SATURDAY, JUNE 9, 2007
THE INTERNATIONAL FORECASTER
06_07_2_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
Our president’s economic advisers lowered their forecast for economic growth in 2007 to 2.3% from 2.9%, which they forecasted six months ago. Now all the “experts” are projecting an average growth rate of 2.8%. We see 1.8% to 2%, but we’ll never really know because our government lies about everything.
The Federal Reserve banks’ income climbed 25% to $38.41 billion in 2006. The Fed paid the US Treasury $29.05 billion, up from $21.47 billion in 2005. The average daily holdings of securities and loans was $795.40 billion, an increase of $32.89 billion in 2005. Holdings of US government securities grew $32.88 billion, while loans increased by $7 million.
The NAR says home sales and prices are going to decline more then forecast. Sales of existing homes should fall 4.6% and the median home price 1.3% to $219,100. New home inventory fell to 6.5-months from a 16-year high of 8.1 months in March. Sales of new homes they say will probably fall 18% this year. That puts us on a 1992 pace.
The MBA mortgage application index fell 1.7%. The purchase index rose 1.5% and the refinancing gauge fell 6.1%. The 30-year fixed rate mortgage rose .03 to 6.35%. That is the highest level since last October. Refis represented 38% of apps, down from 39.7 in the prior week. The market index is off 2.1%, the purchase index is off 0.3% and the refinance index is off 4.3%.
After telling us for a year that interest rates were going to fall, Goldman Sachs has changed its mind and sees no cuts this year, nor in 2008 as well. They had forecast a ¾% cut in rates. They have also raised their estimate for 2007 GDP from 2% to 3%. They were not alone in being wrong, Merrill Lynch has said a year ago rates would fall 1% and Bill Gross at PIMCO forecast a 1-1/2% drop in rates. They and many others were wrong and we were right.
When polled only 23% of Americans were for the current amnesty bill being considered; 51% said they want no bill if it’s anything like this bill; 84% of Americans want English as the official language of the US and 77% of Hispanic Americans also prefer English.
On Wednesday, Morgan Stanley advised clients to slash exposure to the stock market after its three key warning indicators began flashing a “full house” sell signal for the first time since the dotcom collapse. This very powerful signal has only been triggered five times since 1980. Interest rates are rising in the real interest rate market and are reaching critical levels and as you know we see rates ¾% to 1% higher, short to medium term. Morgan Stanley sees a 14% correction over the next six months, which would put the Dow at 11,700. We see support from Dow 10,000 to 10,300. The second phase of the correction should be to 7,286. After that who knows. The dangers are a P/E ratio at an all-time high of 20. A sea of money and credit that will become too expensive and could disappear relatively quickly. Markets “always” return to fundamental value, thus market participants, particularly institutions, are in for a rude awakening and some hefty losses. This could be the beginning of another giant correction.
Morgan Stanley’s forecast does not include a recession, which incidentally we have already long ago entered. They also say that interest rates will fall. They are wrong. The Fed is still in the box and cannot get out. If they lower rates the dollar will collapse and will lose its place as the world’s reserve currency. As we said earlier, Goldman, Merrill, PIMCO and many other pros have already been dead, dead wrong on interest rates. Lower interest rates will spell financial chaos and $3,000 to $7,000 gold and $100 plus silver.
Planned layoffs edged up by 0.6% in May, led by downsizing in the computer industry as businesses spent less on new technology, announced layoffs totaled 71,115 in May, up from 70,672 in April. May’s job cuts were up 32% yoy. Computer companies cut 13,631 jobs due to spending cutbacks and that is going to continue. The financial sector cut 4,804 in May. Weakness in the housing market and the collapse or subprime lending has contributed to 22% of the 55,025 job cuts announced by financial firms since January.
OPEC has warned that efforts by western countries to develop biofuels as an alternative energy source to combat climate change risk driving the price of oil through the roof. The oil cartel will cut its investment in new production in response to attacking its monopoly. This is a clear threat that the cartel will cut production now and in the future.
In his latest book, The Mess they Made: the Middle East after Iraq, Gwynne Dyer says there is no doubt that the US will withdraw its troops from Iraq once George W. Bush leaves office. The invasion and occupation of Iraq is having the same effect and impact on the American public that Vietnam had. He says Congress will be reluctant to vote new funds as the Arab world becomes more revolutionary, but he believes that the threat of terrorism upon the west would decline. The Muslims will be in power and they won’t want to bother with the US. If George and the neocons attack Iran in rogue fashion the whole scenario will change. Top illuminist Zbigniew Brzezinski says if the US attacks Iran, it will lose its place in the world. If Bush decides to invade Iran he will lose, and the Iranians will close the Gulf to tanker traffic and that will bring on a world economic crisis. America has become a rogue state and the world knows it. “George Bush is a 12-year old with a shotgun.”
If you look at the charts you see that in spite of central bank intervention, on June 7, 2007, the 10-year US Treasury note broke out and over its resistance point of 5%. We expect further resistance between 5.00% and 5.05%. After that it will work its way up to 5.65% probably to near 7%. A move to those levels will put the 30-year fixed rate mortgage at 7% to 7-1/4%. Due to the leverage within the housing structure this should have a profound affect on real estate sales and prices. We believe some of the pressure on Treasuries is coming from those exiting the yen carry trade. Believe it or not, the Bank of Japan may increase interest rates from ½% to ¾% by August. Could this be the beginning of the beginning of the of the end yen carry trade and the cheap flow of funds? We do not know yet. We see a six-month pullback in the use of risk, borrowing and leverage. We will soon know if this is for real. When you see the gold market digest 178 tons of gold in three-months without a hiccup you have to believe there are some serious problems beginning to surface. Again, this is the largest official sale since 1999. This selling is desperate and what is remarkable is the gold only corrected some $35.00 and now it’s back up to close to $670. Some time from now you will look back at what we see as a major turning point for the US and world economy, interest rates, the dollar and for gold and silver.
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“America’s housing slump is more serious than widely believed and risks setting off a full-scale global crisis, ”Morgan Stanley’s European research has warned in a note to clients. Morgan said the sudden deterioration in the subprime sector knocked away the “cornerstone” of US household consumption and threatened contagion to a broader nexus of complex derivatives. While the US economy seems to be slowing down, there has been overheating elsewhere in the world, and monetary tightening in Japan, India, China and Europe. These may be the early signs of a classical boom-bust scenario.
The rally we have seen from 10,300 to 13,600 could be a replica of the 1932-1937 rally that ensued after the 1929 crash. In 1938 the market fell 47.5%. If we use the 1932-37 algorithm this rally in today’s market should be peaking right now.
Having been fundamentalists for 48 years we see what appears to be the craftiness of government accountants who kept the US out of recession in the first quarter. The revised first quarter’s 0.6% annualized real (inflation adjusted) GDP growth and that is a 0.4% GDP (Gross National Product), and a 0.3% contraction in GDP-equivalent Gross Domestic Income. If true figures had been used CNP would have truly signaled recession.
John Williams, a noted economist that tells the truth says, “Barely beating out the annual M3 growth rate of 13.2% in November 2001’s post-terrorist attacks liquidation, May 2007’s annual M3 growth rate of 13.3% is the highest since August 1973.”
There is a 34% discrepancy in food inflation reports between the USDA and the BLS.
Not only have government statistics lost their volatility but also so has the Fed lost its reputation. Core, the stripping out of food and energy, is taxing the public’s patience and risks credibility, a senior US central banker said on Thursday.
University of Illinois economists found that every $46 of supposed economic benefits from gambling, from tax revenues to local renewal, produce $289 in social costs, such as alcoholism and family breakups.
The Washington Post tells us IBM created fraud by violating rules on options be it will not be fined, says the SEC. That is because they used a corporate loophole that has since been closed and saved $1.6 billion. Over and over again we tell you there are two sets of rules, one for elitists and one for us.
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GOLD, SILVER, PATINUM, PALADIUM AND URANIUM
Wednesday gold closed at $668.80, off $0.90 and silver fell $0.07 to $13.67. The September gold close was off $0.50 to $674.60, silver fell $0.10 to $13.72 and copper was up $0.04 at $3.40. London came in at $669.70 on the second fixing. At one time Comex was off $5.00. Almost all trades were electronic so the source couldn’t be identified. Tuesday gold open interest rose 9,350 contracts as the short position started to expand again. Silver OI went up 924 contracts to 115,047. No matter what they throw at the gold and silver markets the prices do not want to retreat. On Tuesday the big Tocom shorts reduced their net short position by 2,583 contracts to 110,077 contracts, as Goldman covered 312 to net 23,133 contracts.
Gold Fields, Ltd., owner of the world’s largest gold deposit, said bullion is still in a secular upward trend and will breach $1,000 an ounce as discoveries weaken and the dollar weakens. Ian Cockerill said he wouldn’t be surprised to see gold at four-digits. Mined gold and scrap production reached a low of 2,471 tons last year. European central banks are not selling their quotas and gold wants to move higher said Cockerill.
Spain said it sold gold to buy more profitable fixed-income instruments, bonds. That is ridiculous, in as much as gold has been the best performing asset for five years. Socialist Finance Minister Pedro Sables told the Spanish Senate that he was selling gold, an unprofitable asset, to reinvest in bonds, which are more profitable, which is not true. In fact, it’s lies. Gold is up 164% since 2001 and 1,535% since 1971. The truth is Spain is in serious financial trouble, because the economy has been mismanaged by the previous neocon administration and because they have the second worst balance of payments deficits among major countries.
The XAU fell 1.26 to 139.19 and the HUI lost 3.47 to 336.52. The Dow fell 130, S&P was -117 and Nasdaq was-142 Dow points. The yen was +.37 at $1.2104, the euro -.0011 at $1.3503, the pound -.01 at $1.9928, the Canadian dollar at 94.51 +.44, and the dollar index was -.02 at 81.84. The 2-year Treasury was 4.96% and the 10’s were 4.97%. Oil was +0.35 at $65.96, gas was -$0.02 at $2.19 and copper -$0.04 at $3.40.
Early Thursday at 3:30 a.m. the Dow was +25, S&P +17, Nasdaq +6, FTSE +20 Dow points, the CAC was-18 and DAX -11. The yen was -.41, euro -.0025 and the pound -.0064. The 2-year Treasury was 4.99% and the 10’s were 5.02%. Oil was +$0.25, gas +$0.01 and natural gas +$0.05. Gold was off $.60, silver was -$0.01 and copper -$0.03.
The People’s Bank of China has given HSBC, Standard Charted, Bank of Nova Scotia, UBS and Société Générale approval for membership in the Shanghai Gold Exchange. After joining with Blackstone and now getting in bed with the gold cartel, the Chinese want to become part of the Illuminati. That means the cartel is about to begin to control China. It also means heavy personal gold sales and profits for the major elitist banks. Once the world economy is collapsed the Black Nobility will then control China. Some believe Russia will succumb as well, but we do not think so.
The pressure is still on gold and silver. Toward the end of Wednesday’s session we found out there was another large physical seller. On Thursday and again today, Friday, there were a series of large central bank sales that took gold down to $661 from $670. The gold manipulation was bad, as was the silver attack, but the attack on currencies was open arrogance and overwhelming. The last we saw the dollar was up .44 to 82.28. As we predicted interest rates, yields and mortgage rates are airborne. This makes for an uglier real estate market and downward pressure on stocks. The corporatist fascists have problems.
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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.
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
