to Asia.

However, as we said, the Australian share market yesterday ended its worst year ever. The losses were more than $700 billion. Australians lost more in capital value than the entire US or UK bailouts to date.

The market fell 41.3 per cent in the past year and that was only because the benchmark S&P/ASX 200 rose 68.1 points, or 1.9 per cent, to 3722.3, reducing losses for the past 12 months to 41.3 per cent, or about $680 billion.

However, the broader All Ordinaries rose 67.9 points to 3659.3, taking losses for the year to 43 per cent, or $718 billion. This was the worst annual percentage fall in the history of the Australian share market. It should be noted that almost half of that was lost in the last three months of the year following the collapse of US investment bank Lehman Brothers in September.

The Australian dollar closed locally at US69.08c, down thirty per cent from the July 15 peak of US98.49c and twenty one per cent lower than the start of the year.

This year 536 companies fell while only 41 finished higher. Blue chip mining companies reduced losses to between 24% and 71.6%.

Australian “Big Four” banks contained losses to between 39 per cent and 51 per cent amid concerns over their bad debt exposures. Communication stock was down, with Telstra down 18.3%.

The big losses felt in stock markets around the world were because investors cashed in their shares and sought shelter in what were thought to be safe haven investments such as government bonds and US dollars. That will prove a costly error.

It was set up that way. Through idiocy and human greed and the pursuit of non-productive gains in what became a sub-prime lending crisis in the world's biggest economy in August 2007 the crisis escalated into a global financial and economic disaster.

Some are hoping for “light at the end of the tunnel.” Eight senior analysts forecast in The Australian newspaper (1 January 2009) that the All Ordinaries would rise by an average twenty per cent in 2009 and oil would climb back up to $US62 a barrel after trading around $US30. Their average estimate for the Australian dollar was stated to be US72c.

They said that “Most of the gains in the share market are expected to come in the second half of the year. AMP Capital Investors chief economist Shane Oliver said he expected shares to remain volatile in the first six months as investors digested more grim economic data.”

The real problem is that: “We are yet to see the rise in unemployment that the rest of the world is seeing and we are yet to see the full impact of the China downturn,'' it said.

“Economic news will be getting worse before it gets better and we will tip into a mild recession, I would expect.

“But in the second half of the year we will be starting to see signs that the worst is over and that should start to provide a bit more confidence for share markets.''

Their expert analyst, Dr Oliver, expects the share market to rally to 4500 by the end of the year and history is on his side. There were, however, three companies that recorded gains that were extraordinary for a good year. “Linc Energy surged 162.5 per cent to $1.995, piping AGL Energy and Origin Energy for the title of best-performing company in the top 200 index of 2008.” (ibid)

Notice that Australian experts expect the reactions to continue for the first half of 2009. Then it is expected to stabilise. Perhaps it will and perhaps it won’t. We will look at the international ramifications after we examine what happened to the US.

In the US it was a still a disaster although it is alleged to have stabilised by year’s end.

Reuters reports that “the Dow Jones Industrial Average rose 108 points, or 1.25 per cent, to 8776.39 points, but lost 34 per cent on the year, the biggest loss since 1931. The DJIA lost 0.6 per cent in December, the ninth monthly loss of the year. The broad Standard & Poor's 500 index added 12.61 points, or 1.42 per cent, to 903.25, paring its yearly loss to 38 per cent, also the biggest loss since 1931. The Nasdaq Composite fell 40.5 per cent, the largest percentage loss in its more than 35-year history, edging out a 39 per cent loss in the year 2000 when the technology bubble burst. General Motors fell US60 cents, or 16 per cent, to $US3.20 and finished the year down 87 per cent, the biggest decliner in the Dow stocks. The car maket needed an emergency loan from the Government just to make it through the year. Citigroup shed US9c, or 1.3 per cent, to $US6.71, and lost 77 per cent in 2008. The Government had to rescue Citi in November. It was loaded down by the same weight that sank Lehman Brothers and almost brought down Bear Stearns: bonds tied to mortgages. "Devastation," said Howard Silverblatt, senior S&P index analyst in his summing-up. Bad loans and a string of banking failures resulted in the financial sector being the weakest of the S&P 500, losing 58 per cent in 2008. One trader at a mid-sized Wall Street firm said September 15, 2008, will be a "colossal" date for students of history and economics. That was the day the Government allowed Lehman Brothers to fail. The bankruptcy sent shock waves through the financial system, causing the credit crunch to become a full-fledged dollar drought.

Corporations could not borrow the money they needed to make payrolls or invest in projects. Ultimately, consumers slowed spending because of job and housing worries. The combination of the credit crunch and consumer-spending slowdown sent companies as diverse as chicken processor Pilgrim's Pride and electronics chain Circuit City to the bankruptcy court. Defaults rose and yields in the bond market reached record levels. In early December, risk premiums that investors charge on risky corporate bonds, or junk bonds, topped 20 percentage points over benchmark US Treasury rates, according to Merrill Lynch's closely watched High Yield Master II Index. The number implied a default rate of around 22 per cent over the next year, according to market watchers, higher than the realized record of 15.4 per cent in 1933, the depths of the Great Depression. Risk was the byword of the year, said Joseph Battipaglia, head equity strategist for the private-client group at Stifel Nicolaus. "Risk got re-priced in a shocking way into the financial system," Mr Battipaglia said. That resulted in the most volatile credit and stock markets since the 1930s and the subsequent flight-to-safety moves into government securities. In another sign of risk aversion, the commodities bubble burst this year. Expectations of inflation had drawn speculators in hedge funds and elsewhere to commodities futures and stocks, sending oil to a peak of $US147 a barrel in July. Fears that a worldwide recession would reach the shores of even fast-growing nations like China caused oil to turn around. The flight of the hedge funds, forced by the financial crisis to sell investments they had made on borrowed money, exacerbated the crash for oil and other commodities. The materials sector was the second weakest in the S&P 500 for the year, losing about 47 per cent while energy stocks declined 36 per cent. Alcoa rose US57c, or 5.3 per cent, to $US11.26 in the final session of 2008, but finished the year with a loss of 69 per cent. None of the 10 sectors in the S&P 500 recorded gains on the year. The one that fell the least was consumer staples, of roughly 18 per cent. Investors found some consolation in stocks that specialise in serving consumers when money is tight. McDonald's added US45c, or 0.7 per cent, to $US62.19, and gained 5.6 per cent on the year; Wal-Mart Stores added $US1.01, or 1.8 per cent, to $US56.06, up 18 per cent for 2008. Family Dollar rose US56c, or 2.2 per cent, to $US26.07, and rose 36 per cent this year. Another defensive sector, utilities, failed to live up to its reputation as a safe place of refuge during recessionary times. Some bounced in the latest session, however. Puget Energy rose $US4.10, or 18 per cent, to $US27.27, off just 0.6 per cent on the year. Washington State cleared the way for the utility to be bought by an investment group led by units of Macquarie Group. Aqua America added $US1.59, or 8.4 per cent, to $US20.59, and ended the year down only 2.9 per cent. Analysts said rebalancing by exchange-traded funds catering to the "water" sector caused volatility in the water utility recently. Some of those who were bears going into 2008 remain bears for 2009. One was not convinced that government bailouts alone can save an economy, or a market. "While you may applaud the fact that we don't go down deeper quickly ... you're not getting anything that's generating growth either," Mr Battipaglia said.

Only a fool would think that this disaster had played itself out. So what might we expect?

Adele Ferguson reported (in The Australian January 01, 2009)

“WHEN the equities market finished the last day of the year in positive territory, it was a case of the calm before the storm rather than an omen for 2009.

The sub-prime crisis that has dominated investor sentiment in the past 18 months and wreaked havoc in world markets will continue to dictate sentiment.

Job losses, big asset write-downs, company collapses, class actions, property price slumps, personal bankruptcies and government bailouts are just a few of the themes that will play out in the next 12 months, as the great deleveraging gathers pace.

Author and journalist Michael Shnayerson puts it succinctly in his latest article in Vanity Fair.

"With Wall Street haemorrhaging jobs and assets, even many of the wealthiest players are retrenching. Others, like the Lehman Brothers bankers who borrowed against their millions in stock, have lost everything.

"Hedge fund managers try to sell their luxury homes, while trophy wives are hocking their jewellery. The pain is being felt on St Barth's and at Sotheby's, on benefit gala committees and at the East Hampton Airport, as the world of the Big Rich collapses, its culture in shock and its values in question."

It is somewhat fitting then that the last day of the year finished with a financial bailout, job losses, another fall in commodity prices -- which have more than halved in the past year -- and a fall in the Australian dollar, capping its biggest annual decline on record.

The fall in oil prices, from a high of $157 in May to under $40 yesterday, will help ease the pain.

Last week The Economist reported that the fall in oil prices was worth $US2.5 trillion to consumers globally -- more than the current estimated loss from the credit crunch.

Given the rapid and [unforeseen] fall in oil prices, a key lesson from 2008 is to expect the unexpected when it comes to what might happen in 2009. “

The result from this is that the fall in oil prices will transfer some of the loss to the oil producers and cartels. We wish it were that simple.

In 2009 we will see the drama continue to unfold and the February reporting will continue to see companies under pressure. International tourism has collapsed and many jobs will go in that sector.

The aviation industry will be put under further stress and downsize and mergers will be timid and inroads will occur in domestic markets also. The collapse of the Qantas-British Airways merger and the doubt around Dow Chemicals acquisition of Rohm and Haas were heralds of things to come.

There seems little doubt that we will see the unraveling of some big hedge funds and some big private equity deals. Some of the contracts signed in the past few years will get too close to breaching or breach loan covenants.

Private equity deals will fall over, as financiers to private equity and hedge funds withdraw from the market.

Adele Ferguson reports that: “One of the biggest providers of debt-funding to private equity, structured finance group BOSI, is believed to be for sale, following the troubles of its British parent Bank of Scotland, which resulted in the sale of its Australian offshoot BankWest to the Commonwealth Bank.

Another big supporter of hedge funds and private equity, GE Finance, is lightening its exposure to the Australian market, along with Societie Generale. “

We will see far greater regulation of the Bank structure after the horse has bolted.

Adele says: “Consulting group Mercer predicts the hedge fund industry could shrink by up to 50 per cent in 2009. In a note on trends for the New Year, it states that hedge funds will have greater regulation and transparency, an increase in longer term lockups and pressure on fees.

‘At the same time, there is continued deleveraging, which will make certain arbitrage strategies no longer viable. Authorities are keeping a watchful eye on short sellers,’ according to Simon Eagleton, the boss of Mercer's investment consulting business in Australia and New Zealand. Body: ‘Poor performance combined with 10-15 per cent net redemptions this year will see the industry shrink by one-third to, perhaps, one-half by the middle of next year.’" What we will see is predation on the weaker economies. The cash backed areas will take over and buy up the cash strapped industries. That means Asia, headed by China and Arabia, will effectively benefit using the very capitalist system they opposed and the world will pass into economic and political anti-democratic hands and on into dictatorship. The cultural clashes will be assisted by the demise of the democratic Western model using inflation to put pressure on interest rates under the guise of inflation and they will use the stock markets to deliver its death stroke. The pension funds will go under with the decreases.

Firms with wobbly balance sheets will see tight credit markets result in more deeply discounted placements. Listed property trusts, infrastructure trusts and mining companies are all expected to tap shareholders for a lot of money and many will not be able to afford it. Forced asset sales will follow. There is little doubt the big banks will write off more bad and doubtful debts this year as more companies collapse and commercial property prices continue to fall. Vienna’s Bank de Medici collapsed under the Madoff Ponzy scheme. Many did not report their exposure because it meant bankruptcy. Medici reportedly had almost two-thirds of its assets tied up with Madoff. We will know more in February for the others. Adele Ferguson says: “It is estimated that the banks have written $114 billion worth of commercial property loans in the past two years. The segment is most likely to be a significant contributor to bank loan write-downs in the next two to three years. The banks will also continue to pray that their risky off-balance-sheet derivative plays don't blow up. And it goes without saying that the last remaining financial engineers will be looking for a new model. “ Financiers have gone under and many are hanging by a thread. Cheap assets will come up for sale and the sharks will take them over. It was all planned that way.

The people are now reacting against the immoral levels of executive pay increases and that system will change under pressure by shareholder reactions and government intervention to make their votes binding. The governments will act now to increase regulation and hold regulators accountable. Penalties for the dishonest will increase significantly.

Alternative energies will be explored and natural gas exports/imports will increase as Asia increases demand. However, it is all too late. The system is being set in place now for the New World Financial Order to establish the New World Order.

China is under pressure because of its trade inter-dependence on Europe and the US. Internal unrest from the new middle class will increase. As the world economies slide further into the pit and the US throws off the idiocy of its oil cartels and finance structure that has effectively destroyed it we will see innovative changes develop but not soon enough. China and Russia see the necessity of using the opportunity to expand into the Pacific. Islam will continue to push at the Western powers which are in effect the Kings of the North. Russia is naive enough to think it can take back Alaska. It has already had to cede interests in Siberia to China and Japan.

The breakdown of the structure will see increasing hostilities. The wars will result in the occupation of the Middle East by the European system, which in effect takes over the function of the impotent UN that implodes over the conflicts.

We will explain each of these aspects over the next few months.

It is important to remember that the year did not end on December 31 but will end on March 25 2009.

The nightmare is still playing out and the falls and destruction continue.

What is not fully appreciated is the importance of the collapse of the Baltic Dry Index (BDI) which is the index of world shipping. The BDI rose from moderate levels in 2001 to incredibly high levels in 2007-2008. That indicated more world trade than the world has ever seen. Much of it indicating flows of goods to the West and a massive flow of money out of the West. As a result of the economic disaster world shipping has collapsed and world trade is at a virtual standstill with the BDI at near zero.

We will explain the significance and deal with the various indices in a later paper. The message is simple. World trade has collapsed. No one is buying and that means no ongoing productivity and no jobs. The UK/US solution of crass Keynesian pump priming is being done by fiat money and is hyperinflationary. The good news about that is that the loss of financial blood from the US can be stemmed. However, that will be taken over by the problem of US/UK debt repayment.

But what happens when China and the other economies refuse the dollar? The dollar is weakening against other major currencies.

God was quite clear as to what He said through the prophets. The Last Days sees a complete destruction of the world financial structure. It sees wars such that no flesh would be left alive unless Christ came to deliver the world and rule it for a thousand years from the first to the second resurrection of the dead (see the paper The Day of the Lord and the Last Days (No. 192).

Thus the New World Order can reorganise its structure but the system will not survive.

The thing that will hold us all together and allow us to survive is our faith in God and our election as part of the Body of Christ.

We will not have finished fleeing through the cities of Israel when the Son of Man comes (Mat. 10:23). (See the paper The Place of Safety (No. 194).)

Our job is to prepare the world to survive what lies ahead. The vision of the Kingdom of God will be necessary to sustain us.

We propose also to deal with the propaganda being issued by the Russians now to revive their system. That message will also be an indicator of what they intend to try and accomplish.

Meanwhile, trust in God and stand in awe. Our job is to cease to sin. We are to pray for each other and to help each other through the times ahead.

Wade Cox

Coordinator General