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“A very nasty period is soon to be upon us – be prepared,” said Bob Janjuah, the bank’s credit strategist.

A report by the bank’s research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as “all the chickens come home to roost” from the excesses of the global boom, with contagion spreading across Europe and emerging markets.

He means bugs. To be more precise: the genetic alteration of bugs – very, very small ones – so that when they feed on agricultural waste such as woodchips or wheat straw, they do something extraordinary. They excrete crude oil.

Unbelievably, this is not science fiction. Mr Pal holds up a small beaker of bug excretion that could, theoretically, be poured into the tank of the giant Lexus SUV next to us. Not that Mr Pal is willing to risk it just yet. He gives it a month before the first vehicle is filled up on what he calls “renewable petroleum”. After that, he grins, “it’s a brave new world”.

Mr Pal is a senior director of LS9, one of several companies in or near Silicon Valley that have spurned traditional high-tech activities such as software and networking and embarked instead on an extraordinary race to make $140-a-barrel oil (£70) from Saudi Arabia obsolete. “All of us here – everyone in this company and in this industry, are aware of the urgency,” Mr Pal says.

What is most remarkable about what they are doing is that instead of trying to reengineer the global economy – as is required, for example, for the use of hydrogen fuel – they are trying to make a product that is interchangeable with oil. The company claims that this “Oil 2.0” will not only be renewable but also carbon negative – meaning that the carbon it emits will be less than that sucked from the atmosphere by the raw materials from which it is made.

LS9 has already convinced one oil industry veteran of its plan: Bob Walsh, 50, who now serves as the firm’s president after a 26-year career at Shell, most recently running European supply operations in London. “How many times in your life do you get the opportunity to grow a multi-billion-dollar company?” he asks. It is a bold statement from a man who works in a glorified cubicle in a San Francisco industrial estate for a company that describes itself as being “prerevenue”.

Inside LS9’s cluttered laboratory – funded by $20 million of start-up capital from investors including Vinod Khosla, the Indian-American entrepreneur who co-founded Sun Micro-systems – Mr Pal explains that LS9’s bugs are single-cell organisms, each a fraction of a billionth the size of an ant. They start out as industrial yeast or nonpathogenic strains of E. coli, but LS9 modifies them by custom-de-signing their DNA. “Five to seven years ago, that process would have taken months and cost hundreds of thousands of dollars,” he says. “Now it can take weeks and cost maybe $20,000.”

Because crude oil (which can be refined into other products, such as petroleum or jet fuel) is only a few molecular stages removed from the fatty acids normally excreted by yeast or E. coli during fermentation, it does not take much fiddling to get the desired result.

For fermentation to take place you need raw material, or feedstock, as it is known in the biofuels industry. Anything will do as long as it can be broken down into sugars, with the byproduct ideally burnt to produce electricity to run the plant.

The company is not interested in using corn as feedstock, given the much-publicised problems created by using food crops for fuel, such as the tortilla inflation that recently caused food riots in Mexico City. Instead, different types of agricultural waste will be used according to whatever makes sense for the local climate and economy: wheat straw in California, for example, or woodchips in the South.

Using genetically modified bugs for fermentation is essentially the same as using natural bacteria to produce ethanol, although the energy-intensive final process of distillation is virtually eliminated because the bugs excrete a substance that is almost pump-ready.

The closest that LS9 has come to mass production is a 1,000-litre fermenting machine, which looks like a large stainless-steel jar, next to a wardrobe-sized computer connected by a tangle of cables and tubes. It has not yet been plugged in. The machine produces the equivalent of one barrel a week and takes up 40 sq ft of floor space.

However, to substitute America’s weekly oil consumption of 143 million barrels, you would need a facility that covered about 205 square miles, an area roughly the size of Chicago.

That is the main problem: although LS9 can produce its bug fuel in laboratory beakers, it has no idea whether it will be able produce the same results on a nationwide or even global scale.

“Our plan is to have a demonstration-scale plant operational by 2010 and, in parallel, we’ll be working on the design and construction of a commercial-scale facility to open in 2011,” says Mr Pal, adding that if LS9 used Brazilian sugar cane as its feedstock, its fuel would probably cost about $50 a barrel.

Are Americans ready to be putting genetically modified bug excretion in their cars? “It’s not the same as with food,” Mr Pal says. “We’re putting these bacteria in a very isolated container: their entire universe is in that tank. When we’re done with them, they’re destroyed.”

Carnaby had in his possession the morning of April 29 information that someone wanted and wanted badly enough to order the Houston police to treat the well-known former CIA clandestine agent and president of the local chapter of the Association for Intelligence Officers (AFIO) as a dangerous armed criminal. After an extensive investigation, WMR has learned that those who ordered the “hit” on Carnaby were part of a team, including smugglers tied to the Russian-Israeli mob, who were involved in terrorist planning activities in the greater Houston area.

Carnaby and his intelligence and federal and county law enforcement associates were concerned about the potential for a “9/11-like” false flag attack on either Houston’s port facility, airports, or all of them in and around the Memorial Day and Independence Day weekends.

WMR has learned that at a meeting of tugboat captains last week in Houston, the possibility of an imminent terrorist attack on the Houston port was discussed.

Carnaby’s belief in HUMINT as a determinant of terrorist plans likely caused him to believe that Houston was in imminent danger for an attack. WMR spoke to Carnaby’s intelligence and law enforcement colleagues who share his concerns.

Suspiciously, the Houston police, in violation of US Judge Keith Ellison’s order to preserve all evidence related to Carnaby’s shooting by the Houston police, admitted that it disposed of the evidence. Moreover, after having secured Carnaby’s Blackberry, which is known to contain contact numbers for CIA and other federal agents, as well as their informants, was returned to the custody of the Houston police by Secret Service Special Agent R. Jennings, the reported SAC (Special Agent in Charge) of the Houston office.

Jennings has been accused by Carnaby’s colleagues of cooperating with the very same elements, including individuals connected to Israeli intelligence activities in the Houston area and their well-placed moles inside the Houston Police Department, who wanted access to Carnaby’s contacts and other information. The compromise of Carnaby’s information represents a potentially devastating compromise of national security and are in direct violation of the National Security Act of 1947, according to Carnaby’s colleagues.

Enter Think Global, a Norwegian upstart plotting a U.S. invasion via pint-size, affordable electric cars. Think has been selling gas-free, Lilliputian city cars in Europe and will start peddling them to fuel-crunched Americans in 2009. The company’s newly formed North American division has high hopes for Think’s existing models—and even higher ones for the upcoming Th!nk Ox, a concept unveiled at the Geneva International Motor Show earlier this year.

An electrified people’s car for the 21st century, the Ox is a preview of Think’s next-generation production vehicle, due out in 2011. Roughly the size of a Toyota (TM) Prius, the Ox can travel between 125 and 155 miles before needing a recharge, and zips from zero to 60 miles per hour in about 8.5 seconds. Its lithium-ion batteries can be charged to 80% capacity in less than an hour, and slender solar panels integrated into the roof power the onboard electronics. Inside, the hatchback includes a bevy of high-tech gizmos such as GPS navigation, a mobile Internet connection, and a key fob that lets drivers customize the car’s all-digital dashboard. Pricing has yet to be announced, but the company’s current vehicles cost less than $25,000.

Since homes are the biggest asset that most people have, equity is pretty important. Unfortunately for the American people, home equity is a dwindling resource.

A Federal Reserve report released Thursday shows the amount of equity held by U.S. homeowners slid to 46.2 percent in the first quarter of 2008–the lowest percent on record.

Equity has been on the decline since the housing boom. Although home prices were rising at the time, there were a lot of homeowners who took advantage of lines of credit and cash-out loans.

Mortgage debt rose to historic proportions during this period and is still rising despite the presence of a full-blown credit crunch. During the first quarter of 2008, Americans’ mortgage debt increased from $10.53 trillion to $10.6 trillion.

Underwater Mortgage

Rising debt and vanishing equity has contributed to an underwater mortgage phenomenon.

Western powers are warning the Islamic Republic of more punitive measures if it rejects an incentives offer and presses on with sensitive nuclear work, but the world’s fourth-largest oil exporter is showing no sign of backing down.

“Part of Iran’s assets in European banks have been converted to gold and shares and another part has been transferred to Asian banks,” Mohsen Talaie, deputy foreign minister in charge of economic affairs, was quoted as saying.

Iranian officials were not immediately available to comment on the report in Shahrvand-e Emrouz, a moderate weekly, which did not specify the time period for the withdrawals which it said were ordered by President Mahmoud Ahmadinejad.

“About $75 billion of Iran’s foreign assets which were under threat of being blocked were wired back to Iran based on Ahmadinejad’s order,” the weekly said.

This sensitive US military counter-insurgency manual could be described as “What we learned about running death squads and propping up corrupt government in Latin America and how to apply it to other places”. Its contents are both history defining for Latin America and, given the continued role of US Force in the suppression of insurgencies and guerilla movements, history making.

US Army Field Manual FM 31-20-3, Foreign Internal Defense Tactics Techniques and Procedures for Special Forces; Headquarters, Department of the Army, Washinton, DC. 2004 edition. Made US Army doctrine (policy) on 20 September 1994; 219 printed pages. Verified by Wikileaks editorial board. Since the manual is US Army doctrine there are also public references to the title and tables of content elsewhere.

Example extracts follow. Note that the manual is 219 pages and contains substantial material throughout, including technical and procedural descriptions which have not been presented here.

DISTRIBUTION RESTRICTION: Distribution authorized to U.S. Government agencies and their contractors only to protect technical or operational information from automatic dissemination under the International Exchange Program or by other means. This determination was made on 5 December 2003. Other requests for this document must be referred to Commander, United States Army John F. Kennedy Special Warfare Center and School, ATTN: AOJK-DTD-SFD, Fort Bragg, North Carolina 28310-5000.

Many understand that this is a debt bubble and not only a collapse fueled by the subprime market in which low-income people bought overpriced homes. That in fact is a big player in this mess but many who once thought they were “prime” are going to be realizing there is nothing prime about them. Welcome to the even uglier side of things which is only in stage one at the moment. We now enter the Pay Option ARM debacle:

Pay Option ARM

The most ominous sign of the above chart is the following:

-$500 Billion in total Pay Option ARMs outstanding in the U.S.

-60 Percent of these issued to folks in California

On Sunday, after touring some of the worst flooded areas, U.S. Senator Tom Harkin of Iowa announced a federal disaster declaration for 13 Iowa counties – Adam, Boone, Cerro Gordo, Crawford, Dallas, Dubuque, Floyd, Franklin, Marion, Page, Story, Tama and Union, bringing the number of counties under this designation to 24.

Now that the counties have been declared, residents and businesses can begin applying for federal disaster assistance.

“These new disaster declarations are vital as we begin the recovery process in some parts of our state. Now more Iowans can apply for assistance and get the help they need,” said Harkin. “Still, there is much more work to be done and I will continue to see to it that other affected counties receive federal assistance.”

On the state level, Governor Chet Culver has issued a disaster proclamation for 83 counties. The governor’s proclamation activates Iowa’s individual disaster assistance program, which helps people with low incomes.

Meanwhile, the flooding, evacuations and road closures continue across the state.