WEDNESDAY, MIDWEEK, APRIL 18, 2007
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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US MARKETS
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The dollar broke 82.41 and then broke 82 this past week. 80 to 80.60 is the next stop. If 80 is broken it’s 78.33, then 78.19. If that is broken look out below. The dollar is finally reflecting all of America’s problems. America is a country in decline because our Illuminist elites want us to be financially and economically humbled so we will be forced to accept world government. As the dollar goes so goes the US economy and whether they want to believe it or not, the world economy. The dollar index at 80 has been tested five times since 1978. This time it will break 80 decisively. That will send gold and silver into orbit and with them the shares as well. If gold wasn’t being manipulated it would already be $2,200 an ounce. It’s shortly going to be every country for itself and every man for himself. If the Illuminists think for one moment that foreign central banks will try to rescue the dollar they are mistaken. Every county will be in deep trouble, and wait until citizens in country after country find out their gold has been all sold off, many will be hanged.
What is dumbfounding and stupefying is that few people seem to care. There will be panic in the streets of America and the masters of the universe in New York, Washington, London and Paris are going to get their heads handed to them. The Illuminists have created a monster, which is going to devour them and you can take that to the bank, if there are any left open.
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March retail sales increased 0.7%, led by higher spending for clothing, energy and building materials. The increase was largely due to higher prices. These are inflation-boosted figures.
As you know purchases of Treasuries by foreign central banks rose $18.67 billion for last week to $1.911 trillion. Over the past five weeks, central banks have purchased a mind blowing $63.12 billion of Treasuries and Agencies, while the dollar and bond markets have fallen smartly. If not for the monstrous foreign central banks buying of US debt, how much higher would long rates be?
M2 was up over 17% yoy in March. You can understand why the Fed doesn’t want M3 published. That is why we publish it.
Ominous and disquieting is the most recent flow-of-funds data released by the Fed, which shows that free cash flow in the non-financial corporate sector plunged last year. You were well aware of that because we reported on that step by step. Now the public is being told.
A plunging dollar is not going to substantially improve the trade deficit only less buying of foreign goods will accomplish that for the time being. The dollar has been in decline versus the yen for 35 years and the US trade situation has worsened with Japan over that period. Producer countries must import a preponderance of raw materials and they buy cheaper when the dollar is lower.
Fannie Mae and Freddie Mac, the largest sources of home loans, would be forced to sell 70% of their combined $1.4 trillion in mortgage assets under legislation introduced by four Republican Senators on the panel that oversees these two companies. If they are forced to sell it would cause a depression that would take years to remedy and interest rates would spike, ensuing a severe recession.
Twenty percent plus of college enrollment is graduate students. When they graduate 50% owe an average of $34,000 in debt. That is $7,000 more than a year ago. There is no question that these costs will keep many from pursuing advanced degrees. In Arizona the average debt for undergraduates is just under $18,000.
The IRS plans to pursue the middle-class this year. Since 2000 they have tripled audits of tax returns filed by people making $25,000 to $100,000. They audited 436,000 of these tax slaves last year, up from 147,000 in 2000. One in 140 were audited, up from one in 377.
For taxpayers with $100,000 or more, chances of an audit were 1 in 59 and for those making over $1 million, 1 in every 16. For those with incomes below $25,000 it’s 1 in 94. Our enslavement continues.
Education Finance Partners, a student loan company that investigators found had paid at least 60 colleges and universities across the country for steering loans, has agreed to pay $2.5 million to resolve an investigation of its practices by the NY AG. The AG singled out the company’s practice of “revenue sharing,” or kick back a percentage of the total volume of private loans, those not guaranteed by the federal government, borrowed by their students.
Two universities Fordham and St. John’s have already agreed to pay the money back to students who took out loans from the company. The fine to Education Finance Partners will go into a fund, to be administered by the AG’s office, to educate students and parents nationwide about student loans. The action of the schools is disheartening.
Some lending companies with access to a national database that contains confidential information on 60 million student borrowers have repeatedly searched it in ways that violate federal rules, raising alarms about abuse of privacy.
Estimated M3 and total bank credit growth rates remain persistently strong above 10% and 9% yoy, respectively. Liquidity continues to grease the wheels of the ever-increasing financial economy. The real scary part, the increase liquidity described above ignores the massive liquidity injection created by purchasing bonds across the yield curve by the Bank of Japan through the foreign custody accounts of the New York Fed in 2003. This massive liquidity dump, for all practically purposes, cannot be drained without sending rates across the yield curve significantly higher.
What has changed? Not much. Total credit growth rates have slowed from their blistering double-digit rates to 8% in April. Estimate M3 growth, however, remains entrenched above 10%. Until proven otherwise, it's business as usual in the global financial system.
Another former hot, bulletproof area of the housing price boom, Southern Virginia, is seeing large numbers of seriously troubled loans. In Chesapeake, near the North Carolina border, foreclosures are up 46% yoy and they are up 45% in Norfolk and in Virginia Beach 54%. Statewide they are up 49%.
Manufacturing growth in NY State remained near a 2-year low as shipments fell and inventories increased. The NY Fed’s general economic index rose to 3.8 from a 1.9 March reading that was the lowest since May 2005. New orders rose to 3.9 from 3.1. The inventories gauge rose to 7.1 from -4.7, the first increase this year. The manufacturing outlook for six months from now rose to 33.9 from 35.2. Raw materials rose to 40.5 from 30.2 in March. A measure of prices received fell to 7.1 from 10.5.
The February net long-term TIC flows were $58.1 billion. The prior increase was $98.8 billion. Total net TIC flows were $94.5 billion versus $79.6 billion.
The April NAHB Housing Market Index was 33 down from 36 and the market went up 108 when the Dow should have fallen 108.
Sallie Mae is being brought private for $60. This is an obvious cover up. Sallie has to be in serious trouble with bad debts and scandal and this is a good way to hide all that.
Banks have changed their reporting rules and can report the losses from loans in retained earnings instead of reported earnings. That means reported earnings are bogus.
The reason we haven’t covered our shorts in the housing industry is because due to the overpricing, overbuilding and subprime mortgages, we see some builders going to Chapter 11 early next year. Homebuilders issued $3.6 billion in debt in 2005 and 2006, though only $600 million of that comes due this year. The real estate market has been powered the past few years by subprime homebuyers who never should have been allowed to buy homes. Demand for new homes will plunge, pushed down even further by the more than 1 million homes currently in foreclosure. At least 55 lenders have halted operations already and are either in bankruptcy or have been bought out. It is not only the inventory that is falling in value, but also the land. Credit default swaps have more than doubled in price since just 2/01 for D.R. Horton, Toll Bros., and Pulte Homes. The cost of $10 million of Toll bros. debt jumped to $136,750 from $58,500 just since 2/1. Credit default swaps are a form of insurance for bondholders. Kara Homes, the McMansion builder, is the first major to visit Chapter 11. Those of you who had the patience to remain short will be rewarded more in the year ahead. Bill Gates and the Oracle of Omaha, Warren Buffett, will have their heads handed to them.
Over and over again we hear of people being locked out of the housing market because of FOIC scores under 650. This people are credit impaired and unless they have a substantial down payment they shouldn’t get a mortgage. We should have tighter reasonable standards. Forty percent of Americans should not have homes because they cannot make the payments. What would they do if 30-year fixed rates were 10% like they once were? The whole argument is ridiculous. If lenders and government want the unqualified to have homes why don’t they just give them to these people? While the mortgage market and home prices fall inventory rises and it’s supposed to be that way. As the Fed and the lenders who did this. They knew exactly what they were doing.
The number of US homes entering foreclosure doubled from a year earlier. Owners of 168,829 homes got notices in the first quarter. That is versus 83,154 yoy. Riverside County, CA had a 172% rise in homes entering foreclosure. Others with mega increases were Clark County, Nevada, (Las Vegas) 143%; L. A. County 92%, Miami-Dade 90%, Cook County, Illinois (Chicago) 44%.
The March CPI rose 0.6% - that is 7% a year. We won’t even report what core prices were. They are just lies, lies and more lies.
Housing starts in March rose to an annual rate of 1.518 million, as building permits rose to 1.518, up 0.8%. These builders have to be suicidal or very dumb.
March industrial production fell 0.2% and capacity utilization fell to 81.4% versus 81.9%. The recession in industry is moving into a new lower phase to be augmented this year by falls in the production of homes.
Utility production dropped 7% after rising 7.6% in February.
52.6% of Americans now receive significant income from government programs, that is up from 49.4% in 2000 says noted economist Gary Shilling. He is one of the few economists with his head screwed on straight. If the trend continues, the percentage could rise within 10 years to more than 55%, where it stood in 1980.
In-line March retail sales, but softer than expected Empire Manufacturing (3.8 versus the expected 7.5) and NAHB Housing Market Index (33 versus expected 35), boosted bonds and gold.
February retail sales were revised to +0.5% from 0.1%. This is odd given the record cold weather, which retailers blamed for soft sales. It appears that once again the Commerce Department is reporting stronger retail sales than retailers. It’s called cooking the books.
Mortgage lenders filed 46,760 notices of default in the first quarter, marking an increase of 23.1% from the previous quarter and 148% yoy.
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