SATURDAY DECEMBER 9, 2006
THE INTERNATIONAL FORECASTER
DECEMBER 2006 (#2) Vol. 10 No. 12-2
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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International_forecaster@yahoo.com
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US MARKETS
Treasury Secretary Henry Paulson and the Chairman of the Fed, Ben Bernanke, may not want to talk about it on December 15th and 16th in Beijing, but the Fed, the Treasury and the Chinese all know that the dollar has held its value on world markets because compared to the euro, yen or yuan, America has the highest interest rates. Carry traders borrow yen at ½% interest and invest in foreign assets, most of which goes into US markets creating artificial financial demand. While these two elements have helped keep the party going the US has turned a blind eye to the manipulation of currencies by those countries that export to the US. The artificially low interest rates, causes excess consumption. The artificially low currency values rob America of its factories and jobs. Both the US and foreign nations have knowingly set the stage for a dollar collapse that will cost foreigners 50% of their buying power. These problems are just over the horizon so any of you who are long in the stock market had best consider cashing out.
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Masahiro Kawai, a senior Asian Development Bank official says the dollar is likely to decline further and he urges collective action by East Asian nations to manage the current slide in the dollar. They are holding $3 trillion, which they received in trade or bought to reduce the value of their currencies. Now they want to rig their currencies on the way up. We had intervention in suppression of their currencies and now we’ll have it as they revalue.
Consumer borrowing fell off a cliff in October by the largest amount in 14 years, reflecting a big drop in auto loans. Borrowing declined at an annual rate of 0.6%. Credit card borrowing rose 4.1%, down from 4.9% in September.
The University of Michigan consumer sentiment index for December fell to 90.2 from 92.1 in November. The experts wrong again predicted 92.4.
Treasury and corporate bond yields are more than a point below where they should be because of the sea of money and credit that has been created by central banks.
The latest IPSOS poll showed President Bush’s performance approval at 27% and disapproval at 71%. Both are new lows.
Construction activity in October plunged by the largest amount since the recession of 2001 as home building fell for a record seventh consecutive month. Building activity dropped 1% after falling 0.8% in September. This is the biggest decline since a similar drop of 1% in 9/01. The only reflection of strength was in government construction, which rose 0.8%. Even non-residential construction fell 0.7%, the second straight monthly decline.
Residential construction fell for the 7th consecutive month, down 1.9%. Had it not been for the federal government increasing 11.6% the month’s results would have been disastrous.
This past week could be called heavy manipulation week. The Dow and S&P rose 0.6% and Nasdaq did the same. The two-year US Treasuries rose 15 BPS to 4.68% and the 10’s rose 11 BPS to 4.55%.
Real estate purchase applications were up 4.9% this week to the highest level since May. YOY they were off 13.8% with dollar volume 14% lower. Refi applications jumped 13.7%. The average new purchase mortgage increased to $228,100, down 6.7% YOY, and the average ARM jumped to $381,500, up 4.7% YOY.
Bank credit went bananas again surged $42.9 billion with a 2-week gain of $65.6 billion to a record $8.233 trillion. It has expanded 10.5% annualized. Securities loans rose $5.7 billion. Loans and leases jumped $37.2 billion, with a YTD gain of $550 billion, or 10.9% annualized. C&I loans were unchanged, but YTD are up 13.8%. Real estate loans expanded at a 14.4% rate YTD. Consumer loans rose $5 billion and securities loans jumped $19.4 billion. Other loans added $900 million.
M2 surged again, up $19.9 billion to a record $6.991 trillion. YTD money supply is up 4.9%.
Total money fund assets increased $30 billion YTD or 15.5% annualized. They have expanded 23.2% over the last 20 weeks.
Total commercial paper increased $4.8 billion to $1.933 trillion. It is up 18.9% annualized. Total CP has expanded at a 21% rate over the past 20 weeks.
Asset backed securities (ABS) issuance this week increased to $17 billion YTD, that is $693 billion, or 7.6% below 2005’s record, with 2006 home equity loan ABS sales of $458 billion, or about 6%.
Fed foreign holdings of Treasury, Agency debt added $1.3 billion to a record $1.713 trillion. Custody holdings were up $193.5 billion YTD, or 13.5% annualized.
The dollar index rallied for the week thanks to Friday’s intervention in the US currency by the US Treasury and the Fed. It was up 1.1% to 82.30. Gold fell 3.2% to $625.20, silver fell 2.5% to $13.84. Copper fell 2% reducing yearly gain. The CRB index fell 2.8%, its off 5.9% YTD. The CSCI, The Goldman Sachs Commodity Index, fell 3.5% but it's up 3.3% YTD.
Total credit market debt increased $755 billion during the 3rd quarter, that’s 7.1% annualized. That is down from 7.8%, or $820 billion. For the YOY figures we see an increase of 8.8% to $3.526 trillion. Total non-financial credit expanded 6.7% for the quarter unchanged from the second quarter.
Home mortgage debt growth is decelerating, total household borrowings slowed to 6.8%, down from the second quarter’s 9.2% and the first quarter’s 9.7% and last year’s fourth quarter of 11.6%. Total business borrowings slipped 7.7%, down from 8.4%, 9.6% and 7.7%. State and local borrowings are up 9.3% from 6.6%, 3.5% and 9.7%. Fed funds and repos expanded 26.9% in the quarter and funding grew 25% annualized. This shows you how the Fed dominates the market. Broker/Dealer assets rocketed 28%.
The following is how the Fed contributes to rigging markets. Fed funds and Securities Repurchase Agreements expanded $606 billion during the quarter; $509 billion was lent to brokers. YTD Fed funds and repo has ballooned $366 billion, or 24% annualized to $2.371 trillion, with a 2-year gain of 42%.
Securities finance has taken up the slack from slowing mortgage debt growth. Total mortgage debt growth was up 8.4% to $13.033 trillion, reducing YOY growth to 10.4%. At 13.4% commercial mortgage debt growth was unchanged from the second quarter, with YOY growth of 14.8%.
ABS growth was 10.6% in the third quarter and YOY its up 16.4% and 42% over the past two years.
Credit creation is out of control and it’s going to get much worse because this is the only thing that can keep the economy from collapsing. The money and credit is ending up on Wall Street in highly leveraged speculative investments. When the correction comes, which it must, many will be unhappy and many will be wiped out.
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GOLD, SILVER, PLATINUM, PALLADIUM AND DIAMONDS
We spotted it on Tuesday, lease rates fell from .1% to .04% and the shorts on Tocom were rising including Goldman Sachs. The inevitable result came all to quickly to the downside. Gold fell on Wednesday to $630.40, down $12.40 and silver fell $0.28 to $13.57. The February contracts were a little bit better. Gold fell $12.00 to $635.90, silver fell $0.23 to $13.80 and copper fell $0.09 to $3.16. The gold access market was up $0.20. Gold open interest rose 6,577 contracts to 330,530 and silver OI dropped 337 contracts to 106,839. On Tuesday the large Tocom shorts covered 1,604 contracts to a net 143,140. Goldman covered 803 of those. In silver the Tocom shorts reduced shorts by 886 contracts to 1,054. The attack on gold began last week and we cannot help but think that a softer gold price has been arranged to influence the Chinese on 12/15 and 12/16, that the gold market is at the mercy of the central banks and Illuminist controlled governments. Thus, the Chinese will be told it is futile to buy gold and expect appreciation. They will also be told gold will never again be part of any monetary system. Of course that is a bluff and the Chinese won’t be taken in by it. The elitists want a deal with the Chinese regarding a revaluation of the yuan, and they are probably going to demand that. After this Chinese visit comes 2007 and something tells us something very big is going to happen. Some market is going to have a big blowup. It could be derivatives, in commodities or in gold or silver or real estate. Take your pick. On Wednesday the XAU lost 2.56 to 144.41 and the HUI fell 6.07 to 350.04.
On Wednesday the Dow fell 22 points to 12,309, S&P fell 17 Dow points and Nasdaq fell 40 Dow points. Oil fell $0.24 to $62.10, gas fell $0.02 to $1.62 and natural gas fell $0.04 to $7.28. The euro fell .0028 to $1.3285, the pound fell .0063 to $1.9660, the Canadian dollar fell .49 to 87.10 and the dollar index rose .33 to 82.83. The 2-year Treasury yield was 4.57% and the 10’s were 4.48%.
Neal Ryan, research director for Blanchard & Co., which sued Barrick Gold in the gold price-rigging lawsuit, reported in an interview today with theStreet.com that the IMF is about to propose full disclosure and transparent accounting practices for leased and swapped central bank gold.
Ryan said he had written a study about the fraudulent accounting of central bank reserves, that he has made recommendations to the IMF, that the IMF has replied favorably, and that he expects an announcement from the IMF this month. Let’s hope they do what they say they will do.
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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
