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International Forecaster MidWeek Reading - Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster



-- Posted Wednesday, 7 March 2007 | Digg This ArticleDigg It!

The following are some snippets from the most recent issue of the International Forecaster.  For the full 21 page MidWeek Reading, please see subscription information below.

WEDNESDAY MARCH 7, 2007

MID WEEK ISSUE

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

E-mail Address

International_forecaster@yahoo.com

CHECK OUT OUR WEBSITE

www.theinternationalforecaster.com

 

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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.

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Note:  We publish twice a month by surface mail or twice a week by E-mail. international_forecaster@yahoo.com

 

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US MARKETS

 

In the previous issue we made a number of parallels to previous stock market corrections. The timeframes were similar having had warning corrections in the March-April timeframe, a summer rally and a devastating correction in the fall. Today’s market looks somewhat similar to all of them – it’s just that today we have the “Working Group on Financial Markets” to supposedly save us from oblivion. The present break in the market that has been four years in the making we believe most resembles that of 1929, due to similar financial conditions.

 

The trillion dollar unregulated hedge fund industry and private equity groups continue to attract massive amounts of funds as the trusts did in the 1920s. Unregulated derivatives are in demand, particularly by commercial banks, pension funds and insurance companies, some $380 trillion worth. We did not have derivatives in 1929, but we did have 90% margin whereas we have 50% margin today, which currently is at an all-time high. Then we have had an increase in money and credit by the Fed and other credit creators that has grown 14% annually for four years. We also have a sea of money floating around the world as the Fed is assisted in this monetary creation by other central banks and then we also have a lending bubble in real estate that is coming apart. The excessive creation of money and credit, known as monetary aggregates, by the Fed and other monetary authorities is most similar to the 1920s. In 1933, during the depression, the gold standard was abandoned. We again departed that standard on August 15, 1971, leaving our nation with fiat money.

 

In the 1920s, we saw over-expansion of investment in plant and equipment, which increased capacity to a market that eventually slowed to a crawl.  That is emulated by China today. Corporate money today is being poured into stock buybacks instead of new capital equipment and research and development. Today’s call is for shareholder value so that executives can become mega wealthy on stock options.

 

We do not believe the Fed will reign in credit as they did in 1927, which brought about the depression. The Fed and other central banks will continue to increase money and credit as long as there are borrowers – no matter what the consequences, because they know constriction doesn’t solve the problem. Thus, we expect that aggregate creation will soon be 20%, up from today’s 14%. If we had to match a timeframe for today, it would be 1928-1929. Today business conditions are deteriorating for different reasons, but the final result will be the same. We have entered recession and mortgage lending is coming unglued as it began to do in 1928. Mortgages at that time were generally interest-only. What makes today’s slope more slippery is personal credit card debt that did not exist in those days.

 

Similar to the 1920s is the rise of protectionist sentiment driven by free trade and globalization that is a problem. Tariffs in the early 1930s only rose up to 5%, which was not significant at the time, nor were increased tariffs the reason for the depression. The culprit was the Fed’s tight money policy, which they later tried to reverse, but it was too late. This time there will be far higher tariffs because America has lost over 50% of its industrial base in just 15 years. Tariffs to third and second world countries will range from 5% to 500%. If they are not raised there will be no way for America to financially survive. Tariffs also have to be applied to services as well.

 

As we said, when the Fed finally increased lending to banks the damage was already done.

 

This time the raising of tariffs is a must due to the terrible damage already done to the US economy. The effect will not aggravate to any degree imports, because the economy will be contracting on its own due to Fed policies. In order to regain its footing and part of its lost industrialized economy it’s a necessity. Most people we have ever talked to have it wrong on free trade. Free trade and globalization can never be allowed. We had the same problem in 1776 as we do now. Cheap goods from slave labor countries that we can never hope to compete with. Part of what made America successful was fair trade and that is what we have to return too.

 

...

 

GOLD

 

On Monday, it was like a bloodbath. The only thing relatively strong was gold. In the access market last night the cartel had it down $20.00, but three hours prior to the US opening, gold was off only $3.60, silver was off $0.26 and copper had fallen $0.05. Oil was down $1.07, gas $0.04 and natural gas -$0.04. The Dow was off 120, S&P 100 Dow points and Nasdaq 96 Dow points. The euro was off $.0093 to $1.3090, the pound $.0219 at $1.9214 and the yen was up again, killing those in the carry trade up $.0128. The FTSE was off 170 Dow points, the Nikkei Dow was off 576 points, the CAC in Paris was off 94 and the DAX in Frankfurt was off 134 points. It is our belief that the central banks are letting the exchanges run their natural course. That is sending scared money into the bond market driving yields down, which will make mortgages cheaper thereby helping the economy and the real estate market. The flipside of that is that the dollar is being supported in a big way and other major currencies are being sold. Pressure is still being applied to gold, silver and commodities. We do not believe their game will work. Gold is showing signs of strength and they cannot hold up the dollar for more than a few days. The margin selling should be completed this week and that should take pressure off stocks and yields will rise again. We presently see the two-year Treasury bill yield at 4.48% and the 10-year notes at 4.47%. Still in inversion, but a far cry from a negative 15 bps spread. We believe the inflow by foreign central banks into Treasuries and agencies for last week will be as bad as the previous week and the foreign dollar asset owners will have been big sellers and that will not allow the US government to cover its $3.4 billion or $72 billion monthly balance of payments deficit and this week’s figures, which come out next week will be worse. That means the dollar will fall again and gold and silver will flatten out and rise again. At this time the dollar index is 84.13, up .39.

 

Monday’s one-year gold lease rates fell .04% to .10%, which is the same as one-month lease rates. We don’t believe the rate is low enough yet to be threatening. You probably need to see .04% to .02% and then we could expect more leasing. We will watch and listen. Silver lease rates for 1-year have again fallen to 1.14%, off 0.9%. At silver below $13.00 you probably won’t get any takers.

 

It was very comforting to know the White House views the global economy as extremely strong. It was odd they wouldn’t comment on the fall in the stock market. The ISM-non-manufacturing index for February was 59 in December, 57.1 in January and 54.3 in February as new orders and prices paid declined. The services index represents 80% of the economy, so that didn’t help the market. Gold fell $3.20 to $637.60, silver lost $0.23 to $12.59. In the April contract gold fell $4.90 to $639.20, silver fell to $12.75, off $0.21 and copper fell $0.04 to $2.67. Gold open interest fell 18,722 contracts to 394,316 late in the session. This long position is higher than the high we saw prior to the carnage wreaked on gold and silver just before the manipulated correction. Again, the future depends upon what the physical buyers do. We believe they soon will be buyers. Silver fell as low as spot $12.40 before recovering to $12.59 as open interest fell 4,389 contracts to 116,321. Last Friday the big Tocom gold shorts cut their shorts 6,063 contracts to 137,431. Goldman covered 541 to net 33,630. In silver they increased shorts by 68 contracts to 4,608. The XAU fell 2.51 to 129.84 and the HUI lost 8.43 to 314.56. We just had a difficult week, but we are in a bull market and we will win and the elitists will lose.

 

...

 

 

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


-- Posted Wednesday, 7 March 2007 | Digg This Article



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