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International Forecaster January, 2005 (#2) - Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster

-- Posted Sunday, 22 January 2006 | Digg This ArticleDigg It!



            Our society cannot survive when those who expose the truth are criminally pursued for revealing what those in power do not want the citizens of the country to know. When those in power are breaking the law, are unethical, executing illegal arrangements and violating our Constitution, it is very important that those in government and the media can protect the sources of truth when we have a government obsessed with secrecy.


            The administration has made sure the Valerie Plame affair has been drawn out until the administration leaves office. There is no question George and the neocons violated a federal law by unmasking a covert operative as a form of payback to her husband Mr. Wilson, who exposed the fallacy of uranium that was supposedly pursued by Iraq.


            The latest episode is our president spying on the American people without warrants. This was another classic attempt at exposure by whoever revealed the information to the NY Times. We hear the old excuse it was done for reasons of national security. Security and secrecy are a catchall. The claim of security is bogus and the underlying reason for the secrecy is to prevent embarrassment to the White House and to stop criminal charges. National Security was not harmed by the exposure of the spying; the American people were harmed.


            Don’t fall for blaming the messenger. It is the administration that has broken the law in the above cases just like it has been the administration that lied about kidnapping, torture, rape, abuse and incarceration and operating secret prisons worldwide. They were the ones who held innocent people in prison for years with no charges and that included Americans.


            Illegal spying and a host of other issues have to be investigated, not whistle-blowers and newspapers. Our President is determined to stop those who expose his criminal activities, the press and his ever-expanding secret government. What Bush doesn’t want you to know is that the NSA spying is only part of a secret system of extensive spying and law breaking. Our President believes he rules by executive fiat and everything is justified by his war powers. He has deliberately operated beyond the oversight of Congress and the courts, and outside the law. This is unaccountable rule based on the ideology of absolute power.


            Like the American people, Congress is held in contempt and the Republicans in Congress have been models of complicity in fending off oversight, attacking other members, especially every word Republicans speak who have had the temerity to insist on oversight. Congress has never seen the like and smearing of critics that this Congress has seen. This is the sort of congressional involvement, under neocon command, that George and his CFR thugs believe fulfils the congressional mandate. Our President believes he is a dictator. He nullifies the laws that happen to be in the path of his progress. What is worse is Congress doesn’t seem to understand what he is up too. George is so obsessed with power that when he signed the military appropriations bill containing the amendment forbidding torture that he and Cheney had fought against, he added his own signing statement to it. It amounted to a waiver, authorized by him alone, that he could and would disobey this law whenever he chose. He wrote: “The Executive Branch shall construe Title X in Division A of the Act, relating to detainees, in a manner consistent with the Constitutional authority of the President to supervise the unitary executive branch and as Commander-in-Chief and consistent with the Constitutional limitations on the judicial power, which will assist in achieving the shared objective of the Congress and the President, enhanced in Title X, of protecting the American people from further terrorist attacks.” In other words, I’ll do as I please. If one wanted to challenge the President’s interpretation he would have to first find out if the administration was complying and there is no way to do that unless we have another whistle-blower or journalist who exposes the transgression. The potential whistleblowers and journalists have already been put on notice that they put their careers at risk for speaking out in order to inform the public of what they consider wrongdoing. George and the neocons are vicious and will go to any end to punish anyone who exposes them. All contrary analysis is to be suppressed not only within government, but everywhere else.


            Bush’s Justice Department leak probe is a witch-hunt complete with prosecutors and grand jury to investigate the disclosure of the NSA story. It is also investigating the Washington Post’s reportage of their secret prison system. Not only do they want to find out who exposed them, they want to punish them, destroy them and create a climate of fear – next comes the terror. This can best be called a charade and a mockery. We believe we’d be better served by investigating Mr. Chalabi whose disinformation was rubber-stamped by Rumsfeld and Cheney in order to justify invading Iraq. As we now know there was never WMD, but yet Congress has not demanded an investigation.


            There are no illusions here. The people who are running our country are very dangerous and lethal. George and the neocons live in a world where reality is unwelcome and madness reigns.


            The big Bush-neocon backer AIPAC, the pro-Israel lobbying group, has begun to sharply criticize the White House over the handling of Iran’s nuclear program. They describe recent policy decisions as dangerous, disturbing and inappropriate. They say the neocons are actually helping Iran to acquire nuclear weapons. AIPAC wants a confrontation over the issue in the UN Security Council, but Bush knows China and Russia will veto the measure. Bush also accepted the Russian proposal for processing Iran’s uranium, but Iran refused and AIPAC found this duplicitous. This AIPAC is the same organization from which its employees were caught spying on the US.


            The OECD says the Bush administration spent $19 billion on foreign aid in 2004, nearly double what it was in 2000. If we use NGO’s to properly distribute the aid the cost is onerous. If we give it to the government it disappears.


            The hot button issue for the November election is illegal immigration and Republicans are getting as far away from George Bush as possible on the issue. The House is not about to follow Bush’s imperious demand of guest-worker amnesty.


            In Washington, DC, the torrid condo market – the supply of new condos – has begun to outstrip demand. In 2005, 13,698 new condo units were sold, up from 9,108 in 2004. In the fourth quarter of 2005, 3,541 new condos were sold, a record, and up from 2,394 y-o-y. About 51,400 units are being planned or marketed for delivery within the next three years, up from 39,000 just a few months ago. While the inventory of all housing for sale in the Washington area has risen over the past few months, the change in the formerly hot condo sector has been the most marked. The market is now seeing flipping speculators walking away from the closing table. Developers are now waiving condo fees for a time or helping with closing costs. Some are cutting prices by $30,000.


            Municipal bond issuance in 2005 set a record soaring to $405 billion despite rising interest rates. That is 13% higher than in 2004 or $379.3 billion versus $357.1 billion.


            The all-electronic Eurex derivatives exchange retained its leadership by reporting a 17% rise to 1.25 billion contracts. Chicago Mercantile Exchange narrowed the gap with its German-Swiss rival, reporting a 34% rise to 1.05 billion contracts. The Merc’s biggest products are interest-rate futures and options. Volumes on the Chicago Board of Trade climbed 12% to 675 million contracts.


            NYC condo prices rose 28% in 2005. The average condo was $1.5 million and cooperatives were $998,000, representing increases of 25% and 23%.


            The CBOE saw a 30% increase in trading volume in 2005. Volume rose to 48.2 million contracts from 361.1 million in 2004.


            China has served notice that they’ll be diversifying away from the dollar. We believe that will be a gradual process because it is not in their best interest to see a progressively falling dollar. During 2005, all dollar holders were treated to a respite. We believe that breather is about over and harsh reality is about to reassert itself. That $300 billion that came from transnational corporations, under the cover of enhancing American employment, is over. It looks like short covering could also be over. The unwinding of currency hedges could be waning. The creation of truly massive new liquidity injections via M3 and bank and associated credit, could and probably will unhinge supply/demand dynamics. All the above are going to negatively affect the dollar in 2006.


            Now the question is when will foreign central banks question the advantages and prudence of further massive accumulation of dollar financial claims. The aggregate creation of more than $1 trillion annually is staggering and it is accelerating. We believe that this year foreign central banks could say ‘enough’ as the Chinese have recently. Once the major buying of last resort is gone, the Fed will then have to massively monetize the Treasury’s debt by purchasing it. That event is immediately inflationary. If you add in the money and credit creation, you have hyperinflation, which means gold and silver will go through the roof. They are the only viable investment alternatives left.


            Soon stockpiling debt in the form of US dollars will be history now that China has tipped its hand. It is only normal that China does so as they increasingly increase domestic consumption and increase inter-Asian trade, which lessens dependence on US trade. They aren’t dumb; they can see where this is all headed. Internal Chinese growth has to continue to keep the hundreds of millions fed and is a compelling justification for them to move gradually out of the dollar. Now that professional speculators know the Chinese have officially begun to move out of the dollar, the dollar will move lower and the inflation in gold, silver, energy and commodities will accelerate. The whole world wants, and to some degree, is accumulating oil reserves, which adds further impetus to even more inflation. There is no question that there is energy insecurity since George and the neocons have begun perpetual warfare in the Middle East. 2006 will bring an unstable dollar and the end of smooth recycling of the dollar will begin. It could bring energy and commodity shortages that lead to higher prices amidst a global dollar liquidity glut.


            The 2006 slide in real estate prices will be based to a great degree on interest rates. In some of the 50 hot markets at the upper end prices are off 5% to 20% and some in the mid-range off 5% to 15%. We expect two or three 1/4% rises by June to 4 3/4% to 5% on the Fed funds rate. That would put the 30-year fixed rate loan at 6 3/4% to 7%. In addition, unsold inventory and qualifying for a loan have become more problematical. If wage growth was to be again curtailed and unemployment rose that would effect home buying as well. Another factor will be increased credit card payments. The California housing market is the key. Once it breaks, which it must, then the rest of the nation will follow. The chance for lower real estate prices is excellent. If you consider war, occupation, scandals and energy, you are looking at a potentially explosive year. Liquidity rages and its expanding exponentially. This seemingly endless liquidity can vanish quickly as can speculators. The financial survival of the entire world is at stake and no one seems to care or understand. We are going to have a financial collapse – there is now no way out.


            The AP/IPSOS Poll is a reflection of elitist interest. That said, the poll says 56% of respondents said the government should be required to get a court warrant to eavesdrop on the overseas calls and the e-mails of US citizens. NSA has been spying on Americans in the US for 25 years unbeknownst to the public. Forty-two percent believed that they shouldn’t need court approval. Two-thirds of people 18 to 29 believe warrants should be required, while people 65 and older are evenly divided. Seventy-five percent of Democrats and 33% of Republicans said they want to require court warrants.




Gold is running for several reasons. It is the ultimate money and professionals are abandoning currencies. There is a fear of a slowing GDP, which leads to negative real interest rates. Gold is attractive when interest rates are negative. In addition, we may have negative rates and mega-inflation at the same time, which is the worst of all worlds. A number of nations are rebuilding gold reserves, especially oil producers and exporters. They are loaded with dollars. China has to get rid of $800 billion dollars and one of the ways to lose those dollars is via gold purchases. There is the new Shanghai Gold Exchange, combined with liberalization of citizens to freely buy gold and the culture’s affinity toward gold. There is lack of oncoming production in a market that is already short 180 tons a year to usage. The fundamentals were never better for gold.


After making recent statements regarding less reliance on the dollar as foreign reserves, China has been backpedaling. It’s too late; the damage has already been done. They have said what many observers have predicted and that is an end to giant dollar reserves. Following panic from Washington – the Chinese had an economist from the Chinese Academy of Social Sciences and former member of the central bank’s monetary policy committee, tell the world China wasn’t going to be dumping dollars. The Fed and other central banks in the cartel are panicked that China will aggressively buy gold.


            From December 19 thru January 9, 2006, the GLD ETF’s gold holdings have risen 19.8% or 43.59 tons. That data brings commentary because the figures should have been higher.


            JP Morgan’s foreign exchange technical strategist publication believes as long as the market performs as it has that a move toward $10.00 silver and $600 gold is possible in the short-term. The shorts are still trapped and it will take months for them to extricate themselves.


            The National Commodity and Derivatives Exchange of India expects gold prices to stay between $510 to $600 during 2006, with a bias toward $600 because of physical demand and increasing purchases by central banks.


            You can rest assure that once the US Fed stops raising interest rates gold prices will move up strongly and if they lower them again later in the year gold will fly upward.


            In the near term investment funds, banks and professionals will be strong buyers as we predicted. The Nedex report says gold remains high on the priority list of many funds and asset managers who want to diversify their portfolios. In the face of this, demand should outstrip supply 1500 to 1800 tons. New mine development has been slow and production costs have risen relentlessly. As long as interest rates remain negative the attraction to gold will remain very strong compared to currency holdings.  The shortfall has to come from somewhere. If the central banks are buyers and not sellers that means even higher prices for gold to attract sellers.


            Pierre Lassonde, and the other bankers’ lackeys at the World Gold Fantasy Council, must think we are stupid. They now tell us the world gold market is too small for China to achieve any meaningful diversification into gold leaving China only a dollar path. We have never heard anything so stupid in the 46 years we have been in economics and finance.


            China has 600 tons of gold, or about 1.1% of total reserves. This is tiny versus the Netherlands’ 51.3% or the European Central Banks’ holdings of 20.6%. Japan has 1.3%. If China raises gold reserves to 10% it would absorb 4,680 tons and Japan a like amount. That is fundamentally very bullish and at 15%, that would be a purchaser of 6,500 tons. China will have no trouble buying gold. They just have to pay progressively higher prices. As the dollar falls gold purchases will accelerate. A level of gold holdings for China of 10% is meaningful. If you look at dollar reserves, you have to conclude 20% should be their goal. The longer they hold dollars the more money they lose.


            CNBC continues to block out any references to gold. They stop quoting prices, except for an occasional hourly flash, at 9:30 EST. How is it possible when the best US investment is not talked about on US TV news channels? One can only deduct that it is by design. If we do not tell the public they simply won’t know gold is up and something is wrong. It defies belief. What is wrong with Americans? Why don’t they demand the real news, the truth?


            Day after day the gold shorts continue to cover throwing in the towel. How do we know that? Tuesday was a good telltale example. Gold rose $4.90 to $543.90 and the open interest only rose 5,727 contracts. This gold recovery is in part a short covering rally. These shorts are now on the sidelines. The question is, when gold breaks out again, will they join the long side or short to get slaughtered again? You would think someone in the mainline financial media would notice these mega short positions, but no one has. They cannot be that blind. There are billions of dollars worth of shorts and the gold suppression cartel has written a tremendous amount of calls, which they have sold to investors. In summation all we have to say is the cartel is in retreat. Our day is here. As Julius Caesar said, Vini, Vidi, Vici – I came, I saw and I conquered. It has been 55 years since I had Latin. It always stays with you. That is the beauty of a classical education.






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-- Posted Sunday, 22 January 2006 | Digg This Article

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