Although they are almost a year away, the 2010 U.S. elections should be foremost on the minds of all investors.  Why?  Because the 468 incumbents in the House and Senate who are running for reelection are already springing into action.  Terrified about their prospects for reelection, the candidates are ready to do (spend) what it takes to secure another term.  This will set into motion a chain of economic behaviors that will ultimately have a depressive effect on the U.S. dollar.


Let’s consider the position in which incumbents running for reelection currently find themselves.

Foreclosures, bank and auto company bail-outs, and a contentious healthcare plan have left the U.S. public frustrated and frightened about their future.  The unemployment rate is 10.2 percent and increasing.  We believe that the 16.6 percent U-6 rate (which includes those who no longer qualify for benefits and so-called discouraged workers), to be a more honest measurement.  By November 2010, some economists expect total unemployment (U-6) will have risen to 20 percent…and incumbent politicians have the dubious distinction of having presided over all of this.

Incumbents and their parties will therefore do whatever they can to ameliorate the anger and frustration felt by voters (in other words, they will spend money).  The goal will be to make voters feel grateful for the largess bestowed upon them by their elected representatives during these difficult economic times.

As we have stated before, the February 2009 stimulus package was only the first of several.  We believe that there will be a minimum of three stimulus packages before the U.S. government concludes its efforts to bolster the financial markets.  A slackening in U.S. markets as the first stimulus peters out will not be tolerated.  It is hard to imagine that the Congress would not be more than happy to spend additional taxpayer monies on a second package, thus putting voters in a more friendly mood.

In our opinion, the very recent slowdown in business activity will be met by greater stimulus programs aimed to employ more people and to expand economic growth.  Pork barrel projects favoring specific congressional districts where the representatives are running for reelection will be a staple of the program.


The U.S. government is under pressure to bolster employment by increasing exports.  As a result, a weak dollar is part of the election-year plan.  However, the dollar must decline in an orderly manner to successfully stimulate exports.  A disorderly decline can raise fear levels, which can contract all business activity, imports and exports alike.  We expect the dollar to rally periodically.  This may trick some into believing that the dollar decline has ended.  In our opinion, the dollar decline will continue.


Over the years, many have asked us our opinion about investing in Russia.  We are of the view that since the rule of law does not exist in Russia, investing even a penny there is unsafe.  We submit the following article from the Wall Street Journal dated November 18, 2009.  The lawyer mentioned in this article was representing a foreign investment company that had their affiliated Russian companies literally stolen from them by bureaucrats aided and abetted by a corrupt court system.

U.S. Investor’s Lawyer Dies in Moscow Jail

Death of Attorney for William Browder’s Hermitage Capital Stokes Concerns About Reforms in Russia’s Judicial System

By. Gregory L. White
November 18, 2009

MOSCOW — Sergei Magnitsky, a Russian lawyer working for embattled investment fund Hermitage Capital, died in a Moscow jail after complaining for weeks of being denied adequate medical treatment.

His case had become a symbol of allegations of Russian authorities’ persecution of lawyers in high-profile proceedings, such as oil giant OAO Yukos’s fight against tax-evasion charges.

Hermitage was founded by William Browder, whose $4 billion Hermitage Fund was one of the largest foreign portfolio investors in Russia by 2005. A frequent critic of corruption in Russian state companies, Mr. Browder has been barred from Russia since he was denied entry in 2005.

Senior U.S. and European officials have repeatedly raised the Hermitage case with their Russian counterparts, while legal and human-rights groups have appealed to President Dmitry Medvedev to get involved in the case, so far without success.

"Russia unfortunately is in this very dark period right now when it comes to the judicial system," said Mark Ellis, executive director of the International Bar Association, which appealed to Mr. Medvedev in June about the Magnitsky case. "If lawyers are being attacked simply because of the role they play, that suggests the system is in real trouble."

Mr. Medvedev, a lawyer by training, has said strengthening the rule of law and the judicial system are priorities for his administration. Critics say he has made little progress and even rolled back institutions such as jury trials. A Kremlin spokesman declined to comment on the case.

Irina Dudukina, spokeswoman for the investigative unit of the Interior Ministry, said Mr. Magnitsky died Monday evening of "heart failure." She said there was no record of health problems in his criminal file and that he hadn’t complained about health problems at a court hearing last week.

But documents provided by his lawyer and former colleagues, and reviewed by The Wall Street Journal, show Mr. Magnitsky filed numerous motions and complaints about lack of medical treatment in recent months, including at last week’s hearing, but they were rejected.

Mr. Magnitsky, 37 years old, was jailed nearly a year ago and charged with tax evasion in a case involving Hermitage.

Hermitage has denied evading taxes. The fund fired back with allegations that Russian officials used company founding documents — as well as stamps and seals used to identify official company papers — seized in the case to defraud the Russian treasury of $230 million in taxes Hermitage units had paid. Publicly, Russian officials have rejected Mr. Browder’s allegations about the fraud, which he says was assigned to be investigated by the very people he alleges committed it.

Russia has said the complex fraud perpetrated on the country’s treasury was orchestrated by a former sawmill worker, who was convicted this year and sentenced to five years in prison.

A report for the Parliamentary Assembly of the Council of Europe on alleged judicial abuses in Russia released this year said it suspected the "coordinated attack" on Hermitage "must have the support of senior officials."

Asked about Mr. Browder’s case last week, Dmitry Peskov, spokesman for Prime Minister Vladimir Putin, cited the charges and dismissed the matter as "nothing special."

Mr. Magnitsky was arrested in November 2008, shortly after he provided testimony about the alleged fraud. He was denied bail on the grounds that he had applied for a British visa, something the U.K. Embassy later denied.

"They held him for 11 months, asking him to fabricate testimony against Hermitage," said Jamison Firestone, managing partner of Firestone Duncan, the Moscow firm where Mr. Magnitsky worked. "The more he refused, the worse his conditions became." Russian officials have denied those allegations.

Other senior Hermitage officials and lawyers have fled Russia. Russian authorities say they are seeking to arrest the U.S.-born Mr. Browder, who now works in London, for alleged tax evasion. "He was a brave and innocent man taken hostage by the very officials he implicated in a major crime against the Russian state," Mr. Browder said. "He never thought that he’d be arrested. He believed there was rule of law in Russia."

Dmitry Kharitonov, Mr. Magnitsky’s lawyer, said jail conditions worsened over the summer when he was moved to Moscow’s Butyrskaya prison.

In statements submitted in court hearings since then, Mr. Magnitsky complained that he had been refused treatment for pancreatic and stomach ailments that had been diagnosed at the jail where he had been held earlier. The statements don’t include complaints of heart ailments.

In those handwritten statements, Mr. Magnitsky repeatedly protested conditions at Butyrskaya, one of Russia’s most notorious prisons. He said one cell where he was held in September had no frames or glass in the windows, just openings to the outdoors. He said windows were installed after his complaint was filed. Prison officials declined to comment.

Last week, Moscow’s Tverskoi Court held a hearing on extending his pretrial detention until Nov. 26. Mr. Kharitonov said investigators gave Mr. Magnitsky case files to read in a hallway where they kept him handcuffed to a radiator. When the session resumed, the judge rejected Mr. Magnitsky’s motions for more time to study the materials. Mr. Magnitsky then said he would no longer participate in the hearing, his lawyer said.

"Sergei was very, very agitated. I’ve never seen him this way," Mr. Kharitonov said. "I think the stress of this led to his death." Court officials couldn’t be reached to comment.

Prison doctors told Mr. Kharitonov the preliminary cause of death was "toxic shock and pancreatic necrosis," he said. Officials said an investigation is planned. If convicted of tax fraud, Mr. Magnitsky would have faced up to six years in prison.

—Olga Padorina contributed to this article.


We are noticing that grain prices are rising, giving a boost to fertilizer prices and some farm related companies.  We will discuss this in greater depth next week.  We are more bullish on fertilizer stocks now that grain prices are rising, and we have recently purchased some for client accounts.

We hope everyone has a wonderful holiday season.  Please call us if we can be of service.

Thanks for listening.

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