-- Posted Sunday, 27 August 2006 | Digg This Article
The following are some snippets from the most recent issue of the International Forecaster. For the full 20 page issue, please see subscription information below.
SATURDAY AUGUST 26, 2006
THE INTERNATIONAL FORECASTER
AUGUST 2006 (#4) Vol. 10 No. 8-4
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
The Fed has opted for stagnation and inflation – stagflation – in its quest to hold up the housing market and the economy. Some say why don’t we buy bonds? That’s possible, but the long-term yield has been 3.5% before inflation. That is hardly sufficient when you are being guaranteed a loss. The Fed has just paused in raising interest rates, which will give inflation an opportunity to build and pick up even more momentum prior to the next rise in rates in January. Inflation is increasing and the economy is slowing. The Fed believes it can make the economy do what it wants and they are wrong, they cannot. Over the past five years wages remained flat while commodities costs rose, offsetting the increases. Now wages are climbing 4.2% y-o-y and in the last quarter they rose 5.4%. Next year they should be up more than 6%, another problem is that even core inflation is rising. It was 2.9% in July, the highest in 11 years. Consumer spending is set to fall having grown only 2.5% in the second quarter. GDP grew 2.5%, a huge drop from 5.6% in the first quarter. Housing is faltering badly as you know and is about to produce many unemployed, most of which will be illegal aliens. Even business investment remained moderate at plus 2.7%. All the pause in interest rate increases has done is give housing and car sales a short reprieve. The problem is there and it isn’t going away.
The Chicago Fed gauge of the national economy fell to -0.12 in July from +0.43 in June. The 3-month moving average index slipped to 0.07 from 0.15 in June. The Fed said the current value shows potential inflationary pressures over the next year.
Over the 3-months, April-June, the BLS reported the creation of 329,000 non-farm jobs. This was accomplished by 657,000 jobs from the net birth/death model, accounting for 200% of the total job creation. Without those phony hedonic adjustments the US would have lost 328,000 jobs instead of a gain of 329,000. Lies, lies and more lies.
In regard to program trading on the NYSE, it made up 73% of all trades on 6/2 and 92.8% of all trading volume the week of 6/30. This is when the NYSE made up a new formula to hide the high percentage of program trading, so as to not scare business away. It had been growing at 18.6% a year. If you analyze and take programs out to 2009, no matter how you calculate, programs will account for over half of all trading. If you take it out to 2011, it’s 75%, and in 2012, 90%. The American market for all intents and purposes is a trading vehicle and nothing more. That means the end of investment.
Total mutual fund assets are now $5.25 trillion. Historically funds cash positions averaged 8.8%. To achieve the same cash levels now $250 billion in stock would have to be sold. That means funds are trapped if and when they have a falling market.
On 6/30, the S&P500 traded at 1,270, a level first reached in January 1999. Since then funds inflows have been $1 trillion, yet the funds have no gains. That means they have to assume more risk then ever before. If $1 trillion cannot move a market what will? We have seen the market in distribution since May and we see it that way for the next several months. Next the Dow fall should be to 8,800 to 9,500. The S&P and Nasdaq will do worse...
GOLD, SILVER, PLATINUM, PALADIUM AND DIAMONDS
The Bundesbank reserves the right to reallocate some of its gold reserves into foreign currencies, but does not plan to overhaul Germany’s public finances says Bundesbank President Axel Weber. He just said it’s conceivable, but not what they plan to do. It could be they may have bullion banks that they leased gold that want to repay in currencies in the future...
We see many comments regarding the lack of interest in gold and silver, in spite of overwhelming fundamentals. Volume in Vancouver has fallen from 500 million shares a day to 35 to 100 million per day. Of course the summer has had a negative effect on all markets. When sentiment gets this low there is usually an explosion on the upside and everyone is caught flatfooted. Again, you buy them when nobody wants them and you have to be in the game to win and protect your assets.
Russia increased gold production by 1.2% y-o-y January-July to 78.346 tons.
Russian gold and foreign currency reserves were $275 billion on August 18, down from $277 billion on August 14.
NYMEX will pay members who trade metals $275 million in stock to win their approval of around-the-clock electronic trading. NYMEX wants to switch now because CBOT, the Chicago Board of Trader’s share of the 100-ounce gold market rose to 48% this month from 10% in December. CBOT threatens not only Comex’s control of the market business, but it also jeopardizes control of the gold and silver market by the US Treasury...
-- Posted Sunday, 27 August 2006 | Digg This Article
