SATURDAY SEPTEMBER 23, 2006
THE INTERNATIONAL FORECASTER
SEPTEMBER 2006 (#4) Vol. 10 No. 9-4
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
Each legislative season corporate executives and lobbyists secretly draft hundreds of bills to suspend tariffs. This costs taxpayers billions of dollars and gives excessive profits to internationalist corporations. It is a gravy train, and there is little work to it. Lawmakers usually introduce the provisions at the behest of companies in their districts in exchange for large campaign contributions, known as payoffs. Removing these tariffs profits the transnational corporations, usually cuts the cost to consumers, but also costs American jobs and puts American workers on the street. Wal-Mart is one of the biggest beneficiaries due to their access to Chinese slave labor. They have cost American taxpayers millions in lost revenue.
The last time Congress passed an omnibus tariffs bill, in 2004, it cost us $172 million in lost tariff revenue. This is a subsidy for foreign workers. The one presently is going to cost us $278 million. When Congressmen and women are questioned on these issues they refuse to answer like Rep.. Sue Myrick (R-NC), who has introduced 34 such bills. South Carolina’s Brown submitted 32 bills. Others who are big in this area are Pennsylvania’s Republican Tim Murphy and Phil English, each with 23 and Emanuel Cleaner (D-MO) with 21. Each tariff suspension costs taxpayers $500,000 or less. Rep. Richard Neal (D-MA) put in several bills for basketballs and volleyballs that cost $3.7 million annually. That was in behalf of Spaulding or its parent Russell Corp. Wal- Mart has 41 pending. All these tariff suspensions cost thousands of US jobs. This is another part of our system of government that has to be changed. Our high standard of living doesn’t allow us to compete with slave labor and unless more tariffs are enacted, our country will be destroyed.
The core CPI was minus 0.4% last month. That is because car prices fell 2.6% and light truck prices fell 3.4%. We cannot for a second believe drugs fell 0.9%, and home electronic products fell 1%. Besides core intermediate prices increased 0.4% m/m and 8.5% y-o-y and core crude PPI fell 12.8%, but the y-o-y rate is plus 25%.
The market for credit derivatives, which investors use to speculate on the health of companies and countries, has more than doubled in size in the past year to cover $26 trillion of securities.
The Republican-controlled Congress heads into the 11/7 elections having increased federal spending this year by 9%, the most since 1990, to about $2.7 trillion, according to projections from the White House Office of Management and Budget.
As of Wednesday, Amaranth Advisors was losing $5 billion of its $9.5 billion in assets, the remainder of their natural gas investments were sold to Goldman Sachs. Its European portfolio of $2 billion has been sold, including its investment in Manchester United. It is only a matter of time before the hedge fund is dead. Bids for Amaranth’s fund were for $0.15 on the dollar. This is what happens when you have no regulation.
The US Government has the same problem as Enron, WorldCom, Global Crossing, Adelphia, Kaiser Aluminum, K-Mart, McLeod USA, National Steel and many other major financial entities, they are all bankrupt. This is why our government, not unlike the Hungarian government, lies about everything regarding statistics, finances, economy and anything else that really matters. Our debt is close to $70 trillion, yet the public is told it is $8.4 trillion. Anything that obfuscates the facts is acceptable. When our country goes bankrupt, it won’t just affect a few million people, it will affect 300 million...
In the past five years China has accelerated its extraordinary economic growth and commodity prices have soared. Commodities have become scarce or relatively scarce. That as in the past has led to wars and even higher commodity prices. Since this growth boom the US has continued growth by incurring massive debt via an easy money policy funded in part by countries like China. US debt levels are 300% of GDP and from 2000 to 2005 the expansion of US debt ran at six times the rate of GDP growth. Most of the personal debt went into real estate, prices rose, and the extracted money from higher equity was used to finance consumption. There has been little capital creation or employment gains, and household income from 2000 until recently had fallen by 4%.
Investment has shifted from the US to China, as has production. If not reversed, US debt will destroy the dollar and render the US a second-class nation. China now represents 60% of the world’s economy. Growth in China is 12% annually in industrial production and 20% in capital spending. China is the biggest consumer of commodities and as long as the US doesn’t implement trade tariffs, China will become the leader of the 21st century. Over the next five years China will continue to grow exponentially, if not checked by trade barriers. In the long term commodities will rise as will gold and silver. Use each sharp correction to buy for the long term...
GOLD, SILVER, PLATINUM, PALLADIUM AND DIAMONDS
On Wednesday gold moved into the Comex opening, up $7.20 and from there on it was one assault after another. That tells us the physical gold buying is very strong and the same is true with silver. Gold ended the day up $3.20 to $580.20 and silver rose $0.20 to $11.00. The fascists tried as hard as they could to smoother prices, but were unsuccessful. They carried on in the access aftermarket as well pushing gold down $3.90. In spite of a stronger day in gold and silver the HUI fell 3.41 to 290.57 and the XAU lost .81 to 123.81. Gold open interest (OI) fell 624 contracts to 325,852 and silver OI fell 106 contracts to 100,314. Early on in Tocom gold locked down limit, off $2.80 on Tuesday. On Tuesday CBOT gold open interest fell 624 contracts as Comex rose 1,976. On Tuesday on Tocom the big shorts again reduced their short positions by 3,459 contracts to 100,948. This is the lowest level this week. Goldman covered 1,292 contracts.
The Dow roared ahead again today when it should have been going down. It was up 72 points to 11,613, Nasdaq rose 180 Dow points and S&P was up 63 Dow points. Oil fell $1.20 to $60.46. As you know we said oil would fall from $73.00 to $65-$60. That has indeed happened in three weeks. This $60.00 a barrel should be close to the bottom as should be $4.93; $0.08 on natural gas and $1.47 on gasoline. You speculators should take a hard look for a bottom on these three here. Our statistical studies show this area as a strong buying level. The same is true for the fundamentals on gold from here to $540 to $550, and for silver from here to $9.58. The 2-year Treasury ended up at 4.81% and the 10’s at 4.73%. Copper was unchanged at $3.39. The euro rose .0014 to 1.2679, the pound rose .0061 to $1.8882, and the Canadian dollar fell .07 to 88.61. Our four exploration stocks have held up very well under the onslaught of the past few weeks.
As you know the European Central Bank sold $633 million worth of gold or some 33 tons in the week ended September 15th. That puts September sales at 40 tons. The 15 European central banks have sold 380 tons with two reportable weeks left to see out of the 500-ton allotment.
The sales were obviously timed to effect gold prices as we approach US elections. The largest weekly sales were on the week ending May 5th, when 62 tons were sold on the month as gold climbed from $676 to $730 on May 12th. They were timed to halt the gold rally at that time from extending to $850. We also reported earlier that at the same time the US Treasury sold 500 tons in the high $600s to assist the other central banks in capping the gold price at that level. All European countries were sellers to their quotas with the exception being Germany, which could have sold 120 tons. That leaves little more for sale for the year ended 9/30. Gold could swing down to $540.00 to $550.00, but with the short covering we have seen and the end of central bank sales for now the $580.oo level could well hold...
