SATURDAY, February 24, 2007

THE INTERNATIONAL FORECASTER

   FEBRUARY 2007 (#3) Vol. 11 No. 2-3

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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US MARKETS

The average American, the rank and file, told USA Today/Gallup that 63% of them believed that free trade mostly hurts US workers. Some on the Hill are calling for wage insurance, which provides income as displaced workers transition toward new careers. Why should our government, the American taxpayer, subsidize work transition from a job making $31.50 an hour to $10-$12 an hour, while international elitists walk away with all the profits and benefits. Rescinding China’s Permanent Normal Trade Relations status is a good idea from a currency manipulation standpoint, but let’s not go and do half the job, let’s cut status for all the unfair traders. Let’s cut to the chase, let’s have tariffs legislation on all foreign exporters.

Reps. Duncan Hunter (R-CA), who is running for president and Tim Ryan (D-OH), have presented the Fair Currency Act of 2007, classifies China as a currency manipulator in violation of US trade law, and they are right, but let’s go after all the violators and that is just about everyone else.

All this is going on and George and the neocons are trying to build support for so-called “fast track” authority to negotiate new agreements to expand trade. This in spite of the fact that free trade is destroying our country.

Alan Tonelson of the US Business Industry Council says, “We need to declare a moratorium on new trade agreements until we figure out how to do this right.” It seems they are losing too many members. Some economists have the gall to tell us the deficit is not a sign of economic decline. If it isn’t what is it? An adjustment to economic and financial oblivion. The deficit is unsustainable. What happens if other central banks stopped funding our profligacy? We saw investors fleeing the scene last month. If that persists for three months then it will all be up to the foreign central banks to carry the whole load. If the US changes trade policy we can expect a much lower dollar. The deficit is just one of the symptoms of an unfair free trade policy that allows transnational companies economic incentives and political clout to find ever cheaper ways of producing goods overseas. It is pretty simple - the scheme allows inexpensive imports to flow into our country replacing US-made products and workers. The result has been the decent of the American worker and the American family, and the destruction of our culture. The transnational conglomerates have allowed our people to become semi-slave labor. If it weren’t for credit cards, home equity loans, and mortgage cash outs consumer purchases would be dead in the water. Free trade is and was meant to destabilize our economy.

That beauty called NAFTA has cost us one million jobs and has put 20 to 30 million illegal aliens into our country, because it drove uneducated formers off the land and offered work for the Mexicans thrown out of jobs in Mexico into the US making more money than they ever dreamed of. Who could blame them for wanting work and higher wages? The trade deficit from 1993 to 2004 soared by $107.3 billion, a nearly 7-fold increase. NAFTA is bad for America, Mexico and Canada and the WTO is worse – much worse. They want to overrule our Constitution, courts and remove our sovereignty. International corporations have been allowed to run rampant. This is why a first step would be to repeal the president’s fast track authority. This allows the president to negotiate trade agreements without congressional commentary. The president submits the proposed deal for an up-or-down congressional vote, barring lawmakers from amending the agreement.

The trade deficit will be paid by our children and grandchildren and a continuation of free trade and globalization will destroy us.

Now we have health insurance companies using a bold data-running trick. You’ll receive a phone call from someone who will claim to be working with or for your health insurance company. They will have 20 minutes of questions for you to answer, which will pry deeply into your personal life. If you get such a call refuse to answer and do not allow them to intimidate you. This is part of the new world order attempt to find out everything they can about you. You can expect the first question to what is your height & weight. If you are overweight you are more likely to have physical problems.

Two large private-equity takeover schemes speculating on the price of housing, one in New York and the other in Dresden, Germany, are threatening to blow up, one on the direction of junk bonds, and the other in an IPO on the NYSE and Frankfurt stock markets. Their failure could start a default chain in the huge global bubble of takeover debt. The IPO Fortress is raising $650 million. The offering is based on the hedge fund’s large-scale holdings of apartments in German cities, which it bought up from municipalities and real estate firms. Some 600,000 apartments have been privatized, while still 3.3 million that are the residences of 10 million Germans remain owned by governments. Fortress is run by ex-bankers from Goldman Sachs and Lehman Bros., and claims to have $30 billion in assets. A good part of this inventory is in the impoverished city of Dresden, which sold all its 48,000 apartments for $1.2 billion. 45,000 tenants protested the sale. Real estate conditions in Dresden are bleak. The city has 15% unemployment and 40,000 vacant housing units. Many residents are paying no rent, because they have no significant income. Fortress cannot turn the apartments into condos under the buyout contract.

The underwriting is for a market value that is 17.4 times gross annual rent. This is unheard of. Normally it would be 8 to 9 times and occasionally up to 12. The IPO has a plan to have new investors pay debt charges of the previous investors’ capital, which is a Ponzi-type scheme.

Overall hedge funds have created $3 to $14 of bank debt for every dollar they invested. These funds were supposed to be for wealthy investors, but now pension funds and individual investors are buying in.

In another large deal 12,000 apartments of Peter Cooper Village and Stuyvesant Town, the only remaining middle-class housing left in Manhattan’s hyper-priced real estate market, were bought up in October by Tischman Speyer Realty and Black Rock Partners, which has $1 trillion in speculative capital. The apartments were of excellent quality and had controlled rents. MetLife sold them without consulting NYC government, which knew exactly what was going on. We wonder if the city got paid for their part? They helped finance the project 60 years ago.

By January, three months after purchase, units in 2,000 of the 12,000 apartments had their rents raised by 1/3^rd, because there was so much leverage that increases in rents were necessary to pay debt. The deal violated a 1992 NY State law that prohibited owners from removing apartments from under rent control without municipal approval. If the courts uphold the law, these units purchased by Tischman, who obviously planned these rent increases in violation of the law, then the deal will have to be undone and Tishman could go into default.

When these hedge funds get hit it is the banks that suffer as well, because they are the lenders of the funds so amply supplied by the Fed. There are now moves being made by the Fed and its equal member in Germany to see which banks have the heaviest exposure. We could have serious problems on the horizon if either of these funds goes under. It could threaten the world financial system.

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GOLD, SILVER, PLATINUM, PALADIUM AND DIAMONDS

Monday US markets were closed. The London second fixing was up closing at $670.50 and the access market had gold at $672.40 and silver up $0.03.

Some in the gold camp believe that the next leg of the gold price will likely say more about the under-pricing of risk than the traditional drivers of gold such as inflation, deflation or geopolitical events. Gold is rising against economically sensitive commodities that signify that a general reappraisal of risk is underway.

While this transpires there has been no increase in premiums on market risk insurance. They do not see what we see. In addition, consumers have no savings and are in debt up to their eyeballs, which means there can be no consumer recovery. If anything we see the opposite. Derivatives are reaching $400 trillion. The worldwide GDP is $43 trillion and the US GDP is $12 trillion by way of comparison. Risk, endless risk, is the name of today’s game and sooner or later their leverage will become a colossal problem.

On Tuesday, we saw a combination of derivatives selling in London and physical selling in New York as gold was slammed by the suppression cartel. They waited for a decrease in physical demand brought about by the Chinese/Taiwanese holidays, which will negatively impact gold all week. Our hope is that the physical demand hiatus does not enable the cartel to cause gold to break below $650. We don’t believe it will, but it is possible. An important question is why did the physical gold bulls not follow up and trap the shorts. We will soon find out. With that, on Tuesday gold closed off $11.00 at $657.50 and silver fell $0.14 to $13.81. April gold was off $11.80 to $661.00, silver fell $0.16 to $13.83 and copper fell $0.06 to $2.60. This was another orchestrated takedown by the cartel. You could see it coming with the suppression of the gold and silver shares this past week. We will win, but as you can see the market is a complete fraud. There is continual insider trading but the SEC looks the other way. Open Comex interest rose 7,770 contracts to 399,591, which means there has to be massive shorting, major use of derivative puts and major bullion selling. Silver had a strong day even though it fell on the day. Silver open interest rose 329 contracts to 126,485.

Last week a combination of Comex and CBOT trading speculators added 2.4 million ounces to complete a net long position of 19.69 million ounces. That is the highest since 12/05. Over the past five weeks specs have added more than 10 million ounces. On Friday, the big Tocom gold shorts increased their shorts by 862 to 117,104. In the meantime Goldman covered 1,030 contracts taking net shorts to 31,522. On Monday, Goldman finally opened up, increasing their shorts by 2,821 to 34,343 contracts. That means the cartel is throwing in everything but the kitchen sink. In silver, the big shorts reduced their position by 21 contracts to 4,148. The XAU fell 2.51 to 139.33 and the HUI fell 8.18 to 338.91.

Kitco silver one-month lease rate was zero. Barclay’s offered 130 million ounces at market. That is called market manipulation.

This past week the ECB reported two banks sold 5.8 tons versus 4.51 tons the prior week. That is the highest sale this year. They need to sell 9.6 tons weekly to reach quota. 

It is expected that India may import 880 tons of gold in 2007 or about 1/3^rd of world production.

Tuesday’s Dow had been off 60 points, but the cartel again brought it back to close up 19 to 12,787, S&P rose 37 Dow points and Nasdaq rose 102 Dow points. Oil fell $1.32 to $58.07, gas rose $0.04 to $1.65 and natural gas rose $0.08 to $7.59. The euro slipped .0011 to $1.3138, the pound rose .0047 to $1.9548, the Canadian dollar fell .48 to 85.40 and the dollar index rose .02 to 84.07. The 2-year Treasury yield fell to 4.82% and the 10’s were 4.68%.

On Wednesday, three hours before the US opening gold was up $0.80, silver was down $0.09 and copper had fallen to $2.58, off $0.02. The Bank of Japan had increased interest rates ¼% to ½%, which means the yen carry trade will be phased out as the yen increases in value versus other currencies. That is probably part of the reason commodities have been soft over the past two weeks. It is believed some of those borrowed funds were used to speculate in commodities and perhaps in gold and silver. It is more likely that those speculative funds were used in stock and bond markets worldwide. After Comex and CBOT opened gold started to move higher as the CPI rose 0.2% in January and core rose 0.3%. That sent gold and silver higher and 1-1/2 hours into the session gold was up $4.00, silver $0.06 and copper $0.02.

Three and one half hours into the Wednesday session gold was up $10.20, silver up $0.15 and copper up $0.03.

Wednesday gold and silver finished with a flourish. Gold rose $22.00 to $679.50 and silver leaped $0.45 to $14.26. The April gold contract closed at $684.00, up $23.00, silver rose $0.44 to $14.27 and copper was up $0.06 to $2.66. This was one of the biggest days for gold and silver for many years. The shorts and derivatives couldn’t overwhelm the market any further after Tuesday. They had sold as much as they could and today the physical buyers came in and again they were overwhelmed. The shorts and puts players of all types are buried and it is going to get much worse. As you can see there is going to be billions of dollars made in these two markets. We just saw a lesson in why desperate people do desperate things. We told you a month ago something big was in the wind, and we will soon be proven right. In addition, as we have said over and over, the central banks either do not have the gold left to stop gold’s upward momentum, or they are afraid to sell any more. If their efforts to implement a world currency doesn’t work they could spend the rest of their lives in jail or on a gallows.

We are looking at a breakaway and its technically and fundamentally sound. No gaps to fill. It is up, up and away. Needless to say, it was a good day for shares, the XAU rose 5.18 to 144.91 and the HUI jumped 15.47 to 354.57. Technically the HUI has broken out on the upside and the shares are way behind bullion. They are very under priced.

On Tocom on Tuesday the big gold shorts, who are late to the party on the short side, added 1.143 contracts to total 125,128. Goldman increased their shorts by 2,821 contracts to 33,927. The same gang increased their net silver shorts by 95 to 4,874.

The Dow ended Wednesday down 48 to 12,738; S&P fell 20 Dow points and Nasdaq 33 Dow points. Oil rose $1.22 to $60.07 after spending much of the morning off $0.50. Gasoline rose $0.06 to $1.70 and natural gas rose $0.06 to $7.65. The euro fell .0004 to $1.3138, the pound fell .0011 to $1.9541; the Canadian dollar rose .78 to 86.18. The 2-year Treasury bill’s yield was up 4.84% and the 10’s were 4.6%, which is a very large inversion.

Thursday started with a little profit taking, gold was off $1.60, silver $0.01 and copper was up $0.02. After the first hour of Comex trading, gold was off $1.80, silver was off $0.01 and copper was up $0.09. After 1-1/2 hours gold was off $4.50, silver $0.09 and copper was up $0.09. We did not see much short covering either yesterday or today as open interest rose 9,250 contracts to 405,365. That means the gold suppression cartel and their minions are still heavily short. Let’s hope the physical buyers stick it to them. There are big physical buyers in the market. Gold refused to back off today, which it should have. We are facing something very powerful to the upside. Let’s hope the shorts do not panic until we pass $730. We then have an immediate shot at $850. Let it be known that yesterday and today were two of the most important days in years for both gold and silver. Silver’s open interest rose as well rising 2,274 contracts to 129,306. The base metals, softs and beans had a powerful day along with the energy complex. They kept on trying to push oil and gasoline down and just couldn’t do it. Gold closed down $0.30 to $679.20 and silver fell $0.04 to $14.22. The April gold contract closed at $683.00, off $1.00, silver fell $0.02 to $14.25 and copper had a big day up $0.11 to $2.78. There are many major buyers in the market. Professionals, governments and we are told the Chinese via intermediataries. China and Taiwan open again on Monday after holidays and that should give the gold market some additional zip. This will supply additional pressure on the paper short and the derivative buyers. It will be like the bulls running through the streets of Pamplona in Spain with the cartel running in front of this trying to save themselves and their fortunes. Zbig and Henry the K will be leading the pack. The big Tocom shorts on Wednesday increased their net shorts by 13,410, which is enormous ending at 138,538. Goldman’s part of that was 2,149 to 36,076. They all are obviously on the cartel payroll. We won’t learn a lot from tomorrow’s COT figures, except how short the commercials are. It is next week’s numbers that will tell the tale. The XAU went up .22 to 145.13 and the HUI gained 1.77 to 356.34.

Thursday the Dow fell 52 to 12,686, S&P fell 12 Dow points and Nasdaq was plus 41 Dow points. Oil was up $0.88 at $60.95, gas was $1.76 up $0.05 and natural gas was up $0.08 at $7.73. The euro fell .0013 to $1.3122, the pound rose .0031 to $1.9563 and the Canadian dollar fell .05 to 86.14. The 2-year Treasury bill yield rose to 4.86% and the 10’s were 4.73%.

In Barrick’s latest statement cash costs were $287 per ounce, but cash flow was reduced $327 million or $0.37 a share, as a result of a gold hedge reduction of 1 million ounces in the fourth quarter. They also declared hedge losses of $564 million in the first quarter and $65 million in the second quarter.

We find it of interest that Brink’s Global services announced that they would no longer vault gold for Internet gold services. They will continue to vault for banks and commodity exchanges. They can use money laundering as an excuse but it won’t wash. Our government wants e-gold services out of business. They want the dumb bunnies to buy the ETF’s so the gold will be easily available for confiscation. In addition the stock, coin buyers and e-gold buyers will stupidly by e-gold. That makes the coin and share market soft and leaves investors as pigeons for confiscation.

Any of you subscribers who have the gold and silver ETF’s had best take some notice of the massively under priced numismatic coins, gold producers and exploration stocks. In the ETF’s you are looking at one-to-one leverage as you are in bullion. We are only $170 away from $850 gold and the MS64 St. Gaudens $20 gold piece is selling at a 1/5^th of what it was in 1980. There are giant upsides here.

Overnight Friday gold was off $5.20. Three hours prior to the NY opening it was off $1.90, silver was up $0.04 and copper was up $0.04. What is happening here is that the commercials are heavily short and the physical longs are so relentless that they cannot drive prices down to cover. The huge short positions make both metals wildly bullish. In the pits it is - every man for himself - and we can assure you once $730 breaks panic will ensue. You can also rest assured that the buyers are watching the gold lease rates very closely and if they drop they will wait for the correction and buy more. Let’s hope the commercials do not realize how buried they are and that they add more shorts.

Silver led the way all day having been up $0.45 at one point, but persistent selling moderated its gain. Again there is massive physical accumulation in both gold and silver. Gold finished strong at the end of the day, up $3.70 to $682.90 after having been down as much as $6.00 in Tokyo hours before. Silver finished up $0.27 to $14.49. The April gold contract finished at $686.70 and $3.70, silver jumped $0.35 to $14.60. Copper had another splendid day, up $0.08 to $2.85. The gold open interest rose 611 contracts to 405,976. Silver contracts fell 3,695 to 125,611.Sources say the Saudis were very active in silver and gold in London. We again got lots of help with copper up 9.2%; zinc up 3.4%; lead up 3.2%; aluminum up 1.45% and nickel up 3.43%. Corn broke out technically to the upside. On Thursday the big Tocom shorts reduced their net short position by 2,363 contracts to 136,175. Goldman covered 413 to 35,663. The big silver shorts reduced their net shorts by 342 contracts to 4,447. In all it was the best week in gold and silver in many years.

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-- Posted Sunday, 25 February 2007 | Digg This Article