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International Forecaster September 2006 (#1) - Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster



-- Posted Sunday, 3 September 2006 | Digg This ArticleDigg It!

The following are some snippets from the most recent issue of the International Forecaster.  For the full 18 page issue, please see subscription information below.

    SATURDAY SEPTEMBER 2, 2006

THE INTERNATIONAL FORECASTER

SEPTEMBER 2006 (#1) Vol. 10 No. 9-1

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

 

...

 

            If you were wondering how successful American consumers are at spending money, consider the following: In 2005, personal consumption was $8.7 trillion, that’s about 20% higher than Europeans, more than three times that of the Japanese, nine times the Chinese and 17 times that of Indians. This is 70% of GDP in the US, 54% in Europe, 57% in Japan, 38% in China and 64% in India. We are seeing inflation that is considerably higher than income, a flat stock market, and falling real estate values. The overextended American consumer is exposed in many ways and cannot hope to keep up the buying pace of the past five years. The negative wealth effect in property is just beginning to raise its ugly head. If we return to the 50-year norm of consumer spending of 64.5% of GDP from 70%, the affect on the American economy will be devastating. The equity taken from homes has allowed real consumption growth of 3.7% as real disposable income only rose 3.2%. The piggy bank will soon be empty as housing values fall. The bottom line at best over the next two years is spending growth of 1.5% and a recession. That means real growth in China will fall to 6-7%, and zero to minus growth throughout the rest of the world.

 

            Although the conventional wisdom has only recently caught onto the fact that the housing boom is over, a spate of recent company announcements indicate that the problems are rapidly spreading to the companies involved in mortgages.  H&R Block’s sub-prime lending subsidiary had to set aside $60 million due to borrowers falling behind in payments.  Countrywide Financial stated that customers were slow in paying their loans.  Similar statements were made by Impac Mortgage and Accredited Home Lenders.  First Horizon National said it would miss its earnings targets because of declining mortgage volume. 

 

Even more alarming, Washington Mutual, a leading issuer of option ARMs, revealed that it had improperly calculated some customer debt/income ratios for 2004 and most of 2005.  As a result, borrowers qualified for loans at lower interest rates than was justified by their personal financial situations.  According to the company, the unpaid balance of borrowers who mistakenly qualified totaled $30 billion.

 

The problem is that the housing decline has just started and the above revelations are most likely only the tip of the iceberg.  With home prices likely to move lower, a lot of homeowners are going to be in real danger of defaulting with widespread foreclosures a distinct possibility.  This is in addition to the coming diminution of mortgage equity withdrawals that have been so pivotal in spurring recovery from the 2001-2002 recession.  The great danger is the potential unwinding of the massive debt that has built up over the past decade and the accompanying threat of damaging deflation that was averted after 2002 only with the help of the housing boom that is now definitely over. 

 

Despite the potential dangers, investors automatically assume that the Fed can manage the economy through a soft landing, although these have been extremely rare in financial history.  In the last 50 years there were nine times that were characterized by a combination of Fed tightening; a rise in the Conference Board leading indicators of less than 0.25% (6-month annualized); and an inverted yield curve.  Eight of these occasions were associated with recessions and all nine by bear markets.  When these factors are combined with the dangerous situation we face in housing, we think that the odds of a soft landing are extremely low.  As we end the month of August most investors seem to be assuming that the heavy hitters will return after Labor Day and add some real volume to the listless rally we’ve seen this month.  We recall hearing the same reasoning in August 2000.  Back then the Fed had also finished its rate hikes and investors were similarly looking for the elusive soft landing.  The market topped on September 1....

 

GOLD, SILVER, PLATINUM, PALLADIUM AND DIAMONDS

 

            When we began this quest in 1960, the one thing we understood above all else was that gold is the ultimate money and that gold is the eternal enemy of every central bank. That said, we reiterate our recommendation that for the long-term that you continue to accumulate gold and silver related assets and not try to trade these markets. Trading will only end in disappointment and loss. The purchasing power of the dollar will continue to decline and considerably faster than it has over the past few years. This is why you do not have to now worry about the move gold and silver makes. If there are to be changes we will inform you of them. We are 47-year students of the decline of the dollar and America. We know exactly what to expect. The dollar is about to take a minimum loss of 35% against other major currencies and a 180% loss versus gold, and that is just to attempt to catch up with the inflation of the last 25 years. Back in the early 1960s if you had a good middle class income you made $10,000 a year. Today you need $100,000 to duplicate that. The stock bubble ended in March of 2000 and all we have seen is a manipulated bear market rally for almost four years. We are seeing the collapse of the housing bubble. The question is what could be turned into the next housing bubble? Could we have a terror bubble? Stranger things have happened, but we doubt it. The elitists have taken this game as far as they can. It’s hyperinflation, a falling dollar and then collapse. Most personal wealth is in peoples’ homes and if that wealth is diminishing they’ll cut consumption, besides their other debt is colossal.

 

            Wednesday gold had a solid day, but was capped by selling closing up $6.60 to $617.20 and silver was strong, up $0.35 to $12.46. Rumors are flying that the ECB is lying about the sale of gold by signatories to the gold agreement. One pro says one of the central banks is selling 30 tons a week. If the stories are true the seller is trying to suppress prices without exposure, at least until a later day.

 

            On Tuesday open gold interest fell 1,817 contracts and on the CB at the volume of open interest rose 1,249 contracts. On Tocom open interest grew 302 contracts. Wednesday on Tocom the big shorts increased their shorts by 1,990 to 143,616. The XAU rose .77 to 144.71 and the HUI gained 1.72 to 339.95. The silver shorts on Tocom cut 27 short contracts to total 2.461.

 

            The Dow rose 13 to 11,383, The Nasdaq gained 98 Dow points and the S&P fell 5 Dow points. Oil was $70.39, up .42, natural gas $629, down a bunch after being up $0.35 earlier and gasoline rose slightly. The two-year finished 6 BP higher than the 10’s after being 10 BPS higher. The dollar was 84.80 down again. Gold in the access aftermarket was up $2.20 an ounce.

 

            Gold and silver came flying out of the box on Thursday and prevailed until the close. Gold was up $7.80 to $625 and silver popped $0.35 to $12.81. The fundamentals are prevailing. You can throw your charts out the window, as the Fed gives in to inflation to keep the housing market and the incumbents from getting wiped out in the election. The Republicans are frantic. That is why we put credence in what we have heard from traders and that is gasoline at $2.50 a gallon by November 4th. Smoke and mirrors won’t keep gold and silver down any longer. Iran has told George and the neocons to take a hike. They refuse to stop their nuclear program. If Bush sanctions Iran, all with his Illuminist pals in Europe will have oil delivery problems.  Iran will cut oil production and Venezuela may just cut off the US’s oil. Gold and silver have both just formed new bottoms and are ready to fly. Both are very strong fundamentally and technically. Silver is hot and we mean really hot. Gold open interest rose 1,285 contracts to 308,868. Silver open interest fell 2,135 contracts to 110,211, as the shorts bailed out. On Tocom gold open interest fell 371 contracts. The price rose into the Tocom close. The HUI is zeroing in on 350 having closed at 348.94, up 8.99. The XAU finished up the day 1.97 to 146.72.

 

            The Dow closed on Thursday at 11,381 – 2, Nasdaq was off 12 Dow points and S&P fell 5 Dow points. The Canadian dollar rose again .15 at 90.57. The pound rose to 190.37 and the euro was up 1.2806. Copper rose $0.10 to $3.47. The dollar index rose .10 to 85, but we see it lower Friday. Oil was $70.26, up $0.23, natural gas fell $0.24 to $6.05 and gasoline fell $0.05 to $1.75. The 5-year Treasury note was 4.69%, the 10’s were 4.73% and the 2’s 4.78% as we close in on the 10th week of inversion. You can see plainly the ruse and manipulation of bond yields. Just to give you a comparison the yield on the 10-year Treasury note was 4.7% when Sir Alan Greenspan began raising interest rates at 1%, and people say there is no manipulation – give us a break. That would mean the yield on the 10’s should be close to 8%.

 

            On Thursday silver hit a 3-month high after having hit a low of $9.38 in the middle of June. At $12.60 that is a 35% gain while gold rose in that period 14%.

 

            Barclay’s Global Investors’ ETF, iShares Silver Trust, holds just over 100 million ounces of silver worth $1.266 million.

 

            Anglo Platinum sees demand for platinum jewelry as a key factor supporting prices, with supply seen growing over the next 5 to 10 years. We find this of interest in as much as jewelry usage has been falling since 2002. Jewelry is price sensitive when platinum is $1,200 an ounce and gold is $625 an ounce. We see platinum prices stalling out next year as gold moves to within $200 an ounce of the price of platinum. Then the cost factors are competitive. From that level on less jewelry in gold and platinum will be purchased and the greater part of the market will be based on industrial and speculative demand. Remember too that vehicle manufacturing over the next several years should fall in a big way. Japan is a big platinum jewelry purchaser and use dropped about 30% to 17.1 tons in 2005 from 24.3 tons in 2002.

 

            Gold was capped today on low volume, but that’s fine, we finally made it through the summer. Incidentally, gold always is forced down in front of employment reports. Gold ended the day off only $0.80 to $624.20, and silver having cleanly broken out moved up $0.07 to $12.88. Gold open interest rose 1,894 contracts to 310,762. Silver open interest ending the week off 1,357 contracts to 108,854. As of 8/31 warehouse silver stocks on Comex decreased by 194,038 ounces to 103.63 million ounces. This was all from client owned inventory or the eligible category. The registered category for traders was unchanged at 42.84 million ounces, except for 14.685 ounces that disappeared. September is delivery month for silver – all that should bring some real fireworks. Tocom gold ended the day higher as open interest declined 225 contracts. Thursday’s gold Comex open interest rose 1,894 lots and CBOT added 575 contracts. There was not only long buying, but short covering as well. Yesterday’s Tocom big shorts increased shorts by 2,519 to 146,135 as Goldman added 940 contracts to 37,688. Silver shorts added two contracts to 2,463. The XAU and HUI were up on the day and the HUI broke out over 350 to close at 353.50. Gold in the access aftermarket was up $1.80.

 

            On Friday, the Dow rose 85, Nasdaq rose 66 Dow equivalent points and S&P 65 Dow points as the neocon strategy to keep the Dow over 11,000 goes into gear for the election. We do not have the dollar index but it was off a shade just before the close. The pound after having been off all day as well as the euro ended the day about unchanged at $1.9043 and $1.2833. The Canadian dollar rose $0.08 to $90.60 and that is powerful. Oil fell $1.07 to $69.19 bearing out my Intel that the elitists would take it down to wherever they had to in order to bring $2.50 gasoline to keep the dumb masses happy so they’ll vote the incumbents and the Republicans back in so they can have their police state. Only two more weeks and we’ll have three months of an inverted yield curve. The 2’s ended at 4.76%, the 5’s at 4.68% and the 10’s at 4.72%.

 

            Turkish gold imports in August rebounded 106% from July to 22.05 tons. This is more than June and July combined. The second highest import month this year despite weighted average dollar prices being the second highest this year, at $629.43. The highest was May, 33.475 tons at $676.95.

 

            Union Bank Suisse says the gold/silver ratio is below 50 for the first time since 1999....


-- Posted Sunday, 3 September 2006 | Digg This Article



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