SATURDAY, APRIL 28, 2007

04-07-#3-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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US MARKETS

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Secretary of the Treasury Hank Paulson says, “All the signs I look at show the housing market is at or near the bottom.” The question is what is our Mr. Paulson smoking or is he just a plain liar? He believes the meltdown in subprime mortgages is not a serious problem and he thinks it is largely going to be contained. We are talking Mr. Paulson of $1.4 trillion in mortgages that should have never been made going upside down. There is no question Mr. Paulson, the Fed, Wall Street, CNBC and our government all know we face a collapse in the housing market. That is why we see Fannie and Freddie and various contributions by lenders and lender bailouts, which amount to a Band-Aid on a gapping gash. What is $35 billion when you have a $1.3 trillion overhang? Housing prices won’t recover until 2012. Paulson, the banks, Wall Street and Congress could care less about the borrowers - they are concerned the fallout will send the stock market lower and trigger a financial crisis. A market and an economy that is being held together by the bailing wire of hedge funds and derivatives. If lenders were really serious about helping people who they gave loans to who were totally unqualified, they would just give them their homes and let the shareholders foot the bill. In reality the bill should really go to Alan Greenspan and the Fed, they caused all this. This is just the beginning – wait until phase two begins and panic sets in. We are facing the biggest decline in housing values since the 1930s and nobody gets it yet. In former hot markets prices will fall 15% to 25% this year and more next year as the tragedy plays out.

Then there are the CDOs, collateralized debt obligations, which are about to be downgraded. In finality hundreds of billions of dollars will be lost. That is $1.4 trillion of which hedge funds will eat $840 billion and they are leveraged over 10 to 1. If that doesn’t provide a market and economic collapse nothing will. That is why wealthy investors are bailing out of hedge funds. What will happen to the bankers and brokerage firms, who securitized these loans – nothing. They have laid off all of the risk, like any good bookmarkers would. Hedge funds will be losers, but so will everyone in the stock markets, especially pension funds. People are going to find out what an unregulated market is, and how it is going to cost them billions or trillions. They will find out what the current account deficit and the yen and Swiss franc carry trades are all about – the hard way. Wait until the $500 trillion derivative bomb hits. That should bring people out of their slumber. Markets in essence are unregulated banks. That is why when we quote an estimated M3 we add 4% for this kind of credit creation. It is nothing more or less than a gambling casino. Last week the Carlyle Corp. and we talked in terms of 2 to 3 years, but who knows. We may have that untoward event and the financial system could bust wide open.

No more cash outs and no more equity loans are in homeowners’ futures, and that means consumer spending will fall. Consumer spending makes up 70% of GDP. Can you see what will happen as we return to the long-term mean of 64.5%? The bottom is nowhere in sight and we have begun the freefall.

The only safe place for now is gold and silver related assets and Swiss franc bonds, with a uranium company or a very special situation thrown in.

IBM will increase its share buyback by $15 billion and its dividends by 33% as it ships more and more jobs out of the US. The funds are coming from increases in debt. How’s that for leverage? In the first quarter they made $1.8 billion and bought $3.5 billion of its stock. That is almost double income. Earnings rose 8% but their tax rate fell to 28.5% from 30% and currency gains were 4% of the 7% increase in revenues.

The International Council of Shopping Centers says retail sales from last week were the smallest in six weeks.

The Teamsters Union has a plan to block the Bush-elitist plan to allow Mexican trucks to travel throughout the US. They have filed suit in Federal Court in California to stop the plan. Truckers rightly say it is a danger to American motorists and to national security. Other plaintiffs are the Sierra Club, Public Citizen, the Owner-Operator Independent Drivers Association and two smaller groups. The Mexican program is a pilot program that was not registered in the Federal Register and had to be.

Rep. Duncan Hunter (R-CA) has sponsored legislation to block the program.

Rudy Giuliani says the WTC 7 Building collapsed in stages over a sustained period of time in reality the structure fell in seven seconds – he must be dumb. These elitists cannot even lie straight.

RealtyTrac says first quarter foreclosures jumped 35% yoy; 50% of that was from subprime loans. That is terrible because other mortgage loans of higher quality are getting hit hard as well. Nevada and Colorado led the surge. Nevada’s rate doubled yoy. That was 1 for every 75 households and Colorado 1 in 111, a 24% increase yoy.

This market is like a pyramid. The low price building blocks are being pulled out, which means few buyers can move up because there are few to sell too. In the upper 50% of homes cost-wise, everyone is happy until the pyramid collapses.

At a recent meeting in Chicago, Fed Chairman Ben Bernanke used the terms crisis, risk, panic, threats, stress and similar words 36 times. He is fearful that the housing slump and increasing defaults in the subprime mortgage industry will cause a fearful snowballing effect on the economy.  That is because he cannot lower interest rates due to a falling dollar and rising inflation and if he raises rates the economy will collapse.

The Beige Book reports NY and Minneapolis report steady and firm growth, while Dallas was moderately strong. Most districts reported manufacturing activity was slow. Residential real estate activity continues to weaken. Demand for residential loans was flat or slowing. Most districts reported continued tight labor conditions, particularly skilled wage increases were reported in some districts, though were generally modest.

Monica Goodling, a key aide to AG Alberto Gonzales during the purging of the 8 US attorneys, has by a 32-6 vote by the House Judiciary Committee been granted immunity. Hopefully this will lead to the truth of what really went on.

The MBA says the mortgage applications index climbed 3.6% on the week ended 4/20. Sales of new homes rose 2.6% in March. The purchase index increased 3.7% and the refinancing index rose 3.6%. The 30-year fixed rate mortgage fell 0.09%.

As a result of the slowdown in real estate from lenders to home brokers to construction workers to property managers to janitors to supply store workers employment is evaporating. This is the first quarterly drop in places like Orange County, CA., since the summer of 2002. That is 4-1/2 years of great prosperity. Even though jobs grew 14,933 in the first quarter it is the slowest hiring since late in 2002.

During the last real estate recession from the second quarter of 1990 through the first quarter of 1995, the county lost 26,500 real estate and financing jobs, a drop of 16%. Construction was particularly ravaged by the down draft, with the loss of 1/3^rd of building jobs. During that period 42,000 manufacturing jobs were lost as globalization began.

This time we do not know how damaged manufacturing will be, but we are sure real estate and finance, as well as construction, will lose close to 50% of their jobs. The scars from the early 1990s are still to be seen on the Southern California economy. In 14 years since 1993 Orange County added 425,000 jobs and they could lose that many again. This County and the State is heavily dependent on real estate; 25% of that increase came from real estate. All of California and particularly Southern California and the Inland Empire will get hard hit. It is going to be difficult and if you mix in massive amounts of illegal aliens and 200,000 heavily armed gang members, you had best move if you live there.

In 2000, in early April, as we gave our historical call to bail out of the stock market and at the same time said the next step would be war to distract the public from the recession we were about to have, we called it perpetual war for perpetual peace. That November we said that on 10/16/01 there would be a planned event that would be an excuse for war. That event was 9/11 and we were only 35 days off the mark. Thus, we are in an era of perpetual war, which is now accompanied with over 100,000 mercenaries, government sanctioned abuse, torture and murder and a corporatist fascist government. Unfortunately, a majority really could care less what goes on in Iraq, other nations or even in the US. The neocon-elitist brand of democracy is in reality tyranny. Americans just do not want to know what is being done in their name and they don’t care about what little freedom they have left. Most Americans have forgotten right from wrong. Americans are allowing tyranny to reign and aiding in their own enslavement. Americans have even been sucked in by the scam known as the War on Terror. It doesn’t exist. It is a figment of the imagination of the diseased minds of elitists. This fear instilled in American minds has allowed our enemies to implement a police state. We are told we need security to protect us from foreign terrorists. Security is a key word in the nomenclature. You must give up your freedom for safety. Americans we are embarking on an Orwellian nightmare and you let it happen. You can stop it by contacting everyone you know and everyone in Congress and telling them where we are headed and you want it stopped.

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GOLD

The People’s Bank of China VP said China should appropriately increase its gold reserves and buy strategic resources, such as oil and metals in order to broaden the investment channels for its huge foreign exchange reserves. China’s gold reserves have remained unchanged for four years. They currently have $350 billion in US Treasuries.

On Thursday, gold closed up $0.40 to $683.00 and silver fell $0.02 to $13.74. The June gold contract closed at $689.20, up $0.30, silver rose $0.05 to $13.83 and copper gained $0.06. Gold open interest rose 6,609 contracts to 403,338 as shorting by commercials continues to prevail, as we predicted it would. Silver OI was up a large 2,673 contracts to 123,627. The same thing is going on in those pits as well. We expected another 35,000 gold shorts and we are getting them. What is also interesting is that the Fed added $34.5 billion in repos. Is that what ran the Dow, S&P and Nasdaq indexes up? Was it used to suppress gold and silver or was it to provide solace to a subprime fiasco? The Tocom big gold shorts cut their shorts 1,378 contracts to 99,285 contracts. Goldman covered a large 2,489 to bring their net short position to 20,726 contracts, the lowest ever. This tells us once 80,000 shorts have been added to the Comex commercial shorts, the game is over and short covering begins. The big silver dealers cut shorts by 143 to 5,219. The XAU rose 1.70 and the HUI gained 3.19 to 351.32.

The Dow on Wednesday hit a new high at 13,099, up 136, S&P rose 135 and Nasdaq 140 Dow points. The yen fell .16 to 118.72 and the euro was up .0003 to $1.3636. It traded over $1.37 during the day. The former high was $136.66. the pound lost .0013 to $2.0010, the Canadian dollar rose again, up .68 to 89.75 and the dollar index fell again -.11 to 81.25. The 2-year yielded 4.64% and the 10’s were 4.65%. Oil rose back up again to $65.82, up $1.24, gasoline surged again up $0.07 to $2.27 and natural gas rose $0.09 to $7.69.

On Thursday, four hours prior to the opening the Dow was unchanged, S&P up 7 and Nasdaq up 48 Dow points. The Nikkei rose 193, FTSE +50Dow points, the CAC +13 and the DAX +52. The yen was +.60, the euro -.0023 and the pound -.0036. Oil was -$0.39 and gas -$0.01. The 2-year was 4.62% and the 10’s 4.65%. Gold was unchanged, silver -$0.05 and copper -$0.02.

They are executing those shorts by the thousands. As we suspected the commercials at the behest of their masters at the Treasury and at the Fed, they are laying it on. Have no fear - we do not have far to go. If they destroy the specs they’ll have to deal with a falling stock market and they do not want to do that, do they? Open interest rose 802 contracts to 404,180, silver open interest fell 3,480 contracts to 120,219, which is a major drop. We believe we are nearing the end of this correction as short covering has begun. Gold finished off $9.60 at $674.40 and silver fell $0.46 to $13.28. The June gold contract was off $9.40, silver fell $0.44 to $13.33 and copper was $3.51 unchanged. The dishoarding continues, but all the bankers are doing is buying time and losing their most precious asset at ridiculously low prices. This is a terrible price to pay for confidence and illusion. They want us to believe their lie that their fiat currencies have value when they do not have value. Only gold has value. That is why government tries to shut us up. They do not want anyone to know the truth. This you see in their phony war on terrorism. In their pursuit of your liberty by naming you an enemy of the state if you disagree and expose them. On Wednesday, the big Tocom shorts reduced their shorts 1,004 contracts to 98,281. Goldman reduced their shorts by 84 to 20,810. The same group increased silver shorts by four contracts to 5,223. The XAU fell 317 to 139.42 and the HUI fell 8.05 to 343.27.

The Dow on Thursday rose 16 to 13,105, S&P fell 11 Dow points and Nasdaq rose 42 Dow points. The yen lost .93 to 119.55 as the Fed accommodated the specs in the yen carry trade so they could buy the market with no immediate fear that the yen would rise. The euro fell .0034 to $1,3601, the pound fell .0100 to $1.9913, the Canadian dollar fell .55 to 89.21 and the dollar index rose .32 to 81.57. Oil rose $0.78 to $65.06, gas rose $0.02 to $2.30 and natural gas fell .18 to $7.51 The 2-year rose to 4.67% and the 10’s rose to 4.70%, which spells big trouble for mortgages for future homebuyers.

Early on Friday was as lackluster as usual. The Dow as -17, S&P -28 and Nasdaq -18 Dow points. The Nikkei was -29, FTSE -40 Dow points, CAC -3 and DAX -4. The yen was +27, the euro +.0042 and the pound +.0078. The 2-year was 4.65% and the 10’s were 4.69%. Oil and gas were unchanged. Gold was -$.050, silver unchanged and copper -$0.02.

Two more days like Friday and we’ll have a gold and silver turnaround. Gold closed up $4.50 to $678.90 and silver was up $0.15. The June gold contract rose $3.80 to $681.80, silver was up $0.12 to $13.44 and copper was $3.53, up $0.03. Open interest fell 8,633 contracts to 395,557 and the silver open interest fell 1,295 to 118,924. Gold in Europe is trading at 495 euros to the ounce and passing 500 will peak interest in Europe. The GDP figures (doctored as usual) came in at a 1.3% growth rate in the first quarter down from a bogus 2.5% in the fourth quarter. Two percent or less for three quarters in a row denotes recession. This should have sent gold and silver higher and the Dow down over 100 points. Thursday the big Tocom shorts increased short 451 contracts to 98,732. Goldman increased shorts 29 contracts to 20,839. Tocom is closed next week. The same group increased net silver shorts by 278 contracts to 5,501. Tocom margin requirements minimum initial gold trading margin is being reduced from 120,000 to 90,000 yen. The XAU finished up .49 at 139.65 and the HUI rose 1.56 to 344.83.

Friday’s Dow rose 15 to 13,121, S&P fell 2 and Nasdaq rose 19 Dow points. The yen rose .09 to 119.50, the euro rose .0054 to $1.3646, the pound rose .0074 to $1.9978, the Canadian dollar rose .44 to 89.62 and the dollar index fell .02 to 81.35. Oil rose $1.35 to $66.41, gas rose $0.06 to $2.35 and natural gas rose $0.25 to $7.86. The 2-year Treasury rose to yield 4.60% and the 10’s were 4.70%.

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-- Posted Sunday, 29 April 2007 | Digg This Article