-- Posted Thursday, 7 July 2005 | Digg This Article

THE INTERNATIONAL FORECASTER

JULY 2005 (#1) Vol. 9 No. 7-1

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

            George W. Bush has lied about WMD in order to create an excuse for war, and we now also find he lied about his actions and interest prior to the war. In August of 2002, he began military actions inside Iraq. First came the bombing extension and then the insertion of Special Forces Units for reconnaissance. Six months later the CIA and special operations were sent into Iraq. Our President was waging aggressive war long before official war and invasion began. This is George and the neocon’s version of democracy. Our intelligence tells us that the same pre war, war preparations are going on in Iran, which is to be the elitists’ next target. Our special units are already in Iran and have been for some time and the BBC tells us our U2 spy plane was shot down while over Iran. Our government hasn’t told us yet where the wreckage is, only that they are guarding and inspecting it. Essentially, we are already at war with Iran – we just haven’t invaded yet. US trained infiltrators from Azerbaijan are already in Iran collecting intelligence, which we mentioned some months ago. We also have military aircraft in Azerbaijan with which we can attack Iran. Our government is in the process of creating another war for profit – to steal Iran’s oil.

            If we do not impose tariff barriers on goods and services, America’s economic structure will be destroyed. Yes, consumer prices will rise but that cost is far less than the destruction of our economic and financial system, which is now taking place. Free trade and globalization has been disastrous for our country.

            If you live in a hot housing market you had best pay attention and beware that you will suffer the most from a downturn. The FDIC says the 22 major local markets with the fastest growing prices account for 35% of the nation’s housing values, that is those that are up more than 30% over the past three years. In 2004, 55 of 362 markets qualified, and account for about 40% of national residential values.

            Fannie Mae concludes that the probability of regional housing busts has risen sharply in certain parts of the country and current conditions mirror past conditions that preceded regional housing busts. Twenty-four percent of the sub-prime loans, included in private label securities, were adjustable rate mortgages with an interest-only payment provision. More than 30% of sub-prime loans were topped with a home-equity loan granted at the same time. Overall, mortgage borrowings rose to an average of 91% of home values.

We are totally convinced a national housing bubble exists and the risks to the economy are enormous. The Fed and government agencies are well aware of the situation. If they tighten the way they should, the stock market, bonds, real estate and pensions will all fall in value. If they do nothing and continue to inflate, the boom will get further out of hand and the resultant fall will be worse. If the interest rates are not quickly increased and the credit punchbowl removed the downside will be ghastly.

Five years ago in early April 2000 we announced the end of the equity bubble and this fall we should start to see the end of the real estate bubble. Thanks to the Federal Reserve, one bubble led to another. It did not just happen that way; it was planned that way. The same crowd that saw equities fairly valued sees real estate fairly valued today. There are no fundamentals to drive the real estate market, only low interest rates. The situation is little different from 2000.

            Over 2-1/2 years the S&P 500 fell 49%. Presently house price inflation is at a 25-year high in real terms. In the first quarter of 2005, double-digit house price inflation was evident in 23 states plus DC. In 25 of the top 100 metropolitan areas, the rate of home price appreciation was at least 20%. Investors, not owners are currently accounting for 11.5% of newly-originated conventional mortgage loans; that is up from a 2% low in late 1995. Mortgage financing is now a game of exotics; anything goes for now, who cares about tomorrow.

            Prompted by low interest rates and exotic mortgages and low investment returns most everyone has jumped on the real estate bandwagon. This is a global bubble with only a few exceptions. This is, as we have said many times, the biggest financial bubble in history. It’s not only the Fed; it’s a number of central banks and governments that have added fuel to the fire. Sir Alan Greenspan was never concerned with irrational exuberance; he was the one responsible for running the stock market up from December 1995 to April 2000. He could have stopped it at any time simply by raising interest margin requirements, but he was not about to do that. He has definitely kept interest rates down to keep construction and the housing boom going and he is still at it. These were not blunders. These were deliberate acts. Greenspan almost single-handedly created the carry trades, yen, dollar and gold. He has been the originator of the biggest financial excesses in history – and he knows they will end in financial tragedy. Greenspan made the American home into a piggy bank. The result is that household sector indebtedness now stands at 91% of GDP up 20% in just five years. It previously took 15 years to increase debt 20%. Household sector debt-service burdens are at historic highs when scaled by disposable personal income. This is truly astonishing in a climate of rock-bottom interest rates. Just a mild recession could easily turn into a real squeeze causing a financial domino affect. The negative leverage is there with the ARM share of newly originated mortgage loans at 40%. The worst part is almost no one has an exit strategy unless they are out of debt including their mortgages. It will not be comforting when you lose everything, because everyone else is in the same boat. Sir Alan Greenspan learned nothing from history or the recent Japanese fiasco, and that is because this collapse was deliberately engineered. This asset bubble, like all asset bubbles, will implode under its own weight. Get out of debt, particularly credit card debt, get gold and silver related assets and keep your powder dry.

            We are told that in order to implement global taxation for the UN, Bilderberger’s recommend that the best time to ask for taxes, is once the conflict in the Middle East subsides. Then the world will be subjected to brutal images of destruction. Some believed the time was now while the war rages.

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GOLD, SILVER, PLATINUM, PALLADIUM AND DIAMONDS

            We expect gold price gains to accelerate in the second half of the year. As concern mounts regarding inflation and falling currencies, oil should average $55 to $65.00 a barrel. All these factors will spear demand for gold as stocks, bonds and real estate decline.

 

Goldmine output in Russia in the first five months of the year was 31.7 tons or 1 million ounces says the Russian Union of gold miners. That is a 7% decrease, or about 75,000 ounces versus the year-ago period.

 

Each day the euro becomes a more fiat currency. Again, the ECB, the European Central Bank, has announced another sale of 108 million euros of gold last week, 10.3 tons. It suggests the ECB will have to cease or disguise sales well before the second year of the current Washington Accord, which starts in October. Over the past five weeks sales have averaged 11.9 tons, almost double the average maximum quarterly possible.

 

            The US Mint has announced that it will develop a program to manufacture 24-karat (99.9% fineness) uncirculated gold bullion investment coins in early 2006. This will be the US’s first 24-karat coin. This will be a major production and if 1986’s release of the American Eagle is any criteria, this will bring lots of interest in gold. Gold rose 53% in the two years following the 1986 release. The US Mint is out to compete head on with the Canadian Maple Leaf, which brings in $2.4 billion a year.

 

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-- Posted Thursday, 7 July 2005 | Digg This Article

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