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International Forecaster May 2007 (#2) - Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster



-- Posted Sunday, 13 May 2007 | Digg This ArticleDigg It!

The following are some snippets from the most recent issue of the International Forecaster.  For the full 20 page issue, please see subscription information below.

SATURDAY, MAY 12, 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

E-mail Address

International_forecaster@yahoo.com

CHECK OUT OUR WEBSITE

www.theinternationalforecaster.com

 

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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.

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Note:  We publish twice a month by surface mail or twice a week by E-mail. international_forecaster@yahoo.com

 

US MARKETS

 

Recently the New York Federal Reserve released a report, which warned sharply against concentrations of risk and referred to the LTCM crisis of 1998 that nearly took down the international financial system. Since that time there has been no legislation or regulation of derivatives or hedge funds. Instead of fixing the system the Fed has adapted a wall of money and credit policy, which in itself has become another unsustainable financial bubble, which is about to pop.

 

The Fed knows darn right well that a storm is brewing and concentration is massive. The Fed should know they helped create this monster. Hedge funds now make up over 50% of NYSE trades. Furthermore, the hedge funds are buying the same kinds of debt collectively. Thus, sudden financial losses could strike them all simultaneously. That means their borrowed funds could be called in and their leverage disrupted. We know derivatives and hedge funds are giant accidents waiting to happen, but what is very curious is the US media failed to report these comments. The Financial Times of London did so and stressed the danger involved. In fact, some of the US media reported the exact opposite of the intent of the Fed’s message.

 

As the stock market rises to dizzying heights no one wants to hear portents of bad news. No one wants the spell to be broken. It might kill the euphoria in the market, which makes like the recession we are in and the collapse of real estate and the manufacturing industry didn’t really exist. Wall Street ignores the crisis in mortgage-backed securities.

...

The housing slump has hit NYC’s richest suburbs. The average price in Westport, CT fell 8.2% to $1.56 million in the first four months of the year yoy. Wealth and excellent credit have until now spared bedroom communities in NJ, NY and CT and New York’s Westchester County. Prices fell as much as 18.8% this year in 15 of 24 areas in which data was collected.

 

Mortgage applications rose 3.6% for the week ended 5/4. Rates are low and credit is plentiful for people that document their income, have good credit and some equity. The purchase index rose 2.6%, the highest since 1/12/07. The refi index rose 4.9%. The 30-year fixed rate mortgage rate fell 4 bps to 6.10%.

 

Our latest M3 estimate was a 10.3% increase in money and credit. Credit is expanding via bank swaps, GSE debt creation, and debt creation via banks, derivatives, swaps, hedge funds and carry trades.  Money and supply is contracting as credit expands. That means that 10.3% is only a guideline in as much as the Fed has actually totally lost control of money and credit. We have been calling it net at 14%, but no one really knows what now constitutes aggregates. If this credit creation continues and rises we could go far beyond Tulip Mania and the eventual implosion of the financial system and a crash that could be far more serious than the Great Depression of the 1930s. The minute pros even think there will be lower interest rates gold and silver will soar. If Fed statements are pacifical or sound in any way soft you can expect gold and silver to move higher. That could be why the central banks have been hitting gold so hard this past week. The Fed is in a box and cannot get out.

 

Our government acts just like the KGB did under Stalin. The State Department and the US agency for International Development have instructed employees to remove all references in publications and other materials to Randall Tobias, the USAID administrator and Deputy Secretary of State. He, as we reported, was a client of DC Madam Deborah Jean Palfrey. Tobias has been purged like he never existed.

 

Our paid off Senate gutted the latest attempt to legalize prescription drug imports from Canada and other countries. The excuse was the FDA must certify the imports are safe and effective. You have to be kidding. The FDA’s record is so bad they couldn’t certify a rabid dog. Even the FDA said they couldn’t do the job, but irrespective, the requirement passed on a 49-40 vote. The majority of the Senate has been purchased by Big Pharma, all controlled by elitists, and are the greediest most powerful special interest in the US, spending $172 million on lobbying efforts in 2006.

...

More than 5,000 California houses and condos were offered for sale at foreclosure auctions in March, more than triple the number last September. What is very disturbing is the 90% of the properties failed to attract bids, a sign that falling prices are keeping real estate investors on the sidelines. Most of the March foreclosures came from loans made in 2005 and 2006 and were no down payment loans. Foreclosures sold at auction now account for 15% of all home sales. Borrowers who should never had homes in the first place are simply walking away. 110% financing, nothing down and make your mark here loans are under water and lenders are stuck. The 5,316 properties being auctioned last month had outstanding balances totally $1.19 billion, up from 1,459 properties with loan balances of $512 million in September.

 

The nation’s trade deficit widened 10.4% in March to $63.9 billion, its highest level since September 2005. The February trade gap was $57.9 billion. For the first quarter the deficit was $180.7 billion, down from $191.6 billion yoy.

 

The petroleum deficit widened 2.6% to $45.5 billion, the largest since last September. We imported 324.2 million barrels in March, or 10.5 m/b/d, the highest level since August.

 

The trade deficit with China widened to $17.2 billion in March from $15.6 billion yoy. That deficit was $18.4 billion in February.

...

Primary dealer “repo” positions in Treasuries, Agency and MBS are up an astounding $533 billion ytd, or 45% annualized, to $3.981 trillion. This is another key data point along with $520 billion ytd growth in foreign reserves, 17.3% fiscal ytd growth in individual federal tax receipts, 160% yoy Chinese stock market gains $2.0 trillion ytd announced M&A, and a prospective $900 billion current account deficit, to name just a few confirming the degree to which the monetary system has run amok. It is certainly no coincidence that repos are these days expanding in similar degree to foreign central bank reserves. If we throw in the yen and Swiss franc carry trades we have a maelstrom of liquidity creation swirling throughout the world. This as Wall Street securities lending operations provide an endless supply of Treasuries to mop up global dollar liquidity, while creating an unending supply of cheap liquidity for leveraged securities speculation. There no longer is traditional bank reserve capital requirements, so contemporary electronic finance has evolved to the point of attaining the potential of unfettered expansion. The system is out of control, far beyond the ability of central banks to control the creation of credit. This multiplier effect that was once closely regulated, no longer is. Liquidity circulates through an expansive and increasingly non-transparent credit system via Wall Street through a jumble of vehicles all uncontrolled. This system creates a myriad of new debt. There is no accountability or regulation and our Fed says we do not need regulation. This they believe obviously is all they can do to keep the system from collapsing. This is totally unsound money and can best be called financial tyranny.

As a result money today cannot be adequately defined, let alone monitored and regulated. That is why the elitists are so terrified of gold. It is because gold reflects the decay of the monetary system. This massive dilution of an already fiat money system is shown historically to be the last gasp before collapse. Unchecked money and credit pose the greatest threat to capitalism.

Today we are told it is different. Well it isn’t different and we’ll soon painfully find that out. As hyperinflation unfolds, gold and silver will be your only financial salvation.

...

GOLD, SILVER, PLATINUM, PALADIUM AND DIAMONDS

 

Gold and silver shares have been in a consolidation phase for over a year and each time that has happened in the past it has been followed by a major bull run. If you want a reference point look at 146 as the breakout number on the XAU. This breakout is now inevitable and it could happen soon. There is practically no volatility in the shares and that type of environment usually precedes a major run. We could very well be looking at the next leg up in this major bull market.

 

On Wednesday, the central banks and our Treasury didn’t care who knew that they were selling gold. The naked shorts were doing their damage in London and there was a large central bank sale in New York. Gold was off $10.00 after the hits and immediately rallied back to minus $5.00 where it held for the rest of the session. We suspect a soft stance by the Fed on accommodation and lower interest rates to spur the market higher. This, of course, would send the dollar lower and gold and silver higher. In order to stop a gold-silver rally before it happened they tried to instill weakness in both markets and what strength they could in the dollar. The Dollar Index rose a paltry .04 to 81.98. The yen fell .07 to $120.05, the euro was minus .0017 to $1.3524, the pound rose .0038 to $1.9935 and the Canadian dollar fell .06 to 90.46. Gold closed off $4.90 to $680.10 and silver fell $0.10 to $13.35. The June gold contract was -$4.90 to $682.50, silver fell $0.13 to $13.47 and copper fell $0.04 to $3.68. The good news was gold bounced right back. Silver didn’t do badly at all as open interest gained 1,760 contracts to 108,852.

 

On April 25, the Hulbert Gold Newsletter Sentiment Index was 57.1%. On Tuesday, it was 14.3%. This is as bullish as it gets from a contrarians perspective. During that period gold has risen $3.00. This is an extraordinary divergence and should be taken advantage of by buying when nobody wants them. All bull markets like to climb a wall of worry, so a word to the wise should be sufficient. Even more specifically over the past three months, while gold has risen $20, the average gold timer has reduced exposure to the gold market by 60%. You do not get many buying opportunities like this.

 

Peru’s Energy & Mines Ministry says March gold production fell 14% yoy. It has been this way for the past several months.

 

Production in Zimbabwe, South Africa and Canada is down and that strengthens the gold fundamentals even more. All we can see is buy signals everywhere.

 

The FOMC left interest rates unchanged as we predicted, but their comments were softer than at the last meeting. “Economic growth slowed in the first part of this year,” which replaced the last statement’s claim that “recent indicators have been mixed.” That means the Fed has the excuse, or will have the excuse in the future to lower interest rates.

 

On Tuesday, the big Tocom shorts reduced their shorts by 3,976 contracts to 92,386. Goldman covered 755 to net 20,123. The same group increased their silver shorts by 58 to 6,735.

 

On Wednesday, the XAU rose .14 to 141.84 and the HUI rose .75 to 342.12, an excellent performance under the circumstances.

 

The Dow rose 54 to 13,363, the S&P up 45 and Nasdaq up 30 Dow points. The 2-year Treasury rose to 4.73% and the 10’swere 4.67%. Oil was off $0.71 after being down $1.50 and closed at $61.55,gas rose $0.03 to $2.23 and natural gas rose $0.08 to $7.72.

 

Thursday early on the Dow was -21,S&P -21 and Nasdaq -23 Dow points. FTSE was-28 Dow points, CAC -5 and DAX -16. The yen was -.21, the euro -.0005 and the pound -.0040. The 2-year Treasury was 4.73% and the 10’s were 4.67%. Oil was +$0.40, gas +$0.03 and natural gas +$0.40.Gold was -$3.20, silver $0.06 and copper-$0.05.

 

China produced 56.183 tons of gold in the first quarter, up 15.99% yoy.

 

We saw another day of naked shorting of gold in London and central bank bullion sales as well. Gold closed down $15.10 at $666.50 and silver was off $0.34 at $13.04. The June gold contract fell $15.50 to $667.00, silver fell $0.33 to $13.14 and copper fell $0.11 to $3.57. All the news was terrible. The trade deficit was up 10.4% and retail sales off 2.3%. The BofE rate increase was anti-dollar. The yen gained .22 to 1.1993, the euro was -.0052 at $1.3485; the pound fell a large .0138 to $1.9793, the Canadian dollar, which is red hot, gained .02 to 90.02 and the dollar index finished off 0.04 to 82.15. We can’t figure that out but we’ll take it. Gold open interest fell 947 contracts and silver OI fell 647. The large Tocom shorts increased their shorts 1,185 contracts to 93,571 as Goldman added 698 to 20,821. The same group increased silver shorts by 32 to 6,767.

 

The Dow fell 148, S&P 190 and Nasdaq 256 Dow points. The 2-year Tresur6y was 4.68% and the 10’s were 4.64%. Oil fell $0.26 to $61.81, gas was up $0.10 to $2.33 and natural gas rose $0.01 to $7.73.

 

The Friday early market had the earmarks of most everything going up. The Dow was up 11, S&P 12 and Nasdaq 11 Dow points. FTSE was +3, CAC -52 and DAX -57. The yen was -.03, the euro +.0012 and the pound -.0009. The 2-year was 4.67% and the 10-year 4.63%. Oil was +$0.48, gas +$0.02 and natural gas -$0.07. Gold was +$3.10, silver +$0.04 and copper -$0.18.

 

The Bank of Spain has announced that they have sold 2.6 million ounces of gold over the past two months. They have sold 20% their holdings. These sales along with the 112 tons or so sold by bank agreement members in a highly coordinated manner is what stopped gold from surmounting $700.

 

After Thursday’s aggressive naked shorting and central bank bullion sales Friday was a happy surprise. Gold finished at $670.10 up $5.10 and silver jumped $0.19 to $13.20. The June gold contract closed at $672.30, up $5.30, silver rose $0.17 to $13.31 and copper after being off $0.08 early on closed up $0.04 to $3.60. Gold open interest leaped 3,645 contracts to 413,971. Silver open interest rose a strong 1,457 contracts to 109,665. Finally some negative market-economic news actually helped. The PPI rose an annualized 8.4% following last month’s double-digit gain. Manufactures and services either increase productivity, cut costs and wages or pass on the increased to add to the already 11% inflation. The COT, Commitment of Traders report, showed the commercials increasing their net shorts by 6,000. We had said they would short another 13,000. That means we probably have another week of consolidation. It could be the physical selling is over for the moment and if that is the case we could test $700.00. On Thursday, the big Tocom shorts covered 421 shorts to be net short 20,400 contracts. The XAU rose 1.86 to 139.48 and the HUI gained 5.80 to 337.84.

 

The Dow closed the week up 111 to 13,326; S&P was up 129 and Nasdaq 168 Dow points. The yen fell .32 to 120.12, which is absurd. The euro gained .0054 to $1.3526, the pound gained .0025 to $1.9817, the Canadian dollar fell .19 to 89.90 and the dollar index fell .18 to 82.00. Oil rose $.056 to $62.37, gas rose $0.03 to $2.35 and natural gas gained $0.17 to $7.90.

...

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, 13 May 2007 | Digg This Article



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