Finance officers’ level of pessimism about the economy has reached its highest level in more than five years. One-third predicts a recession within a year. Due to their appraisal, capital spending plans have been cut to an increase of only 5.1% over the next 12 months. That is down from 7.5% for this past second quarter. Thirty-four percent said they will cut capital spending. Domestic hiring is expected to rise less than last quarter by 0.8% over the next 12 months, compared with 1.3% last quarter. First quarter wages rose 9% and second quarter wages rose 4.9%. 45.8% of CFO’s failed to give the Fed a resounding vote of confidence, skeptical that interest rate tightening will reduce the rate of inflation. 91.5% oppose any further tightening, and 21% want the Fed to begin to reduce interest rates. Analyses show that CFO business optimism has a predictive correlation of close to 70% with future capital spending, earnings and employment.

Citigroup has paid more than $5 billion in legal and regulatory settlements since 2002 for oversight and compliance failures.

Prices of goods imported into the US in August rose 0.8% from 1% in July. There is concern that US companies may follow overseas rivals in raising prices to recover the costs of energy and raw materials. This puts pressure on the Fed to raise interest rates, but we doubt that they will in an election year where incumbents are at such risk. Every time the value of the dollar falls import prices rise adding to inflation. An important point is that imports costs rose 0.5% excluding oil.

New unemployment claims fell 5,000 last week to 308,000. The four-week moving average declined 1,500 to 314,250.

More homeowners are falling behind on their mortgages especially in Ohio, Alabama, Tennessee, Michigan and West Virginia. The problem is the worst for those with sub-prime credit who pay higher than usual interest rates and who have adjustable loans that have been resetting at higher rates. About 12.2% of such borrowers were late paying their loans in April through June, the highest level since 2003. About 25% of all mortgages are adjustable. In 18 states, more than 15% of homeowners with sub-prime ARMS were behind in their payments in the second quarter.

Freddie Mac posted the 30-year fixed mortgage at 6.43% for the week ended 9/14, down from 6.47% the prior week. Rates were 6.80% eight weeks ago. That is a 33 bps drop. The 15’s were 6.11%, down from 6.16% and the one-year ARMS averaged 5.60% versus 5.63%. MBA apps rose 3.2%, but were down 22.8% y-o-y.

Many are finding homes can be a liability especially those who bought without a down payment and then borrowed closing costs. Some pay less than the interest owed in a given month, causing the liability to grow. Then there are those who owe more than their house is worth. The culprit that allowed this to happen was the Fed. They set 1% interest rates and had ARMS at 4% and they encouraged lenders to look the other way in writing mortgages when they knew buyers were totally unqualified. These lax standards have put millions of homeowners in deep trouble. We predicted this outcome four years ago and house prices haven’t even begun to plunge yet.

The experts say home values will fall 5% in 2007. Let’s try 5% in 2006 and 15% in 2007 and 15% in 2008. Those borrowers with little or no equity now will default sooner or later and probably sooner. We are facing the biggest financial bubble in American history, far worse than in the 1930s. We are setting forth into an economic and financial minefield and the outcome is beyond the imagination of most of us.

Southern California’s housing market continued to cool in August as L. A. County’s home prices rose at their lowest rate in six years, while San Diego County’s price declines worsened. In L. A. County in August 9,193 homes were sold the fewest since 8/97 and a 21% drop y-o-y. The median price rose 4.7% y-o-y to $517,000. That was the slowest rate of appreciation in six years and well below the County’s historical average growth rate of 7%.

As you know we have predicted housing starts will fall 50% by the end of 2007. San Diego just got the ball rolling last month with a 43% drop in housing permits. That will take 1-1/2 to 2 years to work through the system.

In the first week of September there was a 5.7-month inventory of homes for sale, up from 4.9 two months ago. In 1992-1996 there was a 19-month supply, so you can see we have a long way to go in California....

GOLD, SILVER, PLATINUM, PALLADIUM AND DIAMONDS

            Gold on Wednesday had a marginal day, up $1.40 to $588.70. The December month was up $2.00 and the aftermarket access was up $0.50 after being up $1.80. Silver rose $0.06 to $11.06. Gold open interest on Comex fell 5,975 as the speculators continued to run for cover to a total of 310,510. Silver open interest fell 2,082. Tocom saw lots of selling as many chose not to meet margin calls. Their close was off $8.60 below NY. On Tuesday Tocom large shorts reduced their positions by 1,936 contracts. Goldman increased their short by 2,782 contracts. Their total short is 40,363 contracts. Tocom silver net shorts increased by 786 to 3,245 contracts. The HUI rose 3.09 to 312.26 and the XAU rose .91 to 130.59.

            The orchestration for the election continues unabated and unchallenged. Few challenge the fraud that is being perpetrated on our markets and the markets of other nations. The Dow rose again, up 45 points to 11,543, S&P was up 45 Dow points and the Nasdaq rose 72 Dow points. Copper rose $0.01 to $3.39. The dollar index fell .08 to 85.48, the euro rose .12 to 1.2696, the pound rose .38 to 1.8777, the Canadian dollar rose .11 to 89.37 and the yen rose .33. Oil was up $0.21 to $63.97, gasoline rose $0.01 to $1.55, and natural gas fell .13 to $5.45. The 2-year Treasury yielded 4.81% and the 10-year 4.76%.

            A supposed rogue trader lost $20 million for Citigroup by hiding more than $373 million of gold and silver contracts and reporting fake prices. That was nearly 75 times her trading limit, before the bank discovered her misconduct in early 2003 and fired her. As a result the bank was fined $500,000 for failing to properly supervise its precious metals trading desk.

             As you know Mongolia enacted a windfall profits tax on gold last March. Now they want a piece of the action as well. That is bringing exploration and development to a standstill and rightly so. If the government carries through it will be the end of foreign mining investment in Mongolia.

            Early on gold started Thursday with a bang, finding its way to around $595. It was then that the roof fell in. Silver moved up to $11.35 only to be hit as well. Gold closed down $9.60 to $579.30 and silver was off $0.29 to $10.77. Copper held its own finishing off $0.01 to $337.00. Gold open interest was 5,169 contracts higher at 315,579. Silver open interest fell 871 contracts to 100,571. As we suspected both gold and silver were driven lower by derivative traders. Again there is no question in our minds that the Working Group on Financial Markets and the Fed have been behind the naked derivative puts in both metals. There is little silver anywhere to cause what is going on in that market. Tocom wandered aimlessly closing just a touch higher. The plan of the elitists is now very obvious except to the dumb. For the next six weeks gold, silver and commodities will be held down. The market and bonds will move higher. They have gasoline already at $2.50 a gallon. Maybe they want it lower. On Wednesday major Tocom shorts cut their short positions by another 23,242 contracts leaving a total of 115,439. In four business days they have cut their short positions by over 54,000 contracts, which is by about 1/3^rd. That is some major short covering. This is their lowest total short position in seven months. The same gang covered 450 silver contracts leaving 2,795. That is close to a 6-month low. Goldman covered 3,610 gold contracts leaving 36,733. The XAU unsurprisingly lost 517 to 125.07 and the HUI 13.12 to 298.76. That is off by more than 30% in three weeks. As the public loses billions of dollars Wall Street’s anointed and privileged few make fortunes.

            The Dow only 200 points from its high slipped a little today, off 16 to 11,527. S&P fell 18 Dow points and Nasdaq gained 6 Dow points. Oil fell another $0.75 to $63.22 and gasoline fell $0.01 to $1.55 a gallon. The dollar fell .17 to 85.31. The euro gained $0.23 to $1.2720, the pound rose $0.85 to $1.8864 and the Canadian dollar fell $0.04 to $8.945. The 2-year Treasury yielded 4.84% and the 10’s were 4.79% still in inversion with one-day to go to compete three full months and a trend.

            As we predicted Barrick Gold will not takeover Nova Gold for under $30.00 a share. Barrick extended its offer and is trying to cancel the junior gold miner’s shareholder rights plan. Barrick wants the poison pill of Nova removed.

            Barrick’s offer was $14.50 a share. “They only received 6.797 shares on tender.” We guess our efforts along with GATA’s were wildly successful. Nova’s request for an injunction to block Barrick’s bid was denied.

            Barrick wants Nova so it can cover its $6 billion losing hedge position. It is not in our interest that Barrick covers its short via production but in the market.

            The titanic struggle continued today (Friday) in the gold, silver and commodities markets. Professionals in the investment industry, investors and in corporations had best take notice that their markets and their economy are being manipulated by sinister people for their own ends. “The Working Group on Financial Markets” is being used to manipulate our lives and to enrich selective insiders in business, Wall Street, banking and government. The new Treasury Secretary and leader of the “Plunge Protection Team, Hank Paulson, will ram anything the elitist want down our throats. That is why his nickname is the “hammer.” This man is even more dangerous then George W. Bush.

            Goldman Sachs, JP Morgan Chase and Citigroup engineered the last attack on gold, which took it down some $200. During that caper the US Treasury dumped 500 tons of gold on the market in the high $600s. This time it’s shorts and derivatives and perhaps some bullion selling. We’ll find out in due time. We will say this time there is a full court press to convince the world that commodities and gold and silver have topped out and lower inflation is on the way. This, of course, is ludicrous. The US is slowing down and in time that will affect every other nation, but not for a minimum of six to nine months and then we’ll have lag time. Rest assured hard assets have a long way to go. The media is controlled by the same people who control Wall Street, banking, corporate America and our government. They will always be using the media to propagandize America. You just can’t let them fool you. You cannot let them shake you out of your gold and silver positions. Nothing has changed except the direction of the elitists’ psychological warfare. They want to confuse you and destroy you because you are the antithesis of everything they represent...

-- Posted Sunday, 17 September 2006 | Digg This Article