-- Posted Wednesday, 17 January 2007 | Digg This Article
The following are some snippets from the most recent issue of the International Forecaster. For the full 38 page MidWeek Reading, please see subscription information below.
MID WEEK ISSUE
WEDNESDAY, JANUARY 17, 2007
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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NEXT ISSUE OF THE IF (SATURDAY, January 20, 2007)
US MARKETS
There are many Americans with credit card debt that pay more than the minimum amount due on the bill, but still the balance never goes down. That is because the interest rate is a usurious 29.99%. If the debtor continues to pay as he is paying, it could be that it will take him more than 30 years to pay off his balance, even if he adds no additional debt.
In 1978, the US Supreme Court delivered a landmark decision that freed banks to charge the interest rates allowed in their home states to customers across the country. The banks and other lenders flocked to the states that weakened or abolished such laws.
In 2005, these shylocks succeeded in securing the adoption of new federal legislation, called the Bankruptcy Abuse Prevention & Consumer Protection Act, which only protected the lenders and penalized the borrowers. Few stopped to consider that the bankruptcy epidemic for the most part was the fault of the banks, more than 50% of credit cards issued went to subprime borrowers. It was the banks for the most part that created the problem. Lending to those who they knew wouldn’t be able to repay and charging usurious interest rates and outrageous penalty fees. In spite of irresponsible bank lending in 1980, less than one personal bankruptcy case was filed for each $1 million in consumer credit outstanding; the figure was slightly smaller in 2004.
Under the 2005 Act, credit-counseling firms have to provide bankruptcy screening and they report 97% of the clients could not pay any debts at all and should have never been issued cards in the first place. Seventy-nine percent sought relief for reasons beyond their control, such as job loss, large medical expenses, and very notably, rising credit card fees and predatory lending practices. We blame our Republican controlled Congress for this awful state of affairs. They found a profitable and familiar place in the bankers’ back pockets.
The law contains a provision forcing many debtors into Chapter 13 compulsory repayment plans, which is today’s version of debtor’s prison. This was so the banks could squeeze a few more bucks out of the poor sap borrower.
It should be noted that Congress disregarded the advise of every disinterested group that has looked at the questions, including three presidential commissions, the CBO and the GAO and the House Judiciary Committee report that such a demand would amount to the imposition of involuntary servitude. That meant nothing to our President and his Republican controlled Congress at the time. Screw the public, particularly the poor; the payoff was too big to pass off. Thus, the inappropriate lending continues entrapping the working poor, who are being snared with credit cards, a constituency constituting a risk market for bankers. A market that cannot escape under the new law. A national disgrace.
Americans are in a psychology of denial in regard to the future of real estate and its pricing. They prefer to listen to their government, Wall Street, corporate America and real estate professionals – all of whom have a vested interest in real estate either staying at present levels or moving to higher levels.
Most Americans are terribly ill informed on most all issues and their knowledge of real estate is no different. They have no idea that over the years 2007-2008 alone $2.5 trillion in Adjustable Rate Mortgages have to be reset at higher rates producing higher monthly payments. This has to result in thousands of homeowners losing their homes. Many took the risk that they’d be making more money or that they would be able to make a higher payment. Some didn’t even know that payments would increase and most should have never had loans in the first place. If Americans want to place blame, it all goes to Sir Alan Greenspan. He was responsible for outrageously low interest rates; mortgage lending to totally unqualified people and flooding the economy with money and credit. Worse yet, his successor Ben Bernanke is following in Sir Alan’s footsteps. These are the main players in this American tragedy.
People have mortgages they are hard pressed to maintain and now their homes have dropped in value between 5% and 20%. We believe they are looking at a further loss of 15% in both 2007 and 2008, if interest rates remain unchanged - our take is 35% of mortgages could go into foreclosure over the next three years. Once values drop below equity, millions of consumers will simply walk away and the glut of homes on the market will move to 12 months inventory or higher. Homebuilding has to drop 60% from its peak. We are only 20% off peak production. Thousands of jobs are being lost and if you can find another job it pays less. We refer to the article in the last issue under Mexico, which deals with return to Mexico of many illegal aliens. They couldn’t find another job after having been laid off in construction or a real estate related job. There is also a safe bet that the loans from equity in homes will fall from $732 billion in 2005, to probably $600 billion in 2006 to $200 billion in 2007. In 2008, few will be able to tap equity. Those are hundreds of billions of dollars that won’t be there for the consumer to spend. Readers, the subprime ARMS are about to explode. In the months and years ahead you will hear lots about exploding ARMS. This, of course, is why subprime lenders are going bankrupt or they are closing shop before they do go under. All that artificial home demand is about to disappear. The consumer is buried in debt. If he pays off that debt he won’t consume as much and that means recession or depression. That will be accompanied by a falling dollar that is about to lose its place as the world’s reserve currency over the next five years. Since the early 1960s we have debauched our currency and we will soon pay the price for exporting our inflation. This denigration of our monetary unit has destroyed our democracy and we are now ruled under corporatist fascism as a result. We are ruled by persons who are not accountable and could care less what we think and desire. Private, domestic and foreign banks control our Fed and our lives. What will hedge funds, foreign central banks and others do when mortgage securities finally start to collapse? They will send them back to the originators of course. That is Fannie and Freddie, the banks and other mortgage lenders. Some banks are already dumping their subprime portfolios and taking some mega losses. The bottom line is there is little reason to be hopeful and the worst is yet to come.
This, of course, is not going to help our economy. It has already reduced GDP by 1%. If you look hard enough and figure out the government’s scams you will see we already are into negative growth. For consumers there will not be strong income growth and asset values are and will continue to fall. Interest rates will have to rise to protect the dollar as foreign investment dries up. That will further impede housing sales and building and mortgage rates rise. We believe that 98% of the other experts have it all wrong. In the meantime the Fed is inundating the world with money and credit. We are now at the place where as Jefferson said, “If private banks were allowed to control the issuance of currency, than they would inevitably deprive people of all property until their children wake up homeless on the continent their fathers conquered.”
Here we are, as we lose are pensions and Medicare and Social Security goes broke. We witnessed the collapse of the stock market seven years ago, and we are about to see it collapse again with bonds, pensions, real estate, credit and the dollar. This collapse will be particularly bad because 69% of Americans own homes. The elitists-Illuminists believe they are in a good ruling spot to implement world government. We have news for them. They will be hanging at the end of a rope for what they have done to us. What we are witnessing has all been planned by the elitists. They deliberately made this happen and there will be payback this time.
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The euro has displaced the dollar as the world’s pre-eminent currency in international bond markets. The value of euro notes in circulation has overtaken the dollar for the first time. Debt issued in the euro was $4.836 billion at the end of 2006, compared with $3.892 billion for the dollar. Euro-denominated debt accounts for 45% of the global market versus 37% for the dollar. As recently as 2002 outstanding euro-denominated issuance was 27% of the global pie versus 51% for the dollar. One of the reasons is that European companies are moving away from their traditional reliance or bank loans and using capital markets. The euro now has a deeper and more liquid market than the dollar, which means in time the reserve status of the dollar could be threatened with extinction. In addition, we have been seeing major diversification away from the dollar in the last two years.
Another factor in the euros favor is interest rate stability. Over the last four years the ECB’s interest rates have only fluctuated by 1.5% and US rates have moved 4.25%. Three years ago the dollar was at parity and today it is about $1.30. The euro is and has been a more attractive currency and will probably continue to be so.
In 2006 the total amount of credit issued set a new record. Debt issuance rose 14.1% YOY to $6.948 trillion. The world economy did not expand 14.1%.
US debt was up 10.1% to $4.085 trillion and accounts for 58.8% of all the credit issued globally last year. That means the US expanded credit at a much faster rate than the economy grew. This was borrowing to maintain a higher standard of living and attempt to pay for it tomorrow. If that money had not been borrowed the economy would have contracted by about $8 trillion. That would have been a GDP contraction of 33%, which would have been a far greater contraction than that experienced during the Great Depression. These facts are extraordinarily important. Were this credit machine fed and controlled by the Federal Reserve to slow down even slightly in its rate of loan issuance and credit extended, the US economy would collapse. This is why the dollar is guaranteed to fall and gold and silver are guaranteed to rise due to the ongoing inflation these events will cause.
This leads us to the recession, which by our calculations began last February. Some recent indicators were third quarter GDP numbers that hung at 1.5% so they had to change them to 2.2%, which is an absurdity; trucking shipments falling in November by almost 9%, the largest YOY decrease in almost six years - two-thirds of manufactured and retail goods are carried by truck. Third quarter inventories rose to $58 billion, the highest level in six years. The ISM manufacturing index has fallen below 50 for the first time since 2003. The US bond market has a net negative return using official figures never mind our numbers. We are going into the 9th month of yield inversion. Don’t believe the media, we are in a recession. This past year has been the first year of economic decent, or the beginning of the beginning. This is like a slow motion recession because credit and money are still expanding at 14%. Debt is still climbing albeit at a decelerating rate. A break in credit will begin late this year and carry into 2008 as the Fed further increases money and credit, which will lead to hyperinflation.
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GOLD, SILVER, PLATINUM, PALADIUM AND DIAMONDS
It could be that in five years the Exchange Traded Funds could be the gold central banks of our next financial age.
As we pointed out on Saturday the COT, Commitment of Traders Report, showed another big reduction in large commercial net short positions. Large commercials reduced their net short exposure by 27% and 70% for the last three months, the largest drop since August 2005. Last Tuesday commercials covered a giant 30,773 Comex shorts. We believe this short covering is a forecast of a move in gold this year to $1,000 an ounce if the past is any indication.
Last week StreetTracks, the largest gold ETF-GLD, fell 4.48 tons to 448.76 tons. The UK’s Lyxok Gold Bullion Securities fell 3.8 tons to 86.49 tons and Barclay’s IAU remained unchanged at 44.45 tons.
The silver ETF-SLV remained unchanged at 3.797 tons. Silver production will not increase in 2007 from 2006 so we believe there is a real floor under silver over this year. The SLV off take was $1.5 billion at $12.70 in eight months. If that figure were to double or more YOY you could see silver shortages develop. That in turn would draw in more speculators, which in turn would send prices higher.
We are very bullish on both gold and silver. We believe another bottom has been put in. Spec shorts haven’t begun as yet to cover. If the commercials start buying it will be a rocket ride. Long-term in both metals is up, up and away.
The world elitist establishment, which planned the destruction of the US economy, has the US political and financial establishment in a position where they do not even want to think about the situation they are facing. They all want to lower interest rates and, of course, if that happens the dollar will go into a tailspin. They know what the Fed is doing with money and credit, and they know we are in recession. On the other hand they cannot even contemplate raising interest rates for political and economic reasons. How’s that for being in a box? They all won’t discuss these issues - almost all of them are incapable of discussing such matters anyway. They see politics as only a path to personal enrichment. As this transpires the rest of the world is raising interest rates. They do not want to end up like the US. They also now realize the US is now economically and financially on its way out. The powerful US has to be turned into a corporatist, fascist tyranny to survive. The dollar will be dead in three years and in five years no longer the world’s reserve currency. This currency was the underpinning for American power. Due to the controlled criminality of both political parties Americans will soon find out your vote is worthless. The prolonged political, economic and financial crisis is upon us. If you do not own gold and silver related assets you are a fool.
There has been very heavy demand for gold coins in Dubai, the main regional source for gold. Most city outlets have no gold coins for sale. The greatest demand is for the 8 grams, or a sovereign, which has been used for hundreds of years as money in dire situations. People are preparing for hard and perhaps violent times.
Chinese citizens have been taking to gold as a significant investment option according to reported figures from the Shanghai Gold Exchange. Last year’s trading volume was 1,250 tons, up 38% yoy. A lot of this is trading but consumption of physical gold is expected to continue to grow sharply. The off take for 2006 is estimated at 340 tons. Country production is estimated at 240 tons. It is expected that off take could reach 600 tons in five years.
On Friday the large Tocom shorts reduced their gold shorts by 2,507 contracts to 116,520. On Monday they cut another hefty slice off their shorts covering 11,042 to total 105,478 contracts. Total Tocom open interest for all gold numbers is 235,293, the lowest in a year. On Friday Goldman covered 380 short gold contracts and on Monday another 2,005 to bring their net short to 31,467. The big shorts increased net shorts in silver on Monday by 451 to 4,462. On Tuesday the XAU lost 1.78 to 132.14 and the HUI lost 3.77 to 315.35.
The ECB reported a 28 million euro fall in consolidated gold holdings due to sales by two member central banks, or 1.8 tons. That is far below the average needed to reach 500 tons on the year, or 9.6 tons a week.
Dubai’s gold exports leaped 23% on Middle East and Indian demand. That is an increase in demand to 274 tons, up from 223 tons in 2005.
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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
-- Posted Wednesday, 17 January 2007 | Digg This Article
