US MARKETS
...
One thing is for sure, Fed Chairman Bernanke believes that inflation will fail to moderate and that it is the biggest risk and threat to future economic growth. This has to be inescapable to the Fed as they continue to increase money and credit by 10% or more. Now that the likes of Asia and particularly China are expanding, consumption pushing up commodities demand, that we can expect very little helping the future from globalization as a means to reduce inflation with cheaper export products. As domestic foreign demand increases so will prices. That means export prices will rise as well. The alternative to inflation via investment is gold and silver related assets.
For all of its success China is a problem waiting to explode. The entry of the government into the stock market recently, which dropped the Shanghai averages some 9%, we see as only the beginning. The government is incapable of controlling economic growth and we expect the government will again and again hit their stock market in order to cool speculation. Interest rates are up and liquidity is being drained from the system. Next is the attack on the market again, which in turn will affect markets worldwide again.
In 2005 the top 1% of Americans with incomes of more than $348,000 received their largest share of national income since 1928. The top 10%, earning over $100,000, also reached a level of income share not seen since before the depression. Total income increased almost 9%, but average incomes for those in the bottom 90% dipped slightly versus 2004, dropping $172, or 0.6%. The gains went largely to the top 1%, whose incomes rose to an average of more than $1.1 million each, an increase of more than $139,000, or about 14%. 300,000 Americans had the same income as 150 million Americas. Per person, the top group received 440 times what the bottom half earned. Worse yet, recent tax cuts averaging over $150,000 a year were given to people making more than $1 million a year. Yet, we cannot fund medical care and education properly. The top 10% collected 48.5% of all income - that is up 2% from 2004, and 33% from 1980. The peak was 49.3% in 1928 versus 48.5% today. The top 1% received 21.8% of all income in 2005, up from 19.8% in 2004.
King Abdullah of Saudi Arabia told Arab leaders that the American occupation of Iraq was illegal and warned that unless Arab governments settled their differences, foreign powers like the US would continue to dictate the region’s politics. He called for an end to the international boycott of the new Palestinian government. He has invited Iran’s President Ahmadinejad to Riyadh this month. The Saudis are telling the US to listen to their allies rather than imposing decisions on them and always taking Israel’s side.
Foreclosure filings hit a Massachusetts high in February for the second straight month. That is 2,227 up 85% from 1,201 in February 2006. January foreclosures were 2,207.
A lawsuit is going forward against Exxon Mobil and four other major gas retailers for price fixing. They are accused of withholding supply. So what else is new? That’s corporate America today. Gouge the public until you get caught. Pay the fine because crime pays. The breach of data at TJX is called the biggest ever where at least 45.7 million credit and debit card numbers were stolen by hackers. It included all of the US and UK transactions for several years. This newest disclosure came as a ring of thieves were arrested in Florida and charged with using stolen credit card numbers to buy more than $8 million worth of gift cards and electronics, using data from TJX.
Corporate America screws their employees again – Fidelity Investment is eliminating its traditional pension plan for its 32,000 employees. They will offer a 401(k) plan plus a new heath savings credit to help pay medical expenses when workers retire, and will allow them to roll their exiting pension benefits into a Fidelity profit-sharing plan.
Amid the meltdown of the subprime sector, mortgage lenders and brokers have come under fire from state and federal officials for predatory lending practices with risky borrowers. Beazer Homes, the nation’s sixth largest residential builder, is under investigation by the FBI, IRS and Justice Department. The US Attorney in North Carolina is leading the charge. Beazer’s developments foreclosure rates were 20% versus the national average of three percent.
The Circuit City Stores fired 3,400 of its highest-paid sales people and will hire replacements who will work for less. Moves like this kill employee loyalty and you can expect a major sales decline. The firings will cost $145 million in charges, kill morale and cut sales 50% over the next six months. They are replacing $11.00 an hour workers for $8.00 an hour workers – how stupid. The CEO made $8.52 million last year.
...
Core inflation rose 0.3% in February, the biggest gain since August. That, at best, will keep interest rates where they are. Annualized core inflation moved up from 2.2% to 2.4%. The figures are worthless because they do not include food and housing. Consumer spending growth slowed to 0.2%, the weakest gain since August. Personal incomes rose 0.6% after a 1% gain in January.
Dell Computer says there is evidence of misconduct that has been uncovered in an internal investigation. We do not know as yet if the misconduct was criminal.
New Century Financial and Ameriquest Mortgage have already fired 3,000 employees and Orange County, Ca condo prices are off 17% since last June and office vacancy rates in Irvine are up 50%. Eventually due to pending bankruptcy some 7,400 will be fired.
The Center for Responsible Lending expects the foreclosure rate to exceed 22% in California’s metro areas including Irvine, Merced, Bakersfield, Vallejo-Fairfield, Fresno, Stockton, Santa Ana, Anaheim and Riverside.
The commercial vacancy rate in Irvine should rise from 11.2% to 22% this year.
The fallout nationwide will be terrible, but in California it will be catastrophic.
Orders for durable goods made to last several years rose 2.5% after a 9.3% decline in January. Companies are reluctant to invest in new machinery and equipment until they make progress reducing climbing inventories. 2.5% was way below the 3.5% growth expectation. The slowing is going to accelerate.
Our fourth quarter GDP was unexpectedly revised 0.3% higher to 2.5%. That strength was another accounting trick. 0.2% of the 0.3% was derived from bigger than expected inventory growth, mostly autos. The other tenth came from rigging the GDP deflator. This is not a sign of economic strength, but one of weakness. You cannot increase production until you reduce inventory. We still have consumer consumption increasing some 2.9% as business investment declines 3.1%. Profits from current production declined 0.3% and that means business subtracted 0.4% from GDP. That means consumers are borrowing more. It also means consumer consumption is covering over a recession in business and investment. That won’t go on indefinitely.
The Reuters/University of Michigan end of March Sentiment Index was 88.4 down from 91.3 in February.
Russian President Putin urged the US to withdraw from Iraq and to start talks with all Iraqi political parties to reach a consensus. He said speed up the national consensus process to avoid disintegration that will plunge the Arab nations into a Civil War.
The Chicago March Purchaser Managers Index rose to 61.7 in March from 47.9 in February, the biggest jump since 4/05.
March consumer sentiment is at a 6th month low at 88.4, down from 91.3 in February.
Now that the housing market is visibly coming unglued on the subprime end the Fed has plenty to answer for. They pushed unsuitable loans and now look at the results.
Unless politicians want to commit political suicide we see little if any assistance for homeowners who have been entrapped in ARMs. We predicted close to three million would lose their homes. On Friday, Tom Petruno a columnist with the LA Times said 460,000 in California and 2.4 nationwide would be losers. If lenders renegotiate loans they lose lots of money. The groups targeted for assistance are the elderly, poor and the young with children.
Presidential hopefuls Clinton, Dodd and Obama want the government to step in, but that is political theater. The lenders and homeowners will take the losses.
Million dollar homeowners are starting to get in trouble. Last June a home was bid at $1.2 million, it sold at auction this month for $852,000. The damage is hitting homes financed through jumbo loans for more then $400,000 and for ALT-A loans as well. The losses ahead will be over $1 trillion plus the depreciation of the dollar. Investment research shows that about 40% of homes purchased last year were bought as second homes or for speculation. In 2005 it was 36%. The home for use as an ATM is fast coming to a close.
February personal income rose 0.6% and spending again rose 0.6%.
Ford says March sales will fall double digits due to weak F-Series sales. F-sales fell 22.1% in January and 13.5% in February. We are fully into recession.
February construction spending was up 0.3%.
Construction gains came in construction of hotels, shopping centers and state and local government projects, which offset the 11th consecutive decline in residential construction. Housing construction fell 1% after dropping 1.7% in January, but non-residential spending rose by 2.3% and state and local projects increased 0.6% to an all-time high.
...
GOLD
Gold Reserve announced that the Venezuelan Ministry of Environment had approved the Brisas Environmental and Social Impact Assessment for the exploitation and processing of gold and copper mineralization. On that news Crystallex (KRY) rose $0.40 by implication. It could be KRY is getting close to final approval.
The trouble in the Middle East hung over the early market on Wednesday. The Dow was -6, S&P -53 and Nasdaq -54 Dow points. The Nikkei was off 110, FTSE -10 Dow points, CAC -30 and DAX -30.The euro -.0005, the pound -.0017, the yen was +.76 and the Canadian dollar -.8. Oil was up $1.73, gas +0.04 and natural gas up .8. The 2-year was yielding 4.56% and the 10’s 4.60%. Gold was up $5.00 at $667.40, silver was up $0.17 to $13.45 and copper was up $0.01 in the April contracts.
Gold rose to $666.20 up $4.40 and silver was up $0.18 to $13.36. The April contract is about to end with gold up $4.30 to $666.80, silver +$0.18 to $13.46 and copper was unchanged. Oil helped out by rising $1.15 to $64.08 off the capture of British sailors by Iran and then another phony announcement of Iranians firing on US ships. Gasoline fell $0.02 to $2.06 and natural gas rose $0.06 to $7.56. Gold has broken out on the XAU, HUI and technically. Gold OI fell 2,236 contracts to 359,474 and silver OI fell 1,603 contracts to 111,348. On Tuesday the big Tocom shorts increased their net gold shorts by 1,090 contracts to 113,717. Goldman increased their shorts by 164 contracts to 32,025. In silver the biggies reduced their shorts by 7 contracts to 3,953. The HUI lost .42 to 340.08 and the XAU fell .24 to 137.30.
The Dow ended the day -97, the S&P -102 and Nasdaq -120 Dow points. The euro fell .0037 to $1.3318, the pound was -.0044 to $1.9612, the yen was +1.01 to 116.91, the Canadian dollar was 86.25 -.18 and the dollar index was up .04 to 82.76. The 2-year Treasury was 4.57% and the 10’s were 4.62%.
On Thursday world stock markets were higher early on. The Dow was up 41, S&P 41 and Nasdaq up 30 Dow points. The Nikkei was up 9, FTSE +60 Dow points; CAC 50 and DAX 62. The euro was +.0044, the pound +.0026, the Canadian dollar -.05 and the yen -.44. The 2-year was 4.55% and the 10’s were 4.62%. Oil was $+0.25, gas +$0.02 and natural gas -$0.05. Gold was -$1.70, silver -$0.07 and copper -$0.01.
The cartel pressed all day Thursday and at the close gold ended off $5.30 to $661. Silver did much better, off $0.06 to $13.25. Copper rose $0.02 to $3.09 and silver for future delivery fell $0.11 to $13.34. Gold open interest fell 2,015 contracts to 357,419 and silver OI gained 598 contracts to 111,549. On Wednesday the Tocom big shorts reduced their shorts by 2,304 contracts to 111,413 and Goldman covered three contracts to total 32,022. The big silver shorts increased their short position by 297 to 4,250 contracts. Tocom raised initial gold margins by 30,000 yen for April and their spot month additional trading margin by 15,000 yen. The minimum initial trading margin on gold options will also be increased by 15,000 yen. There were no silver changes. The XAU fell .14 to 137.21 and the HUI fell 1.79 to 338.50.
They took the Dow up at the end of Thursday to close up 48 points at 12,349. The S&P rose 48 points and Nasdaq 4 Dow points. The euro rose .0029 at $1.334, the pound was -.0002 at $1.9623, the yen was -1.02 at 117.95 and the Canadian dollar is 86.37, +.10. The 2-year Treasury yield was 4.58% and the 10’s were 4.64%. Oil rose $1.95 to $66.03, gas rose $0.08 to $2.14 and natural gas fell .06 to $7.61.
On early Friday morning confusion was again apparent in markets worldwide with a bent to the weak side. The Dow was +6, S&P and Nasdaq -4 Dow points. The Nikkei was +24, FTSE -30 Dow points, CAC -4 and DAX +24. The yen was +6 and the euro -.0009, the pound -.0029 and the Canadian dollar +.35. The 2-year Treasury yield was 4.59% and the 10’s 4.64%. Oil was +$0.24, gas unchanged and natural gas up $0.06. Gold was +$1.10, silver +$0.06 and copper +$0.06.
Friday saw gold up $2.40 at $663.30 and silver up $0.02 to $13.32. The outside month gold contract rose $1.40 to $669.00, silver rose $0.11 to $13.45 and copper had another good day, up $0.06 to $3.15. Open interest nosedived off 11.543 contracts to 345,876 and that is 75,000 less contracts than at its high. We are back where we were a month ago. The economic sanctions against China to protect American paper producers will be followed by many other industries, which can only help gold and silver. The only answer as all these so-called geniuses will finally realize, is that only overall tariffs will solve our trade problem and bring industry and services back home to employ Americans. Any tariff legislation has to include services. Gold and silver fundamentals and technicals are very strong so get ready for a rally. On the other hand we are starting to see some real resistance to American domination of world economic and political issues. It first started in Mexico, Central and South America and has spread from there. Eighty-two percent of foreigners do not agree with US foreign policy, the war in Iraq nor the commercial arrogance displayed in business. George and the neocons were the last straw. There is no question that China and others will do some dollar asset selling. That became apparent two weeks ago when the 10-year Treasury note came out of its 9-month inversion that had been caused by the carry trades purchase of US 10-year notes and other leveraged investments. This is the beginning of the long slide down in the dollar that will send gold much higher. We have serious problems when Saudi Arabia tells our President that we are illegally in Iraq. We also have the Fed with its Treasury tricks doing something. There were $46 billion in Treasuries sold last month. We do not know who bought them, but we suspect it was the Fed and that is monetization and that is immediately inflationary. Commercial paper jumped $58 billion, which has Fed liquidity written all over it. If they keep this up Weimer can’t be far away. In the COT report commercials sold 5,055 contracts and increased shorts by 3,575, which is essentially a push. The commercials were neutral as well. Silver open interest on Friday fell 344 contracts to 111,602. On Thursday the big Tocom shorts increased their shorts by 501 contracts to 111,914. Goldman covered 109 shorts to be net short 31,913. They increased net silver shorts by 198 contracts to 4,448. The XAU rose 0.8 to 137.11 and the HUI lost .84 to 337.66.
The Dow rose 6, S&P 18 Dow points and Nasdaq was -4 Dow points The euro was up .0027 to $1.3353, the pound +.0053 and the yen up .26 to 117.82. The Canadian dollar up .09 to 86.70 and the dollar index up .16 to 82.65, off .35 on the week. The 2-year Treasury yielded 4.59% and the 10’s 4.65%. Oil fell $0.13 to $65.87, gas was -$0;02 to $2.11 and natural gas rose $0.12 to $7.73.
