-- Posted Wednesday, 19 April 2006 | Digg This Article

The following are some snippets from the most recent issue of the International Forecaster.  For the full 28 page issue, please see subscription information below.

                        THE INTERNATIONAL FORECASTER

APRIL 2006 (#3) Vol. 10 No. 4-3

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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International_forecaster@yahoo.com

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www.theinternationalforecaster.com

          As long as the world economy runs hot, fueled by M3 injections by most governments of more than 10%, commodities and precious metals will continue to soar. The question is for how long? We don’t know for sure, but an educated guess is for three more years. Commodities will top out first then the precious metals. There is a sea of money out there and it has to be invested somewhere and the supply of that liquidity is increasing annually by more than 10%. A few years from now after the bond and stock markets have fallen, gold will ultimately be the only game in town. We have seen this happen over and over again over the past 1,000 years as the conspiracy has attempted time after time to implement their version of world government. The reign of the Roman Empire has not been repeated and will not be repeated.

           The amount of funds that will enter the commodity markets in 2006 will double and that which will enter the gold and silver arena will more than double, perhaps triple. An attack on Iran would send all commodities and precious metals ballistic.

            It is not only platinum, palladium, rhodium, gold, silver, zinc, oil and aluminum – it is also iron, up 90%. Coal has doubled to $60.00 a ton. Steel prices are up 35%. In just a five year period wholesale inflation is up 150% and our government tries to tell us inflation is 3 1/2%. They must think we are cretins. One of the interesting aspects of the commodity boom is that in general commodity production has fallen. That’s because of mergers within the industries, which shut down marginal operations. It wasn’t only ore quality – it was also prohibitively higher costs. Thus, in many instances you have less production fueling higher prices. It is very evident in the production of copper and zinc and the shortfall in the production of gold and silver.

            In reality hyperinflation has already begun. It’s just no one wants to admit it or talk about it. Far be it for the establishment to tell the truth. That is why the IF exists. It is for true truth seekers. It’s for those who can accept reality and act on it. We are the sonic boom that moves across the landscape while the rest are frozen in place. We will financially survive. The rest won’t. They will be stuck with fictitious liquidity – we will have the world’s only real money, gold. The patchwork system keeping our financial system from failure will end in the immediate year’s ahead. If you look back into the 1960s you will see one crisis after another papered over with money and credit. Well readers, we are headed toward the end of the party, only this will be worse than 1929-41. We are now in high-speed overload. We are crossing from inflation to higher inflation, which will be followed in a year or two by explosive hyperinflation – the critical uncontrollable phase of chain reaction collapse. You may not like what we have to say, but you had best heed our advice.

            Yes, M3 is no longer published, but the components are. Just as important are a number of other credit sources. Among them is Fannie Mae and Freddie Mac, Government Sponsored Entities (GSEs), which can create virtually unlimited amounts of credit. They were the hot iron that was used to restart a failing economy in 2001 by offering cheap and easy credit to the housing sector, assisted of course by the Fed’s 1% interest rates. Their assets are about $3 trillion, but they are responsible for indirect exposure through guaranties of mortgage debt. That takes them to some $9 trillion. We are convinced if the real estate market falls, as we believe it will, that the US government will have to assume these liabilities. Add this to hidden government debt within the 12 Federal Home Loan Banks of $600 billion and the $300 trillion derivatives market, and we are facing some severe problems. It should also be remembered that a very sizable portion of agency debt has been purchased to satisfy the speculative urges of the yen carry-trade that should be at an end by the end of the year. Many foreign central banks and other banks, as we mentioned last week, not happy with yields available have speculated by using the yen carry-trade and then leveraging again. There are all kinds of structured derivatives attached to the debt as well. We remembered when they began trading in derivatives in the early 1970s we wrote an article of which the conclusion was someday they would destroy the financial system. It seems like that day is fast on its way. In this case it is not only the derivatives it’s the overall poor quality of loans in the packages that Fannie and Freddie resell. In addition, embedded in this mortgage creation/securitisation are many opportunities for the creation of well-rated paper, either mistakenly or deliberately overrated. Never mind properly rated paper that goes bad. The potential for hazard is enormous.

            In addition, the percentage of sub-par paper has increased in the syndications. The percentage of ARM, option ARM, 0%-down, low doc or no doc mortgages and interest-only loans is climbing. Used home inventory is a record, new home inventory is at 6.3 months and that’s with supposedly low unemployment, high GDP and profit growth. Something is wrong here. This can’t be. That’s because our government is lying again. We are talking tens of trillions of dollars in real estate that could go bad plus all these securitisations and derivatives. If that isn’t a can of worms we don’t know what is.

            We are looking at credit extension never before seen outside the traditional fractional reserve banking system. Money pulled out of housing in cash outs and equity loans, to keep the financial system from collapsing. We are talking somewhere around $2.5 trillion. The loans were made when there was more than sufficient equity. What happens in a 40% correction? You guessed it, mega trouble. On top of this we are looking at a recent history of massive abuse in interest rates and delinquency ratios. The performance of 2005 mortgage debt is bad and it was worse in 2003 and 2004 paper. Lots of delinquencies and defaults. You can then add in financial engineering and structured finance for which there is no barriers. We truly question how the banking industry finds these securities attractive when their previously purchased holdings remain mired in red ink.

            We expect as home equity dissipates this year homeowners who are living far beyond their means will increase equity loans. That’s as long as their positive equity is in tact. In case you didn’t know it today’s wages cannot keep up with today’s spending. 30-year fixed interest rates will soon be 7%, so the price to borrow money is getting more and more expensive.

            As you can see, there are no credit expansion rules anymore, not from government or the Fed. This is credit without bounds. It’s no wonder gold and silver are galloping into the sunset. The Fed is encouraging credit creation because when it stops everything crashes. They need that credit when the current account deficit approaches $1 trillion this year. This all has to have a negative affect on the US dollar, which foreigners are still buying in order to keep their currencies from appreciating. In doing so they are guaranteeing themselves 50% or more losses. That’s what we estimate the ultimate damage will be. That means we all go down the tubes together. Foreigners are holding $4 trillion, and that ivory tower meatball Ben Bernanke calls the dollar tidal wave a global savings glut. Why doesn’t he and his other purchased hacks tell the truth – Americans have no savings. That is why Americans have the debt they have. There will soon come a day when this financial madness will end.

            We cannot help but mention credit default swaps. That market only grew 40% last year from $12 trillion to $17.5 trillion. These are purchased to shield the buyer from credit exposure. These CD’s are totally unregulated. Due to the enormity of the beast the industry is talking about cash settlement. That will be a classic. One way to stop this derivative madness is just raise interest rats. It’s that simple. Just like in 1995 when Sir Alan Greenspan talked about irrational exuberance all he had to do was raise margin requirements. We published that fact as did Randy Forsyth in Barron’s, but no one wanted to listen. All these carry-trade plays and derivatives are in the trillions of dollars and much of it is beyond our country. It’s in the Caribbean. The Swiss are aware of the dangers and rates just rose again last week and they will again in future weeks to keep the Swiss franc from becoming a carry-trade punching bag.

            Just four firms, Morgan Stanley, Goldman Sachs, Bear Stearns and Merrill Lynch have in excess of $3 trillion in liabilities due to credit extension. Can you believe they have less than 4% of equity to assets - just a giant Ponzi scheme. We are sure this is why in part M3 is no longer being published.

            As we have said for a long time our government overstates economic growth and employment and understates inflation. We have been stating for four years inflation is more than 10%. In the latest from economist John Williams he says inflation is 8%. If the same CPI were used today as was used when Jimmy Carter was President, Social Security checks would be 70% higher. In addition, federal obligations of the government at the end of September were $51 trillion - over four times the level of GDP.  He says real unemployment is 12%. We say 13%, but we won’t argue.

GOLD, SILVER, PLATINUM, PALLADIUM AND DIAMONDS

             Galdas Jewelry’s General Manager in Istanbul, Sedat Yalenkaya, says the Chinese will buy 250 tons of gold, which is one-year’s annual production and that buying will take gold to $850 an ounce on its own.

            As gold traded above $600 an ounce the seven large Tocom gold shorts increased their net positions by 1,613 to 162,839 contracts.

            Gold is not going to stop at $600 - commodity prices are still rising. The civil war in Iraq drones on. Mr. Ahmadinejad, President of Iran, tells us Iran is enriching uranium. Prodi, as close to a Marxist as you can get, looks to have won in Italy. The government in France could be on the edge of destruction. Maybe they will finally elect Jean Marie LePen. The financial situation in Iceland worsens daily. Nigeria is in the middle of a civil war. The Middle East is still upside down and oil prices tenaciously hold up in the high $60.00 range. Confusion reigns as illegal aliens “demand” amnesty and our President goes through another day of lies. Is it no wonder gold and silver are going higher. Confusion breeds higher prices.

            Tuesday gold closed down $2.60 to $594.80. Silver continued strong up $0.05 to $12.62. Not a rousing performance by gold seeing it was up nearly $6.00 in Europe. As so often happens the gold suppression cartel was doing its work again. They hit the second fixing in London. Then gold again traded over $600 on the Iranian enriched uranium announcement. Contract purchases were down about 3,700, which shows as we predicted, short covering is presently the essence of the upside. This also means the speculators on the long side are yet to really enter the market, which is very bullish for higher prices. The same thing is happening in the silver market, only more so. As we predicted it will take 18 months of normal market activity for these commercials to cover their shorts. Plus, there is still room for 150,000 spec long gold contracts without gold being overbought.

            Rumor says the Barclay’s Silver ETF will trade this week. The word is Barclay’s only bought some Comex call options and as yet have no physical silver. Both gold and silver are being assisted by zinc and especially copper, which rose again today $0.01 to $272. No one can say gold and silver are overbought because of the unbelievable short positions in both metals.

            In Tokyo on the Tocom volume surged 120% or 53,000 Comex lots or 13.5 tons. Shorts increased 11,135 contracts to a total of 173,974. Goldman increased its shorts by 5,390 to 44,487 contracts.

            The EBC says three euro system banks sold 73 million euros of gold last week or about 4.7 tons, which is less than half of what they should be selling to fill their quotas.

            South African gold output declined 5.6% in February y-o-y.

            Consumer price inflation between 1981 and the first quarter of this year is about 119%. That means on an inflation adjusted basis gold should be selling at $1,300 an ounce today. Just to stay even the Dow would have to be selling at 13,500. That makes gold dirt cheap at $600 and that is not even taking into account the global political and financial situations.  The risks in the world are so big that it is just unthinkable that an investor does not own gold. If the global economy goes over the edge, which we believe it will, there is no limit to how high gold will go. Our target of $1,700 is a given in inflation terms. Gold and all other investments always go higher than they should, that is why we predicted in April 2000, when we got all our subscribers out of the stock market, that $3,500 was a reachable number. That as well would mean $100.00 silver. While 99% of Americans, Canadians and Europeans were not listening, gold rose from $250 to $600, and silver from $4.00 to almost $13.00. If you look at the gold-oil price ratio it has averaged about 17 over the past 30 years. Today it is about 8.75. Thus, that index indicates gold should be at $1,150. No matter which way you look at it on a worst case basis gold will double from here. Our experience tells us both gold and silver shares, silver bags and numismatic coins should all increase by a factor of 5 to reach the lowest goal. This is the investing opportunity of a lifetime if not in all of modern history. These markets are just getting underway and you cannot be a winner if you are not in the game.   

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-- Posted Wednesday, 19 April 2006 | Digg This Article

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