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US MARKETS
After having expanded money and credit by more than 10% for four years, after encouraging yen and Swiss franc carry trades worth $1.2 trillion in the expansion of credit and after allowing non-regulation of derivatives and hedge funds that created trillions more in credit, our economy has official questionable growth in the fourth quarter of 2.5% of GDP to 1.3% of GDP in the first quarter. All those trillions of dollars couldn’t keep the US economy growing over 3%. This economy is in serious trouble. The flip side is the sea of money has caused via enormous leverage, the Dow to hit new highs well over the 13,000 mark as the economy falters. The Dow is now up 82% from its low of 7286 on 10/9/02 and over that period GDP grew only 38%. This is one of the most vulnerable phony bear market rallies in decades. There is no business cycle. This is a credit asset cycle gone wild via speculation and leverage. A good example, which we covered at the end of the US section in the last issue, is the highly leverage short-term borrowing of low interest currencies that is used to finance high-return long-term investments in high-interest currencies through carry trade and currency arbitrage; with projected future cash flow booked as current profit to elevate share prices. We do not know when it will happen, but an untoward event will cause a reversal better known as a “paradigm shift.” The falling dollar could be the catalyst for such a failure and shift. Such an event is way overdue.
As we wrote earlier we do not believe government statistics because they have so often been caught lying. An example is the revisions in fourth quarter GDP that finally ended up with 2.5% growth. The first quarter was 1.3%. They tell us the main culprit is the housing market, which has seen home building fall some 20%. We project a 60% fall in construction just to match the fallout between 1989 and 1992. In that previous period we had few subprime and ATA-A loans, so we’d suspect we could go to a 70% reduction in new home starts. The negative changes for the housing market means fewer cash out and home loans and a drop in spending. You saw that surface last November and it became manifest last week as retail sales slipped into negative territory. There will be no rise in spending. Inflation is 11% and wage increases are 4.5%, savings are-1.5% and the public is buried in debt.
We get tired of the government drivel. The US wants a strong dollar. The only reason the dollar hasn’t collapsed is that the major central banks are supporting it, and that is because they do not want their own currencies to appreciate. That makes their exports more expensive. Once the dollar falls from 82 to 45 to 55 on the USDX, you can expect far less US imports and lots more exports. Imports will rise in price at least 25% and US export prices will fall 25%. That should put a major crimp in free trade and globalization and cause even more inflation in the US. Not only is our government lying about inflation, as it’s increasing not decreasing, contrary to what Fed policymakers, the BLS and Wall Street tells us. We even see financial writers saying the Fed has a tight monetary policy. What can they be thinking of with the creation of Fed money and credit over 10% and inflation hovering at 11%? The move in interest rates from 1% in June 2003 to the current 5.25% has been more than neutralized by monetary creation. Don’t these people read? The fed isn’t going to change interest rates anytime soon. If they fall, the dollar crashes and if they rise the economy will slow further. They call that no way out.
As the economy continues to slow excess already available liquidity will increase. It will flow in all likelihood in large part into the stock market, which is already far overpriced. This debt driven liquidity boom is exacerbated by a falling dollar, which artificially inflates offshore earnings of transnational conglomerates to support rising share prices pushed up by too many dollars chasing after a dwindling supply of shares caused by corporate buyback programs paid for with low interest loans.
Not only did the bulk of the tax reductions go to the upper middle class and the rich, but so did the capital gains while us peons, us wage earners, got the crumbs. Luxury item sales are booming and the rich are buying third and fourth homes, while the average worker is buying a cheap T-shirt or sneakers from China. Hedge fund managers are taking home up to $1.7 billion a year and the average worker makes $28,000 a year. The minimum wage is $5.15 an hour and if the minimum wage were to rise at the same rate as CEO pay, it would be $22.61 an hour. The worker is back to where he was in the 1930s.
All the numbers we see and have seen since November show a slowing economy. In employment retail is starting to lose jobs and manufacturing and construction continue to be hit hard. Job creation is falling as well. We are seeing a broad based deceleration in employment in the service sector, as more professionals finally outspokenly question government statistics, not only on employment but on CPI and PPI as well. Where were these experts four years ago when we were shouting bogus?
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The dollar has just had its dead cat bounce. It soon will retest 81 on the USDX. The dollar will have to fall to 60 to be a factor in trade. Free trade and globalization is a toxic cocktail for our economy as we have already seen. In order to make profits even greater the neocons deigned tax advantages for transnational conglomerates for moving their operations. They can have offshore accounts and residency to hide profits until later, but you can’t do that, your government won’t let you. If you remember a few years ago they were allowed to bring home offshore profits and pay 5-1/2% taxes.
As a result of a failed financial and monetary policy since 8/15/71, the dollar will soon bite the dust and eventually lose its superior position as world reserve currency. A number of currencies have already technically broken out and more will follow as they prepare for the dollar onslaught. Once the dollar has bottomed a few years from now our debt will be called and our sovereignty will have been lost. Everyone else will own us and the only way out will be bankruptcy.
You ask how did this happen? It was deliberate financial mismanagement. We dropped out of the gold standard. Through the Reagan years we buried ourselves in debt with supply-side Keynesianism; then Bill Clinton sold us out to the Chinese for campaign contributions. For that he gave them lots of our secrets and gave China most favorite nation treatment. That opened the door to free trade and globalization and slave labor we could not compete with. In the process we lost our manufacturing base to Asia and technology and electronics followed. Now it is white collar jobs. We now have lost five million jobs with 40 million to follow. Doesn’t anyone see our economy is being deliberately destroyed? A 30% dollar devaluation puts the dollar index at 57. A 40% devaluation puts it at 41. These are the numbers we forecast in 2001, but few were listening. As we fall down a 36-year black hole, Russia who lost the cold war is prospering, and has nearly $400 billion in foreign exchange and we are broke. We should have never opened our markets. China’s was based on the employment arbitrage and they have had us for lunch. They should take 90% of American economists, analysts and politicians out and shoot them. They sold us out by following the elitist line. China has $1.2 trillion in foreign reserves and we have monstrous debt and an economy that is about to collapse.
We are not incompetent. We are being sold out. Transnational American conglomerates are spending $15 billion a year building factories in China, plus India and Mexico and they have to be stopped. If not stooped your next job offer may be in Mumbai.
We read some 50 newsletters a week and none of them get it. This is the planned destruction of our economy and they do not see it. They do not understand what is being done to us. This is not ineptitude. We do not understand how they can dismiss a man whose job has been outsourced; he’s lost not only his job, but also his pride, he has used up his savings and he is living under the bridge. This is the reality of America today.
How can a nation survive exporting 64% of its capital? China and energy account for 65% of our deficit. How do we change that? Easy, we set up trade barriers on goods and services. If we do not it is all over.
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GOLD, SILVER, PLATINUM, PALADIUM AND DIAMONDS
Monday early on was mixed as usual. The Dow as -9, S&P -14 and Nasdaq-15 Dow points. FTSE was -32 Dow points and CAC was off 22 and DAX +05. The Nikkei was +124. The yen was -.12, the euro +.0028 and the pound -.0007. The 2-year Treasury was 4.70% and the 10’s were 4.67%. Oil was +.46, gas +.05 and natural gas +.07. Gold was up $2.80, silver was even and copper was -.03.
Another typical Monday. Gold fell $1.60 to $668.50 and silver fell $0.07 to $13.13. The June gold contract was off $2.20 to $670.10, silver fell $0.07 to $13.23 and copper fell $0.11 to $3.50. The a.m. fix was $674.20. Gold open interest fell 6,054 contracts to 407,917, silver OI fell 349 contracts to 109,316. The big Tocom shorts increased their net gold short position by 2,269 contracts to 95,435. Goldman increased their shorts by 266 to 20,666. The group cut their silver shorts 365 contracts to 6,302. The XAU lost 2.31 to 137.45 and the HUI fell 6.84 to 331.
The Dow rose 21, S&P 25 and Nasdaq 95 Dow points. The yen was -.14 to 12032, the euro rose .0020 to $1.3543, the pound fell .0026 to $1.9786, the Canadian dollar rose .43 to 90.35 and the dollar index fell .05 to 81.97. The 2-year Treasury rose to 4.73% and the 10’s were 6.69%. Oil rose $0.08 to $62.45, gas fell $0.06 to $2.30 and natural gas rose $0.05 to $7.95.
Johnson Matthy says platinum supply exceeded demand last year for the first time since 1988 and the surplus will grow due to rising South African output. Last year’s surplus was 10,000 ounces, compared with a deficit of 55,000 ounces in 2005.
Nevada gold production in 2006 was 6.3 million ounces, down 8% yoy. Nevada accounts for 78% of total US gold production. It has been bumped from 3rd to 4th by China. South Africa and Australia are 1 & 2.
South African gold production for 2006 was off 22 tons from 2005 and the lowest since1922. Based on early 2006 production we believe production could fall 10% below 20 tons.
On Tuesday, the markets got off to a bumpy start. The Dow was -6, S&P -20 and Nasdaq -8 Dow points at 3:45 a.m. Nikkei -165, FTSE +9, CAC -13 and DAX -3. The yen was +0.01, the euro -.0010 and the pound -.0038. The 2-year was 4.73% and the 10’s were 4.70%. Oil was -$0.03, gas -$0.02 and natural gas -$0.02. Gold was -$2.10, silver -$0.10 and copper +$0.03.
Head of the IMF, Rodrigo Rato was shooting his mouth off again about selling gold to pay the bills at the IMF in another effort to knock gold down for the Illuminists. He says he wants to sell 400 tons. The world would be better served if he reported how much gold was leased by IMF members. It is presently being carried as an asset on different central bank books, when in fact it has already been sold.
Although not gold backed the US supposedly has 80% of its reserves in gold. Portugal 82%, Germany 65%, France 58%, Spain 45% and Switzerland 42%, the UK has only 15%.
Tuesday ended strong for gold and silver. Gasoline prices escalated again. That means higher inflation and less profits.
Gold closed up $4.20 at $672.70 and silver was up $0.06 at $13.19. The June gold contract was up $4.40 to $674.50, silver was up $0.08 at $13.32 and copper got back some of yesterday’s large losses, up $0.04 at $3.54. Today’s action was constructive again. Gold rose $6.00 – fell to -$1.00 and then rallied again to close firm and higher. The effort by the Illuminists to keep gold under $700.00 is not going to work. It will be broken to the upside. What is super bullish is that the public is far away from gold and silver and that’s constructive. You buy them when nobody wants them. That is coins and shares. Gold open interest fell 683 contracts to 407,234 and the silver open interest fell 25 contracts to 109,291. Silver held $13.00 again. Official figures now show inflation at 4.8%. That certainly is a strong indication for gold and silver. The Monday Tocom big shorts increased their shorts by 411 contracts. Goldman covered 411 contracts to net 20,255. The same group reduced net silver shorts by 97 contracts to 6,205. The XAU was up .49 to 137.85 and the HUI fell .68 to 330.32.
The Dow ended Tuesday up 37 to 13,384; S&P fell 18 and Nasdaq 127 Dow points. Tomorrow should be a down Dow day. The yen rose .23 to 120.19, the euro was +.0047 to $1.3588, the pound was +.0058 to $1.9849 and the Canadian dollar hit a new high of 91.03. The 2-year Treasury was 4.74% and the 10’swere 4.71%. Oil was up $0.71 to $63.17, gas +$0.02 to $2.30 and natural gas -$0.09 to $7.86.
Due to the cost of energy and the sources of supply more countries are aggressively turning to nuclear reactors for power. There are presently 28 reactors under construction; 64 planned and 158 proposed that will need 66,529 ton of uranium.
Uranium prices are on a rampage. Just recently the contract for forward delivery was priced at $150.00 a pound. The duel that was supplied by Russia from former Soviet decommissioned weapons is gone and the industry is facing a massive supply crunch. Last year mines only produced 48,000 of 78,000 tons needed to feed the 440 active nuclear reactors in the world. In 2008, nuclear power plants’ demand for uranium will exceed supply by more than 32 million pounds. Despite this shortfall 28 new reactors are on the way, 64 more are planned and 158 proposed. These reactors can only use uranium, nothing else.
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