-- Posted Wednesday, 23 May 2007 | Digg This Article

The following are some snippets from the most recent issue of the International Forecaster.  For the full 17 page MidWeek Reading, please see subscription information below.

WEDNESDAY, MIDWEEK, MAY 23, 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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International_forecaster@yahoo.com

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US MARKETS

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As of two months ago there were 2.2 million homes vacant and for sale. That figure from the Census Bureau is no doubt larger by now. That is the highest number since 1965. It is also a 57% increase over 2005 when 1.4 million were both empty and on the market. Evidentially the momentum investors are losing confidence as they spot many unopened parachutes. Those vacant homes are 17% higher than a year ago and unsold inventory has increased to 7.3 months. New homes for sale number 545,000, up from 544,000 in February, the highest in 16 years. The inventory has builders throwing in upgraded kitchens, swimming pools and garages, etc. to affect sales. We are talking 10 to 25 percent additions. HUD wants it stopped and Fannie and Freddie want to know if any such goodies were given away to entrap a buyer. It affects the value of the investment and in the process distorts the market.

Now those are the official statistics. We must now deal with the deceptions. Last year losses on home values climbed to as much as 15% in some areas, but in the 30 hot areas we’d say values diminished some 10%. This year the losses will be 15% and next year they will be another 15%. Construction is falling off and some builders are already going out of business, but building goes on to complete projects planned 3 to 5 years ago. The industry is only showing 120,000 layoffs when the numbers are considerably higher. Those laid off are illegal aliens who have never showed up as bona fide workers. These problems and all of real estate thus have to be solved with lower interest rates, which when they come will shoot gold and silver into orbit. Unfortunately, the event won’t help that much because the psychology has been broken.

We have questioned housing statistics for sometime, and now others are as well. We put little stock in statistics from the National Association of Realtors. Their figures are ridiculous and they, of course, are biased. Cancellations are improperly reported and that makes a major difference. Not all applications are accepted and some prospective buyers fill out more than one. We suspect by triangulation that sales in the former 30 hot areas are off about 33%. The MBA, the Mortgage Bankers Association and the NAR would have us believe that sales are only off 15 to 18 percent. If we are correct housing sales are twice as bad as we are told they are. In addition, layoffs are not being reported in the unemployment statistics.

We have talked many times over the past seven years about the Birth-Death model, which creates phantom jobs. In April, it created 317,000 jobs out of thin air. If you use BLS numbers and subtract B/D you get a net loss of jobs of 229,000. If you use the household survey you get a minus 463,000 jobs net. The March Jobs Report said we gained 88,000 jobs for the weakest report in three years. There is no sense in trying to disprove the government figures, one by one. We have already done that and they are totally bogus. We are calling unemployment at 13.5%. Lies, lies and more lies.

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Britain, China and the US have housing bubbles. Britain has been raising interest rates and China has started to do so, but not the US. If anything they will probably lower rates.

London housing prices have soared far beyond the buying range of even affluent Britons. Foreigners, mainly Russians, who are not taxed on worldwide income, which Americans and Brits are, have bought up London. Taxes rise on British citizens but not on foreigners, so you have a two-tier society, in which untaxed foreigners buy up the real estate that Brits cannot hope to own. If England starts taxing these foreigners they just move.

The US is already in recession and the future is grim, and China’s looks the same with $1.2 trillion in bad domestic debt and an export dependent economy. Not only are they vulnerable but also there is a good chance of a stock market and property price collapse. Britain, China and the US are where Japan was in 1992, and that is not good news.

          There is a war going on. The aggressors are private equity LBO specialists who take over companies, load them up with debt and then strip their assets. On the other side is corporate management are the poor souls who work for these companies and are losing their jobs. That sea of liquidity that our Federal Reserve created is allowing these buyout artists to corrupt our system. The fallout from what they are doing is going to be horrendous. These modern day pirates are ravaging the private sector, eliminating corporate bureaucracies at the rate of five a week. The jobs elimination is every bit as lethal as free trade and globalization. The outcome for these workers is stress, anxiety, poverty and a pay scale one-third of what they once previously made.

...

Kuwait has unshackled its dinar from the US dollar, and switched the exchange rate mechanism to a basket of currencies, throwing plans for a currency union with other Gulf Arab oil producers into disarray.

Oman and Bahrain and Saudi Arabia plan to stand by their pegs. The UAE has thus far made no comment.

The massive decline in the dollar’s exchange rate against major currencies has contributed to the increase in local inflation rates and this step is part of the central bank’s efforts to curb inflation.

The move was totally unexpected and could have a negative affect on the dollar and a positive affect on gold.

America’s problems are becoming manifest to the bond market professionals as bonds head lower. Bonds usually rise as economic fundamentals weaken. We believe this course of events is due to concern about China tightening rates and credit more aggressively and for fear of what the new Congress might do in the way of trade tariffs. The official economic numbers by and large are not good. Last Thursday we saw railcar loadings declined again for the week ended 5/12. Total railcar loadings tanked 7.0% yoy and are now -4.4% ytd.

Congress and the administration searching for new sources of revenue, are reviving a proposal that would impose penalties on tax saving financial transactions that do not otherwise have a clear business purpose. This economic-substance test may be included in a package of education tax incentives the Senate will take up as early as next week. If enacted it would penalize common tax-saving transactions, such as those taken to minimize liability in mergers and acquisitions.

Real average earnings fell by 0.5% from March to April after seasonal adjustment, says the BLS.

Merrill Lynch’s IOQ says total assets expanded $140.5 billion, or 67% to $982 billion annualized during the quarter. That means the combined assets of Merrill, Bear Stearns, Morgan Stanley, Goldman and Lehman grew $379 billion or 41% to $4.033 trillion.

Securities Financing Transactions jumped $114 billion to $410 billion as payable jumped $66 billion to $289 billion. If you add in JP Morgan Chase and Citigroup to a big 7 and combined repo funds, liabilities expanded an unprecedented $267 billion during the quarter, or 62% annualized. Forget the M2 and M3 aggregates, the current monetary expansion is dominated by a historic yet unrecognized inflation in repo instruments from the Fed. This is unbelievable leverage. When this edifice falls the sound will be heard throughout the world. 

The NY Fed 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 $5.20 billion ytd growth of foreign reserves; 17.3% fiscal ytd growth in individual federal tax receipts; 160% yoy Chinese stock market gains; $2 trillion in ytd global announced M&A, and a prospective $900 billion US current account deficit 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.

US securities finance has evolved into a primary source of systemic liquidity creation, the finance that then inundates the world’s markets and economies, only to be recycled by foreign central banks back to our securities and repo markets, where it again provides the liquidity to sustain more credit creation and bubble excess. Wall Street security lending operations at the same time provide an endless supply of Treasuries to mop up dollar liquidity, while creating an unending supply of cheap liquidity for securities leveraged speculation.

Money and liquidity can no longer be adequately defined. That is why we call total M3 at 15% - but no one really knows. Corporate fascism is recognized by a lack of checks and balances, when the separation of powers is recognized as absolutely paramount to a healthy democracy. These principles are viewed with intense distain when it comes to modern finance capitalism, just as they were in Italy and Germany in the 1930s. The product of this exuberance in the private sector’s capacity to create wealth and expand finance reaches its most fanatical extremes as it did in the 1930s, ending in collapse and the takeover in Germany and Italy by fascist dictators. A great amount of historical precedent has us convinced that unchecked money and credit pose the greatest risk to free market capitalism and they are about to bring us a hyperinflationary financial disaster similar to that which we saw in Weimer Germany.

This is accompanied by government spending of over $6 trillion a year. That is more than 50% of our $12 trillion GDP. Who is going to pay this colossal debt? Why is it that we have degenerated to the point that government and debt is the economy? ow can foreigners be dumb enough to dollar based assets when they are guaratn How can foreigners be dumb enough to buy dollar-based assets when they are guaranteed losers?

...

GOLD, SILVER, PLATINUM, PALADIUM AND URANIUM

If mining costs continue to escalate production could be affected or come to a halt. That would mean 2,400 tons of gold would not reach the market each year. If that happened the central bank market manipulators would soon be out of gold for sale and the price would catapult to higher levels.

As an example Newmont’s, Australia and New Zealand gold mining operations saw first quarter costs rise from $384 to $519 an ounce and their Carlin, Nevada operation isn’t faring much better. That means new mineral discoveries will have to be of sufficient grade to ensure an adequate return on the company’s investment. Inflation is going to further restrain new production coming on line for a wide range of commodities, including gold. Newmont said its workers at its Peruvian unit Minera Yanacocha, the world’s largest gold mine, have turned down a proposal to increase monthly wages by 48%.

Inflation-hyperinflation will continue to climb over the next two to three years and if the central banks do not stop suppressing gold prices production will simply cease. Mines will not be allowed to produce at a loss. Either way, gold prices are headed substantially higher as reserves dwindle. Majors are still not spending what they should be on exploration and there are not enough new independent mines to be purchased to fill in the reserve losses.

The state Bank of Vietnam has given the green light for three more commercial banks to trade gold via accounts based offshore. The requirements are that gold balances do not exceed 20% of their existing capital. There are now 13 banks trading gold.

Early Monday saw stocks up and precious metals and commodities down, which is normal. The Dow was up 11, S&P up 5 and Nasdaq up 22 Dow points. FTSE was up 40 Dow points, the CAC +1 and the DAX up 24. The yen was down .44, the euro was -.44 and the pound was .61. The yields rose again, 2-year Treasury bills were 4.82% and the 10’s were 4.80%. Oil was +$0.31, gas +$0.05 and natural gas -$0.02. Gold was -$1.60, silver -$0.03 and copper +$0.01.

The great bull market in bonds began in 1980. Briefly interest rates hit 21.5% and inflation was officially 13.5%. Even long term Swiss government bonds hit 14.5%. That event was accompanied by a fall in gold prices from $850 an ounce to $285 in 1985 and eventually to $252 in 1997. Since 1987, the Federal Reserve has arranged for central banks to be sellers of gold, first illegally and then legally starting in August of 1988. Ever since then central banks have been fighting a rear guard action against a falling US dollar.

For many years the gold market was a side show but that isn’t the case anymore. The main show is in the foreign exchange market and how fast the dollar will fall. This is a clandestine trade war to keep the dollar appearing strong and one of the ways to do that is to suppress gold prices in a game of psychological warfare. Remember, it’s been 27 years since 1980, so you would have to be 47 years old if you were 20 then, to have the possibility of remembering the great bull market of 1977-1981. 99% of people do not know that gold is a monetary asset and nobody’s liability. It is the only real currency immune to debasement, default and devaluation. Sooner or later the dollar will fall against other major currencies, as gold continues its upward move against all fiat currencies. Eventually central bankers will be made to pay for their sins. After 20 years of dumping gold and leasing gold, we believe these bankers are down to 5,000 tons and that means the game will still draw to a close with the help of hyperinflation over the next few years. You have to say to yourself, what can possibly be going on in the minds of central bankers? Gold is the only sound item on their balance sheet. The answer is that the Illuminists are possessed to destroy gold as a monetary unit, but wishing it so isn’t going to make it happen. Ask the people in India, the Middle East and China, that can’t buy the yellow metal fast enough. The official gold sales and leasing have only made currencies weaker, particularly the dollar. These are irredeemable promises to pay, with the obligator having a history of deliberate debasement, defaults and devaluations. As a result there is no gold that is “surplus” that is being held by central banks.

...

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 Wednesday, 23 May 2007 | Digg This Article

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