SATURDAY, JANUARY 27, 2007
THE INTERNATIONAL FORECASTER
JANUARY 2007 (#4) Vol. 11 No. 1-4
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
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The week was very volatile for stocks – the Dow and S&P added 0.6% after considerable help from the Working Group on Financial Markets. Nasdaq fell 1.3%. Gold bullion gained $10.90 and the HUI gold index rallied 4.4%. The dollar index gained 0.5% to 85.11. The 2-year government yields rose 5.5 bps to 4.97% and the 10’s rose 10 bps to 4.87%.
Freddie Mac posted the 30-year fixed mortgage up 2 bps to 6.25%; the 15’s were unchanged at 5.98% and the one-year ARMS fell 2 bps to 5.49%. The MBA applications index fell 8.4%. Purchase apps fell 5.2% yoy with dollar volume declining 2.8%. Refi apps dropped 9.6%. The average new purchase mortgage increased to $234,900, up 2.5% yoy, while the average ARM declined to $373,200, up 10.7% yoy.
Bank credit expanded $12.7 billion to a record $8.312 trillion. It was up $782 billion, or 10.4% over 52 weeks. Securities credit added $2.8 billion. Loans and leases rose $10 billion to a record $6.094 trillion. Commercial and industrial loans expanded 12.5% over the past year. Real estate loans were up 14.2% yoy. Consumer loans were up $0.5 billion, while securities loans declined 5.3 billion. Other loans surged $13 billion.
M2 again rocketed up $18.3 billion to a record $7.076 trillion. Narrow money supply rose 5.4% yoy. M2 has expanded at a 7.4% pace over the past 20 weeks.
Money fund assets rose $341 billion yoy, or 16.6% and they have expanded 21% over the past 20 weeks.
Total commercial paper dipped $1.1 billion to $1.994 trillion. Total CP has increased $301 billion, or 17.8% yoy. Total CP has expanded at a 19% pace over the past 20 weeks.
Asset Backed Securities (ABS) issuance slowed this week to $9 billion. YTD it’s up $37 billion, which is behind 2006’s $47 billion.
Fed foreign holdings of Treasury, Agency debt rose $6.9 billion to a record $1.779 trillion. Custody holdings were up $242 billion yoy, or 15.8%. Those are the holdings of foreign central banks.
For the week gold gained 1.7% to $646.20 and silver rose 3.9% to $13.44. Copper rallied 4%, March crude gained $2.13 to $55.53, gasoline rose 5.9% and February natural gas gained 4.8%. The CRB Index gained 1.9%, down 3.7% ytd and the GSCI rose 2.9%, down 4.5% ytd.
Homeowner’s insurance premiums will rise by 25% along the coast this year as a result of the rising cost of homes, higher repair costs and a resent history of severe damage from storms.
Venture Capital Groups pumped $25.8 billion into new companies in 2006, up 8% over 2005.
The commercial property market had another record year in 2006 with investment in 2006 of $643 billion, a jump of 33% yoy. The party should be over by yearend, just ask Sam Zell, the smartest of real estate investors, who just sold out to Blackstone.
California December home sales were down 15% from a year ago. Median prices were up $20,290, or 3.7% to $567,690, a 2-year gain of 20%, the highest level since August. Condo sales fell 18.1% yoy and their median prices fell 2.5% to $420,180.
Home loan defaults in California rose to their highest levels in 8 years in the fourth quarter, or 37,273 default notices, more than double the 15,196 sent a year earlier and up by a third from 27,218 in the third quarter.
Rents for prime downtown office space rose 18.2% on average in 2006 as demand outstripped supply and they could climb 15% this year as building catches up. Vacancies were 12.55%, down from 13.59% yoy.
Due to the sea of money and credit available buyout firms announced a record $739 billion of leveraged buyouts in 2006, almost triple the 2005 total.
Sevket Kazan, Deputy of the Saadet Party of Turkey says that the CIA and Mossad planned and organized the murder of Armenian Turkish journalist Hrant Dink and the murder of a priest in Trabzon in an attempt to destabilize Turkey.
Countrywide Financial, the biggest US mortgage lender is in merger talks with Bank of America. Our question is the company trying to sell near the top or are they in trouble?
Bank of America cannot expand in banking because federal rules won’t allow them to control more than 10% of the nation’s deposits and they already own 9%.
Pulte Homes said it will shut down its 3-year old manufacturing plant in Manassas, VA, that puts 150 workers out of jobs.
COMMODITIES
There are some very diverse figures coming out of the Department of Energy and the American Petroleum Institute. The DOE says that last week crude oil supplies rose 700,000 barrels to stand at 322.2 m/b. That puts supplies up 7.5 m/b/ in two weeks.
API said there was a decline of 832,000 barrels for a total of 321.5 m/b so take your pick.
DOE says distillates rose 700,000 barrels to 142.6 m/b and API says they fell 4.2 m/b to a total of 143.4 m/b.
DOE had gasoline supplies up 4m/b to 220.8 m/b and API had them down 2 m/b to 217.8 m/b.
Refinery utilization declined to 87.4% of capacity from 87.9%.
Gasoline demand rose 2.2% and distillate usage fell 4.1%.
Talk about confusion. What is an analyst to do?
In China the areas planted in wheat fell 27% from 1997 to 2004, which resulted in a production fall of 30%. Rice production fell an equal amount and all grains fell 20%. This is the result of urbanization.
On Thursday nickel extended its 7th record breaking session and tin hit another 20-year high and copper gained 2%.
China’s 2006 refined copper consumption rose 15.4%. Production and demand could be in balance this year.
GOLD, SILVER, PLATINUM, PALADIUM AND DIAMONDS
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Four hours before the Wednesday NY opening gold was off $3.60 and silver held its own. Two hours before Comex opened gold had rallied back to -$1.50, silver was up $0.02 and copper was up $0.03 setting the stage for the day. Comex opened with gold off $3.50 and silver off $0.06 euro was off .0033 and the pound was pounded for .0138.
Gold fell $4.60 then about an hour before the close a rally began that carried gold up $2.40 on the day to $647.10 and silver rose $0.03 to $13.18. The February contract in gold closed at $648.20, up $2.30, silver was up $0.01 to $13.22 and copper rose $0.02 to $2.60. Gold open interest rose a hefty 17,102 contracts to 361,114. The gold suppression cartel had their hands full attempting to keep gold from rocketing. Silver OI rose 1,821 contracts to 108,484. On Tuesday the large Tocom shorts increased their shorts by 5,233 to 103,755. Goldman represented 1,245 of those contracts, took their total short to 31,386. The big silver shorts reduced their shorts by 45 contracts to 4,680.
On Wednesday the Dow rose 88 to 12,622, S&P rose 110 Dow points and Nasdaq rose 216 Dow points. It looks like a strong Thursday opening. Oil was off most of the day but ended up $0.33 to $55.37. Gasoline rose $0.01 to $1.47 and natural gas fell $0.17 to $7.42. The euro fell .0063 to $1.2956 after remaining down all day. The pound fell .0146 to $1.9671 and the Canadian dollar rose .05 to 84.79. The 2-year Treasury not yield was 4.93 and the 10’s yielded 4.81%.
Gold Fields will raise $1.2 billion in a private placement to repay debt from the purchase of South Deep and it will close out more than 1 million ounces of forward gold sales at a loss of $582 million.
On Thursday five hours before the Comex opening gold was trading up $3.20 and silver was up $0.10. An hour later gold was up $4.20 and silver $0.20. At 3-1/2 hours before the opening gold was up $2.80 and silver $0.20. Comex flew into action with gold up $4.20 and silver up $0.25. At noon the gold price had fallen back to a plus $1.60 and silver to a plus $0.18.
The last attack on gold came just prior to the close when gold was off $1.50. That was reversed in the final minutes and gold ended up $1.20 to $648.30, and silver rose $0.18 to $13.36. The February gold contract closed off $0.10 at $648.10, silver up $0.02 to $13.49 and copper jumped $0.05 to $2.65. The dollar was stronger and oil was weak so gold had to make its own way without help. Gold open interest rose 1,009 contracts to 362,123, while silver OI gained 832 contracts to 109,316. The large Tocom shorts on Wednesday reduced their short position by a major 7,964 contracts to 95,791. Goldman covered 2,092 of these to net 29,284, which is close to the lowest short in a year. Something big is happening. The big players also reduced their silver shorts by 204 to 4,476. The XAU lost 1.72 to 137.57 and the HUI sunk 3.67 to 330.98.
The Dow finished Thursday off 119 to 12,503, the S&P fell 150 Dow points and Nasdaq fell 192 Dow points. Oil fell $1.14 to $54.23, gas fell $0.02 to $1.45 and natural gas fell $0.52 to $6.91. The euro fell .0043 to $1.2923, the pound fell .0048 to $1.9632, the Canadian dollar fell .20 to 84.62 and the dollar index rose .21 to 82.95. The 2-year Treasury bill yield rose again to 4.97% and the 10’s reached a recent high of 4.87%.
State Street Global Advisors and the World Gold Council announced that StreetTracks would trade on the Bolsa Mexicana de Valores SA. This will allow investors to diversify their portfolios with exposure to gold bullion. We expect this will be a very popular vehicle.
The IMF says, “At this time the IMF has not adopted any new accounting changes for the recording of gold loans. A review is taking place in the context of the update of the Fifth edition of the IMF’s Balance of Payments Manual and has involved experts from the fund, other international agencies, and a number of member countries.” The manual regulates how reporting should be handled across a large spectrum of issues, which includes gold swaps and loans.
Blanchard CEO Donald Doyle said the newly adopted change means that central banks will no longer include the amount of gold they have loaned and sold into the market as part of their reserve total assets.
The IMF says the decision has not as yet been made. It will be April before we know what has been decided.
After these comments the odds are there will be no changes and the central banks will hide their sales and ghost report their gold loans.
On Friday, three hours prior to the Comex opening gold was off $4.70, silver $0.21 and copper $0.04. The FTSE was off 30 Dow points, the CAC in Paris 45 Dow points and the DAX in Frankfurt 30 Dow points. Oil was up $0.34 and the euro was off .0034 and the pound .0054. At the Comex opening gold was off $3.20, silver $0.10 and copper off $0.04. Two hours into the session the dollar was up .15 at 85.26 on the dollar index, gold was off but $0.03, silver off $0.01 and copper off $0.04.
Gold faded in the last hour of trade to end up off $3.70 at $644.60 and silver finally fell $0.10 to $13.26. The February contract for gold fell $3.40 to $644.70, silver fell $0.12 to $13.38 and copper lost $0.02 to $2.64. Gold open interest rose 3,527 contracts to 365,650. The specs have run the long side up to the multi-decade high made last year. This has made the gold suppression cartel’s work very difficult. Silver OI rose 1,556 contracts to 110,872. The COT report shows large specs increased longs by 19,077 contracts and reduced shorts by 2,474 on the equivalent of a net 21,551 to the long side. The commercials reduced longs by 4,274 and increased shorts by 22,198 or a total short side commitment of 26,468. The commercials are back in action on the short side, which tells us that upside action from here on out will be laborious. On Thursday the large Tocom shorts increased shorts by only 276 contracts to 96,062. Goldman increased shorts b y 1,318 to 30,602. The members reduced their silver short by 219 to 4,257. The XAU gained .21 to 137.78 and the HUI rose 1.52 to 332.50.
On Friday the Dow should have been off 70 points, it was off 65 and then we had another miracle. The Dow closed off 16 at 12,487. S&P lost 16 Dow points and Nasdaq gained 8 Dow points. Oil was up $1.19 to $55.42, gas rose $0.04 to $1.48 and natural gas rose $0.27 to $7.18. The euro fell .0032 to $1.2909, the pound fell .0088 to $1.9589, the Canadian dollar fell .19 to 84.76 and the dollar index rose .16 to 85.11. The 2-year Treasury bill’s yield was 4.97% and the 10’s were 4.88%.
Russian gold output fell by 2.2% to 164.32 tons last year from 168.06 tons in 2005, due to lower output from placer deposits.
