SATURDAY, JUNE 2, 2007

THE INTERNATIONAL FORECASTER

06_07_1_IF

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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The easy ride for some municipal bonds may be over. Michigan is a victim of the offshoring and outsourcing of the auto industry. The state’s credit rating was lowered by S&P for the third time since 2003 last week and it looks like it could be worse. In fact an advisory board said they were facing a fiscal train wreck. The state’s politicians are still trying to figure out how to balance the budget, which has holes in it totaling $1 billion. In Texas the state legislature passed a law allowing the state and its municipalities to weasel out of a GASB rule requiring them to calculate how much they owe retirees in so-called past-employment benefits. If the government signs the law, there will be a two-tiered market. One group who adhered to the rule 45 of the GASB and those who didn’t. This is because the two states refuse to recognize their obligations.

Goldman Sachs is the world’s most profitable securities firm. They have added seven bankers in this past year, boosting its group to 61. Blackstone is about to become the world’s largest publicly traded buyout firm. Both are starting corporate restructuring groups in Europe.

These and other firms are paying as much as $3 million a year for bankers who advise bankrupt companies and traders who specialize in defaulted debt. Restructuring groups are growing faster in Europe than in the US as companies in the UK, France and Germany pile on record amounts of debt. European companies borrowed a record $252.6 billion in loans and bonds rated below investment grade. These companies had debt equal to 6.2 times earnings before interest, tax, depreciation and amortization in the first quarter. That is up from 5.1 times in 2004 and 4.8 in 2003. There has been only one major default in Europe this year, so as yet there hasn’t been much business, but Goldman and others must believe it is on the way. People have been forecasting a meltdown in credit in the next 12 to 18 months. This is the same time frame we received in the Carlyle memo we referred to a month or so ago. There obviously is trouble coming as real estate buckles.

The latest madness is that Bear Stearns Asset Management and Highland Capital have sought regulatory approval to list on US stock markets. They own credit assets including equity tranches of CDOs, collateralized debt obligations, better known as junk, subprime and ALT-A loans, etc. These are investments that carry high returns, which can be wiped out by the first few defaults in the portfolios of underlying debt that back them. Bear is dumping their garbage on the public, as usual.

Data shows the speculators are now aggressively selling the lowest yielding currencies, such as the yen, Swiss franc, Taiwanese dollar and a basket of some 20 currencies that have low interest rates. The game has started fresh and anew and the specs cannot borrow fast enough.

The month of May will probably top the charts for global mergers worldwide; at least $496 billion in deals have already been announced for the month with mergers in the US alone at $191 million. Year-to-date, companies have announced at least $2.2 trillion in deals worldwide and of that US volume is $830 billion. By June they will all have over $1 trillion in deals, which is inconceivable. The madness, cartelization and job loss will be beyond imagination.

A slowdown in US productivity growth poses a long-term challenge to the US dollar and is adding to the difficulty of financing a gaping trade deficit. As productivity growth declines, the most important incentive to invest in dollar denominated assets, besides yields, is no longer in place. US economic growth was 1.3% the first quarter, the slowest of all 43 countries. That is caused by lower wages in other countries and the American workers no longer produce the best because they know their jobs may be shipped out of the country tomorrow. This bodes ill for the dollar, which has tracked growth in productivity over the longer term. The short-term has been distorted by free trade and globalization, massive market manipulation and a massive creation of money and credit. The Fed is trying to prolong a dying cycle. They have done just that with the dotcom boom, the real estate boom, and now the money and credit boom. This could be reversed by instituting goods and services tariffs and electing Ron Paul as President. The experts see a 5% dollar devaluation this year and next. That would take the dollar to $1.46 euros. We see it at $1.50 to $1.60.

Mortgage applications fell 7.3% last week. The 30-year fixed rate mortgage averaged 6.32%, said the MBA. The purchase index fell 2.5% and the refi index fell 13%.

The Chicago Fed’s Midwest manufacturing index rose 0.6% in April to 104.9 from 104.3. Autos, steel and machinery all rose in April.

IBM has fired another 1,500 workers to bring the yearly total of redundancies to 3,700 on the way to 150,000 as they move American jobs to India and Mexico. IBM’s workforce in India rose from 9,000 in 2003 to 52,000 last year.

Foreign investors now own 80% of Treasury notes due in three to ten years. They have not held as much since the 19^th century. They own $672 billion of the $835.4 billion Treasuries. If these, mostly central banks, had not bought what they had interest rates would be 1.5% higher. Without that buying the 10-year Treasury yield would be 6.4% and the 30-year fixed rate mortgage would be 7.7%.

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GOLD, SILVER, PLATINUM, PALADIUM AND URANIUM

On Wednesday spot gold fell $3.30 to $653.40 and silver rose $0.01 to $13.15. Open interest rose a large 9,966 contracts to an all-time high of 425,688. It looks like big money and the specs are taking the cartel on. There was more irresponsible reporting by idiots that wanted us to believe that higher taxes in China on stocks had something to do with lower gold prices, how idiotic. How do these morons explain the strength in silver and in the stock market? Large Tocom shorts on Tuesday increased their shorts by 328 contracts to 110,207 as Goldman cut their short by 188 contracts to bring their short position to 24,468 contracts. The same group increased their total net short position by 40 contracts to 5,824 contracts.

On Wednesday the market was totally manipulated. The Dow, S&P and Nasdaq should have been down close to 80 points on that dreadful ADP employment report, but instead they rose 112, 112 and 121 Dow points. The dollar was up from 3:00 a.m. onward. The yen was +.08 to 121.62, the euro was -.0020 at $1.3429, the pound was -.0042 to $1.9752, the Canadian dollar was +0.01 to 93.16 and the dollar index was up .11 to 82.35. The 2-year Treasury ended at 4.89% and the 10’s at 4.88%. Oil rose $0.34 to $63.49, gas fell -$0.03 to $2.27 and natural gas rose $0.21 to $7.94.

Thursday when the market was four hours from opening in NYC the Dow was +20, S&P +11, Nasdaq +23, FTSE +60 Dow points, the CAC+43 and the DAX +105. The yen was -.07, the euro +.0009 and the pound +.0016. The 2-year Treasury was 4.90% and the 10’s 4.87%. Oil was -$0.38, gas -$0.06 and natural gas +$0.01. Gold was +$3.20, silver +$0.10 and copper +$0.06.

The central bank gold sales and the collusion of the commercial traders was not enough to bury gold and silver prices over the past two months. They came back strongly on Thursday with spot gold up $7.20 to $660.60 and silver up $0.22 to $13.37. The commercials leaned on the September contract though with it came in at only $660.70 +7.40, silver at $13.47 up $0.25 and copper up $0.09 to $3.40. We told you we thought the market was basing out and we may very well have been right. We could very well be facing a commercial signal failure. That is when the shorts all try to cover at once. The last time that happened in early 2006, gold ran up $300. Today gold open interest fell 55, 132 contracts to 370,556. How can this be? This is more than double any previous drop. What conceivably can be going on? Where can the CFTC be hiding? Could the gold cartel be throwing in the towel? Silver open interest fell 1,738 contracts to 110,004. Stagflation is out of control and the falling yen allows the specs to play the yen carry trade with abandon. The yen fell again, off .18 to 121.70, the euro rose .0023 to $1.3454, the pound rose .0039 to $1.98, the Canadian dollar fell .07 to 93.42 and the dollar index fell .10 to 82.35, and we question that figure. Overall you ask how can the Dow rise on such horrible data? The answer is it is manipulated and has the Fed being helped by the hedge funds. As we predicted in a previous article the European central bank selling group will miss their 500-ton maximum by about 110 tons, unless some of the members use the unused quota of Germany and Belgium. The Japanese have lost it. The Fed said drive the yen lower – we need it and that is what they are doing. The Canadian dollar is out of control. Those of you who own Canadian dollar-denominated stocks probably will get a 10-20% bonus, as it rises from 84.5 to 1.00. Thus far European central banks have sold 250 tons of a 500-ton allotment. They sold 141 tons in the last 11 weeks and will probably end up selling 390 tons. That leaves 140 tons to go. We see 17 weeks of sales or 820 tons a week. After the agreement is up next year we do not see another agreement because most countries have too little gold left to participate.

The big Tocom shorts on Wednesday increased their net shorts by 1,163 contracts to 111,370 as Goldman increased their shorts by 336 contracts to 24,804. The same group increased silver shorts by 26 to 5,850.

Some thieves stole a gold bathtub from a resort hotel south of Tokyo. It was worth $987,000, was 18-Karat and weighs 176 pounds. They probably needed a sumo wrestler to move it.

Gold and silver shares on Thursday finished near or at their highs. The HUI went right through resistance at 330 and finished up 11.68 at 334.20. The XAU was up 3.61 to 139.66.

On Thursday the Dow was up 20, S&P up 11 and Nasdaq up 23 Dow points. The 2-year Treasury rose to 4.92% and the 10’s were 4.89%. Oil was up $0.52 to $64.01,gas +$0.02 to $2.25 and natural gas -$0.01 to $7.94.

Most numbers were mixed early on Friday morning. The Dow +55, S&P +45, Nasdaq +36 and FTSE +25 Dow points. CAC was +28, DAX +67. The yen was -.19, euro -.0019, the pound -.0008. The 2-year was 4.92% and the 10’s 4.90%. Oil was +$0.03, gas -$.0.01 and natural gas +$0.01. Gold was +$1.10, silver +$0.10 and copper -$0.01.

It looks like some heavy hitters have entered both the London gold market as well as the access-aftermarket. The central bankers are getting hit head on. As we said several days ago the bottom is in and the bulls again are attempting to break above $694 to $700.

The European Central Bank said it has no plans to sell more gold through September. The ECB has sold 60 tons since September in the combined central bank effort to suppress gold prices. We find it of interest that 37 tons were sold over the last two months when 141 tons were sold. There is no justification for these sales other than market manipulation.

Irrespective of the reasons it’s all out of the way and gold is rallying strongly up some $17.00 in the last two days. That puts the price back around $673. The central banks lost 141 tons of gold and have little to show for it gold price wise and all they ended up with is fiat dollars. Either central banks are running short of gold, don’t want to sell more of what they have left or they are saving their selling to defend $850 an ounce. No matter what course is taken this is mega-bullish for gold. Incidentally silver has been the leader in strength again and looks to be a very strong mover.

Friday ended up being another great day for gold and silver. Spot gold rose $10.00 to $670.60 and silver rose $0.32 to $13.69. Now you know why the central banks wanted to depress gold prices, they all knew that the ECB, the European Central Bank, would make their announcement that after having sold 60 tons of gold they were finished for the year. What a bunch of defiant, arrogant scumbags. We figure the 15% gold backing on the euro is probably down to 12% or less. September gold came in up $10.20 to $676.90, silver rose $0.27 to $13.74 and copper was up $0.10 to $3.41. Thursday’s gold open interest, as you know, fell 5,634 contracts after having fallen 55,132 on Wednesday. Where is the CFTC – what is going on? The new total is 364,922. Could it be massive short covering, we will see? The silver open interest rose 2,559 contracts to 112,563. Thursday’s Tocom major shorts increased their shorts again by 4,621 to 115,991 as Goldman increased their shorts by 922 contracts to 25,796. It is our suspicion that JP Morgan Chase has borrowed 33 tons of gold from the gold ETF GLD. If that is so that means there is little or no gold readily available for sale. All we can say about the past ten weeks is that we won and they lost. This shakeout was very healthy for gold and silver because it displayed how strong and reliant they are. The shares generally did well; made nice moves on Thursday and Friday. The explorers were ho hum – but that’s normal.

Friday closed out with the Dow up 40 at 13,668, S&P up 52 and Nasdaq up 58 Dow points. The yen fell again, off .31 to 122.04. The manipulation is unbelievable. The euro fell .0011 to $1.3442, the pound fell .0026 to $1.9818 and the Canadian dollar was unchanged at 94.25. Oil rose $1.07 to $65.08, gas was up $0.04 to $2.24 and natural gas fell $0.06 to $7.88.

As an afterthought the shorts have covered and they have made very little. They escaped the vice after having added an 80,000 contract short as they had a year ago.  It is phenomenal to see a 60,000 short cover in two days. The commercials had only about 30,000 to go, so there were other inside players covering just before the ECB news hit. The gold and silver producers responded as well in fine fashion and are about to again break into higher ground. This time $700 will be broken and the next defense by the Illuminists will be at $850. The pressure is on as the central banks throughout the world raise interest rates and the US doesn’t. It can only end in financial calamity.

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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