SATURDAY, MAY 26, 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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US MARKETS

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We now find that the 16.2% jump in April home sales, the biggest in 14 years, was due mostly to a 35% surge in homes not yet started. Completed home sales were virtually unchanged at 31,000 from 30,000. Additionally about 2/3’s of April sales were for homes priced under $300,000. The bogus sales numbers were used as a cover to offset the home price decline of 10.9% yoy, and a record mom 11.1% drop from April. Mind you this is the best selling season of the year. We also wonder why it is that bad weather diminished retail sales and did not affect new home sales? Another factor in the home sales increased was that April 2006’s numbers were conveniently changed from a +4.9% to a -2.6%. Worse yet, April 2005 was initially reported as +0.2% but was later revised to a decline of 5.1%. Now you can see the games these elitists play. It is no wonder they do not want the IF published.

First quarter Chicago condo sales fell 45% yoy.

Credit card companies and banks get an average of 2.75% on every gallon of gas sold, and credit card processing fees now rank as the second-biggest expense for gas station operators.

The House approved new ethics legislation due to pressure by freshmen representatives. It would penalize lawmakers who receive a wide range of favors from special interests, and would require lobbyists to disclose the campaign contributions they collect and deliver to lawmakers. The law if broken will result in prison terms.

For many years we have said over and over that there are two sets of rules for Wall Street enforced by the SEC. Chris Cox head of the SEC has been weakening investor safeguards and at the same time reining in enforcement and even making it harder for investors to seek justice in court.

A Bloomberg report cited an unusual favor the SEC granted to Tenet Heathcare even though the agency prosecuted the company for deceiving investors with a profits rigging fraud, and imposed a $10 million levy to settle the fraud case. Instead of letting investors freely sue Tenet in court to recover some of their investments lost in the fraud, the SEC allowed the Dallas company to keep a legal shield in place to help block shareholder lawsuits against the nation’s biggest hospital chain. Cox said he left the shield in place, which normally is yanked for corporate wrongdoers, because it was rehabilitating itself. Give us a break. It was politically motivated. All the SEC knows how to do is avoid prosecuting big firms and connected interests and preying upon small brokerage houses and brokers and newsletter writers.

          Existing home sales fell in April, the slowest sales pace in four years. Year-on-year they fell 10.87%. The median national price was down yoy 0.8% to $220,900. Inventories of unsold homes rose 10.4%, an 8.4-month supply, the highest in 15 years. That, of course, does not take into consideration all the homes pulled off the market over the last two years.

          Congress has finally passed a minimum wage increase from $5.15 to $7.25 an hour by a vote of 80-14 attached to a bill providing more money for the Iraq War. It ‘s been 10 years since there has been an increase.

          The question is why Jon Corzine formerly CEO of Goldman Sachs and now a high speed driver and Governor of New Jersey, gave his live-in lover Karla Katz $6 million. There can be no other answer than to shut her up. She must have some heavy-duty stuff on the Illuminist-Bilderberger. She was shacked up with him for four years before his divorce for infidelity. Now we see this golden kiss.

In February 2005, an auditor at the GSA presented evidence to agency leaders that one of the government’s top technology contractors was over charging taxpayers. Sun Microsystems had billed the government millions more for computer software and technical support than it charged its commercial customers. More rampant corporate fraud.

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Another negative in reference to that 16% month-on-month new home sale increase is how can that be when April traffic hit an all-time low at 23 versus 27 in March. Nobody, especially Wall Street, shows any fear when house prices fall 10%. It’s like a non-event. Worse, 53% of exposure to real estate loans at banks is under reserved. Credit derivatives based on mortgages have not recovered from their sell off and interest rates are seriously rising. Sixty-five percent of hedge funds are leveraged to subprime and ALT-A mortgages and could be in deep trouble. Confessions will come after they go under.

Something is terribly wrong when even the neocon Wall Street Journal has to admit that the 3^rd quarter of 2006 growth in jobs was 19,000, not the BLS’s 500,000. What is going on here? Is the WSJ afraid they might be found out for the charlatans that they are, and eventually get hung? April was a minus 200,000, yet we were fed a plus. Isn’t anyone going to call a spade a spade? Has America become that gutless? M3 is growing over 12% plus other credit creation putting profligacy at 15% to 20%. Where are the guardians of our nation? They sure are not at the Fed or on Wall Street, nor in corporations or in our government. Remember fellow Americans, this could be another Weimer Republic and if it is the only currency you will be able to spend is gold.

This week the Dow finished off 0.4%, the S&P fell 0.5% and Nasdaq fell -.4%. The 2-year Treasury yield rose 4 bps to 4.86% and the 10’s gained 5 bps to 4.86%. The German bund rose 7 bps to 4.38% only 47 bps lower than the yield on the 10’s. As you can see bonds have been tanking for two months and that will continue.

The MBA purchase applications index added 1.3% for the week. Purchase apps were up 10.4% yoy, while dollar volume up 53% yoy. The average new purchase mortgage increased to $242,300, while the average ARM jumped to $408,700.

Bank credit fell $0.09 billion to $8.501 trillion. Securities credit increased $1.2 billion. Loans and leases declined $2.1 billion. C&I loans rose $6.3, while real estate loans declined $8.7 billion. Consumer loans gained $1.7 billion, while securities loans slipped $0.2 billion. Other loans fell $1.1 billion. 

M2 dipped $1.9 billion and narrow money expanded $183 billion ytd or 6.7% annualized, and $445 billion or 6.6% yoy.

Total commercial paper added $0.8 billion last week to a record $2.088 trillion, with a ytd gain of $113 billion or 14.2% annualized. Its up 18.0% yoy.

Asset-backed securities, ABS, issuance jumped $32 billion. Year-to-date total US ABS is running little changed from last year. At $144 billion home equity ABS sales are 29% below last year’s pace. Meanwhile ytd US-CDO issuance of $142 billion is running 24% ahead of record 2006 sales.

Fed foreign holdings of Treasury, Agency debt last week increased $4.8 billion to a record $1.945 trillion, with a ytd gain of $193 billion or 27.2% annualized. Custody holding, for foreign central banks, expanded $328 billion over the past year, or 20.3%.

The dollar gained 0.2% to 82.27. The Canadian dollar gained 0.4% to trade at a 30-year high.

Retail food prices are headed for their biggest annual increase in 30 years, raising fears that the world faces an unprecedented period of food price inflation. Prices have soared as the expanding biofuels industry, climate change and the growing prosperity of nations such as India and China push up the cost of food. What is unusual is the increase in so many prices being driven up by shortages.

Gold declined 0.8% to $656, while silver was unchanged at $13. Copper was unchanged. Crude fell $0.78 to $65.20, gas was unchanged and natural gas fell 3.8%. Soybeans traded close to a 3-year high, so silver should start moving higher again. The CRB was unchanged and the GSCI fell 0.6%.

The global derivatives market grew at the fastest pace in nine years during 2006, as contracts doubled to $29 trillion says the BIS. Derivatives covering bonds and loans rose by $15 trillion last year.

The total outstanding value of all derivatives contracts arranged in private deals around the world has now surged about $400 trillion, as we predicted, for the first time.

The number of Asians sitting for the west’s benchmark qualification for financial market literacy has outstripped candidates from the US. Asia this year will field 52,900 students for the exam, against 45,000 from the US.

Viewers are drifting away from television. The four major networks have 2.5 million less viewers than last spring. Advertisers are beginning to ask for some of the $8.8 billion they’ve committed to these stations. The networks say it’s a change not a decline. We call it rejection. If it weren’t for Dancing with the Stars a lot more than 2.5 million people would be missing. It could well be people are fed up with the lies and garbage and what is supposed to be entertainment.

One of the main topics at the upcoming Bilderberger meeting in Istanbul will be the AMERO, the currency which they hope to spread throughout the Western Hemisphere.

Shareholders are fighting back against private equity buyouts. A lawsuit has stopped the attempted buyout of Topps Co. by a group headed by former Disney CEO Michael Eisner. Plaintiffs say Topps directors failed to fulfill their fiduciary duties by agreeing to sell the company at a bargain price and by signing off on measures designed to ward off other bidders. The ultimate conflict of interest. Every buyout should be subject to court approval. Thee is no question that private equity’s gains come at the expense of average investors and all the workers who lose their jobs and pensions. There are now 12S&P 500 companies with buyout offers. The availability of a sea of cheap credit is fueling this fad led by the Carlyle Corp. The man supplying that credit to a major degree is Fed Chairman Ben Bernanke who has raised the question, could the private equity mania give way to the next major debt crisis.

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GOLD, SILVER, PLATINUM, PALADIUM AND URANIUM

The Dow ended Wednesday down 14 after Greenspan’s comment on the Chinese stock market. The S&P was off 17 and Nasdaq 61 Dow points. The yen fell 02 to 121.06, the euro rose .0012 to $1.3459 and the pound rose .0123 at $1.9850. The Canadian dollar hit another new high at 92.41, up .33 and the dollar index fell .10 to 82.21. The 2-year Treasury yield was 4.84% and the 10’s were 4.85%. Oil rose $0.26 to $65.77, gas was +$0.01 at $2.31 and natural gas fell $0.04 to $7.76.

In the last ten weeks ECB central banks have sold 130 tons of gold. This is the most ever in any short time period. In the previous six months they sold only 112 tons. That leaves 250 tons left for sale by 9/30/07. We do not expect Germany and Belgium to be sellers, so that leaves about 140 tons to go over four months or about 35 tons a month. The bad news is behind us. It is possible that France could complete part of Germany’s unused quota, but that is a long shot.

Wednesday was a good day for gold as it finished up $3.20 to $662.00 after having been up all day. Silver rose $0.14 to $13.03. Copper was unchanged. Open interest fell 2,803 contracts to 402,600. The players simply refuse to be sold out. The market action is similar to 1980, for those of you old enough to remember. As we have said on many radio broadcasts, gold wants to go up. Silver open interest fell 752 contracts to 108,612 and is only 35,000 contracts off a 27-year high. Tuesday big Tocom shorts cut 3,498 contracts, down to 106,629 and Goldman covered 652 contracts to bring their shorts to 24,172. The same group reduced their net silver short position by 554 contracts to 5,372. The HUI rose 4.55 to 329.46 and the XAU rose 2.20 to 138.01.

Gold production in Zimbabwe is the lowest in 90 years. They produced 8 tons in the first quarter.

Thursday early on was off in most quarters. The Dow was -14, S&P -17 and Nasdaq -20 Dow points. FTSE was-40 Dow points, CAC was -55 and DAX -29. The yen was +.21, the euro -.10 and the pound +.10. The 2-year was 4.82% and the 10’s were 4.84%. Oil was -$0.37, gas +$0.09 and natural gas -$0.03. Gold was -$1.30, silver -$0.01 and copper -$0.02.

The iShares silver trust ETF, SLV, supposedly hold more than 135 million ounces of silver. Global silver supply was 912 m/oz. last year according to GMFS. Since SLV’s launch other silver funds have been added – one in London and Frankfurt and the Zürcher Kantonalbank.

On Thursday gold managed to break $655, ending at $652.50, down $9.50 and silver fell $0.22 to $12.81. The June market in gold did a little better at $653.40, -$9.10, silver was off $0.21 to $12.90 and copper fell $0.11 to $3.19. Gold held above $661.50 and once Comex opened the carnage began. The gold open interest fell 2,002 contracts to 414,811. The June expiring contract still has more than 134,000 contracts to be rolled or terminated. Silver open interest fell 198 contracts to 108,414. During Wednesday’s Tocom session the big shorts increased their shorts by 1,932 contracts to 108,561 as Goldman increased its short by 20 contracts to 24,192. The same group increased their silver shorts by 68 contracts to 5,440.

The Silver Institute’s 2007 world Silver Survey said 2006 mine production rose from 641.6 million ounces in 2005 to 646.1 million in 2006. Production from primary mines fell 10%, a drop of 17.9 m/oz. to 161.4 m/oz. Industrial demand increased so that it now accounts for over 50% of total fabrication demand for the first time ever. Government sales increased 18% to 77.7 m/oz. Remaining stockpiles are now down to 137.2 m/oz. a two-year’s supply at its current burn rate.

The battle in the gold pits goes on as the spec longs refuse to be big sellers and the cartel goes naked short out of London. At the rate the longs are holding even if the 200-day moving average was hit at $638 we doubt now there would be a further break. The cartel’s work is seen by more and more and understood for what it really is – the tactics of a corporatist fascist government. Worse yet, more and more communicators are calling the government and its market manipulation fascist. As you can see we are making headway.

Thursday’s XAU fell again 3.34 to 134.16 and the HUI fell 10.67 to 318.74. The Dow had been up 90 and finished down 85, as S&P fell 133 and Nasdaq fell 235 Dow points. We see lots more weakness on the way. We just saw at least a temporary top. If Sir Greenspan is right about the Chinese market, and we believe he is, then when the Chinese market bubble bursts then so will all world markets. This could well be the event we’ve been looking for. The similarities between the US and Chinese economies before the 1929 crash are haunting. The Chinese market has a million people a week jumping into the market. People who do not have a clue about what they are doing. World markets are overwhelmed with liquidity. China has $1.2 trillion in bad loans. They have strong production but a good part of it is in the wrong places and Chinese consumers are not really consuming. They are saving and gambling in the market. Their currency is 40% or more undervalued and once the market revalues it China won’t be able to compete with its products. Inflation is building in China as it is in the US, UK, Europe and elsewhere. When everyone is speculating an economy is in trouble. It is the roaring 20s in China and it is a sea of money in America.

On Thursday the yen rose .24 to 121.36 and it’s way oversold. We see a big rally coming and that will negatively affect the US, UK and European markets as some in the yen carry trade get caught in a vice. The euro fell .0025 to $135.27, the pound fell .0015 to $1.9846, the unstoppable Canadian dollar rose again .04 to 92.24 and the dollar index rose .09 to 82.31. The 2-year was 4.84% and the 10’s were 4.84%. Oil was $64.42, down $1.37, gas was up $0.05 at $ and natural gas was -$0.06 at $7.70.

Friday’s early market around 4:00 a.m. showed strength in most areas. The Dow was +30, S&P +32, Nasdaq +30, FTSE -16 Dow points, the CAC -13 and DAX +1. The yen was -.34, the euro +.08 and the pound +.07. The 2-year was 4.85% and the 10’s 4.85%. Oil was +$0.73, gas +$0.02 and natural gas unchanged. Gold was +$2.30, silver +$0.07 and copper +$0.06.

Buenaventura Mines, Peru’s largest publicly-traded precious metals mining company, has completed an additional partial reduction of its gold hedge book by unwinding 248,000 ounces for all of its 2009 gold commitments. That cost them $87 million, which is financed by debt. Previously 2007-08 commitments were eliminated.

 Zurich Cantonal Bank’s ETF platinum has attracted investment equal to 25,000 ounces. The bank also has 2.5 million ounces of silver worth $32.33 million.

On Friday gold held its gains through the day and ended up +$2.40 at $654.99, as silver gained $0.09 to $12.90. The June gold contract rose $2.00 to $655.30, silver rose $0.08 to $13.00, and copper rose $0.01 to $3.32. In another positive note gold open interest rose sharply, up 8,372 contracts to 423,183, which is an all-time high. This is new buying, not rollovers to the next futures month contract of September. We are seeing some enormous shorting, naked shorting or bullion sales, probably a combination of all three by our unfriendly central banks. The June contract still has 111,773 contracts to be dealt with by next Thursday. There is something big going on. We do not know what but it is big. It’s been coming for two months. Perhaps many investors are listening to Andre Lundin Novartis’ head of portfolio management who is investing 4% of its 14 billion Swiss franc pension fund in precious metals? One percent in gold, 1% in silver, 1% in platinum and 1% in palladium. He says, “Gold is money and what we have today is just paper money, and that is worthless.” In the COT report the spec positions were a push and the commercials have started to reduce their shorts already. The previous week was a net increase in longs of 23,077 a substantial swing. They were net short 80,000 contracts as we predicted they would be. It’s 57,000 shorts to go or a combo of shorts covered and longs committed, as they were last week. The correction is over. After expiration is over on Thursday, we will see nothing but upside for 2 to 3 weeks. The overall net commercial short position is 124,216. Once they cover 57,000 net shorts at 67,216, which is a normal perpetual short exposure, the gold market should be back to normal and headed to the upside. Silver is picking up momentum as well, gaining 958 contracts to 109,372. Copper may have been hit for $0.30 over the past month or so, but inventory is only 134,125 tons. On Thursday Tocom big shorts cut their gold shorts by 1,484 contracts to 107,077 and Goldman reduced their shorts by 322 to a total of 23,860. In silver the same group increased their net shorts by 284 to 5,724.

The cartel is scrambling, terrified they won’t be able to find enough physical gold to hold off the gold buying hoards.

Wait until investors and the public find out several traders serve the interests of the Federal Reserve and they can get free money anytime they want to take markets wherever the Fed wants them to be taken. This is what the Permanent Open Market Committee is all about – manipulation. There is nothing fair, balanced in our system. It is all what the elitists want it to be.

Friday’s Dow rose 66, S&P 74 and Nasdaq 119 Dow points. The yen fell .50 to 121.74, reaching a new absurdity. The euro rose .0023 to $1.3446, the pound fell .0001 to $1.9845, the Canadian dollar rose again up .49 to 92.68, but the USDAX dollar index fell .07 to 82.27. The 2-year was 4.85% and the 10’s were 4.86%. Oil was up $1.02 to $65.20, gas rose $0.05 to $2.40 and natural gas fell 40.04 to $7.64.

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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