THE INTERNATIONAL FORECASTER

AUGUST 2006 (#2) Vol. 10 No. 8-2

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

American investors just don’t seem to get it. We had 15 central banks raise rates this year and five do so in the past month. The Bank of Italy is selling dollars and buying pounds and euros, and Wall Street and Washington are oblivious to what is going on. The Fed has stopped raising interest rates with official inflation at 5.4% and Bill Gross of PIMCO tells us rates will be cut again in early 2007 when inflation will be roaring. It isn’t what is coming in inflation – it is what is already in the pipeline that cannot be stopped and it is continuing.

            Intangible growth is 90% of the economy. That is the service sector. About 90% of our tangibles are now manufactured overseas. That is why we have a current account deficit. Foreigners are willing to accept dollars for goods, but how long will that last if we have little for sale? The bottom line is those dollars represent the biggest scam in history. They cannot be redeemed for goods. As the US economy slows all those holding dollars are going to get very concerned about the value of those dollars. This is why there has been a rush over the past few years to buy American fixed assets with these dollars. It is part of the dumping process. Even the IMF tells us the dollar may be overvalued by 35%, and now that interest rates are not rising any further, and the return on the dollar is falling in the face of inflation, the dollar is bound to trade lower as the rush for real US assets accelerates. This evolutionary process of the decline of the dollar and the physical American economy can be directly traced to the closing of the gold window 35 years ago on 8/15/71. It took that long to ruin the economy and the final blow was free trade and globalization.

            The conflicts in Iraq, Afghanistan and now Lebanon have obscured the US and world economies and their financial situation. We are only two weeks away from the end of summer and we are on the verge of reentering the real world. Another summer is gone and now it is back to reality.

            It will be interesting to see what yields are next week on US Treasuries. On Monday, Wednesday and Friday of this past week the Treasury sold $44 billion of three, 10 and 30-year notes and bonds. The 10-year Treasury note is 37 BPS below the Fed funds rate. That is certainly suppression. How can one see lower yields in such an environment, and how can foreigners be expected to take such an abnormally low return? We believe bond investors are in for a surprise shortly, as rates rise again.

            In not raising interest rates further, Fed Chairman Ben Bernanke has shown himself to be a true Keynesian inflationist. He says inflation will moderate over time, yes and cats can fly. He avoids discussing higher energy prices; war in the Middle East in three sectors – so far; the US war on terror; that all war is inflationary; that 15 other central banks are raising interest rates; that we have a major US oil pipeline down and it will be down three or more months; that Wal-Mart just raised wages 6%; that unit labor costs just took there biggest leap in six years and that China continues to buy all the commodities it can. How can he, facing the above, say inflation will moderate – where on Mars?

            The TIPS spread to the 5 and 10-year shows that the market’s inflationary expectations are now heading back to the highs of late April-early May. This occurred after hapless Ben let us know how dovish he is...

GOLD, SILVER, PLATINUM, PALADIUM AND DIAMONDS

 

            For those who are interested, NovaGold on a buyout is worth $30 a share. Barrick Gold is desperate for ounces to maintain and bailout its toxic hedge book. Barrick should not be rewarded for cooperating with the US government and screwing its shareholders for 23 years. Shareholders do not let this happen. If Barrick has to pay $30.00 it will severely hurt their credit standing and force them to cover more of their hedge position, forcing gold higher. S&P has already dropped Barrick’s rating to A- for long-term corporate credit and senior unsecured debt ratings. Let’s stick it to them big time. No one deserves it more. Nova does not have a 28.5 million ounce reserve, it has 50 million ounces. Barrick started suppressing gold prices 15 years ago on behalf of the elitists and has not for one minute ever stopped. Ultimately, Nova will see its shares above $100 a share.

 

            On Wednesday, all indicators point toward higher gold prices. The cartel attacked and was driven off with gold ending at $650.60, up $4.70. Silver had it all its own way, up $0.30 to $12.48. Gold open interest fell 1,461 contracts to 309,097 and silver open interest fell 826 contracts to 108,463. The Comex silver inventory fell 309,548 ounces to 100.77 million ounces. The eligible category increased by 596,568, but the registered category (dealer’s inventory) fell substantially by 906,116 ounces, leaving only 42.7 million ounces. Is that bullish or is that bullish? Overnight Tocom was pounded again as open interest gained 462 contracts. This action makes Comex daily gain even more significant. On Tuesday, Tocom large shorts reduced their position by 3,702 contracts to 145,738. Goldman increased its position by 60 to 37,135.

 

            Oil was off $0.05 at $76.35 after being up about $0.75 most of the day. The dollar fell .06 to 84.42. The euro was up .80 and finished up .17 and after being up one penny the pound finished the day down slightly. In the access aftermarket, gold traded $3.00 lower. Natural gas at $7.58, up $0.07 and gasoline was unchanged. The 10-year Treasury closed 4.94% and the 2’s at 4.92% out of inversion. The HUI rose 7.41 to 344.52 and the XAU was up 3.18 to 148.15. Both were up 40% higher in early trading but got hit at the end of the day.

 

            It sure looks like the elitists do not want gold over $650. When you have terrorist attacks, threats of terrorist attacks and wars, gold goes up not down. There is nothing puzzling about this – all of our markets are managed. The terrorist announcement was announced to take Israel’s destruction of Lebanon off the front page and give Republicans and George and the neocons something to crow about.  Like, there are really terrorists about. This, of course, profits the elitists and screws the investor. Gold should have been up $25.00 today and silver $0.75, yet, gold was hammered as well as silver. Gold was off $15.50 at $635.10 and silver eased $$0.46 to $12.02. Gold open interest rose 5,096 contracts to 314,693. Silver interest increased 1,225 contracts to 109,688. Comex silver stocks rose 583,003 ounces to 101.35 million ounces. Eligible inventory rose by 598,317 ounces. Registered was drawn, down 15,314 ounces to 42.73 million ounces. Only $500 million buys the whole inventory. Tocom was a seller again. The Tocom large gold shorts reduced shorts 1,867 contracts to 143,871. Silver net contracts fell 98 contracts to 3,066. Goldman increased their gold shorts by 216 contracts to 37.351. The 30-year bond auction was terrible, down 10/32 to 5.08. In addition how does a trade deficit of $64.8 billion get interpreted as good news?...

 

            We believe Nova Gold, which is the object of a takeover by Barrick Gold, should look into Canada’s Competition Act to determine if Barrick’s participation with the US Government in the suppression of gold and silver prices broke the law. This suppression has not only suppressed the gold price, but also the price of shares. Manipulation of publicly traded commodities, in Canada, is unlawful. Barrick is a Canadian company and even if they shill and manipulate for the US government that does not make it legal in Canada. It constitutes a monopoly practice, which is unlawful. Barrick has interfered in the market in such a way that they interfered with the free market and caused predatory pricing and the deliberate destruction of fair value in order to profit and fulfill the wishes of a predatory government engaged in Canada, in illegal acts. We advise shareholders and management to pursue Barrick civilly under the Canada Competition Act. Barrick is involved in a conspiracy and what they actually are doing in Canada is criminal. We’d like nothing better than to see Mr. Munk spend his last days in jail where he belongs...

 

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-- Posted Sunday, 13 August 2006 | Digg This Article

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