Notes from JWR:

In my post last night about the upcoming US Federal restrictions on iodine products, I neglected to mention that in addition to Polar Pure and KI, Ready Made Resources also stocks Betadine and other Povidone polymer products. These aren’t listed in their web page catalog, but are available if you place a phone order. (In the US and Canada call: 1(800) 627-3809.)

The high bid is now at $250 in the SurvivalBlog benefit auction for a batch of 10 brand new original Imperial Defence SA-80 (AR-15) steel 30 round rifle magazines. The auction ends on Sunday, July 15th.

Letter Re: Advice on a Budget Rifle Battery for Retreat Security

Jim,
I’ve corresponded a couple times before with you on this subject, but basically I’m strapped for funds in our [group’s] “arms” area. My current idea is to have a couple of .30-30s, then four or so SKSes to hand out to others who might join us, and lastly, if possible, get one or two M1As or FALs.

My question is, should I get the 30-30s and SKS rifles first (6 guns), and later the M1A /FAL when funds permit, or should I get one M1A or FAL first, and then add the others when funds permit? I would appreciate your insight on this. I guess an additional question is if you think SKS’s are worth it. They sure are cheap, and the ammo is too. Another aspect is should I just get 2 M1As, or get 6 to 10 of something cheap for more rifles on duty? Thanks, – MWR, near Seattle

JWR Replies: In your circumstance, I would just standardize with all SKS rifles, for your first six rifles. Skip the .30-30s altogether, since the SKS cartridge (7.62 x39mm) is ballistically nearly identical to .30-30.(It has similar bullet weight, velocity, and trajectory. ) An SKS is about as accurate as a Model 1894 Winchester, much less expensive, very reliable, and semi-auto. Your next purchase should then be a scoped bolt action .308 Winchester as your dedicated “reach out and touch someone” rifle. For this, the Savage 110 series bolt action is quite accurate and relative bargain (versus a comparable Winchester, Remington, or Ruger). Then start saving and get yourself a couple of FALs, as your budget permits. Presently, M1As are just too expensive compared to FAL clones. Ditto for M1A magazines and spare parts. Spare USGI M14 magazines are $23+ each, but FAL magazines are just $5 to $7 each. Currently USGI M14 barrels are pushing $375 each, and trigger groups are around $225. A full set of spare USGI parts (minus a receiver) is now an $800+ proposition! (That same amount of money would buy you nearly three FAL parts sets.)

Four Letters Re: EMP Preparedness and Countermeasures

Dear Mr Rawles:
I have been enjoying your SurvivalBlog very much. I am new to these kind of web sites but have been of a preparedness/survivalist mindset all my life. I served in the US Navy for seven years as an Avionics Technician on both fixed wing (FA-18 Hornets) and rotor wing aircraft. Part of my training encompassed electromagnetic pulse (EMP) and its effects on aircraft and how to properly maintain and repair them so as to not compromise their ability to withstand EMP should it occur. Now that I have been out of the military for some time I have been researching [through] the Internet to find practical examples of how to harden modern microchip-laden automobiles so they might withstand an EMP attack. There is very little info out there from a practical hands on approach but I have come up with a workable method to harden most vehicles fairly economically. One of my biggest questions is, might there be a market out there? Would people care to prepare their cars and trucks in this manner? The government has been largely silent about EMP and its danger to the civilian sector and terribly unprepared in the DOD arena as well, from what I gather. I’m thinking that only a few of the survivalist folks might be interested in having their trucks/cars prepared against EMP and the rest of the population will scoff or gamble it will turn out okay. I also read that the EMP threat is not diminishing since the fall of the USSR but if anything it is getting greater with the possibility of smaller more efficient bombs designed specifically to radiate EMP that terrorists will surely not ignore. Any input or ideas out there would be appreciated. thank you. Keep up the great work. – Ross W

JWR Replies: Yes, there would definitely be a market, since you would be filling a need that heretofore no company has supplied for the civilian world. If your EMP protection solution is not too expensive, you are sure to find hundreds of customers. I wish you well with this venture. It sounds like a winner. (Talk about pent-up market demand!) Once you are ready to put your product(s) on the market, let me know and I will do my best to help you get the word out there to folks that will have both the interest and the means to make a purchase.

Mr. Rawles,
I’ve been reading SurvivalBlog for awhile and have read much on protecting equipment from EMP. I’m confused as to what would constitute as sufficient protection. The blog has articles on the effects of EMP, but I couldn’t find any how-to subjects. I’ve read anything from wrapping car computers in tin foil to thicknesses of conductive metal that is grounded. Is there a set of guidelines or can you or the readership comment on this? (That is, how to properly configure an ammo can for EMP protection for radios/electronics, modifications to make for your gun safe, et cetera.) Thanks, – Paul

JWR Replies: Unfortunately, I can’t issue any blanket guidelines that will protect any piece of electronics that is kept plugged-in to a grid power outlet. Radios receive some protection from zener diodes attached to external antenna cables, but that isn’t a panacea. Vehicular electronics are safer than power grid-connected electronics, but still at risk. If left unplugged and disconnected from external antennas, most radios will be fine, except for close proximity nuclear detonations. In a perfect world, everyone would have three to five redundant radios, with just left one plugged in, and all of the spares stored in practical Faraday Cage type enclosures, such as steel ammo cans or a steel gun vault. But for most of us that are on a realistic middle class budget, the best that we can hope for is one spare of each radio. At least keep that one spare in an ammo can! To make an ammo can into a more efficient Faraday cage, its original rubber gasket should be replaced with braided wire, as explained in a September, 2006 SurvivalBlog letter. OBTW, I also recently posted details on how to EMP-protect a gun vault that has an electronic (key pad entry) lock mechanism.
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Sir,
Do you have any theory about a high altitude EMP in the northern most part of the US? Would it affect Anchorage, Alaska? Would mountains and the curve of the Earth block it? I don’t think we are on the “grid”, shared electric power with the Yukon Territory but there may be a old telephone line still plugged in to the South 48, does that count for a EMP? Although, Alaska’s Air Force bases would be important military targets for a threat from a Pacific nation if times get tough.- Edventures (in Alaska)

JWR Replies: First, let me reiterate that in most terrorist nuke scenarios, EMP will be quite localized. Even if terrorists were to set off a nuke in an airplane at high altitude (highly unlikely, since their main goal is to see news footage of blast damage and panic on the ground), the EMP effect would be limited to the line of sight (LOS) from the detonation. (As explained in one of my SurvivalBlog posts in October 2005, and reiterated in April, 2007.) And even a very high altitude burst would be limited to about 280 mile line of sight. However, keep in mind that EMP can also be carried beyond line of sight (BLOS), via coupling through any linear metallic objects that can act as an antenna. These include phone lines, power lines, and even railroad tracks. The coupled EMP could conceivably travel many hundreds of miles. The bottom line: In Alaska you should be safe from the EMP generated by most anticipated terrorist use of nukes, but in the event that nation states start tossing around nukes, all bets are off.

James:

Why isn’t there an EMP category on your site? A while back, I inquired about back-up computer modules for vehicles and other means of protecting vehicle electronics, but you didn’t post it.. – Stephen F.

JWR Replies: Sorry about the delay, but I was saving up a few letters regarding EMP to answer all at once.

I have been filing most of the EMP letters and articles under the “NBC” category. I suppose that I should indeed create a more precise EMP category. To find most of the archived EMP articles and letters, just do keyword searches on the words “Faraday” and “Coupling” in the “Search Posts on SurvivalBlog:” window in SurvivalBlog’s right hand window.

It is prudent to store spare microprocessors for each of your vehicles, especially if you live within 100 miles of any anticipated nuclear target. The spares should be stored in steel ammo cans, which make a decent Faraday Cage–effectively protecting their contents from most conceivable EMP events.

Since spare motor vehicle microprocessors are fairly expensive to buy brand new, you might consider finding used ones and auto wrecking yards. The most important spare microprocessor (or microprocessor box) to acquire is a Electronic Control Module (ECM), which control the ignition system. (Note that the terminology for this module will vary, depending on the vehicle’s maker.) Some cars and trucks also have a Powertrain Control Module (PCM) and other s even have discrete microprocessors associated with the fuel system. Without all of these intact, your vehicle might not run. In essence, the newer the vehicle, the greater its vulnerability to EMP. Not only is he sheer number of chips needed to run a car increasing, but the gate sizes of those chips is simultaneously getting smaller. (Now “sub-micron” size gates are commonplace!) Both of these factors add to EMP vulnerability with each new model year rolling out of Detroit, Stuttgart, Seoul, and Tokyo. Consult your local dealership mechanic for details on the microprocessors needed for each make and model of vehicle. Your mechanic can also let you know if it is feasible to retrofit your vehicle with a traditional (rotor and condenser) ignition system.

Odds ‘n Sods:

Nuclear alert by ex-head of MI5: The article begins: “More than 100 suspects are awaiting trial in British courts for terrorist offences – a figure unprecedented in modern criminal history – Dame Eliza Manningham-Buller, the former spy chief, has revealed. Dame Eliza: ‘They may attempt a chemical, biological, radiological or even nuclear attack’ Britain is a centre of intense plotting and faces a terrorist threat of ‘unprecedented scale, ambition and ruthlessness’. In a stark warning for the future, Dame Eliza added: ‘It remains a very real possibility that they may, sometime, somewhere attempt a chemical biological, radiological or even nuclear attack’.”

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From Moneyweb (by way of SHTF Daily): Can the South African Rand and Save Zimbabwe? Also, from the AP wire: Zimbabwe’s inflation hits 4,500 percent

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StealthNeighbor came across The Institute for Business and Home Safety web site. His comment: “[This site] has some interesting info / data / floor plans / et cetera. on natural (versus manmade) disasters and lots of good info on reinforcing your home against hurricanes, floods, tornadoes, ice storms, wind damage, etc. Much of the info is directly applicable to a TEOTWAWKI situation — at any level — and it might be of interest (and aid) to your blog readers for retreat-building or reinforcing the “bug-in location…”

Jim’s Quote of the Day:

“I hope we have once again reminded people that man is not free unless government is limited. There’s a clear cause and effect here that is as neat and predictable as a law of physics: as government expands, liberty contracts.” – Ronald Wilson Reagan

Notes from JWR:

An item that was too important to bury down in the Odd ‘n Sods… Billy G. sent us this: Iodine about to be regulated in US. Any solution over 2% will be restricted as “precursors” for illicit drug manufacture. Billy’s comment: “Can nuke pills [potassium iodate] be far behind? I’m stocking up on Iodine crystals while I can.” I strongly encourage readers to buy their “lifetime supply” of Polar Pure water purifier, as soon as possible. (Two or three bottles per family member should be about right.) Polar Pure, Betadine, and Potassium Iodate (KI) are all available from Ready Made Resources. OBTW, I’m not sure if the sale of Betadine will be restricted, since it has its iodine ingredient listed as “10% Povidone Iodine = 1% Available Iodine.” So it might be wise to stock up on Betadine, as well. (Povidone is a polymerized “iodophore” designed for slow release. Effectively it is only 1% iodine, but you know how bureaucrats operate. They may see the “10%” and start caterwauling.)

Today we present another article for Round 11 of the SurvivalBlog non-fiction writing contest. The writer of the best non-fiction article will win a valuable four day “gray” transferable Front Sight course certificate. (Worth up to $2,000!) Second prize is a copy of my “Rawles Gets You Ready” preparedness course, generously donated by Jake Stafford of Arbogast Publishing. I will again be sending out a few complimentary copies of my novel “Patriots” as “honorable mention” awards. Round 11 ends on July 31st. Remember that articles that relate practical “how to” skills for survival will have an advantage in the judging.

Survival Labor and Delivery, by John O. MD

The return of home delivery is a fact that most of the survivalist community needs to face, and is a topic I have seen relatively little written about. My own experience derives from 10 years experience as an Emergency Physician, delivering 3-4 infants a year in situations either where the woman has had no prenatal care whatsoever and arrives in our emergency room (ER) [in] crowning [condition]; or as a private patient upstairs who progresses so quickly that her private obstetrician (OB) can’t make it to the hospital in time. This has skewed my experience toward “normal” presentations where the baby is in normal position (not breach), as those tend to progress slowly enough for the OB to get involved. That said, “normal” delivery with minor complications is the area where preparation can make a big difference. Before we start, I believe that as a community, we need to accept the fact that the rates of death for both mother and infant are going to rise significantly if TSHTF. No amount of preparation is going to allow someone to do a c-section on their kitchen table and even breach presentations may be more than a layman can expect to handle.
The services of a good midwife would be invaluable, and the addition of a text such as “Heart and Hands” by Elizabeth Davis may be a wise addition to your stores as a second best choice. My goal is to help you keep a “good” delivery from going bad and preventing complications. It should go without saying that this information is for educational/survival purposes only, and I not suggesting a specific course of care. Fortunately, nature really does run its course in most cases, and there is a reason why one of the first procedures you get to do in Med. School is to “play catch” in labor and deliver (L&D) because there is so little to screw up under normal conditions.
Labor can be divided into a first phase — a time when the cervix is thinning out and slowly dilating to from a canal roughly the diameter of pencil up to about 10 cm—and a second phase when the pushing begins and the mother actually pushes the baby out. The 1st phase is often divided into an early period, where the cervix is less than 4cm and contractions are relatively mild and spaced farther apart (7-8 min), as well as a late phase when the contractions are much harder and closer together. The early phase is pretty variable in length varying from a maybe two hours in multiparous women (lots of previous pregnancies) to as much as 24 hours in prima gravis (1st pregnancy). Late 1st phase tend to be more regular with the average woman dilating about 1 cm. per hour. Woman will usually want to get up out of bed, especially in the late phase. Encourage it, laying in a bed during labor is a bad habit that is really only necessary in hospitals due to the use of epidurals and intravenous (IV) narcotics. I have found that squatting really does help speed the progression as well as minimizing labor pains. You will note in the hospital that a woman’s cervix is checked frequently, I would urge strongly against this practice at home. In the hospital setting, a woman who is not progressing may get a dosage of the labor hormone pitocin [(“pit”)], or may even go for a caesarian sections, neither of which you will be doing at home. In addition, they have a limitless supply of sterile gloves, so the risk of introducing infection into the birth canal is relatively low. In home deliveries where labor without pitocin tends to take longer, infection prevention is crucial. You will have a pretty good idea how things are progressing just by monitoring the frequency of contractions and the look on her face. Speaking of infection, now would be good time to discuss an infection called Group B strep. Group B Strep (GBS) is a bacteria that roughly 30% of woman carry in their birth canal. While passing through the canal about 60% of children will be colonized if the mom has it. Even in modern medicine, about 1 in 200 will develop severe complications such as pneumonia, meningitis or sepsis (blood poisoning). All woman are currently screened at about 37 weeks and treated with IV antibiotics prior to beginning labor. This has been shown pretty conclusively to reduce the amount of GBS in the canal, lowering the rates of colonization of babies. In addition, penicillin based antibiotics readily cross the placenta and afford the baby some protection even if he is colonized.
Since I don’t imagine people will be getting screened for GBS in the future, I would recommend every woman start taking an antibiotic about 10-14 days prior to their due date. While IV antibiotics are currently recommended, oral where used pretty regularly until about 10 years ago. Ampicillin is probably best, any -cillin or cephalosporin (things that start with “ceph or cef” in their name such as Cephalexin (Keflex), Ceftin, Cefazolin, Rocephin, etc.) are good. -Mycin based antibiotics could probably be used in a pinch or for seriously penicillin allergic patients. DO NOT use -cyclines or anything with -floxin in the generic name as these are both toxic to young children.
After getting through the 1st phase, the woman will begin to feel the need to push or the sensation of needing to have a bowel movement from the baby’s head pushing on the pelvis and bowel. I generally recommend getting back in bed at this point, though some midwives keep them up even now. At this point clean the entire pelvic area with either betadine, iodine, or high proof alcohol, including maybe 1/2-1 in. inside the vagina itself. Begin working on stretching the back wall of the vagina (also known to some as the taint) using KY jelly or oil. Take the area at about 7o’clock and 5’oclock as looking at the vagina between your thumbs and forefingers and stretch sideways and outward. Start gently but work up in force. Trust me, no amount of force you apply is going to equal the stretching from the head real soon. As the child begins to crown, assuming that you have clean or sterile gloves, work your fingers up around the neck to make sure the cord isn’t wrapped around it. If it is, you can usually pull on the stretchy cord while pushing the head slightly back in to pull the cord up over the face and head to untangle it. If you don’t have really clean hands, wait a little longer until the face is partly out, though this tends to increase the tension on the cord making it harder to get off. Unreduced nucal cords [umbilical cords wrapped around the neck] are a major source of death or brain damage in “normal” deliveries due to strangulation as they tighten, so don’t forget to check. Finally the face will be out and the child will normally stick at the shoulders, as this is the widest point on the child. Take this time to suction the babies nose and mouth pretty thoroughly. I would highly recommend getting several blue bulb syringes over the counter now for just such a situation. If you note a greenish slime (meconium) on the baby or in his mouth, this means he has had a bowel movement due to the stress of labor, or because of the above mentioned nucal cord. It is very important to get this out of the throat and nose now, because once he comes out the rest of the way and takes his first breath, he will suck this junk down into his lungs. A small amount of previously boiled water may help to make it runnier and easier to suction. The meconium itself is sterile, and is no cause for alarm, other than the risk of aspirating it. Passing the shoulder is a little more difficult. Most of the time one can reach up and grasp the shoulders, pushing the trunk down to deliver the front shoulder, then up to deliver the back one. Sometimes an assistant can put pressure over the bladder while flexing the leg up into the air to help push the shoulder down to get it to pass under the pelvic bone. One can do a Google search on “McRoberts maneuver” for a more detailed and complex version. Do not tug down on the head itself, as it can tear the nerves going into the arm from the neck. Also, do not push down on the top of the uterus, as this can cause some serious problems as well. In a truly desperate situation, the baby’s collar bone can be broken to cause the shoulder to collapse some. While it sounds horrible, they heal pretty readily, and is something I’ve had to do even in the hospital setting once or twice. One puts one palm over the breast bone of the baby and the other behind the shoulder of the collar bone to break, then one presses with both thumbs in the center of the clavicle with a force slightly greater than breaking a turkey wishbone. You will definitely feel the “pop”. It is important to note that after the first shoulder delivers, the baby pretty much wants to pop right out. Try to get the mom to breathe through her nose and stop pushing while you apply pressure back in, so that the baby slides out in a controlled fashion. Letting it slide out uncontrolled will greatly increase the risk of a tear to the mom.
After the baby passes, Lower him below the level of the birth canal to help his blood flow out of the placenta and back into his body. After about maybe 30 seconds clamp the cord with whatever you have (boiled clothespins?). Clamp above and below where you intend to cut, which is usually about 1-1/2 inches from the baby’s belly. Cut with a sterilized blade, as this is a major source of infection in the third world. Keep the clamp on the baby for about a day or two until the vessels scar down. Clean baby with a dry cloth to remove all the slime and immediately wrap in a warm blanket, as babies have a hard time controlling their body temps initially. You can stimulate the baby if he isn’t crying by rubbing his breast bone with your knuckle using moderate force or by a light pinch. Try to get the baby to breast-feed right away, as it will help the mom’s uterus collapse down and minimize bleeding. Massage her belly, pressing down on her uterus at a moderate force (enough to be somewhat uncomfortable). After the uterus has contracted the placenta will separate from the uterus. After separation, apply gentle traction to end of the placenta to get it to pass, though too much force can cause the placenta to tear and leave behind a piece that can be a source for later infection. [The Memsahib Adds: Traction too early, when the placenta is still attached can cause an internal hemorrhage and the mother to bleed to death!] Ibuprofen works well to help with postpartum soreness and residual contraction pain. Four 200mg tablets will usually do the trick. As an aside, try to avoid aspirin products because they thin the blood and will increase bleeding, especially if taken before the actual delivery. I have not addressed breach births, as whole chapters can be written on the topic. One relatively simple procedure that can be tried before labor starts if the head is felt to be up instead of down is called external cephalic version. There are some risks, such as an early water breakage, but is probably better to try to fix the problem early, rather than waiting until the baby has entered the birth canal. Hopes this helps, hope no one ever has to use it. Once again, this for informational/education purposes, and is not a substitute for proper medical care.

Letter Re: Asian Avian Flu is Still a Major Threat

JWR,
I am currently working on the construction of a pandemic flu vaccine facility (way too far away from my intended retreat locale, but I need to be able to afford my retreat 🙂 and I have a couple insights that most people and some medical folks might not have.
First, the new cell culture flu vaccine facilities will have the ability to adapt to mutating strains during production – within reason, and in-process flu vaccine production can either be stopped, or the pandemic vaccine added to the regular vaccine. That is something that is not possible with even the normal flu vaccines when they are made today from eggs … unless they can magically pull 300,000,000 to 6 billion eggs from the grocery store shelves at moments notice. A couple years back there was a big stink about the flu companies and the CDC ‘guessing’ the wrong strain; the cell culture facilities should be able to switch relatively quickly to a new vaccine for a new strain. But, it will still take months from identification to the first mass-produced vial of vaccine to be available (its a relatively straight forward process to anyone who understands biopharm, but it just takes time to go through all the steps).
Second, it takes a while to build a vaccine facility. With a 3-5 year mutation rate, and the world currently being at stage 3 of the 6 stages of the standard progression of a pandemic (per World Health Organization (WHO)), it really is a race at this point. If the new ones aren’t online, regular facilities could be probably be used if the timing is just right for identification prior to production of normal flu batches. Even a pandemic flu vaccine that doesn’t completely match a further mutated pandemic strain may have enough antigens present to provide a touch of resistance to give more people a better chance. Or at least be a nice placebo so the people in charge can keep a little bit of calm by injecting sheeple with some worthless vaccine until a “booster” shot can be developed a few months later. If someone jabs something into your arm, accept it and thank them, but definitely don’t drop your guard: keep your masks on and keep friction washing those hands (i.e., don’t rely on ‘hand sanitizers)!!! People still get the flu after vaccinations today, and I can’t imagine that changing with a pandemic strain.
Third, all the normal flu precautions still apply as other writers have said previously: washing hands, face masks, etc. One thing that I can say that might air in your readers home preparations: The thermal lethality of the flu virus (at least H5N1) is about the same as standard flu. It starts to “die” at about 60 degrees C … so the simple boiling of contaminated sheets/towels/etc. for 5 minutes will pretty much inactivate of the virus (us biopharm folks go ‘a bit’ further than this in our equipment preps, but even we recognize the absurdity of what we do).
For survival purposes, a good autoclave to have sitting around the house is a 20-quart or greater, 15-pound pressure cooker/canner). Buy a cheaper aluminum one since it typically won’t come in direct contact with food. When bacteria or viruses are a concern (botulism, staph, or anything but a couple laboratory created freaks tougher than /thermopolis/), 20 minutes under 15 pound steam (atmospheric pressure + 15 pounds) will kill everything present (molds, bacteria, virii, protozoas, lice, mutant zombie gophers) whether its surgical equipment, needles, thread for sutures, or anything that you really want to sterilize. Some pressure cookers are multi-select (5, 10, or 15 pounds), but they all typically operate at 15 pounds. Plus, a good canner/pressure cooker is still required to store away next winters’ food supply.
When sterility (i.e., absolute of death of all things creepy) is required, boiling is not sufficient. On television , you see people boiling a pocket knife before they cut out a bullet, um, no. Twenty minutes in a pressure cooker is the equivalent of something like a day or two of boiling at 100C to obtain the same ‘sterility’ (I have all the equations, but I’m not motivated enough to do the absurd calculation); and if you’re at high altitude, now you’re looking at sub-100 temperatures when boiling. People can boil ‘living water’ and make it safe enough for drinking, because the simple reduction in number of bugs is typically sufficient to allow your immune system to stop the threat, or to keep the populations low enough so they are passed through your system before toxin levels grow to dangerous or even perceived levels. Most water filters (per FDA requirements) only need to hit 99.9x% reductions in various organisms which is perfectly fine for drinking and eating. But for field surgeries, go for full sterility.
Buy a smaller stainless steel pressure cooker for anything that comes in direct contact with the food you actually intend to eat (such as that roast from the 12 year old breeding bull that you finally had to butcher). I believe in the evil of too much aluminum in one’s diet; regardless of what the aluminum industry and the politicians who receive campaign contributions from the aluminum products producers tell us.
Of course, my overall confidence: I have full set of duplicate survival gear/supplies stowed away in a storage facility a couple miles from my work site on the other side of the country. And I believe that its going to be a long walk home someday. I hope The Great Maker protects us all . – NotDave

Odds ‘n Sods:

More on the unfolding derivatives debacle: The $300 Trillion Time Bomb

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Mark sent us this news article link: Mass Zimbabwe arrests over prices. Mark’s comment: “Note that today [in Zimbabwe] a single banana cost more than a four bedroom house did in 2000.”

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David V. recommended this history article from Alaska that has a some applicability to retreat provisioning: Black River Trapper: Fred Thomas

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From Gold-Eagle.com, Gary Dorsch, Editor of Global Money Trends (by way of SHTF Daily): Global Exodus From The US Dollar In Motion. The article includes this alarming statistic: “Since the Bernanke Fed discontinued the decades-old reporting of the broad M3 money supply in March of 2006, the growth rate of M3 has accelerated from an 8% rate to a sizzling 13.7% clip, its fastest in more than three decades. The Bernanke Fed is preventing borrowing rates from rising at a time of explosive loan demand for US corporate mergers and takeovers, by rapidly increasing the US money supply.”

Jim’s Quote of the Day:

“How rare is gold? If you could gather together all the gold mined in recorded history, melt it down, and pour it into one giant cube, it would measure only about eighteen yards across! That’s all the gold owned by every government on earth, plus all the gold in private hands, all the gold in rings, necklaces, chains, and gold art. That’s all the gold used in tooth fillings, in electronics, in coins and bars. It’s everything that exists above ground now, or since man learned to extract the metal from the earth. All of it can fit into one block the size of a single house. It would weigh about 91,000 tons – less than the amount of steel made around the world in an hour. That’s rare.” – Daniel M. Kehrer

CDO PIK: Satisfaction Guaranteed or Double Your Trash Back

When I attended the U.S. Army Northern Warfare School back in 1980, I was amused to see that all of the trash dumpsters at Fort Greeley, Alaska were stenciled with “Satisfaction Guaranteed or Double Your Trash Back”. I was reminded of this slogan the other day when I was doing some reading about the unfolding derivatives fiasco. I’ll get back to the quip about trash near the end of this blog entry.

Let me start with some background: Just like in the traditional bond world, with Collateralized Debt Obligations (CDOs) it is always the holder of the highest rated (“senior”) paper that gets paid first. Each grade level, “class”, “slice” or “tranche” has its own risk level. Starting from the bottom, the lowest level tranche and then moderate risk “mezzanines” have to successively support the more senior tranches. The very lowest level tranches (called “junk” or even “toxic waste” in the bond world) are the riskiest. In a default situation, those investors holding paper in the lower level tranches will probably get nothing, or perhaps 5 cents on the dollar if they are lucky.

Now here is where it gets interesting: Some of the folks that have established the tranche ratings for CDOs for the past few years have played a little fast and loose with their terminology, effectively over-rating them. A lot of “B” rated CDO paper really should have been rated “BB”, or even “BBB”. Indirectly, this has made the investments even riskier, because lower rated tranches have higher margin (“leverage”) requirements. When an investment goes bad, the degree of risk is directly proportional to the amount leverage employed. Highly leveraged investments can “go south” in spectacular ways. It isn’t unusual in the CDO world for some tranches to\ use 25-to-1 or even 30-to-1 leverage.

A recent Financial Times article titled “Credit crisis to worsen as banks cut and run” noted that as public scrutiny has increased, the margin requirements for various CDOs tranches are suddenly getting more stringent. The article mentions:
“The Bear Stearns hedge funds were big holders of these instruments and the news two weeks ago that the funds were in serious trouble has led to much greater concern about the valuation of CDOs of ABS [asset-backed securities] held by other funds.
According to bankers and hedge funds involved in these and similar markets, this has led investment banks to begin reassessing their exposure to funds that are investing in ABS and CDOs of ABS with borrowed money.
Matt King, analyst at Citigroup, has estimated that funds invested in CDOs of ABS are likely to see some significant increases in the amount of margin they are required to post against their investments.
This “margin” in simple terms governs the amount of leverage, or borrowed money, they can use in their investments.
For example, Mr King expects that for the safest AAA-rated slices of these deals, margin requirements would rise from about 2-4 per cent now to nearer 8-10 per cent.
At the other end of the scale, the riskiest equity tranches would see margin rates increase from 50-100 per cent, which is to say banks will not lend to funds investing in these slices of risk.
“Over the near term, the biggest risk is probably that of forced selling driven by potential margin calls or investor redemptions,” Mr King says.
“We argue that this is likely to be a big problem only for a small number of people, but that its full effects may not yet have been seen.”

In reaction to this article, Yves Smith, co-editor of the Naked Capitalism blog noted on the revised margin requirements: “The question now becomes how quickly this development will work through the system and now many players will be affected. We’ve already seen Brookstreet forced onto the shoals by margin calls; the question is how many other hedge funds will follow. The secondary effect will be that hedge funds who have subprime exposure are facing redemptions (some like United Capital Markets have halted them). They were already faced with the prospect of having to sell fund assets in a weak market to pay exiting investors; reduced leverage will only make a bad situation worse (the implicit vote of no confidence by the dealer community will make it less likely that speculative buyers will step forward). The good side is, if we believe the report in a recent issue of Bloomberg Magazine, hedge funds are smaller participants in the subprime-related CDO market than thought earlier, owning 3% of the investment grade portions and 10% of the equity tranches.”

I have read that a lot of CDO derivatives contracts are written with a Payment in Kind (PIK) recourse clause. In the context of CDOs, a PIK clause guarantees that if an obligation cannot be paid in cash, then it can be settled with the transfer of additional CDO paper. When default rates spike (as they have done recently with sub-prime mortgages) and a CDO party stops paying current interest (for lack of cash), they can hand over additional debt obligations, as a payment in kind. But what if that paper is also worthless, or nearly worthless? (This is the “double your trash back” that I mentioned.) Worthless PIK settlements could very well happen in coming months, as the US coastal residential real estate market unravels. This could get very ugly in a hurry. Changing margin regulations may make some holders of CDOs forced sellers, setting in motion a downward spiral in CDOs. If the sub-prime CDO failures start to snowball, beware! The liquidation could turn into a reverse bidding or “race to the bottom” situation, as anxious investors try to recoup something, anything from their initial investment. If and when this happens, it could make the $3.6 Billion Long-Term Capital Management (LTCM) bailout and the more recent $4.6 Billion lost by Amaranth Advisors look like minor hiccups, by comparison.

Those of you that have read SurvivalBlog since its early days will remember that I’ve issued warnings about the derivatives market in general and the credit derivatives market in particular, since late 2005. My advice hasn’t changed much. It remains: Be aware. Be prepared. Diversify. Minimize your exposure to both the real estate bubble and the credit derivatives market–directly or indirectly.

Letter Re: Supporting SurvivalBlog

Mr Rawles:
I was shocked to see that only 1% of readers have gotten a [voluntary] 10 Cent Challenge subscription. I signed up after the second week that I began reading.your blog. There is no other site on the Internet that has the same amount of in-depth info on preparedness. Nothing even comes close. I am blown away by how much knowledge is piled up in your archives. I could spend two or three hours a day searching through news sites, financial advisory websites, backpacking websites, EMT websites, gun websites, food storage websites, and so forth, and still not glean what is contained in SurvivalBlog. Ten cents a day is tiny pittance compared to what I get out of it.

Because of you and SurvivalBlog, my family is now much, much, much better prepared than it was a year ago. SurvivalBlog has tons of useful info. Anyone that can’t see that is either a fool or an idiot. I figure that SurvivalBlog has saved me hundreds [of dollars] by giving wise advice that has kept me from making some expensive mistakes in prepping. What I learned from your blog allowed my to package my own storage food (in [food grade plastic] pails) instead of buying over-priced [commercially] canned food for storage. SurvivalBlog also steered me away from radio gear that had short range and pitiful security. ([Instead,] I bought MURS band [transceivers].) The blog also directed me to some outstanding firearms training that cost very little. (The [RWVA] Appleseed range days and “clinics”.) The blog convinced me to re-prioritize my life and cut out fast food. (Which did good things for both my budget and my waistline. I’m now down two full belt notches and about ready for my third notch.) The blog also motivated me to sell off some of my guns in odd calibers (like I had a 280 Remington, a .35 Remington, and a .41 AE [Action Express]) and get standard calibers. Now that ammunition has zoomed way up in price, I have a lot more options on where to buy and what to buy. Now I have all.308 [Winchester], .30-06, .30-30, 7.62mm (AK), .223 Rem., 12 ga., .45 Auto, .357 Mag., 9mm, .22LR and .22 Mag. guns. Like another guy that wrote a few months back, SurvivalBlog also set me straight on generators. (Now I plan to get a low RPM diesel, not gas!) So I figure that in the long run SurvivalBlog will save me thousands. Ten cents a day, by comparison, is a real bargain. So here’s my personal challenge to anyone that reads this: What is SurvivalBlog really worth to you? If SurvivalBlog were to disappear, would you miss it? If you value it, then support it! – Phillip G.

Odds ‘n Sods:

Remember that there are now just three days remaining for the $500 Interceptor Body Armor (IBA) vest special from BulletProofME.com. July 12th is the deadline. Anyone who has shopped for body armor knows what a great deal $500 is for a new Interceptor vest. Don’t miss out on this deal.

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Reader Andy L. mentioned an article about the ultimate in privacy for retreats: Your own island in the Bahamas.

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MP noticed this editorial in a Seattle, Washington newspaper: Disaster’s coming: Get ready. MP’s comment: “Sure, 10 days is still a bit weak but it’s a step in the right direction over the laughable three day idea [that is promoted in the region, mirroring the guidance from most Federal agencies.]”

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Readers Michael A. and RBS both sent this piece from The Financial Times: Nestlé chief fears food price inflation.The article begins: “Food prices are set for a period of “significant and long-lasting” inflation because of demand from China and India and the use of crops for biofuels, according to the head of Nestlé.”