-- Posted Sunday, 21 January 2007 | Digg This Article
SATURDAY, JANUARY 20, 2007
THE INTERNATIONAL FORECASTER
JANUARY 2007 (#3) Vol. 11 No. 1-3
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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NEXT ISSUE OF THE IF (MidWeek January 24, 2007)
US MARKETS
We certainly do not buy a soft landing for the economy and the housing market. Although the fall can be prolonged by dropping interest rates ¾% this year, but the flip side is higher inflation and gold and silver prices and a much lower dollar. That is a test of $1.3666 euros and 78.33 to 80 on the dollar index. The intermediate to long-term direction is set no matter what the elitists do.
Housing sales continue to fall as inventory builds and that eventually means lower prices for residential real estate. Once speculators and others finally realize they are beating a dead horse they will give up and finally take what they can get for their properties. Energy cost reduction will help the consumer but not enough to change things radically. The boom in housing has been totally artificial. The product of ridiculously low interest rates and criminally loose lending standards. The impact of lower housing prices affects 69% of the population, not 45% as a fall in equities would. Housing will fall from its own weight.
You see the inverted yield curve that we’ve so often talked about, it is now 8 months old and this situation whenever it has occurred since 1950 has been followed by recession. There were two minor exceptions, but the chance for recession is already with us. It began last February. Any recession will be accompanied by a correction in the stock market, probably to 7,286 or the 2002 low and perhaps even lower. Those who believe the rest of the world will avoid recession are mistaken. We go, they all go, and that includes China, which has a capital investment bubble and a banking system with over $1 trillion in bad debt. A recession in China would be a fall to 5% growth.
Due to massive world liquidity interest rates and mortgage rates have been artificially subdued and that makes it difficult for the Fed to lower interest rates from 4.75% on the Ten-year Treasury note. Once the real estate correction takes place then interest rates, set by the Fed, will fall from 5-1/4% to 3%. That cannot happen until real estate falls 30% more and the recession is very obviously underway. The dollar has to correct as well and it cannot bottom until the recession bottoms. In this context base metal commodities have corrected some 30%. We could see a further correction, but not until the foregoing takes place.
In the coming year most forecasters will again be wrong. We hope we are fortunate enough to be on the correct side again.
India is willing to pay a higher price for extra quantities of liquefied natural gas from Iran if the latter honors an existing contract for five million tons. That will surely send Washington’s neocons and Israeli’s fascists into fits. This while the US, UK and the Saudi’s are pushing down oil prices to put economic pressure on Iran, Venezuela and Russia.
The Treasury Department has reported to Congress that a data-collection program to spy on Americans so counterterrorism analysts can routinely access as many as 500 million cross-border financial transactions a year, can not be implement until 2010. Treasury says the program is technologically feasible and has value, but said it needs to determine whether the counterterrorism benefit outweighs banks’ costs of compliance and to address privacy considerations.
If you can believe it bankers oppose the program, they say it is burdensome and invasive.
Unlike another Treasury program, which uses administrative powers that bypass traditional banking privacy protections to tap into the most global database of transactions maintained by Swift Bank, the cross-border plan is the result of legislation sought by the Treasury and would require congressional oversight.
Banks and money services are required by law to keep records of all wire transfers of $3,000 or more. The proposed program would mandate that each of those transactions, if they cross the US border, be reported to the Treasury Department’s Financial Crimes Enforcement Network (FINCEN).
The type of data captured would include the names and addresses of senders, amount and dates of transfers, and the names and addresses of beneficiaries and their financial institutions.
Bankers say this would be very expensive and burdensome. This is a total violation of privacy and a giant fishing expedition. This has no security benefit. It is set up to snoop on American and foreign individuals and businesses. They cannot possibly filter 500 million cross-border transactions a year for terrorists. Foreign countries are up in arms, due to violations of their privacy laws.
FINCEN has proposed a $1.1 million cost analysis. Implementation would cost $32.6 million and take 3-1/2 years. Our corporatist fascist police state marches on.
Colorado had the highest rate of residential foreclosures in December, that is 9-months in first place last year. Nevada won in November. Colorado had one new foreclosure filing for each 376 households. It is very concerning because the state hasn’t had the price appreciation of the 30 hot markets. People are in trouble because of Mickey Mouse tactics by real estate agents, appraisers and lenders.
There were 109,652 houses nationally at some stage of foreclosure in December, off 9% from November. The national foreclosure rate is one for every 1,055 US households.
The MBA says the volume of applications for both refinancings and purchase loans was up 9.8% versus a week ago. Apps to buy fell 7% week-on-week, and were off 1% yoy. Home sales through November fell 11% yoy. Refis increased 6.3% and were up 24% yoy. Refinancings accounted for 49.9% of loan applications, up from 48.4% the prior week, the highest share in five weeks. The 30-year fixed rate loan was 6.19%, up 3 bps, the 15’s were 5.92%, up from 5.85% and the one-year ARMS were 5.85%, up from 5.79%. ARMS accounted for 21.2% of loan applications; up from a 3-1/2 year low of 20.1%. The MBA has projected the 30-year fixed rate loan would rise to 6.5% by the end of 2007, and that sales of new and existing loans would fall.
Fannie Mae says sales of new homes are expected to drop 7.1% in 2007, while existing home sales should drop 8.1%. The two-year drop in sales during 2006 and 2007 will be the largest since 1989-91. They expect home prices to fall only 2% in 2007. What can they be smoking? Fannie is projecting a decline of 11.2% in purchase originations.
One of our shorts, Lennar, has reported a quarterly loss of $195.6 million of which $111.1 million were deposit write-offs. The homebuilder lost $1.24 a share versus a gain of $3.54 a share a year ago.
Ken-McGee Corp. cheated the US taxpayers out of royalties by selling oil at below market prices, a lawyer for a former Interior Department auditor said at the start of a federal trial. Bobby Maxwell claims the company knowingly sold oil produced in the Gulf of Mexico between 1999-2002 at reduced rates to Texon, which then absorbed most of Kerr McGee’s marketing costs. The culture of corporate crime continues.
Monthly capital flows to the US rose in November as private investors bought bigger amounts of Treasury bonds, notes and corporate bonds.
The capital flows rose to $74.9 billion from $60.4 billion in October. Of the total $65.8 billion was purchased by private investors and $9.1 billion by government institutions. Net long-term capital inflows meanwhile fell to $68.4 billion in November from $85.3 billion in October. Private investors bought $101 billion in long-term securities in November compared with $78.9 billion in October. They bought $26 billion in Treasury bonds and notes tripling the amount they bought in October.
US investors bought $39.1 billion up from $18.9 billion in October. The narrowing of interest rate differentials should reduce relative attractiveness of US assets, putting downward pressure on the dollar.
Japan’s holdings of US Treasuries fell in November to $637.4 billion from $639.6 billion at the end of October. China increased Treasury ownership to $346.5 billion, up from $345 billion in October. Including non-market flows, such as stock swaps and principal repayment on asset-backed securities, net foreign purchases were $58 billion, down from $74.9 billion.
December industrial production rose 0.4%, following a 0.1% November drop. Capacity utilization rose to 81.8% from 81.6%.
The January Housing Market Index was 35, up from 33. This is the same group that missed the top of the housing market by two years.
Goldman Sachs was again critical saying the Fed will have to cut interest rates ¾% in 2007 because Americans have a complete lack of self-control with the personal savings rate in negative territory since April 2005. Americans believe rising house prices are recurring income as they use home equity withdrawals to subsidize over-stretched lifestyles.
Lenders to subprime borrowers are finally tightening up and loans are getting harder to get. Loan programs that were 5% down are now becoming 10% down. Other changes are higher credit scores. Previously, borrowers with a FICO credit score as low as 570 out of an 850 could qualify for loan financing 100% of their home purchase, now it is 600 for an 80/20 loan. Rates on subprime loans have risen 1% since September, while regular mortgage rates have been relatively steady. There are also stringent savings requirements. They want to see borrowers have at least three months of reserves in their account in case of an emergency. They want to see it in your bank account for at least 60 days. Home prices have been falling in many parts of the country and the safety net of rising prices has been eliminated. With interest rates rising, borrowers with ARMS are facing higher monthly payments.
Increases in delinquency rates were noticeably larger for subprime loans, particularly for subprime ARMS. Loan officers want to close the deal – they are not interested in whether the loan is suitable. Many subprime lenders are now going out of business.
It now means if you want to buy a house you need to start out the old fashioned way, by saving money. It also means raising your credit rating. This means home sales will fall 50% and stay that way for a long time to come.
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GOLD, SILVER, PLATINUM, PALADIUM AND DIAMONDS
On Wednesday after visiting $620, after the Comex opening, gold was up all day as was silver. Gold finished up $7.10 to $632.10 and silver rose $0.25 to $12.78. The February gold contract rose $7.40 to $633.30, silver rose $0.17 to $12.89 and copper fell $0.01 to $2.57. Gold open interest rose 944 contracts to 344,685 and silver OI fell 433 contracts to 101,830. On Tuesday the big Tocom shorts cut their net shorts by 8,197 contracts again to total 97,281. This is almost at the low for the last year. Open interest overall on the Tocom hit a new low of 231,279. Goldman covered 1,601 shorts to bring their total to 29,869. They have covered a large 3,600 in just two trading sessions. The big silver shorts reduced their net short position by 615 contracts to 3,847. The XAU on Wednesday rose .72 to 132.86 and the HUI gained 1.77 to 318.12.
The Dow ended Wednesday off 5 points to 12,577, S&P fell 12 Dow points and Nasdaq fell 110 Dow equivalent points. Oil rose $1.03 to $52.24 as professionals in Washington and on Wall Street are finally getting the message, and that is, the fall in oil is another manipulation, another rig job. Gas rose $0.01 to $1.38 and natural gas fell $0.40 to $6.23. The euro rose .0017 to $1.2933 after having been up .0050. The pound rose .0085 to $1.9690 after having been up .0101. The Canadian dollar rose .46 to $85.24 and the dollar index fell .09 to 84.76. The 2-year Treasury note yield rose to 4.91% and the 10-year was up to 4.78%.
In the final analysis the physical gold market will prevail. The pros and manipulators can use their futures, options and other derivatives, but in the end the physical market will prevail. You are witnessing the greatest transfer of wealthy in the history of the world. You are going to see the biggest financial collapse in history. This is the key factor. The value of the dollar is, of course, important, as is inflation, the financial state of the US and other economies, oil and crisis. Physical gold overrides them all.
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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 Sunday, 21 January 2007 | Digg This Article
