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International Forecaster June, 2006 (#3) - Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster



-- Posted Sunday, 18 June 2006 | Digg This ArticleDigg It!

The following are some snippets from the most recent issue of the International Forecaster.  For the full 37 page issue, please see subscription information below.

THE INTERNATIONAL FORECASTER

JUNE 2006 (#3) Vol. 10 No. 6-3

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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US MARKETS

 

There is no question in our minds that M3 was terminated to conceal the fact of the rate of increase of world prices and inflation. We now expect the path of inflation to be ever upward. As we have said innumerable times, inflation has been higher than 10% for the last four years. In order to mislead the investment professionals and investors, all government and Wall Street want to talk about is core inflation, which is essentially a semi-worthless piece of information. We currently see what was once M3 over 12% in the US and over 10% in Europe. The money and credit that is being created is colossal. Those aggregates more than offset the increase in interest rates. The crowd’s eyes are on interest rates when they should be watching the increase in money supply and credit. There is no question at this point that we are headed into hyperinflation. The same type of process that was experienced in Weimer Germany in late 1923.

 

            The Federal Reserve, a privately owned corporation, is floating aimlessly at sea, rudderless. All they can now do is create money and credit and hope for the best. Our present administration in Washington is clueless, so much so that they just had to bring in a Wall Street heavyweight to begin to plan damage control. At the same time, except for a handful of legislators, Congress is clueless to what is happening. It would be nice if we could get Congress to listen, but we see little hope of that. Most of them are economic and financial illiterates. They believe a law degree makes them expert on just about everything. There is little hope of reform from either quarter. The Fed created our current situation and they knew the path they have chosen is economic stagnation and inflation, better known as stagflation.

 

            The world is now in the beginning stages of a hyperinflationary collapse. We see a very good likelihood that the dollar, which is currently 86 on the dollar index, could break long term support of 80 before the year is over. If we are correct the value of the dollar versus other major currencies would go into freefall ending up somewhere between 50 and 60. That would put the euro currently at 1.26 to the dollar at 1.90 to 2.00. That would put gold at $1,700 an ounce. It is currently trading at $610.00. This madness began in 1987 when Sir Alan Greenspan inflated us into a recession that began in 1989. Had we been allowed to have a severe correction then we wouldn’t be facing what we are today. Obviously Alan’s orders were, inflate us out. That has gone on ever since.

 

            Any serious student of economic history knows that we are facing all the classic indications of collapse. Falling stock markets worldwide, a fall in international liquidity and high commodity and gold and silver prices. You may think these prices are high, but they are not. Over the past seven years house prices have gone from $100,000 to $300,000, so why is it impossible as a reflection of 25 years of inflation, for commodities to triple or for gold to go to $1,700? The simple answer is that it is normal for them to rise. Due to sustained low interest rates we have a bubble in housing that is in the process of being corrected. In time that may very well happen to commodities, gold and silver, but we are a long way away from that presently. Essentially what Greenspan did was bail the banks out in 1987. He then set the stage in the early 1990s, though excess liquidity, for the dot.com boom and then he moved to low interest rates and exotic loans to perpetuate the real estate and stock recoveries. In the former he had Fannie Mae and Freddie Mac launder the mortgage-based securities.

 

            When the hyperinflationary process ends we will enter a new economic and financial dark age that could last for many years, not unlike the collapse of the Venetian banking system in 1348, the collapse of the Lombard League in the 1500s and that of the Hanseatic League of the 1600s. As you can see this is nothing new. All you have to do is read history.

 

            We reported on the accumulation of base and precious metals during the early 1990s and onward. We also reported on the accumulation of gold, which was sold by central banks during the 1980s and 1990s, and into the new century, by Illuminist interests. Investors do not have the funds to buy tons of gold bullion, only the mega-rich do.

 

            We are told by some that world markets are falling because of the withdrawal of liquidity. Only one entity is withdrawing liquidity and that is the Bank of Japan. That is part of the reason emerging markets have been hit for 20% to 28% losses off their highs. Most major western economies are increasing liquidity by more than 10%. The major reason for these corrections in addition to the end of the yen carry trade is that these markets were way overbought if not bubbles.

 

            Official US inflation is over 4% and European inflation is over 2%. The real numbers are 10% and 5% respectively. That is one of the reasons interest rates will go higher. It is inevitable that interest rates will rise worldwide. In the US ½% is reasonable. That is inflation related as well as to try to protect the value and the decent of the dollar. While that is transpiring the Fed is trying to suppress the 10-year Treasury yield so the housing market won’t collapse. That has led us again to the inverted yield curve that leads to recession. As you can see, monetary-financial markets are trapped. There is absolutely no fear the Fed will go too far with interest rates and that is because inflation has been over 10% for a long time and is headed into overdrive. Soon mortgage rates will be 7% and construction will slow and unemployment will build. That also means cash out financing will cease to be the factor it has been in consumption and the economy will lose 1 ½ to 2 percent of GDP growth. That means real growth will be 2% or less. In the last run in the 1990s, 24 million jobs were created. Since 2001, only some 4 million were created. In the 90s, 7% were in construction and in the 2000s, 20% were in construction. Unfortunately, the employment numbers are lies and probably less than two million were created.

 

            While most pros and investors are fixated on financial market action, few are giving any attention to the Fed’s credit data, which you get each week here in the IF. Putting it mildly, credit is totally out of control. It won’t be long and they’ll be making comparisons to Hamlet. The US Fed is the epicenter of destabilizing liquidity that continues to fuel wild speculative runs around the world. Yes, the Japanese have done their part for seven years in the yen carry trade and over the last year major nations of the G-7 have also done their part, but the real driver is the Fed...

 

GOLD, SILVER, PLATINUM, PALADIUM AND DIAMONDS

 

            Stock markets of the world plunged again on Tuesday, putting pressure on all markets as investors searched in every which direction to raise money to meet margin calls. It’s called selling your best investments to support your worst losers. That had to be part of the reason commodities, gold and silver remained under pressure. US stock markets are off 8% this year wiping out the year’s gains. The carnage in Europe and in emerging markets was worse off – 20% to 30%. They do not have the “Working Group on Financial Markets to protect them. Wednesday, gold, silver and copper were bombed as defenseless Dresden, Germany was in another lifetime. Gold was down $44.10 at $567.60 and silver off $1.44 at $9.60. The dollar was a shade higher with the euro and pound off slightly. The Fed arranged for the 10-year note to rise so the yield fell to 4.96%, as the 2-year finished fully inverted at 5.02%. Considering what was going on the dollar gain of .62 to 86.44 wasn’t all that bad. There is a lot of money escaping the third world stock markets and in the process ending up in dollars. That is why the dollar is strong in part and why the 10-year Treasury yield is 4.96%.

 

            Unfortunately, overnight the long side of gold market in the Tocom market virtually collapsed as the Nikkei fell 4.14%. Open interest fell 3,000 contracts. In five business days longs have been reduced by 25%.

 

            The ECB members cannot be blamed for the fall in gold because the latest report shows only one bank sold less than one ton last week.

 

            Comex open interest rose 6,942 contracts, but it wasn’t enough to hold off sellers who obviously were determined...

 

*****

 

SUBSCRIPTION and RENEWAL INFORMATION: 1-YEAR $129.95 U.S. Funds.   

Make check payable to Robert Chapman (NOT to the International Forecaster), and mail to P.O. Box 510518, Punta Gorda, FL 33951-0518. Please include name, address, telephone number and e-mail address. We accept Visa and MasterCard charges.  Provide us with your card number and expiration date.  We will charge your card US$129.95 for a one-year subscription. Note:  We publish twice a month by surface mail or 3-4 times a month by E-mail. international_forecaster@yahoo.com

Foreigners please use foreign U.S. dollar denominated checks or Money Orders.


-- Posted Sunday, 18 June 2006 | Digg This Article



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