WEDNESDAY DECEMBER 20, 2006
MID WEEK READING
THE INTERNATIONAL FORECASTER
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
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A good part of our government, the commercial and financial end is being run by Goldman Sachs and they will capitalize on their connections for years to come and have and will reap enormous profits at the expense of all Americans. Henry Paulson, former CEO of Goldman Sachs, led the Chinese charge to hopefully keep them from selling their dollar-based assets. As Person Gulf oil producers and Venezuela, Russia and other OPEC members and Argentina and Brazil sell their dollars. We suspect that the threat of trade legislation is just that, a threat. Goldman and Citigroup did a giant IPO in China and part of the deal could have been that Paulson kill the Schumer-Graham trade legislation that would put tariffs of 27.5% on Chinese goods. Goldman made $4.9 billion on the deal.
The Paulson-Goldman recent trip to China as we said before probably was to keep China in US dollar assets. The yuan had appreciated 2% and Treasury paper yields had fallen 5% as of late. That is 7% less return for the Chinese besides others are sellers. The Chinese wanted to diversify as well. Goldman and the elitists couldn’t have that happen. That means other things had to be offered to compensate the Chinese. We will find out what in time. If this is the case the Fed won’t be dropping interest rates anytime soon.
China has already made the mistake of allowing the elitist banks from the US and UK to buy into their banking system something the Russians wouldn’t do. We are sure Goldman was setting up investment banking deals. That means Chinese leadership was being cut in on the action. The losers are the Chinese and American workers and investors. It could be that Paulson guaranteed along with Bernanke that there would be no trade tariffs put in place against China.
Thus, we have the same corporatist fascist state that Benito Mussolini and Adolph Hitler had. Corporate America running Washington for their benefit. Everyone at the top gets a piece and the public gets screwed. Our country is being sold out by these people. We have lost five million jobs and we’ll lose more than five million more mainly to China, India and Mexico via free trade and globalization, which takes us down a road to serfdom. Our balance of payments deficits will increase even as the dollar falls. Wall Street, the banks and corporate America are bleeding our country dry with the assistance of our elected leaders in the White House and Congress. If we do not stop it we will be living on our knees.
We are at the stage of the stock market where decisions are made by most investors based on hopes and wishes. We are into the classical third phase of the bull market. The S&P is currently trading close to 18 times earnings on record profit margins. These margins normalize over time. Bullishness is running near 60%, which is about where historically bull markets have ended. That probably is why corporate insiders have been aggressively liquidating stock at a rate of 7 shares sold for every one purchased. Then there is the carnival working show known as Mad Money dispensing irresponsible speculative plays and other madness. Overall it is very late in the game. Had it not been for government interference the market would have started down a year ago. We see sideways movement and then down. Any market correction from a political standpoint should begin soon so it is over with before the 2008 elections. Sometime over the next six months you will see a smart correction.
It was normal that when Spiceland Ind., which makes blinds and projection screens, would see a 40% boost in demand for its exports, when the dollar fell but not anymore. Now with the dollar down again exports have only risen 10%. That’s because the company’s competition has moved from France and Germany to China. As we have pointed out before the world has changed and America doesn’t manufacture enough to make an improvement to any great degree in our balance of payments deficit with a lower dollar.
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For US consumers and companies, the era of easy access to cash may be ending. This so-called innovation in corporate credit has been total madness by the Fed, particularly Sir Alan Greenspan. This has allowed homebuyers who should have never had loans to get loans. This is what is now fueling the emerging crunch in the housing market. That will make the housing market and the financial health of the consumer the focus point of 2007 and 2008. There will be massive delinquencies and more rating downgrades next year for sub-prime residential mortgage backed securities, or RMBS, the structured products known as collateralized debt obligations, or CDOs. This downward pressure on their mortgage purchase market means borrowing costs will rise and access to capital in the area will dry up. Bond prices will fall if CDO investors buy fewer sub-prime bonds. That will hurt the entire junk bond market.
US sub-prime RMBS represent a majority of the composition of newly issue CDO’s, which in the first half of 2006 have average a 64% concentration in US sub-prime RMBS, compared with 48% in 2005. Lenders such as New Century Financial and Accredited Homes Lenders holdings are already tightening lending practices.
Downgrades on sub-prime mortgage securities are expected to climb to 300 by the end of the year, twice as much as last year and rise even more in 2007 and 2008.
Evidence of deterioration has set in and you will see tougher lending standards soon. The slowdown in housing and auto markets will cut GDP growth by 1.5% in 2007. Unemployment has just begun to rise. In November 29,000 construction jobs were lost and in October 24,000 were lost. Late payments and foreclosures are in a tear that will last 2-1/2 more years. All our predictions unfortunately have come true.
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GOLD, SILVER, PLATINUM, PALLADIUM AND DIAMONDS
It looks like the Chinese took Henry Paulson’s advice and are thrashing silver. Mining shares held up reasonably well last week, and gold and silver ETF’s did well. Barclay’s IAU reported adding 0.73 tons of new gold and GLD adding 7.4 tons and SLV adding 46 tons of silver. There is no question the gold suppression cartel was at work selling off what is left of the leased gold they arranged to be sold a few weeks ago. The central bankers have to try to keep gold and silver in place as the dollar and other fiat currencies continue to fall against the only real money, which is gold. The bad part is gold is down – the good part is physical buyers will buy more cheaply.
On Monday, the first London gold fix was $3.00 higher. At 6:00 a.m. gold was off $1.60 and went close to even and stayed there for the day. Spot gold rose $0.30 to $614.90 and silver fell $0.41 to $12.40. In the February contracts gold fell $1.20 to $617.90; silver fell $0.46 to $12.53 and copper gained $0.01 to $3.03. Comex open interest rose 80 contracts to 332,270 and silver OI fell 1,709 contracts to 108,771. On Friday, the big Tocom shorts cut their shorts by 2,012 to 119,096 and Goldman Sachs increased shorts by 614 contracts to 30,974. The same group reduced longs by 15 contracts to 325. During the course of the year Goldman’s gold shorts have declined from 52,000 to 31,000 contracts. That is substantial. The XAU lost 2.03 on Monday and the HUI was 6.48 lower to 332.87.
Comex silver warehouse stocks fell 448,702 ounces last week to 110,131,081.
Numismatic enthusiasts are often willing to pay a premium for American Eagle, American Buffalo and other specialty coins labeled “first strikes” because they are billed as among the first of that year’s batch produced by the US Mint.
Some collectors say the label is misleading and that the coins aren’t special at all. A Miami attorney has filed class action federal lawsuits on behalf of potentially thousands of collectors claiming that the “first strike” designation is unfair and deceptive and more than $10 million could be at stake. The grading companies, PCGS and NGC are not cited in the suit.
As we expected gold was strong all day as was silver. Gold closed up $6.30 at $621.20 and silver rose $0.19 at $12.59. The February contract in gold rose $7.50 to $625.40, silver rose $0.19 to $12.71 and copper fell $0.01 to $3.02. Comex gold open interest rose 3,350 contracts to 335,620 and silver OI fell 3,483 to 105,268. On Monday the Tocom shorts increased their total net short position by 447. Goldman net covered 171 shorts to total 30,803. These top silver shorts reduced their longs by 36 to net long 289 contracts. The XAU rose 3.46 to 143.23 and the HUI jumped 10.74 to 343.08.
On Tuesday the Dow rose 30 to 12,471, S&P rose 27 Dow points and Nasdaq fell 36 Dow points. Oil rose $0.94 to $63.15, gas rose $0.04 to $1.71 and natural gas rose $0.08 to $7.08. The euro rose a large .0087 to $1.3190, the pound a larger .0200 to $1.9681 and the dollar index fell .53 to 83.16. The Canadian dollar rose .33 to 86.73. The 2-year Treasury was 4.72% and the 10’s were 4.60%.
The Eurosystem central banks sold 405 million euros of gold or 26.83 tons. Of this, 23 tons was that which the ECB sold for its own account on 12/1/06, the remaining 3.83 tons is lower than last week’s 4.64 tons and far below the weekly run rate of 9.6 tons.
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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
