-- Posted Tuesday, 7 June 2005 | Digg This Article

THE INTERNATIONAL FORECASTER

JUNE 2005 (#1) Vol. 9 No. 6-1

P. O. Box 510518, Punta Gorda, FL 33951-0518

An international financial, economic, political and social commentary.

Published and Edited by: Bob Chapman

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US MARKETS

            In a previous issue we discussed that over the last 25 years the destruction of General Motors and Ford were being executed deliberately. Operating losses in the first quarter from automotive operations including special items was $2 billion. Those losses were offset by gains of $729 million at GMAC, GM’s financial arm. GM said it had a positive cash flow of $2 billion, that was then “adjusted” and they announced a negative $2 billion cash flow. That was not the truth. Bloomberg said GM had a first quarter, one-time special charge cash flow loss of $1.7 billion to cover the severing of ties to Italian car manufacturer Fiat, and an additional negative cash flow of $3 billion on regular operations, for an astounding negative $4.7 billion cash flow during the first quarter alone. That means overall reserves of $25 billion could be exhausted in 15 months. Quarter to quarter GM produced 12% fewer vehicles, and sales fell 5%. We expect that trend to continue as the US and world economy slows and competitors with no pension and health benefits make inroads into GM’s market share. As GM’s situation gets more difficult, they have stated that they would draw $6 billion in cash over the next 18 months from a $20 billion fund set up to provide for retired US union workers and their dependents. They would loot the funds in the health-care trust. This is what American steel companies did prior to their bankruptcy in the 1980s and 90s. The result was retired workers ended up with no health care benefits.

            The response from the investment banking industry is to break up GM into pieces. For starters shut four assembly plants and put 30,000 out of work. Eliminate the Buick line and reduce health-care benefits and cut off laid-off workers from benefits. That will be accompanied by a plan to eliminate production of one million cars and trucks as excess capacity, that is as China exports 300,000 cars to the US in 2007, manufactured by workers earning slave wages.

            As this all transpires GM’s bonds are now rated junk and when they raise over $100 billion next year they will pay between 11% and 14% for the privilege of rolling its debt and getting fresh capital. That puts their borrowing status four levels below that of Brazil, which owes $500 billion.

            When the lunatic in the White House was asked about the situation he said, “GM is going to have to learn to compete.” The problem is that the playing field is not level. It is unbalanced to favor our foreign competitors to deliberately destroy our manufacturing capabilities and our markets. The collapse of GM could be the event that finally brings down our financial system and few have taken that into consideration.

            Ford isn’t much better off. It has $172 billion in outstanding debt and has virtual junk status. First quarter profits were $1.21 billion but over 60% of that profit, which was 38% below the level of the comparable quarter a year ago, was earned by Ford Credit. Ford’s answer to Chinese inroads is to cut production. While this goes on at GM & Ford, suppliers in trouble such as Dana Corp, Delphi and Visteon are on the verge of collapse.

            These are all revolting developments that can easily be solved by tariff trade barriers, and until they are put in force our economy will continue to be destroyed, so that elitist transnational corporations can get richer.

            America is a superpower and China, Europe and Russia have the basics of also becoming superpowers. We will not be a superpower long if we continue to export our industrial capacity and technology to China with its huge pool of slave labor, which has so often become cannon fodder. Communist China is emerging as a major economic and military power and we are helping them attain that status. While these others stand in the wings we are rapidly depleting our domestic wealth and military strength in endless foreign conflicts for the profit of elitists who run our government. Our military is supposed to be defending our country and the interests of its citizens, not the interest of a select minority who happen to wield great power. These foreign conflicts are also being used to abet the growth of government beyond its constitutional limits. Our great defense has been replaced by a massive offensive war machine. We are not preventing lethal acts of warfare against us – we are the aggressors. This creates the problem of the sacrificing of our military personnel and their exploitation by a policy-making elite that has perverted the purpose of our military for profit. We are not defending our country, we are promoting global governance. This irrational commitment to being a globalist superpower is unsustainable economically and financially and it is another method of destroying our country. Along with our fiscal and monetary policies and the fiat nature of our currency, we are fast headed into bankruptcy. We have been betrayed by our government and the elitists who control it.

            We again bring to your attention that military recruitment is bottoming out and it will get worse as our occupation of Iraq and Afghanistan wears on. Enlistment bonuses have been raised for the third time since last August, but to no avail. Thus an expanding military and diminished recruitment can only lead to a return of the draft. If drafted, your sons, daughters, grandsons and grand daughters will either go into the military or be compelled to participate in national service. Those not forced into the military would be drafted into AmeriCorps, homeland security, etc. Those on active duty would receive shorter service terms and more generous benefits. No matter which way you cut it, if you survive, you will lose three to five years of your life as we post WWII veterans did up until the 1970s. Those are some of the best years of your lives stolen by a maniacal group of megalomaniacs.  Our federal government is utterly shameless in wasting our money and our lives. You should quickly prepare for such events. We already know of young people who are leaving the US. Many are headed to New Zealand, which will not extradite and Mexico, which may extradite. The presidential election should be won by socialist/’populist Andres Manuel Lopez Obradar and if he is elected, we do not believe he will extradite. If he did you could move to Paraguay, Uruguay, Argentina, Brazil or Venezuela. Remember what Major General Smealey Butler said in 1933, “War is a racket.”

More intelligence from the Bilderberger Conference in Rottach-Egern, Germany. Henry Kissinger predicted that oil would go to $150 a barrel and it will not be long. James Baker had made the same prediction to the Carlyle Group at an earlier conference. He did not make any oil predictions, but Virginia Governor, Mark Warner attended for the first time, which means he is being considered as the next American president.

 

            The flight between European and American elitists continued unabated over the invasions and occupation in the Middle East. When Henry Kissinger was presiding over a panel discussion on the meaning of peace, Europeans demanded to know if Iran was next and when does it end. American elitists were repeatedly warned not to go to war with Iran.

 

            American elitists were again denounced for not providing their fair share of economic aid to poor countries. The Bilderberger global tax proposal has been pending for three years at the UN, an issue that has been totally blacked-out of the US media. The favorite for passage, a $.10 per barrel tax on oil at the barrel head.

 

            Other issues discussed were China and energy, Russia’s role in the world, economic liberation and US Social Security reform. Attendees were furious when discussion led to Senate Democrats, who had voted for “free” trade bills in the past, were threatening to kill CAFTA, the Central American Free Trade Agreement, because of insufficient worker protections. NAFTA, leads to CAFTA, leads to FTAA, which leads to the integration of North and South America and then world government. Once paid off, these politicians are expected to remain paid off.

 

Congressman Ron Paul (R-TX) has reintroduced his bill, the Social Security for American Citizens Only Act (HR858) after sponsoring a similar piece of legislation last year. Paul wrote to his colleagues, “Please protect Social Security from being transformed into a system of global welfare by cosponsoring my legislation.” This is preemptive strike against any efforts by the Bush administration to allow non-citizens in Mexico, who worked for a time in the US, most illegally, to collect Social Security. Paul’s legislation would prohibit all non-citizens from receiving the benefit regardless of where they live. The bill also ends the practice of totalization, which allows certain non-citizens to collect SS even though they have not worked in the US and thus, not paid payroll taxes as long as American citizens must to qualify for Social Security. US and Mexican officials discussed in 2003 a deal to allow legal and illegal immigrants to return home, but still collect US benefits. Such an agreement could mean the transfer of hundreds of millions of dollars in payments south of the border. The Social Security administration estimates about 50,000 Mexicans would collect $78 million in the first year and by 2050, 300,000 would collect $650 million in benefits a year. This does not include the potentially eligible, illegal Mexican immigrants, which would cost $750 million within five years. The program was never meant to be a foreign aid program. If passed it would encourage aliens who come to the US legally to become citizens. You might give Mr. Paul an assist by contacting your congressmen and ask him to help.

 

            We reported on this before, but now the WSJ has decided to spill the beans. FedEx has voluntarily become a government snitch by turning over to our government names, addresses, credit card information and lists of when and where FedEx customers send and receive packages. This under the guise of fighting terrorism. Now FedEx has gone a step far, too far. They have granted US Customs inspectors access to the company’s database of international shipments, including names and addresses of shippers, package origin and destination, credit card information and payment details (names of banks), all things the US government is not entitled to outside a criminal investigation. We than assume the FBI, CIA, DEA, IRS and state and local police get some of the information they need or want via Patriot Act powers, supposedly aimed at suspected terrorist. Many illegal operations have been busted via this illegal procedure. We want criminals to get caught, but within constitutional bounds.

 

We stopped using FedEx three years ago when we first reported what they were doing. Even if you have nothing to hide you should not use FedEx because they are violating our rights. Use UPS, which still follows traditional rules. For that they deserve the business.

 

            Rumors have been circulating in Washington for the last year that a coup d’etat against George W. Bush and the neocons is being seriously contemplated in certain circles. Within the military because of the non-traditional use of the military and among high-level businessmen who see Bush as a disaster for American business, especially in foreign trade. He has been arrogant, outrageous, insulting and downright weird in addressing the military and its objectives. He is going to use commercial unarmored mini vans in Iraq to transport troops to keep the collapsing auto industry happy, which, of course, will cost many more lives.

 

The US either goes to hyperinflation or directly into depression. The world is forced to fuel America’s profligacy and if they do not they go into the pit with us. US elitists have sucked everyone into the game. The Ponzi scheme has not only entrapped the foreigners but it has entrapped Americans in debt, from which they will never be able to extricate themselves. Wars will increase, we will have a draft and the use of mercenaries from every country will expand.

 

Foreclosure rates have risen sharply in 47 states in March. The rates in Florida, Texas and Colorado are more than twice the national average. Even in NYC and Boston, where real estate markets are white hot, foreclosures are rising in working class neighborhoods. Once the nation’s housing bubble deflates it could well set off a national crisis. Americas shoulder record levels of debt and more than 8% of households spend at least half of their income on their mortgage. Making matters worse, interest only and adjustable rate mortgages account for 63% of financings. What we are beginning to see is anyone can have a home backfiring. Most people lose their homes because of outrageous medical bills, some 40%. Some 70% were sub-prime buyers and they paid 8 to 12% interest rates. Our government and the mortgage industry have produced a time bomb that will explode over the next five years. It is heartbreaking but most of these people should be renters. In addition, mortgage lenders are all too quick to foreclose. You get two months behind and you are out. In a rising real estate market they resell the homes at a higher price. Foreclosure costs are $10,000, which is not cheap. Now that Fannie Mae and Freddie Mac got these people buried they want to bury even more in their American Dream Commitment. No other country allows what goes on in American real estate. It is pure insanity.

 

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GOLD, SILVER, PLATINUM, PALLADIUM AND DIAMONDS

 

            The fate of Russian palladium valued at $3 billion is unknown and the Audit Chamber has requested and investigation to find out what happened to it. The 350 tons of state-owned metal was deposited in western banks in the 1990s. The metal was exported at the end of the 1990s in tránches and deposited in several Swiss banks, and it is not known whether it was eventually sold. It will be interesting to see what happened to the metal.

 

            The cash market for gold just doesn’t stop. Commodity prices are again moving higher, silver has broken out again and all the experts, save us and a few others are bearish and out of the gold and silver markets, particularly the shares. Load up while you can – you won’t see these opportunities again soon. Watch out for short covering.  Once it starts it will be explosive.

 

            Silver bulls some more good news: last week five million ounces of silver moved from registered to eligible. The registered category is just under 45 million ounces. If delivery is taken it will start quite a stir on the Comex.

 

            Gold output in South Africa fell 12.8% y-o-y in the first quarter. Production fell to 73.8 tons or 2.37 million ounces from 84.6 tons y-o-y. Rand revenues continued to fall and production costs continued to rise.

 

At current production rates gold reserves will be exhausted in 10 years and it takes six years or more to start mining a new discovery. The main problem has been that between 1997 and 2002 exploration budgets had to be slashed 67% because of suppression of gold prices by central banks. Since 2002, with all the billions spent, few new discoveries have been made. In order to replace 3.5 to 7 million ounces of gold mined each year, you would have to find a major five million ounce discovery every year. That has not been happening and it will not happen. Of 792 discoveries listed with the US Survey’s database of greater than 100,000 ounces, only 6% contained five million ounces of gold or more. How can finds become mines when it takes three to 10 years to permit a mine in Canada or the US? We just will not see major activity again until we see $850.00 gold and companies are convinced that central banks are finished manipulating gold prices.

 

            Starting back in the early 1990s, we cited the fact that many mining operations were high-grading properties. No one else besides us found it significant. Now the whole supply decline projection is exaggerated and the fall in production over the next several years will be more pronounced than anticipated. A perfect example is South Africa’s production. It dropped by one-third over the past decade. Barrick Gold has been doing the same thing outside South Africa. That is why when mines close early and still have large ore reserves, the average person cannot figure out why they were closed. You will see a lot more of this until gold prices return to $850. The decline was 4.4% in 2003 and 5% in 2004.

 

            Seventy-five percent of new production comes from exploration companies that become juniors. For the past two years they have had a very difficult time raising money. Once on track we do not see how any small company can escape a takeover by a larger company.

 

            From 1998 to 2004 there have been major layoffs of geologists and that means fewer new graduates. That means the field is experiencing staffs of declining quality due to continuing departures.

            Majors are now desperate for new reserves and that is why an exploration company that has a chance of making a mine will bring major returns for investors, especially at these bargain-basement prices. Almost all of these small exploration and junior shares are off 50% to 90% over just the past two years. Remember you buy them when no one wants them.

 

            Gold and currency expert Dr. Ferdinand Lips told a gathering in Dubai that the Gulf Cooperation Council should peg its proposed currency to gold rather than the American dollar or the euro in view of their currency fluctuations.

 

“Gold has proven itself to be a safe and tangible investment option since the value of an ounce of gold is far greater than currencies that are being devalued daily. Being in the midst of a global currency devaluation scenario, it is worth noting that while oil is the king of commodities, gold is the king of money. Oil is under-priced and oil producers are not getting real value by pegging it to the dollar.” The lecture, attended by prominent members of the banking and finance industry, dealt with how currencies, investments and every crucial economic factor in the GCC countries, are dependent on the US dollar, which shows increasing signs of weakness. The Gulf countries, Lips said, could escape potential financial disaster by looking at certain other investment alternatives. Lips is the author of “Gold Wars.” He kindly sent me an autographed copy because he liked what I had to say in the IF. UAE AND Qatar currently have no gold reserves. Kuwait has leased theirs and Saudi Arabia has only 200 tons. That is good because there is incentive to buy. Lips also suggested that a monetary institute be set up to create greater awareness of money and emphasized the crucial need to return to solid money. “Gold is the insurance policy. When the rest of the world goes down on the paper money system, invest at least 1% in gold as insurance,” stressed Lips, adding that today’s depreciation limits the purchasing power of paper currencies, whereas gold is a highly liquid asset. “Returning to a gold standard will also put a limit to what governments can do,” he said. Mr. Lips is one of the most respected bankers in the world.

 

We will not quote the ETF numbers because there is no way to check the HSBC depository. Of course, the WJFC and GFMS refuse to deal with the BIS gold derivative statistics and their manipulation of the gold market.

 

 

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CHINA

            Residents of Shanghai are dumping US dollars. During May foreign exchange transactions were up 30% y-o-y. Some banks reported transactions of several hundred thousand of dollars a day.

 

            Ford Motor Company’s finance arm Ford Motor Credit (FMC) has received approval to enter China’s lucrative auto financing market and will begin operations later this year. The business initially will concentrate on wholesale financing for dealers as it begins trials of consumer installment loans in some areas. They will finance all brands of cars. Auto leasing has begun to take off, despite soaring defaults for some domestic lenders. GM’s, GMAC is already in the market. Lenders total guaranteed loans cannot exceed 200% of their registered capital and that staff have work experience or an education in finance. Ford is in the midst of a $1 billion expansion plan and is building new assembly and engine plants in Nanjing. FMC has already spent $60 million in China and it also has operations in Japan, Taiwan, Australia, New Zealand, Thailand, India, Indonesia and the Philippines.

 

            The latest on the US demands that China let its currency float is that they revalue 10 to 15%. This policy reflects a growing realization that Chinese leaders were simply not going to let their currency soar, which would make their exports expensive and could disrupt China’s troubled banking system. Be as it may, China is thinking more in terms of 5% or not at all. The Chinese peg is currency manipulation, which is being practiced by all of our third world suppliers but something the US has been doing for many years. Last year China’s trade surplus with the US was $162 billion and it is still rising. The flipside is a revaluation will cause inflation in both China and the US and China will no longer need to buy dollars and probably would be a seller putting upward pressure on US interest rates and that would hinder the US’s ability to find foreign funds to finance its current account deficit.

 

            China plans to scrap curbs on textile exports to the US and UK in the latest escalation of a dispute that has soured relations with all three participants. This fight is far from over.

 

            In what we see as a trial balloon, the Chinese say they are exploring ways to use some of their $659 billion foreign exchange reserves to buy imported oil. We can assure you they have already done that, and they have been using dollars to buy base and precious metals. How else could they have purchased them as they are sold in dollars? The warning is to make the US aware they are prepared to dump lots of dollars on the market if there are trade sanctions.

            They also hit out at the US and EU on curbing Chinese textile exports saying the restrictions were justified neither by trade law nor by statistics. The Commerce Minister was scathing about the double standards of rich countries (here comes the communist rhetoric) that flew the flag of free trade but rushed to throw up barriers when poor nations started to exploit their comparative advantage of cheap labor. China now has 15 days to limit this years’ increase in exports of the two products to 7.5% over 2004 levels, otherwise the EU will enforce the limits itself. We find it entertaining that Europe is just discovering that they are losing jobs to offshoring and outsourcing. America has been losing them since 1985, more since 1995, and millions of jobs since 2000.

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-- Posted Tuesday, 7 June 2005 | Digg This Article

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