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International Forecaster April 2007 (#1) - Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster



-- Posted Sunday, 15 April 2007 | Digg This ArticleDigg It!

The following are some snippets from the most recent issue of the International Forecaster.  For the full 26 page issue, please see subscription information below.

SATURDAY, APRIL 14, 2007

04-14-07-#1-IF

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

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International_forecaster@yahoo.com

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US MARKETS

 

Real estate and equity price inflation have driven two-thirds of the increase in household net worth over the past ten years. They now are even more important today than ever. Since 1980, household leverage as a percentage of GDP has doubled, after remaining relatively constant in the prior quarter century. This leveraging of household real estate assets has been the method to continued net worth acceleration and GDP growth dependent household consumption patterns. If households stopped leveraging their balance sheets, both real estate and consumption would fall. This brings us to the current state of real estate and consumption. Will the contraction in lending in real estate due to the excess in the subprime area lead to a change of direction? The answer is yes.

 

The effort to save the American economy, which began in 2001, has finally come full circle and the Ponzi scheme is coming unraveled. The over extension of credit, outrageously low interest rates and loans to the totally unqualified have come home to roost. The subprime and ALT-A markets speak for themselves, as does the failure of 50 subprime lenders. There is nothing contained about the subprime problem and the worst is ahead of us. It will haunt the sector and the entire credit market for 2-1/2 more years. We haven’t even had downgrades in the CDOs as yet, spreads are just now widening in junk bonds and better quality mortgages are already being corrupted. As the downgrades come the downside will feed on itself because many institutional investors cannot hold paper of less than investment grade. The Fed may be responsible for a three year binge of money and credit creation of over 10%, but there is another 4% annualized that is created outside the Fed system. That means the Fed is no longer in total charge of the credit cycle. Private credit market operators will be running for the hills and they really controlled lending in the mortgage market. De-leveraging has begun. It will be extensive, especially in this sector. Hedge funds bought 60% of the ALT-A and subprime paper and they are leveraged to the eyeballs. The rest of the buyers have been pension funds, institutional investors, insurance companies, large investment banks and other carry-trade players. Subprime funding has all but disappeared already. That can be called nothing but credit contraction. All these professional investors have been caught offside and in addition the hedge funds are coming under fire from regulators in London of all places. These pros know the subprime problem will spread, so they have to be lightening up in their leveraged positions. This is not what the Fed and other central banks want. They will have to find a way to entice these speculators to reassume their former highly leveraged positions. The only way we can see that being done is by further increasing money and credit. This said the private credit markets have to be watched closely as well. Spreads have widened in CDOs and junk bonds, which has pushed yields higher. Another key will be de-leveraging in the emerging debt and equity markets. Charts show a possible head and shoulders forming. Unfortunately, the formation could take 1-1/2 years to complete. That said, we will have to look for net long term erosion and the widening of bond spreads. Another sector to watch is the foreign inflow of funds into US equities. You can add to that the Shanghai Stock Exchange Index, which is loaded with leveraged funds. The other main markets to watch are Russia, Mexico, Brazil and India. We believe when these markets turn down they will do so in unison. These markets are very overpriced being up 50% since last summer.

 

We do not believe de-leveraging is here with a bang. It will be reduced somewhat slowly. We will watch the spreads and the foreign markets and central bank M3’s to see where we are headed. Leverage is great going up and horrible coming down. We will see what develops. 

...

The euro’s 2.5% gain since the end of January will supposedly help US exports. That would be true if manufacturing exports were still 25% of the economy as they were twenty years ago. Today they are some 13% of the economy. It is going to take a lot more than 2.5% to help the current account deficit. You might try 35%. American consumers have slackened up recently but they are still mega consumers of foreign manufactured goods and until that comes to a screeching halt little headway will be made. Incidentally, the insiders in Europe believe they can stand the euro at 1.44, after that they envision serious problems for the eurozone economy. The EU economy can perform at current levels only as long as the ECB continues to increase money and credit at a plus 10% rate as they have over the past two years. Do not forget all countries manipulate their currencies and in this case the manipulation is coordinated. We expect that manipulated coordination to continue, which will cause ever growing inflation in all the countries involved and lead to ever higher interest rates. The central bankers know business and investors won’t complain about a higher euro as long as the economy is doing well. The central bankers and the government’s involved just lie about inflation. The public knows that but is impotent to stop what is going on. Just look at the US official inflation is 3% and in reality it is over 10%. The ECB does not target interest rates – they target money and credit and as long as inflation is rising so will interest rates. Those rates will rise worldwide as a result. That will send the American economy deeper into recession; send the dollar lower and gold, silver and commodities higher.

 

            Soon we will have our estimated M3. In December, January and February we saw M3 up 10.1%, 10.2% and 10.0%. March was up 9.4%. It looks like creation may have peaked for now. We will see soon. Loans overall look to have fallen about 0.5%.

...

Subprime loans for the most part are owned by trusts and hedge funds and we see no way regulators can help strapped homeowners to stave off foreclosure. Trust rules bar servicing firms that administer the mortgages to modify them. Politicians want to keep people in homes they could never afford. It has become a political football.

 

Those of you who do not believe us when we tell you to never chase a yield should consider the following. American Business, a subprime lender, offered 13-month notes yielding 12.99% and an uninsured money market note with a yield of 6.05% three months before bankruptcy. Of course, all investors lost their money and Credit Suisse, JP Morgan Chase and Morgan Stanley collected $50 million in fees. That is a loss of $3.6 billion. Bear Stearns earned $540 million last year turning subprime loans into bonds. What was done to investors by Wall Street was unconscionable.

 

Japan has a .50% lending rate and based on an economy expanding at 5.5%, this overnight loan rate is far out of alignment with reality and the result of this is a yen carry trade that is creating credit bubbles worldwide. A product of this obscene policy hatched by the US Fed and with the assistance of the Bank of Japan, has continued an undervalued yen that delights the Japanese exporters, as they continue to undersell our domestic producers.

 

Worse yet, Japan’s corporatist fascists are manipulating their inflation data. They claim they still have deflation, as the commodities they import have surged 86% over the past five years. These people, like our own elitists, couldn’t tell the truth if their lives depended on it. The yen carry trade is a $1 trillion enterprise, and it is urgently needed to keep the world economy afloat. This in part is what is driving world commodity prices and what will eventually drive gold and silver prices. They can create the liquidity but they cannot direct it.

 

The cheap yen not only affects the price of exports to the US, but it is badly hurting the eurozone as well. As you know money and credit in the zone has been up 10% for two years and every time the ECB raises interest rates to ward off monetary inflation caused by the M3 increases the Japanese make further in-roads into the eurozone market. There is no question Tokyo is stealing market shares as they have done in the US. The Japanese refuse to stop the yen carry trade and like the Chinese and most other nations refuse to allow their currency to appreciate. If Japan and China do not raise rates or allow currency appreciation then we will have trade war and we believe this is where this will all end up. The Japanese refuse to reduce its sales of yen and cut off the carry trade. The US, Japanese and Chinese are turning the financial world upside down. In fact, this distortion is a driving force toward higher gold prices. This is why the central banks of Europe have dumped 57.6 tons of gold on the market over the last four weeks. The ECB should be increasing its interest rates ¼% and another ¼% to combat inflation, but they are stumped unless Japan raises their rates as well. The selling of gold by the European central banks is no longer having a lasting effect on gold. If they raise interest rates and the Japanese don’t, and the European central banks don’t sell gold, gold prices will test $850 and European bond yields will move higher.

 

China is just as bad domestically. Since the 9% Shanghai Stock Exchange correction that market has risen 25%. Bank reserve ratios were increased .05% to 10.5%, but money supply expanded 17.8% and outstanding bank loans increased 17.2% in February. For just January and February, lending was 1/3rd of all of 2006. January and February factory output was up 18.5% yoy, absolutely incredible. Absolutely no restraint. The Chinese want to produce as much as they can before trade barriers are erected.

 

Fed Chairman Ben Bernanke again tells us that the current market based system is the best way to regulate the multi-trillion hedge fund industry, although improvements can be made. Ben must think we are all dumb. If hedge funds and derivatives are not regulated we can promise you there will be a crash. How can this self-regulatory system be superior to increased government regulation? These players are predators. They prey upon each other and the investing public. They rig markets all day every day.

 

In his speech at NYU he said the failure of LTMC came at a period of financial stress in 1998. That is true, but what got LTCM into trouble had nothing to do with the stress and everything to do with a short gold position. He avoided discussing the rape and destruction of Ameranth advisors by JP Morgan Chase. The Chairman of our privately owned Federal Reserve said he supported the conclusions reached by the President’s Working Group on Financial Markets, which stated that what the hedge fund industry needed was increased vigilance on the part of investors rather than new government rules. In other words it’s every man for himself with no control over what goes on even though government affords investors absolutely no protections. How can this be when the SEC has hundreds of millions of dollars to pursue small brokerage firms, small brokers and newsletter writers and we are to have no interest in investors betting billions of dollars. We continue to encounter broker after broker, which has never had a complaint, where the SEC and NASD are calling their clients trying to get them to file complaints, so they can put them out of business because they recommend gold and silver stocks. Somebody has to explain to us why the latter is more important than the former. Who is kidding whom? The game is rigged for the elitists who make billions every day screwing the public. Derivatives and hedge funds are keeping the markets from collapsing and the players are cooperating with our government. That is why there is no regulation. How can you not regulate hedge funds, some 9,000 of them, whose assets top $1 trillion? It is absurd and flies in the face of history and reality.

...

 

 

GOLD

 

Early Tuesday the averages were flat and gold, silver and copper were firmly higher. The elitists were expecting a higher market for the day and were foiled by selling. Corporate earnings are terrible and anyone with any sense knows they will deteriorate further. China’s trade surplus did not help either. It was obvious the gold suppression cartel is having trouble keeping the precious metals and commodities down. The commercials in the pits obviously agree. A spot break over $681.40 will signal a major rally. Spot gold closed up $4.60 to $675.70 and silver rose $0.08 to $13.83. The June gold contract closed at $681.50, up $4.60, silver rose $0.12 to $13.93 and copper rose $0.02 to $3.53. There is still some devoted selling of gold as it hit $680.70 spot and selling developed. It won’t last – we will get our breakout. Gold open interest rose 2,834 contracts to 363,761, while silver open interest went up 157 contracts to 115,796. We can assure you the pros are noticing that inflation is increasing and money and credit are going berserk. On Monday, the Tocom shorts increased their net short position by 1,144 contracts to 111,267. For almost a month the position has stayed relatively unchanged. Goldman increased their shorts by 634 contracts to 31,259. The same group reduced their net silver shorts by 79 contracts to 4,631. The XAU rose 1.51 to 144.21 and the HUI gained 4.11 to 358.11. Tomorrow could be a big day for rising gold and silver and a falling dollar.

 

The stock market on Tuesday was limp all day. The Dow rose 5 to 12,574, S&P was up 34 and Nasdaq was up 52 Dow points. The yen fell .21 to 119.07, the euro rose .0084 to $1.3432; the pound was a plus .0106 at $1.9725. The Canadian dollar rose .45 to 87.20 and a 4-month high. Oil rose $0.38 to $61.89, gas was up $0.03 to $2.12 and natural gas rose $0.32 to $7.87. The 2-year Treasury was 4.70% and the 10’s were 4.72%.

 

On Thursday, you might say some things never change. The fix was again in on the market and gold and silver. These criminals are relentless. Early on the Dow was -21, S&P -5 and Nasdaq off -18 Dow points. The close brought a Dow up 68 to 12,553, S&P up 80 and Nasdaq up 126 Dow points. A result like that is difficult to achieve. On the close the yen rose .25 to $119.34, the euro rose .0051 to $1.3487, the pound was up .0026 to $1.9787 and the Canadian dollar rose .42 to 88.15, the highest level in four months. Oil was up $1.84 to $63.85, gas was up $0.03 to $2.19 and natural gas rose $0.07 to $7.92. The 2-year was 4.73% and the 10’s were 4.74%, yet unbelievable gold fell $1.70 to $674.60 and silver fell $0.02 to $13.79. The June gold contract fell $2.00, silver $0.04 and copper fell $0.08 to $3.50. This shows you in spades how our corrupt government operates. In London at the second physical fixing, gold reached $679 and after that the cartel attacked. We saw the March import price index up 1.7% versus a consensus 0.8% that wasn’t even close – again. This was the largest increase since 5/06, yet gold falls – that is not natural. That was followed by a statement from the Russian central bank that they may double the share of gold in its gold and foreign currency reserves. That is gold bullish, but not in the fascist states of America. That was followed by a plunge in South African gold production, but that didn’t help either. Gold open interest fell 10,094 contracts to 359,442. The elitists who run our government could care less that citizens know what they are doing because they are above the law. The dollar has clearly broken down and the criminals know that. 82.41 was support. The dollar index closed at 82.17, off .27. Next stop 80. It is no wonder the central banks and governments are trying to keep the stock market up and force gold and silver down. Except it’s illegal. Another kicker is that the president of the Bombay Bullion Association says India’s gold imports should be 600 tons this year – up from 585 tons in 2006. The big Tocom gold shorts added 1,259 shorts to net 111,180. Goldman added 79 contracts to 31,910. Silver shorts increased shorts by 296 contracts to 4,355.

 

 

 

 

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 Sunday, 15 April 2007 | Digg This Article



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