THE INTERNATIONAL FORECASTER
MID WEEK - NOVEMBER 29, 2006
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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International_forecaster@yahoo.com
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US MARKETS
As we begin this week we are witnessing the renewal of the testing of the dollar, the ultimate in a fiat reserve currency. The world’s present, floating-exchange-rate monetary-financial system, although faltering, is still in motion. At the same time the Japanese and Swiss carry-trade, which is helping flood the world financial system with credit is about to enter a terminal phase. As the dollar falls the yen and the franc appreciate forcing those who have borrowed these currencies to buy them back. That tightens world liquidity and that causes selling in assets bought with those funds all over the world. On Friday morning the dollar confirmed a breakdown and the selling began. The FTSE last seen was trading down the equivalent of nearly 100 Dow points for openers. The dollar is massively overpriced, but in addition the financial world is not happy with Mr. Bernanke’s pause in interest rates and the conclusion by many that he will be lowering interest rates next year rendering US dollar assets more uncompetitive.
As we told you in 2000, the current financial system is terminal. It has to be replaced. It cannot be replaced by another fiat currency or group of fiat currencies. It has to be replaced by the only real money – gold – a gold standard system. There has to be a new set of rules - a new global standard that everyone can rely on, not a system based on elitist promises. Since August 15, 1971, the entire world has been on a fiat money system. The Bretton Woods, fixed-exchange-rate, gold-reserve-based monetary system was replaced and it has been downhill ever since.
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Moody’s sees 20% housing declines in some areas of the US in 2007 and that sales prices for median homes will fall 3.6%.
One of the most important elements in the reduced sales of homes now is mortgages that won’t sell. No one talks about it, but bankers are buried in exotic mortgages and those loans are in serious trouble. Homeowners owe close to $10 trillion in mortgage debt and against that mortgage paper, the giant secondary housing market agencies, Fannie Mae and Freddie Mac, have pyramided an additional, separate $6 trillion in mortgage-backed securities, derivatives and bonds. Accounting for additional housing-linked debt, US housing-related paper is above $16 trillion. As a result the oncoming series of homeowner defaults and foreclosures will ignite a shockwave blowing out many banks, financial institutions and foreign lenders who have invested more than $2 trillion in US housing and $375 trillion in the derivatives market. Sixty percent of homebuilders are offering incentives of up to 30% to move homes, usually with exotic mortgages to get the buyers into the houses. Even with those discounts new homes are not moving. Many existing homeowners are doing the same thing with little success. The next two years for housing will be difficult if interest rates on the 30-year fixed rate mortgage stays at 6-1/8% to 6-1/4%. If the Fed takes interest rates down ¼% to ½% real estate will go sideways and the dollar will collapse.
America’s biggest retailer, Wal-Mart, is having weak November sales. In fact Wal-Mart estimates November sales fell 0.1%. They have the $4.00 generic drug program going and they have already cut prices drastically. This is not good news when holiday spending makes up 20% to 40% of retailers’ annual sales. It looks like the consumer could be cutting back at least at this level.
When the dollar breaks 80 and goes to 40 to 55, it will be the equivalent of the Dow falling 6,000 to 6,600 points to 5,500 to 6,100. If the Fed goes to hyperinflation it could be much worse.
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The trade deficit that began in the 1970s gets worse daily. As a comparison our trade position was very strong before and during the great depression. For some time that has been no longer so. The depression saw 33% unemployment and presently our unemployment is 13%. That is not a long way to go considering all the debt we have. Thus far this problem has been addressed via inflation. We expect even more inflation as the situation becomes more dire. That growing inflation will demand much higher interest rates and if not forthcoming the dollar will plunge as the world becomes a seller. As long as free trade and globalization and offshoring and outsourcing continue the trade deficit and the current account balance will worsen. Worse yet, a 35% to 50% drop in the dollar is not going to help either. Cheap or slave labor is killing our labor market and that has and will continue to hollow out our lower and middle class incomes. As the destruction of our productivity capacity decreases so will our long-term wealth creation. As production declines so does our need for investment in that productive capacity. Our growth is moving out of our country. Our economy will weaken because workers will be paid less and the cost of imports will rise. Foreigners will eventually stop buying dollar assets and the game will be over. Corporate America has sold off a good part of our future profits and they will try to steal away in the darkness that is going to follow. This is why the Fed will inflate until the system goes down in flames. This scenario guarantees higher gold and silver prices.
Former World Bank chief, and protégé of Maurice Strong and David Rockefeller, James Wolfenshon, tells us we must prepare for Chinese and Indian dominance. “It is a world that is going to be in the hands of these countries that we are now calling developing.” Mr. Wolfenshon has currently been made chairman of Citigroup International advisory board. Within 25 years the combined GDP of India and China will exceed that of the Group of 7 wealthy nations. Between 2030 and 2040 China will be the largest country in the world. This is what the elitists have planned for us.
More than 8,000 American companies have been sold to foreign corporations in the last ten years for more than $1.2 trillion. The decline of vital industries through bankruptcy, foreign predatory competition and foreign acquisition shows foreign interests now own a majority of US industries in mining, publishing and movies, cement, mineral manufacturing and they own substantial positions in pharmaceuticals, glass, coal, chemicals, industrial machinery, transportation equipment, petroleum and a host of others.
American manufacturers are at a 30% structural cost disadvantage, compared to foreign competitors through taxes, health and pension benefits, litigation, regulation, wages and energy costs. This is more than the total cost of production in other countries.
This is a massive wealth transfer to foreign ownership. Our trade deficit, at $800 billion, is funding foreign competitors with $1.4 million per minute of our dollars or $2,400 per US person per year spent on imported cars, cloths, toys and thousands of other products. In addition we have already lost five million high paying jobs over the past six years.
In-sourcing of foreign manufacturing destroys our domestic industries, takes profits and taxes overseas, much like the $50 billion that illegals send home to their home countries with $22 billion going to Mexico, and leaves only low skill jobs for Americans. Foreign manufacturers operating in the US now account for over 20% of our exports and manufacturing and a large percentage of our employment.
Foreign countries now control 47% of our federal deficit and finance nearly 100% of our borrowings.
Offshoring and outsourcing benefits the transnational conglomerates and their shareholders and in the process destroys entire industries and communities and rips the heart out of our country.
China and India in 2004 graduated a combined 950,000 engineers versus 70,000 in the US. In the US more than half cannot find work in their chosen field because the jobs are being outsourced at a cost of 20% of what a US graduate is paid. Furthermore, US students rank near the bottom of the math/science proficiency levels.
Housing is headed down and 38% of household net worth resides in over-inflated home valuations and record mortgage levels. All kinds of American liabilities render our society to the edge of bankruptcy.
Our trade policies are designed to bankrupt our nation and take America economically and financially to its knees, so we will have to accept world government.
Our industries and professions are being destroyed. If we do not implement trade tariffs we are a goner. We cannot survive under these rules. You had best climb all over your elected representatives because if you do not and we succumb you will be living on your knees.
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On Friday the USDX, the dollar index, cracked technically closing at 83.60, a 52-week low. The previous low was 83.83 on May 12th when gold closed at $721.50. Gold is now $80 cheaper at $641.00. We expect that difference to be quickly covered and the assault on $850.00 to begin as the dollar fights to stay about 80. The US probably won’t be alone defending the dollar because the rest of the world holds $11.6 trillion in dollar denominated financial instruments. There will be major sellers into this financial maelstrom and of course, the European and Arab oil interest buyers. We do not believe the elitists will be able to restrain the tidal wave of selling.
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GOLD
Every month some new usage is found for silver and this time it is embedded into clothing. It is not new, but it is catching on. This is the silver bullet for keeping the stink out of your socks and other clothing such as underwear, workout clothes, travel outfits and hiking and hunting gear. Silver-coated textiles for use in the burgeoning market for high performance apparel. Silver kills odor – causing bacteria and neutralizes ammonia; it also conducts body heat, keeping the wearer warm in cold weather and cool in hot weather.
Noble Biomaterials has licensed X-Static to more than 300 companies in apparel making.
US soldiers and Marines already wear X-Static socks and T-shirts, which provide “olfactory camouflage as well as a first line of defense against shrapnel wounds, because any of the silver fabric that becomes imbedded in the wound actually starts treating the wound. A pair of X-Static socks contains only about one-hundredth of an ounce of silver. Silver’s germ killing properties have been known for thousands of years. In ancient times, silver was used to purify water. Silver nitrate is dropped into newborn’s eyes to ward off bacterial infections from the mother.
The story of usage goes on, but every year it gobbles up more silver. It won’t be long before the silver inventory will finally be gone and silver will sell at much higher prices.
The Monday gold and silver market held up after Friday’s strong move on CBOT. The quotes on gold at the closing were $639.70, up $1.90 from CBOT’s Friday close and silver rose $0.05 to $13.45. The Comex December closes were $640.60 and $11.60, silver $13.49, up $0.45 and copper $3.22, up $0.08. The access aftermarket was up $0.40. Rumors are again surfacing that China and Dubai are large silver buyers and they are taking delivery. Tocom closed Thursday a shade lower. On Friday, the big Tocom shorts increased their net short by 2,604 contracts to total 140,656. Goldman increased shorts by 32 contracts for a total of 32,128.
Tuesday all in all wasn’t a bad day for gold. You are always going to have profit taking. Plus, we have to contend with a government who is our enemy. Our President is overseas talking about freedom and democracy and we now live under his totalitarian government. We do not call manipulating our markets freedom and democracy. We do not call attacking gold since October 1987 a free and fair market. As soon a London closed the attack began taking gold down $7.00, but massive buying from India saved the day. Comex open interest rose 736 contracts to 356,924 as silver gained 1,706 contracts to 116,856. Gold closed at $636.80, down $2.90 and silver rose $0.09 to $13.54. The December contract saw gold fall $3.40 to $643.70, silver rose $0.13 to $13.81, copper fell $0.05 to $3.17 and the access aftermarket was up $2.00. We might add in spite of the strong attempts to send gold lower the first line shares had a decent day. On Monday at Tocom the big gold shorts increased their shorts by 927 contracts to 141,583 and Goldman increased part of that short by 28 contracts to 32,868. The big shorts increased their silver shorts by 28 contracts to a total of 2,863 contracts. Gold lease rates were flat with significant backwardation. The HUI closed up 3.29 at 343.88 and the XAU advanced 1.26 to 143.15.
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SUBSCRIPTION and RENEWAL INFORMATION: 1-YEAR $129.95 U.S. Funds.
Make check payable to ROBERT CHAPMAN (NOT International Forecaster), and mail to P.O. Box 510518, Punta Gorda, FL 33951-0518. Please include name, address, telephone number and e-mail address. We accept Visa and MasterCard charges. Provide us with your card number and expiration date. We will charge your card US$129.95 for a one-year subscription.
Foreigners please use foreign U.S. dollar denominated checks or Money Orders.
Note: We publish twice a month by surface mail or twice a week by E-mail. international_forecaster@yahoo.com
