THE GREAT MONEY PANIC!

Martin D. Weiss, PhD.
Editor, Safe Money Report

Today's grim economic and investment news is just the first rumbling of an emerging MONEY PANIC: A financial blitzkrieg that will lay waste to the US economy ... smash the S&P 500 to below 600 ... crush the Dow to below 5,000 ... and absolutely OBLITERATE the Nasdaq to below 800. This report will show you what you must do immediately to preserve your wealth...

WARNING: The ghosts of all the financial and economic crises you've ever experienced have returned to haunt us again!

Investors have been through a lot in recent years: the Tech Wreck of 2000 ... the Debt Disaster of 1998 ... and the Asian Crisis of 1997.

And, not long ago, investors were hit with the Energy Crisis of the 1970s ... the Real Estate Bust of 1974 ... the Bond Market Collapse of 1979-80 ... and the Banking/S&L Debacle of the 1980s.

Each one of these crises destroyed untold thousands of jobs. Each one gutted investor portfolios. And each one vaporized the prosperity, the financial security, and the retirement dreams of millions.

Now, with the US economy on the ropes and the stock market already in dire straits, these crises are once again rearing their ugly heads. Not just one or two of them - but ALL seven of these economic nightmares are rapidly converging upon the US economy.

In the next few months, they will simultaneously slam into Wall Street, triggering the bloodiest economic collapse and stock market crash since 1929.

I'm talking about the most severe economic upheaval of your lifetime -- a financial apocalypse that will slaughter hundreds of the world's oldest and wealthiest banks ... smash hundreds more international corporations and thousands of smaller companies to smithereens ... level the economies of Japan, Korea, Southeast Asia, Latin America, the European Common Market countries, and yes, even the United States ...

... and trigger the most cataclysmic destruction of personal wealth in our lifetimes -- driving the DOW to below 5000 ... the S&P 500 to below 600 ... and absolutely creaming the Nasdaq to below 800.

Major Companies Will Disappear In The Coming
DEBT DISASTER OF 2001!

When stocks crashed in 1929, major US corporations were cash rich and mostly debt free. But this time around, those same corporations have less than a dime in cash per dollar of current debts. And thousands of American businesses are floundering in an ocean of red ink. They now owe a record $4.7 trillion to banks, venture capitalists, bondholders, money funds and other institutions.

And if that wasn't terrifying enough, the Fed tells us this debt is STILL growing almost THREE TIMES FASTER than the Gross Domestic Product (GDP) -- the combined value of all goods and services produced by the entire US economy!

In fact, 157 big-name public companies now have more debt than assets. You'd expect these big, household name companies to be debt free and rolling in dough. But in reality, they have a net value of NEGATIVE $12.8 BILLION!

Think of it: These companies have a combined market capitalization of $50.4 trillion. That means US investors have shelled out more than $50 trillion for companies that are in effect, WORTHLESS!

Needless to say, investments in those companies are likely to be completely wiped out - reduced to ashes - when this great debt bubble bursts.

It gets worse: I've also identified another 668 big companies that are bleeding so much red ink that they will have a hard time surviving another year - and I am NOT talking about small, obscure companies here:

Xerox has $22.5 billion in debt with just $5.5 billion in cash and fixed assets to secure it.
Lucent has $8 billion in debt coming due within a year, and less than $0.3 billion in cash to cover it. Watch out below!
Nextel is drowning under $18.8 billion of debt and has only $4.7 billion in cash on hand. Sounds like a lot of cash, right? Wrong! Nextel burned up $2.1 billion in cash last year alone.
PSINet, a leading provider of Internet backbone services has 3.4 billion in debt, annual interest expenses of more than $300 million, and it doesn't even generate any cash!
Amazon.bomb ... CableVision Systems ... and Paxson Communications are just a few of the other American corporations that are up to their eyeballs in debt with little or no practical hope of repaying. .... Plus, Del Monte ... Coca-Cola ... Trump Hotels & Casinos ... Ford ... J.C. Penney ... Campbell Soup ... and Time Warner, are also drowning in their own debt.

And we're now hearing rumors that Lucent and Motorola could go bankrupt even though both companies deny it! And GE owes a mind-boggling $6.88 for every dollar of shareholder equity! That's like having just $1,000 to your name, but owing the bank $6,880!

Think only big companies borrowed more than they could repay? Think again! Just about every type of business you can name -- from the smallest "mom and pop" shops to the largest multi-nationals -- are now so buried in debt there's little hope they'll ever dig themselves out.

No wonder corporate credit ratings are plummeting. No wonder there have been as many as 3 corporate credit downgrades for every 1 upgrade for 10 quarters in a row. And no wonder a fourth of all junk bonds are trading at "distressed levels."

This Debt Disaster Has Put Some of America's Biggest Banks At EXTREME RISK Of Failure!

It doesn't take a Nobel-Prize-Winning economist to figure out that unpayable debts at major corporations and thousands of smaller businesses is potentially devastating news for banks. Already ...

US banks are being bludgeoned by BILLIONS in loan defaults: Just in the most recent reporting period, defaults in commercial and industrial loans jumped 30.0%. For example ... At First Union, deadbeat loans jumped 53.3% in 2000. Bank of America's bad debt surged 64.8%. Wachovia's flaky loans soared 118.3%. And at Bank One, bad loans skyrocketed 159.1%!

Sunbeam

Xerox

Some major US banks have no choice but to make new loans to FAILED companies: Why? Because they can't afford to let their debtors fail.

Case in point: J.P. Morgan Chase & Co. loaned steel maker LTV Corp $600 million over the past few years. But times have been tough for the company, and so LTV filed for bankruptcy - and asked the bank to loan it ANOTHER $225 MILLION!

Care to guess what the bank did? I'll tell you: It gave LTV the financing deal - despite the fact that the company was going under!

Talk about throwing good money after bad!
$400 billion in venture capital loans are headed for the dumpster: According to recent testimony from Fed Governor Laurence Meyer, banks are now holding the bag for up to $400 billion in venture capital deals-and many of them aren't worth the paper they're printed on:
- Chase Manhattan made $1.3 billion in revenues from private equity in 100 different dot-com firms in the fourth quarter of 1999. That's 76% of its total fourth quarter income of $1.7 billion.
- Wells Fargo, another Internet fan, had revenues of $721 million on private equity (compared with total profits of $970 million).
- J.P. Morgan - $313 million in revenues (out of $509 million in total profits).
- Fleet Financial, First Union, and Bank of America each recorded revenues of over $200 million from venture capital.
- Bank One just warned that it's commercial loan losses would double, to $1.2 billion in part because of its telecom exposure.
  
  Now, with thousands of telecoms, small dot-coms, and other Internet companies dropping like flies, this -- plus the $25 billion in junk bonds in US bank portfolios -- is a recipe for a banking catastrophe.
The commercial real estate house of cards is collapsing: The tech stock disaster is leaving a mountain of vacancies in its wake. The end of the Internet euphoria put a lot of companies out of business. They pulled out of leases and left gaping holes that landlords are scrambling to fill.

In San Francisco's South of Market district - formerly home to many tech startups - available sublease space has skyrocketed 275% in the last six months and rents in commercial buildings have already fallen by 40%.

Even more ominous: one study projects that 80% of the remaining dot-com companies in the Bay area will collapse in the next year. Result: Another 4 million square feet of office space will become vacant.

In New York, more than 20% of the office space leased by dot-coms since early 1999 has been returned to the market there.
In Seattle, the vacancy rate has more than doubled from 1.7% at the end of last September to 4.2%.
In parts of Silicon Valley, commercial vacancies have reached a whopping 12%.

Even the FDIC is worried about specific metropolitan areas it feels are at risk due to excess commercial real estate construction - Atlanta, Phoenix, Portland, Seattle, Salt Lake City, Fort Worth, Dallas, Las Vegas, and Denver.

This problem is massive: US banks are on the hook for a total of $639 billion in commercial real estate loans. THAT'S 35% MORE THAN THE COMBINED CAPITAL OF ALL US BANKS PUT TOGETHER!

Five years ago, banks typically loaned up to 80% of a property's market value. Not any more! Convinced that the great economic expansion of 1991-2000 would never end, bankers literally threw money at anyone who asked for it. They didn't stop at lending 80% ... or even 90% ... or even 100% . They sometimes loaned up to 110% of a property's value -- that's right -- ONE HUNDRED AND TEN PERCENT.

In fact, these ultra-high-risk real estate loans - called "High Loan to Value" loans or "HLTV" - have QUADRUPLED in just the last two years.

This is one gigantic house of cards -- and its collapse has already begun! With hundreds of thousands of homeowners being laid off ... with thousands of corporations unable to make their loan payments ... with thousands more simply going out of business, and with untold thousands of office buildings empty, defaults on these loans are already skyrocketing and could soon reach epidemic proportions.

DERIVATIVES -- the final nail in the banks' coffin: Most derivatives are highly leveraged private wagers -- "custom futures contracts" on the markets. They're the instrument of choice for mega-corporations who want to bet on -- or hedge their bets on -- movements in stocks, interest rates or currencies, for example.

But derivatives are dangerous because any major unexpected market swing can strike the players like an atomic bomb. The fall-out: Huge losses plus dozens of banks falling like dominoes.

How big is this problem?

Well, back in October of 1998, when currencies from Japan to Russia and Europe were crashing, derivatives cost Union Bank $240 million. Chase Manhattan lost $160 million. Deutsche Bank lost $770 million. And Credit Lyonnais lost a whopping $2 billion.

And that was without a worldwide economic recession!

You'd think governments would have stepped in since then - and forced banks to limit their exposure to these highly leveraged derivatives. Well, think again.

In 1998, US banks held about $27 trillion in derivatives contracts. Today the US General Accounting Office (GAO) tells us US banks are now exposed to more than $37.3 TRILLION in derivatives!

That's more than four times America's entire gross domestic product ... more than 530 times the banking industry's TOTAL PROFITS ... nearly $141,000 for every man, woman, and child in the country.

Even if you consider just the credit risk associated with derivatives (not their full face value), the exposure is huge. For every $1.00 of capital (after the Fed's adjustments for other risk factors), Bank One has $1.04 in credit risk related to derivatives.

The GREAT Debt Debacle of 2001-2002
Can Make You Poor,
Or It Can Make You Rich.
The Choice Is Yours!

My friend, we are staring straight down the barrel of one of the greatest debt disasters this nation - or the modern world - has ever seen.

Every type of debt you can name is already at record levels.
The economy is already screeching to a halt ... earnings are crashing and hundreds of thousands of jobs are being lost.
Companies and consumers are already falling behind in their payments.
Bankruptcies and loan defaults are already skyrocketing.
Banks are already reeling. Both their earnings and stock prices are plummeting.

All that's left is for the house of cards to come crashing down around your shoulders. And when it does, you're going to see the first MAJOR bank closures in 70 years.

When that happens, you're going to see millions of Americans temporarily penniless while the feds try to pick up the pieces. You're going to see global confidence in the US economy and in the dollar tattered and torn. And, you're going to see blood flow hip-deep on Wall Street.

Wall Street's $6 Trillion Crash ALONE Is Enough
To Guarantee A Great Depression in 2001

Make no mistake: Recessions do NOT cause stock market crashes. In fact, the opposite is true. Stock market crashes trigger recessions ... and yes, depressions, too.

The greatest stock market orgy of all time recently turned into the greatest stock crash since 1929. But the hangover is not yet over - and it's going to be a living hell.

The first shot in this financial massacre was fired last year - on March 25 - and it inflicted a gaping head wound on the US economy.

I'm talking about the stock market crash that robbed US investors of nearly $6 TRILLION - an amount equal to about HALF this nation's total GDP!

In sheer dollar terms, unadjusted for inflation, this has been the largest loss of wealth in the history of humanity, dwarfing the "great" stock market crash of 1929 by a factor of 23 to 1!

And that crash lit the fuse on the worst depression this nation has ever suffered.

You can bet your bottom dollar that the devastating losses we've seen recently guarantee economic catastrophe and another vicious slaughter of US stocks and equity funds in 2001!

Could President Bush's tax cut save the economy
and keep the stock market from getting slammed again?

Not a prayer!

FIRST: It's back-loaded -- timed for the majority of the cuts to kick in five years, seven years, up to 10 years down the road. Only a tiny percentage of the $1.7 trillion tax relief they promised will go into the economy in the next 12-18 months.

SECOND: This crash has taken nearly $6 trillion out of investor's pockets. Even if the entire $1.7 trillion could be handed back to taxpayers THIS YEAR, it would only be a tiny, pathetic drop in the ocean compared to what investors have lost in stocks - nowhere near enough to invigorate the economy.

THIRD: Even though the tax cut is pitifully inadequate to stimulate the economy, Democrats and even some moderate Republicans are doing everything in their power to whittle it down still further. They know it won't do anything to revive the economy NOW ... and they also fear that declining tax revenues combined with tax rate cuts will doom the government to $100 billion deficits ... crashing bond prices ... and rising interest rates for the foreseeable future.

Even Greenspan's interest rate cuts are too little, too late.

This crash destroyed at least HALF of all of the American people's life savings. It scrambled the retirement nest eggs of more than 45.69 million baby boomers who will be retiring in the next five years.

Most important, it is reversing the great "wealth effect" that drove this economy for the past eight years, instantly transforming millions of big spenders into stingy Scrooges.

Don't think for a minute that interest rate cuts could possibly undo that kind of damage. Consumers are neither willing nor able to begin spending like they did in the stock market's heyday -- no matter how low interest rates go!

Look. The Fed lowered interest rates eight times before and during the Great Depression. Did that stop the Depression? Of course not!

Before and during the recession of 1973-75, the Fed lowered interest rates six times. That didn't stop the economy from plunging either.

Ditto in 1945, 1953, 1970, and 1990.

Fact is, there's nothing anyone can do to keep this staggering stock market debacle from smashing the US economy- NOT President Bush, NOT Alan Greenspan, and NOT even the entire US Congress.

And there are more crises to come!

The Great Debt Debacle and the Wall Street crash are only the first of several major crises that will bludgeon the US economy in 2001. More are on the way ...

A crash in long-term bonds is inevitable ...
The energy crisis will cripple the US economy ...
The value of your home will drop at least 25% in the coming real estate crash ...

These trends are not your friends! Get on the wrong side of them, and they'll crush your portfolio - and your financial future - FLAT.

Today's fledgling economic slowdown, skyrocketing debt, soaring oil, gasoline, natural gas and electricity prices ... sporadic and even chronic shortages ... and crashing government bond prices will be huge hurdles for the US economy to overcome in the next 18-24 months.

Long-Term Bonds Are Destined to Crash

Massive losses in tax revenues due to the stock market crash � huge new spending programs � and President Bush's $1.7 TRILLION tax cut add up to more than just a return to deficits:

You're looking at skyrocketing deficits ... crashing government bond prices ... a falling dollar ... and rising interest rates - as far as the eye can see!

To make up for massive losses from the slowing economy and the stock market crash, the US Treasury will be forced to dump tons of notes, bills, and bonds onto the market in 2002 and beyond - just to keep the government running.

Without fail, every time this has happened throughout history, bond prices have been hammered into the ground. The dollar has collapsed. And interest rates have skyrocketed - no matter what the Fed Chief did to avert the disaster.

You've seen it before - under Jimmy Carter, when the economy tanked, inflation hit 18% and the Prime Rate jumped to 21%. And, it will happen again.

The Coming REAL ESTATE
COLLAPSE of 2001!

In every bubble in history, from the Tulip Mania to Wall Street before the Crash of '29, real estate prices ran up enormously just before they fell.

The more expensive the real estate, the bigger the bubble. And now the bubble is starting to rapidly deflate ... As usual, the first market to feel the impact is high-end rentals, because that's where consumers have the most discretion.

Manhattan's high-flying rents are already falling back toward earth. For the first time in seven years, landlords are slashing rents and some are even offering to pay broker fees.

In San Francisco, which is close to "dot-com ground-zero," prices have been falling for six months - with high-end apartments suddenly getting cheaper by hundreds of dollars a month.

Next to feel the pain will be the market price of high-end single-family homes. Just listen to what some industry insiders are saying: A custom builder of luxury homes in the state of Washington reports that a wealthy stockbroker just put off construction of a multimillion-dollar home. He directly blamed the nation's unsettled economy.

Brokers around the country are saying that buyers who would have purchased homes worth $1.5 million to $2 million last year are scaling back in a big way "until a sustained improvement in the Nasdaq." They may have a long wait.

Everywhere, professionals who deal daily with real estate investors are sensing a dramatic mood change in the wake of the tech stock crash. And the Great Depression has barely begun! As the economy contracts, we're looking at a sinkhole in real estate prices of historic proportions.

REITs will get clobbered. Construction stocks will plunge.
Bank profits will disappear!

This is a no-brainer. These three sectors - REITs, construction and banking - are among the most vulnerable to a real estate debacle.

REITs and REIT funds: A REIT is like a mutual fund, only it deals in real estate, not equities. Real Estate Investment Trusts purchase and manage income property and/or mortgage loans. Now, they're going to get slammed, with those concentrated in California and other high-tech areas especially hard hit.

Construction companies: Construction companies are exceptionally vulnerable to the downturn in real estate for obvious reasons. Overcapacity and dwindling demand for new office space and shopping malls means less projects to build, and therefore, declining earnings. Companies like Devcon International, and Abrams Industries will see their shares get hit.

Bank stocks: Losses from large syndicated loans by US banks tripled in 2000 to more than $5 billion. And we've already seen bad-loan fallout poison the earnings of Bank of America and First Union. A real estate recession will make previous problems look like a walk in the park for these stocks.

I'm not the only one issuing warnings. A recent study by Salomon Smith Barney forecast that loan defaults will total about $33 billion this year, with most of that bad debt showing up on the books in the first half. I think they're understating the potential damage. But even if they're right, the impact on the financial institutions holding these debts will be dramatic.

FDIC Chairman Donna Tanoue says that 9% of banks are "very vulnerable" to a real estate downturn. Another 16% are "somewhat vulnerable." More bad news from the FDIC:

Commercial and industrial (C&I;) credit quality indicators at banks have deteriorated for eight consecutive quarters. Noncurrent C&I; loans - those that are in trouble - rose 13% from the first quarter to the second quarter of last year, to $14.5 billion.
Large banks, particularly those active in syndicated lending, are bearing the brunt of the pain from failing commercial and industrial loans ... Just as Bank of America and First Union took it on the chin from the $1 billion they loaned to Sunbeam, so other big banks could potentially find themselves up to their eyeballs in bad debts.

Among the most vulnerable banks, in my opinion: Eastern Savings Bank, FSB (Hunt Valley, MD), Ocwen Federal Bank FSB (Fort Lee, NJ), Bank One NA (Columbus, OH), and Matrix Capital Bank (Las Cruces, NM). Avoid them like the plague. Each of these banks has more bad real estate loans than total equity capital.

The Coming ENERGY
NIGHTMARE OF 2001!

It's no secret that this country is in the early stages of an energy crisis. Even President Bush admitted it in his State of the Union address.

But precious few people - including the President - have any idea how deadly this crisis is shaping up to be.

Last time around - in 1973 and '74 - an oil shortage drove the Dow down by nearly in half and flattened the economy for nearly two years.

This time around, it's not just oil. The US is running chronically short on the lifeblood of our high-tech civilization: Electricity.

Oil prices have already tripled from their 1998 lows. Electricity prices have already soared by 200% ... 300% -- up to 800% from Florida to California. Natural gas prices have more than DOUBLED from $2.00 in January 2000 to $4.22 today.

Together this triple crisis will cripple the US economy in ways we couldn't even imagine during the last energy crisis. Ultimately, they are helping to smash US industry ... kill the digital revolution ... even plunge some of our cities into darkness. Here's what just about nobody else is telling you about America's energy disaster ...

For the first time in a quarter-century,
we are AGAIN at the mercy of foreign oil

Back in 1973 and '74, an oil embargo -- and the devastation it inflicted on the US economy and the stock market -- put the fear of God into consumers and politicians alike. And for a time, it genuinely looked as though America would actually reduce its dependence on foreign oil.

But in the 1990s, memories of the great oil crisis began to fade. And so did America's resolve to become self-sufficient.

Now, the America's energy picture is in far worse shape than at any time in its history ...

America's dependence on foreign oil has TRIPLED in the last 15 years: In 1985 we imported just 3.2 million barrels a day. Today, we need more than 9 million barrels a day.

The great economic boom of 1992-2000 drove demand for oil, heating oil, gasoline and for all petroleum-based products through the roof. And even with the economy sinking, demand is STILL rising at the rate of 105.9 million barrels annually!
Exploration for new oil fields STOPPED in 1998: Big oil companies halted exploration more than two years ago - when oil prices dropped to $10 a barrel.

Now, with oil at TRIPLE its 1998 price, some exploration is beginning to resume. But it's too little, too late: It takes years to get new finds to market.
Oil tankers and pipelines are ALREADY maxed out: The world's tanker fleets and pipelines are so busy right now, the cost of moving oil has jumped 167 percent in the last few months alone!
America's refineries can't process even one more drop of oil than they are now: US refineries are operating at peak capacity. And yet, they're processing LESS oil than they did 25 years ago!

Why? First, because environmental regulations have made operating older refineries so costly, 75 of them have been mothballed, abandoned or destroyed in the past 25 years.

And second: Those same environmental regulations have made it nearly impossible to build new refineries in the US. Not a single US refinery has been built in the past quarter-century!

And to make matters worse, you can't just throw up a new refinery overnight. It will take years to build new refining capacity in the US.

Put simply, it will be next to impossible to increase the supply of electricity in this country for many years to come!

As Bad As The Impending Oil Shock Is,
Today's Looming Electricity Shortage Is WORSE!

Make no mistake my friend, blackouts and brownouts and a tripling of electricity costs in California is just the tip of the iceberg. As California goes, so goes the country.

This is a national problem -- and it's a headache of massive proportions:

New York's electricity industry has striking similarities to California's. This summer, monthly bills for the average New York resident's electricity bill are expected to hit $120, compared with $95 last summer.
Transmission constraints will continue to be a problem in the Midwest, notably between Minnesota and Wisconsin
Annual electricity prices will rise in Florida by between $700 million and 1.6 billion.
The expected 50 percent jump in electricity bills for Montana residents will be small compared to changes occurring elsewhere in the region. And the energy crises in Western states will spread to the Midwest and East through this year.

Why is this crisis occurring now? Blame it on the computer and Internet explosions. US demand for electrical power is 62% greater than it was in 1980 -- and as much as HALF of this country's electricity is now being used by computers and Internet equipment!

But America's utilities have completely failed to anticipate this booming demand. And in many cases have been actually prevented from building new power plants by draconian EPA regulations.

As a result, electricity prices are rising in more than California, New York, Florida, Montana, Minnesota, Wisconsin, Illinois, Louisiana and many other states ... consumers are already reporting a dramatic increase in brown-outs nation-wide ... and major black-outs have already hammered cities from New York to Oregon.

And now, Allied Business Intelligence -- a top technology research firm -- is publicly predicting that major, chronic nation-wide power shortages will plague US homes and industry for many months and years to come.

Today, more than 99 percent of all investors - even managers of massive hundred-billion-dollar mutual funds -- are completely oblivious to these locked-in trends, and the investments that will soar are selling cheap.

Get Your Money to Safety NOW!

This is just the beginning. A financial hurricane is getting ready to rip through your investments. Your number one priority must continue to be the protection of your principal. Just a few months of losses in these markets can take years, sometimes decades, to recover.

Here's what to do NOW:

If you're not already out of the stock market, get out. Remember: Stocks that have quickly lost 50% or more can easily lose another 50% just as quickly. Amazon.bomb plunged from $106.7 to $46.87. Then, it swooned another 19% to 29%, and then another 3% to $8.37. So don't fall for the idea that "they're so low they can't possibly go any lower."
Stay in cash, especially in shorter-term Treasury Bills.
With the economy slowing, SAVE as much as you can. Pay off as much debt as possible ... your credit cards ... mortgages ... even car loans. In your household, trim your expenses. Hunker down. There's no telling how long this Great Money Panic can last, but it's sure to wipe out millions of investors and families.
Do the same in your business. Cut debt. Slash unnecessary expenses. Hunker down. Do not accumulate unnecessary inventory. Keep you excess cash in a short-term Treasury fund or Treasury bills just as we recommend for your personal portfolio.
Steer clear of real estate-related investments. First, avoid mortgage backed securities. Second, avoid investing in commercial real estate. Wait until the prices have reached an absolute bottom. By patiently sitting out the crisis and holding liquid assets, you'll be ideally positioned to pick up bargains later on.
Monitor your bank and insurers financial safety like a hawk. My company, Weiss Ratings, is America's 100% conflict-of-interest free monitor of bank and S&L safety.

© 2001 Weiss Incorporated
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