The following are some snippets from the most recent issue of the International Forecaster.For the full 31 page MidWeek Reading, please see subscription information below.
WEDNESDAY, OCTOBER 18, 2006
THE INTERNATIONAL FORECASTER
MIDWEEK READING
P. O. Box 510518, Punta Gorda, FL 33951-0518
An international financial, economic, political and social commentary.
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People borrowed via ARMS at 3.5% and those new loans are at 7.5%. That makes a 30-year fixed at 6.5% attractive if you have equity or if you can come up with the negative equity. We see rates back up at 7% shortly and that will cut refinancing by at least 50% in 2007, as well as equity loans. The experts are talking about the Fed lowering rates next June. Don’t hold your breath. If they drop interest rates the dollar will be toast and they know it. Borrowers in most cases are just digging themselves a bigger hole. Eighty-eight percent of those who are refinancing increase their debt balance by more than 5% and for that pay higher monthly payments. ARM borrowers know what they were getting into, they simply didn’t care. $1.2 trillion of these ARMS are coming due in 2007, and there are still $200 billion worth to be financed in 2006. There you have it. Those of you who believe Wall Street and your government are in for a big surprise.
The new GAO, Government Accounting Office, report analyzing credit card fees, interest rates and related disclosure provided to consumers is out. Americans are having a terrible time making ends meet. Credit card issuers are out of control and are using the fragile economic conditions of America’s householders to send profits through the roof. The industry has been almost totally deregulated, following two Supreme Court cases – one in 1979 and the other in 1996, so issuers have steadily increased fees and interest rates for most cardholders and penalties have skyrocketed for almost all – well beyond the limits of traditional lending institutions. This is endangering the stability of the middle class and the lower class in America. From 1990 to 2005, credit card debt tripled to $800 billion. Between 2001 and 2005, Americans cashed out $500 billion in home equity to free up cash to often pay off credit card debt, as they depleted a family’s most essential asset. Forty-six percent of households have credit card debt. Lenders profited from low Fed sponsored interest rates not passing any of the gains on to the consumer and instead raised penalty rates and fees astronomically.
Congress should pass a Borrower’s Security Act that would restore the balance of power in the lending relationship and stop these predators from preying on the American public.
In a scientific Time/CBS News Poll it has emerged that only 16% of Americans now believe the official government explanation of the 9/11 2001 terror attacks. Eighty-four percent say the government is lying. A CNN Poll had the figure at 89% and over 80% supported the stance of Charlie Sheen that 9/11 was an inside job.
The latest gobbligook from the Fed is that inflation is not yet dead and the Fed is not ready to move to an easing status. The upward movement in interest rates has stalled, but the increase in money and credit hasn’t. The Fed plays a deceptive game; it raised interest rates and at the same time is increasing money and credit by more than 11%, which neutralizes the interest rate increases. The commentary that the Fed is data dependent is a ruse. The Fed is whatever it wants to be. Inflation is already out of control and the Fed makes no attempt to change that, because they cannot allow the money and credit spigots to be spiked. If they do the economy will collapse. The easing option really isn’t open to the Fed because the dollar will collapse. Talk about being in a box, and the longer this goes on the worse it will be when the economy is forced into a correction. The Fed still doesn’t get it. You cannot lie about inflation indefinitely. People are not that stupid.
The official inflation numbers that are coming out this week don’t mean anything because the statistics are bogus. Many economists and analysts know this but only a few dare speak of it. If they do they lose their jobs. How can any sane economist base any future decisions on bogus figures? A slowing economy is not going to slow inflation unless there is a solid recession. Inflation is a monetary phenomenon. Purging has to begin to stop it, and the issuance of money and credit has to go to zero.
Then there is the school of thought that believes that tax receipts are a very reliable indicator of economic activity. Tax receipts have been high and rising and capital gains taxes are higher than ever. That is because the government cut taxes 50% and almost all those benefits went to the rich. Tax cuts worked by increasing tax receipts just as they did during the Reagan years. The result was a recession and a massive increase in debt and we are about to see the same again.
Federal income taxes are increasing at the high end because that is where the tax benefit went, but state sales tax collections continue to fall relative to budgetary projections. In September only 37% of the states met their forecast sales tax receipts, down from 51% in August. These were wide misses - some were off 8% to 11%. As you can see the school of thought that believes tax receipts are a reliable indicator are wrong. The key to economic activity is state sales tax receipts and they are off 5% or more. This also points up again how bogus government sales figures are. We believe markets where real estate was super hot will probably see the worst of all worlds. The wealth affect from housing will soon be history as will refinancing and equity loans. That is because prices will fall and interest rates should rise. A $19 trillion real estate market has appreciated 60% over the last five years, or $7 trillion. That nest egg supplied $120 billion a year in increased spending or $600 billion. The fall should reduce GDP 1% to 1-1/2% a year over the next 3 to 5 years.
Those who think and say we are going to have a soft real estate landing are living in a fool’s paradise. Since January, our economy has slowed down. We are now starting to see consistent downward statistical data. After the election the cat will be out of the bag and most everyone will see where we are headed. If we are correct you are seeing a blow off top in the stock market that will probably last for some years. The question is how deep will it be?
In the last issue we mentioned that Deborah Lehr, wife of John Rogers, Chief of Staff at Goldman Sachs, and adviser to Treasury Secretary Paulson had quit her job. We are now told she quit because China policy was being run directly from the White House, and she found nothing she said was going to matter at all. She was insulted and frustrated so she quit.
We are told by our spies that Florida gubernatorial candidate Max Linn’s airplane crash was no accident. It was sabotaged. It was pulled off by a secret private group that only reports to Jeb Bush.
Word reaches us that the Bush family has purchased 100,000 acres of land in the South American nation of Paraguay. This news follows the announcement that American troops will be leaving Paraguay in December, because the US refuses to stay unless their troops are given total immunity from crime. Paraguay refuses to sign such an agreement. We wonder if the Bushes are migrating there because the country has no extradition treaties? The actual size of their property is 98,842 acres of farmland in Acuifero in northern Paraguay, between Brazil and Bolivia. The property was issued to Jenna Bush as the owner. She is with the UNO’s, UNICEF program in Paraguay. Perhaps the Bushes see war crimes trials in their future. The International Committee of the Red Cross has filed war crimes charges against Bush, Cheney and Rumsfeld, US military commanders and the majority of US Senators and Representatives. The war in Iraq has been declared as an illegal war. The only other time the Red Cross made such charges was in 1943 against Nazi Germany and Adolph Hitler. Bush connections in the region go back to Prescott Bush, the Nazi financier and George H. W. Bush as head of the CIA running Operation Condor, which ran assassination teams in Chile, Argentina, Brazil, Uruguay and Paraguay. This same cabal is protecting Iran Contra assassin Luis Posada Carriles. They refuse to extradite him to Venezuela for trial. Posada escaped from jail there in 1985, with CIA-elitist assistance. This could be a remake of the 1940s when wanted Nazis fled for protection in Paraguay.
Swift International transfers records of money transfers have, via subpoena in some instances, been turned over to the US government. This is in violation of EU privacy laws.
Another rumor reaches us that the US military sold a massive amount of diesel fuel that they had accumulated over the past 18 months so that they could suppress prices prior to the election. This collusion shows you how determined George and the neocons are to be reelected.
In addition, the oil removed from the Strategic Petroleum Reserve has not been replaced. That was as a result of Hurricane Katrina.
As some of you already know, “The Working Group on Financial Markets” has recently formed another protection squad designed to preserve the stability of the hedge fund community, whose principal credit and equity partners are Wall Street firms. Taxpayers are being forced to protect the wealthy ruling elite in an industry totally without regulation.
The US government has been and continues to play the biggest financial confidence game in history. A con game influenced by the biggest military colossus in history. The original Britton Woods system worked well for the US until the 1960s, when it began to take on massive debt in part caused by the Vietnam War. In the late 1960s, realizing the dollar’s precarious situation, foreign governments began demanding gold for dollars. On August 15, 1971, that exchange was ended and the gold window closed officially making the dollar a fiat currency redeemable in nothing. Twenty years later the world’s reserve currency is still in serious trouble and is on the precipitance of a major devaluation. Via free trade and globalization, also known as dollarization, almost America’s entire industrial base has been moved to other countries. In this process the dollar has become a political currency. World financial markets have been deregulated and the result is unregulated derivatives and hedge funds run by offshore banks and funds that control America’s economy. In the meantime the powers behind the US government has deliberately fostered a policy of trade and budget deficits to make the entire world dependent on the dollar system. Everyone has a vested interest because some 50% to 60% of their foreign reserves are in dollars. They are entrapped and are dollar dependent. You might call it dollar imperialism or dollar colonialism. The elitists believe that as long as the US is the predominate military power the world will have to continue to accept fiat dollars. Over the past twenty years we’ve had another phenomena and that is foreign nations manipulating their currencies lower, so they are trade competitive. This is accomplished by foreign countries printing their own currency, buying dollars and then taking those dollars and buying US Treasury bills and notes. That allows the US to continue its profligate spending. The flip side is those nations accumulate dollar debt. This is not benign neglect; this is deliberate. It’s a self-perpetuating system where all countries share the eventual losses in the US currency in order to access US markets freely. This mechanism has allowed the US to maintain control of the world economy. Under the surface though something very interesting is going on. Something the elitists never bargained for. The citizens of many countries, mainly in India, the Middle East and China, are accumulating massive amounts of gold and silver and dumping their dollars. They see what is going on and just because their countries are dumb enough to accumulate depreciating dollars that doesn’t mean they will. Western Europeans, Canadians and Americans, for the most part, haven’t figured out yet what is being done to them. Once the recession is upon them they will come to that realization and will use a great part of their assets to buy gold and silver. Very shortly the high standard of American living will be over. That will be accompanied by social dislocation and that is the real reason for Patriot Acts I and II, and our new torture and wiretapping laws. They will be needed within the corporatist fascist state to stifle dissent.
Anytime a foreign nation steps out of line the Fed and the US Treasury step in and buy the currency of the wayward nation driving up the value of that currency so its goods and services are less competitive in world markets. If that isn’t effective the elitists employ the power of the World Bank, the IMF and the World Trade Organization to bludgeon the nation into submission. Some are forced to eventually devalue their currencies and are forced to privatize state industries and cut subsidies while being forced to repay foreign debt held by the World Bank, the IMF and US and European banks. This is dollar imperialism. It is a bleeding process where the life is sucked out of the offending country.
Thus, the captive dollar system has kept the US and the world financial system afloat for 45 years and we question its ability to continue to do so. It could be that the world might decide that it no longer wants such a system that subsidizes the extravagant American lifestyle. Debt has reached alarming levels and any honest professional knows this cannot continue indefinitely. Short and long-term debt, personal, corporate and governmental has to be close to $130 trillion.
We are looking forward to a day when foreign financing of debt will end. The dollar will fall 35 to 50% and everyone will take their losses as the world is consumed again by deflation and depression. In order to offset that we will see ever stronger inflation over the next few years created by the Fed to try to keep the economy afloat. The effort will be unsuccessful and eventually we will slip into deflation. In inflationary times your funds should be in gold and silver related assets. In deflationary they should be in gold related assets...
GOLD, SILVER, PLATINUM, PALLADIUM AND DIAMONDS
Gold moved up $4.00 in Asia and held up $4.20 into the NY opening on Monday. The slugs tried to force it down as we went into the open and then the longs reasserted themselves during the course of the day. The gold suppression cartel was again denied and gold closed up $5.90 to $594.80 and silver rose $11.81, up $0.24. The December contracts closed gold up $5.80 at $598.50; silver up $0.23 at $11.91 and copper up a whooping $0.17 to $3.50. The gold access aftermarket was up $2.00. Gold open interest fell a major 7,262 contracts to 327,588. Silver OI rose 1,168 contracts to 103,286. The HUI rose 2.64 to 306.91 and the XAU rose 1.19 to 130.11. Commodities were very strong today. Aluminum rose 2.6%, lead 1.8%, zinc 5.51% and copper 3.1%. The word is hedge funds increased their positions by 8% this past week. Commercials increased their net longs by 26%, so the game is on again. No matter what the mainstream media had to say about the end of the commodities boom, the base metals have come back like gangbusters. The commodities run began last week when we said the gold and silver market had based out and to go long.
Barry Riley, esteemed writer at the Financial Times of London, sited stories that the financial markets were manipulated. He says, if the Republicans lose control of Congress, let alone the Senate, the lame duck tail-end of Bush’s second term could be calamitous.” He sites $80 oil and home sales falling off a cliff and then if by magic, everything changes. Oil falls to $60 with favorable implications for the CPI, gold, silver and commodities crash from their summer highs. The bubble is bursting in real estate.
The long term Treasury has as if by magic fallen from 5.1% and the 30-year fixed rate mortgage has fallen ½% to 6.3%. That has revitalized mortgage refinancing, held the real estate market up short term and given consumers confidence again. This was done on the assumption that consumers are more likely to vote for the part in power. Gasoline went from $3.18 to $2.22 a gallon in a month, a miraculous drop.
The attraction as a market fixer of Henry Paulson, Treasury Secretary, leads the sophisticated to the conclusion the markets are rigged. The GSCI cut their gasoline weighting from 8.7% to 2.3% prompting massive selling of gasoline by those who use the index to invest.
Then there is the lack of oil being used to fill the strategic reserves. Then Axel Weber at the Bundesbank said the ECB was doing swaps and wouldn’t say with whom. Mr. Riley went on to discuss the Working Group on Financial Markets, the Fed interference and the Exchange Stabilization Fund. Barry has said exactly what we have been saying for years and the best financial newspapers allowed him to say it. The mainstream media is finally allowing the truth to be told.
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