THE INTERNATIONAL FORECASTER

NOVEMBER 8, 2006 (MidWeek #2)

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

You are seeing the last manipulated gasp of a faltering economy. The recession began in January and some of the pros and others are just catching on. Bogus figures galore. Only a cretin would believe unemployment was dropped to 4.3% before an election. You may recall that unemployment was 4.4% in April of 2001, one year after we called the top of the stock market. Two years later it was 6.3%. Don’t be fooled by unemployment figures – they lag the economy by a year or more.

Canadian income trusts fell 20% last week because the government decided to change the rules. The fundamentals in the companies didn’t change, the government decided to change the rules. We see that happening in the US when dividend tax cuts are not made permanent.

Those who are connected tell us all will be well because of the new management in this new era of our economy, although they agree over the next two years GDP growth will decline due to a collapsing housing market. We are told the economy will be saved by financial innovation, which is more risk taking, central bank transparency, which doesn’t in any way exist, derivatives, which are a disaster ready to happen and yes, even in its so-called globalization which will supposedly moderate economic volatility. The old rules are to be thrown away because in our brave new economic and financial world the new dictum is one and one makes three. We call this a perpetual state of recession or depression. If transnational conglomerates are shipping business and jobs overseas, someone has to tell us how our economy can recover. Most Americans are buried in debt and have no savings and bankruptcy looms for one-third of our population and these dolts believe our correction will be short-lived. Who will be left to sell too? Bankrupts and those without jobs? Get smart you are being deceived by your government, Wall Street and our bankers again as they desperately attempt to hold a system together which they put in motion for destruction.

Our play back is winning – we are sorry to say. Manufacturing is slowing at the fastest pace in more than four years and construction help has begun its collapse. We wonder what they will do with all those illegal aliens walking the streets trying to feed their anchor babies. The consensus of experts have been wrong over and over again. They are still calling for expanded growth. We ask what planet are they on? All they have to do is look at bogus statistics and see the slowdown, or the rampant expansion of money and credit that is destroying the value of our dollar. They cannot do that because if they do they will lose their jobs. The economic trend is clearly down. The ISI manufacturing survey is 51.1. By January it will be under 50 and contracting. Real estate is in the process of correction as it has been since June 2005. The pros say there is a 100% chance of an interest rate cut by March. If so, they can kiss the dollar goodbye and watch gold soar into the heavens. The unemployment data is totally bogus and six months to a year behind the curve. We have been losing jobs every month for 1-1/2 years. Unemployment figures, bogus or otherwise, are not leading indicators - they are for lagging indicators. How do these geniuses explain the massive fall in productivity gains to 1.6%? Those are bogus as well. The figures are worse. That means purchasing power and profits have to drop and inflation, real inflation has to rise. On the other side of the coin, wages suppressed for six years are screaming upward at the worst possible time. The cost of labor bogusly rose 3.8% and is up 5.3% YOY. Business either raises prices or loses profits. Up goes inflation, ever higher. Two-thirds of a companies’ expense is wages. Read your economics book from Eco 101. When labor costs rise above productivity you get less profit or inflation, or both. As you saw in the last issue, via Ben Bernanke’s August speech at Jackson Hole, WY, it is all about globalization and printing money and credit. Yet, all the experts tell us the fed will not allow inflation to continue at today’s elevated rates, even at the risk of a lower economy. How stupid, lower rates won’t work and they will destroy the dollar. Just read Bernanke – he says more money and credit and globalization until the problem is solved or the system self-destructs. We have to laugh when we are told the labor market is getting tighter, what claptrap. As you can see there are two worlds we live in. The world our government and Wall Street would like us to believe and then there is the real world in which we all live.

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San Diego recently cut disability retirement by 10% for some 180 former city workers.

A number of state and local governments are challenging disability and pension guarantees. The San Diego case is an early warning sign of what could be coming elsewhere. Many cities, towns, counties and states are facing unexpectedly large obligations to retire workers. Areas of Oregon, Rhode Island, Milwaukee Country and several towns in Texas have already cut public workers pensions on the basic argument that their pension funds have gone disastrously out of balance. It could be under funding, poor investment performance or faulty calculations, but the heart of the matter is the money just isn’t there. What will happen if interest rates rise 3 points and the Dow goes back to 7,268? You guessed it, 50% cuts. This could only be the beginning.

In Texas, towns and cities can hold referendums on whether to opt out pf plans. In Houston some people were retiring in their 40s. Some continued to work and collect a pension at the same time, and some walked away with a million dollars or more in top of their regular pensions. The city changed that. The story goes on, but you get the message. Big changes are coming to governmental pensions.

The subterfuge and obfuscation never ends. We find for the past few years the US Treasury has been quietly involved in repo agreements and this secret operation explains why the nation’s money supply is exploding. It is probably part of the reason why the Fed did away with M3.

Repos are used by the Fed to quickly get money into the hands of financial institutions and then direct these brokerage firms how to use the money to rig markets. They have a conference call with these 21 institutions each morning to give them instructions for the day.

The Treasury has been doing the same thing under what it called the Term Investment Option. The Treasury makes no announcement of what it is doing in this regard, whereas the Fed does daily. In the Fed’s repo deals, the banks temporarily turn over securities to the central bank, the Fed in exchange for cash, which is credited to the 21 brokerage house accounts. The Treasury TIO program works in a similar way, except the financial institutions pledge securities as collateral in exchange for the cash, which is really a straw transaction. The Treasury working with the Fed tells the dealers what to manipulate in conjunction with what the Fed is doing.

The Fed on one hand has raised rates and on the other hand the Fed and the Treasury are making massive amounts of money and credit available, which offsets the statutory effect of higher rates. We call it a 3-card Monte game. The bottom line is the Treasury has created a way to duplicate the Fed’s power, and that is a disturbing possibility.

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GOLD

Last year India accounted for 22% of global jewelry demand and 35% of all net retail investment through gold coins and bars. Some 15,000 tons of gold, or 10% of the world’s entire above ground gold stocks, are in India. Gold is cultural, religious and an historic implement of wealth. The ever-growing population and growing prosperity will underpin gold demand for many years to come. As we have said before the women of India, the Middle East and China have destroyed the best-laid plans of the elitists. India’s annual gold purchases are more than twice South Africa’s current annual gold production, which is about 300 tons. India has averaged off-take of 676 tons a year for the past ten years. Surprisingly cost has not been a factor in sales, so we can expect large purchases to continue.

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Gold mining companies shrank hedge books two million ounces in the third quarter. 40 of 54 hedgers reduced their forward sales, options and other hedge positions. Five million ounces were covered in the first two quarters. The biggest reduction was at Anglo Gold Ashanti with 0.6 million ounce, Newcrest with 0.4 million ounces and Barrick with 0.3 million ounces.

The Eurosystem’s reserves of gold and receivables fell 101 million euros to 175.04 billion for the week ended 11/3.

Three banks sold under the Central Bank Gold Agreement.

The systems reserves of net foreign currency rose 200 million euros to 152.2 billion. Cash in circulation rose 5.1 billion euros to 597 billion, as liabilities fell by 16.8 billion euros to 48.5 billion euros.

China’s second largest lender, the Bank of China, will offer customers gold options. Corporate holders will be able to trade silver via the bank, either in the form of forward contracts, or by leasing metal.

The ECB weekly balance sheet indicated three banks sold 6.61 tons of gold last week, up from 4.25 tons the previous week.

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-- Posted Thursday, 9 November 2006 | Digg This Article