SATURDAY, MAY 5, 2007

05-07-#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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US MARKETS

The IMF believes they have the world economy all figured it out after 4 years of 4.9% growth in the years 2003 to 2006. They believe we will see another 2 years of the same. The last time this happen was in 1970 to 1973 when growth was 5.4%. 1974-75 had growth rates of 2.3%, which include a sharp recession. There has never been a six year 4.9% increase since 1970; someone should remind the IMF that growth was 2.5% in the fourth quarter of 2006 and 1.7% in the first quarter. On average that is border line recession, recession being 2% or lower for 3 continues months. In the early 1970s the Fed and others were not increasing money supply by 14% a year for over 3 years nor was the UK, Australia and Europe. The IMF anticipates the strongest growth in 35 years plus 2 additional years. This would be unprecedented and might happen. If it does the aftermath would be a humdinger.  

The IMF seems to have discounted the results of the housing recession, and its effect on financial markets and the economy.

Already bonds of CDOs are being revalued by credit organizations and we see dozens of downgrades on CDO’s failures. This has, and will continue to spread to ALT-A paper, fixed mortgages and junk bonds. It is only a matter of time before it reaches quality issues, overall short and long term US Treasury rates have been and continue to move higher. Pushed upward by foreign interest rates and a weakening dollar, the housing market is facing overall losses of 1.3 trillion dollars and that is not chump change.

Due to the sea of money swirling around the world doesn’t mean the next 2 years couldn’t slide by in a light recession, but as we and Carlyle Corp. said last week the longer this correction is put off the worse it is going to be. It must be understood that the 4.9% growth is expected to come from Asia and the developing world. The IMF sees the US gaining 2% in 2007 and 2.2% in 2008, still recessionary conditions. They believe at least for 2 years the sea of money will carry the world economy. What happens after that is problematic. We see US GDP growing at 1% to 2% over those 2 years. Recession and prolongation only make the ensuing years far more difficult. We are already in a consumer pullback. People are house (asset) dependent, income-short, overly-indebted, without savings and there won’t be a source of expansion. As the US declines so will the rest of the world. As we said before, the key is for how long and for how much will commercial, business and speculator interest continue to assume the wild risk they are assuming. The US and the US dollar is the key. The internationalist had everything interconnected. That is great when everything is going fine. It also feeds on itself in a down spiral as well. As we have said before American’s only salvation is tariffs on good and services. It is the only way we can keep companies and jobs in the United States. We have to charge the currency manipulators, subsidizers and unfair traders to do business in America, otherwise we are doomed. We cannot become a total service society. Wealth has always comes from production, technology and innovation.

We project that by the yearend a currency and trade bill will pass Congress veto proof and it will become law. How extensive it will be remains to be seen. It will be a start. That will lessen if not destroy the dominating effects of WTO, NAFTA, and CAFTA.

The first step is to kill the presidential fast track. The bill will be far more stringent on China than others. China will sell dollars adding to the pressure on the world reserve currency, but they know they can’t dump dollars, because they will take 30 to 50% loses. That’s the percentage that the currency is undervalued. China should have been dollar sellers in an orderly fashion the past 6 years, but they will not and now no matter what transpires they will be losers. That will cut back on exports to the US, disrupt China and cause higher US inflation.

In America and eventually throughout the world there will not be containment of these problems. Control is now, in part, out of the hands of central banks and in the hands of speculators.

Once they substantiality cut back their risk taking the game will be over, and a year to 1-1/2 after that deflation and depression will take hold. Globalization and free trade will come crashing down in a heap. Then Illuminist’s heads will roll. The IMF and the banking and broker sector are deliberately ignoring their own danger signals in the quest to make more money and for that they and the public will pay dearly. It is nothing but denial wishful thinking and propaganda. Dismissing anything negative doesn’t make it go away.

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GOLD

On Monday gold finished up $1.10 at $680.00 and silver slipped $0.01 to $13.42. Gold was firm as inflation officially was 4.8%. May gasoline rose $0.08 to $2.44 a gallon, copper was up 1.39% to $3.66, aluminum up .22% and zinc rose 2.47%. The 10-year Treasury note yield fell back to yield 4.63% after having spent a few days at 4.70%. You saw last week’s $34.5 billion repo rise by the fed. It fell back $6.4 billion on Monday. It is now at $60 billion as the Treasury drives the yields on the 10’s and 2’s lower. The dollar again was under slight pressure at 81.26 minus .09. Gold open interest fell 3,839 contracts to 391,718 and silver open interest fell 4,147 to 114,977. The Dow was hit for 58 points ending at 13,062. After the close in the very thin gold access market gold was trading off $3.40. That helped - it opened down $4.20 on the Comex on Tuesday morning. At Monday’s close the Nasdaq 100 was off 192 Dow points. It should be of interest that the main underwriter of the Lihir issue, to raise $1.2 billion to cover its hedge short, was Goldman. Just before they did the deal they covered 50% of their shorts on the Tocom. We do not know what they did on CBOT and Comex because it is hidden from public view. The HUI ended Monday down 5.23 to 339.60 and the XAU fell 2.42 to 137.29.

One year gold lease rates dropped .03% on Tuesday to .15%, which is the level it was at in the most recent manipulations.  The one-year rate is now almost the same as the three-month rate.  Note also that the yen backed off to the level it was at before the squeeze was put on the large specs to scare them out of the gold market into the stock market.  The factory reports, undoubtedly exaggerated again to support the falling dollar, have reduced the chances of a rate cut, putting pressure on the stock market, so the cartel is making the market more attractive to the carry trade large specs by weakening the yen to get some money rolling back into the market.  Gold continues to languish as open interest continues to plummet.  The yen has become the thing to watch along with the Dow, as the interaction between the Dow and the yen may telegraph what the cartel is up to.

          Tuesday was another rig job. The Dow was off 30 and miraculously ended up 73 to 13,138 on lots more bad news. Funny how that has happened on 19 of the past 21 business days. As you know gold was off $3.40 overnight and they hammered it all day. Gold closed at $673.80, down $6.20 and silver fell $0.21 to $13.21. Our downside goal was reached interday at $670.00. We as you know saw lease rates way down again, so that means more leased gold was sold into the market by central banks via Morgan and Goldman. That is the second leasing in two weeks. Overnight London was closed for May Day as was Tocom and India, so the crooks had the market all to themselves. They had gold off $6.00 at the opening and sat on it all day. All of this suppression of gold and silver tells us some very bad news is coming economically or financially. The news has been 75% bad already. Something is in the wind or they wouldn’t be hitting gold as hard as they have been. Official inflation reporting is getting much worse and that could be part of the reason or the Fed, Treasury and other central banks are panic stricken because the dollar, on the USDX, dollar index, is getting ready to break down through 81 to test 80.5 and 80. It ended Tuesday up .13 at 81.43. Making the dollar move up today was easy with Asia and Europe closed. The euro closed down .0039 to $1.3614. Our warning that long ago Gordon Brown, Treasury Secretary for England, had leased all the rest of the gold he hadn’t sold has been verified by our operations. England has no gold left, just fiat dollars. We believe Mr. Brown’s gallows should be erected at Hyde Park corner and we’ll pull the pin if asked. Tuesday’s XAU fell .88 to 136.18 and the HUI fell 2.53 to 337.07.

          Wednesday gold did reasonably well finishing at $672.60, off $1.20 as silver rose $0.02 to $13.23. Gold was firm on the end and silver firmer. The gold and silver shares finished up strongly. Interday gold did visit $667, and then turned back up strongly. The gold open interest rose 2,567 contracts to 396,276, which is a reflection of elitist suppression. Silver open interest fell another 2,339 contracts to 109,108. The dollar is so weak it couldn’t even put in a worthwhile rally this week. On Wednesday it could only rally .16 to 81.59 as the euro fell .0010 to $1.3594. Oil fell $0.72 to $63.88, which didn’t help gold.

          Two ECB central banks sold 195 million euros of gold or 12.17 tons. They keep right on pouring it on, but the physical buyers keep buying all they can throw at them. Last week they sold 17.54 tons. They have now sold 89.6 tons over seven weeks.

          The Dow defied reality again up 76 to 13,211 as the Nasdaq rose 156 Dow points. Tuesday on Tocom the big shorts increased their position by 2,609 contracts to 97,566. In silver they reduced their net short in silver by 166 to 5,376 contracts.

          On Wednesday the XAU rose 3.72 to 139.99 and the HUI rose 4.69 to 341.76.

Newmont saw a 67% plunge in first quarter profits due to lower production and higher costs.

          Barrick Gold lost $557 million in the first quarter due to lower production and higher hedges.

          Barrick still has 9.5 million ounces of gold hedged below $400 an ounce that are committed to two projects. They must deliver production in 2009. One the Pascua project will never be allowed to move forward. Barrick is in big trouble. What Barrick, like Lihir, is doing is de-hedging by raising money and then buying futures and not replacing the physical bullion that is left in the vaults of the central banks.

The aggressive sale of gold since 1987 served to stifle gold and silver exploration, which now is forcing prices higher as production falls. It takes 5 to 8 years to take a mine into production. The global pipeline of gold and silver projects will begin to dramatically dwindle in just 1-1/2 years in 2009. Thus, any projects, even marginal ones, are being pursued. The result is further consolidation in the industry and the gobbling up of new projects

On Thursday, as we predicted it would, gold firmed up after testing $667 yesterday and followed it with a sweeping move. Now the question is are we in a consolidation as in a breakout mode. Gold closed up $9.20 to $681.80 and silver rose $0.16 to $13.16. We had a good start in London up $3.00 to $675.90. After the Comex opening gold ranged from +$1.90 to +$2.50 and then eventually broke out. The physical market off take continues to plague the central bank sellers. For big dollar holders buying gold is a great way to dump dollars. Gold open interest rose 2,291 contracts to 398,567. Silver open interest fell 1,888 contracts to 107,220. Silver is ready for big spec accumulation. Copper rose $0.08 up 1.04%, lead up 1.38%, zinc up 1.78%, nickel up 1.68% and aluminum up .59%. That certainly aided gold and silver’s advances. Platinum historically joined in on the upside up $9.00 to $1,306. Historical in bull markets gold has traded $100 to $150 lower than platinum, so you can see the effect the elitists have had on prices. Be patient, they are winning the small battle; soon we’ll win the big ones. The dollar rose .23 to $1.82 as the euro closed down .0036 to $1.3558. The dollar rallied late. Oil fell $0.49 Dow points. Japan and China were closed. The gold bears are in trouble when the sale of 89 odd tons in seven weeks can only move the gold market down $20.00. The XAU rose 1.64 to 1.64 to 141.54 and the HUI gained 3.44 to 345.20.

The cartel's carrot and stick approach continues to lure carry-trading large specs away from gold and into the stock market.  Today, 5/02/07, the yen was weakened by the cartel into the 120+ category for the first time in many weeks, with the yen exchange rate going as low as 120.26 yen per dollar.  For those of you who do not follow the exchange rate for the yen, that is nosebleed territory.  Meanwhile, the Dow continued to scream past the 13200-level, as the cartel doled out a big, fat juicy carrot to the stock-buying, carry-trading large specs as a reward for their stock market support.  That carrot is of course the vastly weakened yen just alluded to, which frees up large spec liquidity in the carry trade so they can purchase more stocks.  If they use this additional liquidity to purchase gold instead of stocks, the yen is strengthened by the cartel instead as punishment.  That is the stick.

Gold is now trading at about $20 per ounce off its high of 693 and is now at about 673, although gold did go as low as 667 before recovering and appears to be in consolidation mode.  Gold open interest, after dropping from 404190 on 4/25/07 to as low as 391718 on 4/27/07, has added 4558 contracts over the past two days for a total of 396276 contracts as of 5/1/07.  Given the price action in gold, one would expect that this was the addition of mainly shorts, so it should be interesting to see how the tallies come out at the end of the week.  The current scenario of decline is a far cry from the cartel hits of old in which gold and silver were continually blasted into the subbasement.  This is because the cartel has switched from a strategy of gold-clobbering to a strategy of gold-containment.  On a positive note, one year gold lease rates jumped .04% to .19%, a level which is unlikely to produce gold leasing in a quantity sufficient for a major gold suppression.  In addition, both the XAU and HUI were up despite gold weakness, a rising dollar index and declines in oil futures.

Although the dollar appears to be recovering somewhat on favorable economic data of the thoroughly massaged and manipulated variety, one wonders how people can be bullish on the dollar when rate hikes by the Bank of England and the ECBs (European Central Banks) are very likely in the near future while prospects of a rate hike by the Fed in the near future seem pretty slim.  When you also consider that China has recently announced its plans to dump dollars and increase strategic commodities and gold reserves, the whole economic scenario continues to remain in the surreal, "Theatre Bizarre" category, leading one to ask what these crazy people are smoking as they continue in a state of total denial.  The only thing between Gold 673 and Gold 1000 is the cartel, which spins and maintains a Goldilocks Matrix in which people can continue their existence in a dream-like state while the march to financial oblivion inexorably continues. 

Gold hedging by mining companies fell 3.9 million ounces to 36.7 million in the first quarter and the decline for the year is expected to be 8 to 11 million ounces. This cut of almost 10% was the 20^th consecutive quarterly reduction, and means that gold hedging worldwide is now 64% lower than it was at its peak in the third quarter of 2001.

We guess our question has been answered. We are in a consolidation and we may very well breakout to higher levels. Gold finished Friday up $5.10 to $686.90. That is quite a feat after having visited $667 just two days ago. As we said over and over again the gold market was taking everything the cartel could throw at it and persevered. We can expect another attack on Monday because the physical market in London is closed and the bandits on Comex will have their way with the market. On the other hand, India, China and Tocom could be strong. Don’t forget the Fed is in a box as we said last June. They cannot raise interest rates because the economy will collapse and if they lower them the dollar will collapse, thus, rates will stay the same and deterioration takes place and inflation flourishes because of four years of massive credit creation. All the wrong things in all the wrong places. Gold and silver are a lock to move higher. Incidentally, our latest M3 numbers are skirting 12%. 

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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