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International Forecaster MidWeek Reading - Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster



-- Posted Wednesday, 13 June 2007 | Digg This ArticleDigg It!

The following are some snippets from the most recent issue of the International Forecaster.  For the full 18 page MidWeek Reading, please see subscription information below.

WEDNESDAY 6-13-07 MID WEEK ISSUE

THE INTERNATIONAL FORECASTER

06_13_07_MW_IF

P. O. Box 510518, Punta Gorda, FL 33951-0518

An international financial, economic, political and social commentary.

Published and Edited by: Bob Chapman

E-mail Address

International_forecaster@yahoo.com

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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.

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US MARKETS

 

Our Federal Reserve, led by Sir Alan Greenspan, created the real estate bubble and the Fed knew, just like we knew, exactly what the result of their policies would be – in one word, disastrous. It was a transparent scam. Writing mortgages for people who had no chance of paying them back. We are in the midst of a housing collapse that attended by higher interest rates will bring the stock market down. The combination of the two will bring not only the US economy down, but the world economy as well. A collapse of both markets in the same general timeframe will result in another great depression. This depression will last a long time because our manufacturing structure has all but been destroyed. It will take years and tariffs on goods and services to accomplish the rebuilding process. Today productivity growth is an abysmal 1.3%, and we do not see it getting better anytime soon. There is simply no incentive for the worker to work harder when he knows his job may be in China or India next week. These problems feed on themselves. Some may be able to hang on and pay the mortgage payments, but how about the skyrocketing real estate taxes? Again, this correction is not going to last a year or two, it will last a minimum of 5 to 10 years. We have to restore industry. Either pay off or renege on debt. We again have to produce what the world wants and effectively use tariffs. The dollar has to drop another 30 to 50 percent. The trade deficit has to be decimated and the federal budget has to be in balance. The dollar is the rock upon which the world monetary system rests. It gives America its economic, financial, political and military power. It allows the Fed to print money and issue credit out of thin air. A lower dollar versus other currencies and gold means a 50% fall in the American standard of living. Just to accomplish this at these levels we have to clean out Congress and disband the Federal Reserve. All lobbying will be banned and each candidate will be allowed a set sum for electioneering. The war on terror will be shown for the scam that it is and be terminated. Our armed forces will be returned to our country except in very special circumstances. Our financial and economic system is about to be purged and we should welcome it, because that will allow us to start over again – a fresh start. We have to return to what made our nation prosperous.

 

The ruling class thrives on deficits because they provide inexpensive credit and allow for tax cuts and financing for wars. This sea of money and credit, a good part of which goes to foreign exporters who buy dollar based assets, which cover up gapping holes in the financial system, makes for a financial field day. That keeps our government and Wall Street happy, but it’s eventually a loser for all Americans.

 

The trade deficit is a tax and it puts downward pressure on the dollar. It is also inflationary as are low interest rates and major increases in money and credit. This eats into everyone’s purchasing power and into retirement and savings. It’s no wonder savings are minus 1.5%. As an example - due to this profligate monetary policy in the past four years, the value of the euro has grown 50% against the dollar. During that period gold has risen from $275.00 to $670.00. This planned inflation robs the American working class of the value of its savings and its retirement. As a cover for this malicious destruction of value we have free trade and globalization, which is nothing more than 15th century mercantilism. This economic free for all is accompanied as well by deregulation. It should be noted that gold has appreciated 50% over the past several years as the euro appreciated as much, but there has been no appreciation to offset the inflation losses for gold from 1980 to 2000. By our estimate gold would have to attain the value of $2,200 to achieve parity with inflation over that time span. The dollar is under pressure to depreciate another 30-50 percent against the euro and the USDX or the dollar index. That is the result of Federal Reserve monetary policy, profligate fiscal deficit spending, a massive current account deficit and the resultant price inflation. What we have seen and are now experiencing did not happen by chance, it was planned that way to shift wealth from the poor and middle-class to the upper-middle-class and the rich. That impoverishes the lower classes and leaves wealth and power in the hands of the ruling elites, as they know how to protect their assets whereas the public has little knowledge of how to protect themselves. This knowledge allows the elitist instrument – the Federal Reserve, to drop interest rates to very low levels and to increase M3 by some 13%, and at the same time there is a massive expansion of government and unfunded tax cuts, which necessitates aggressive further debt accumulation. Thus, America’s wealth is transferred from our tax slaves to our ruling class, who believe you to be nothing better than human cattle.

 

Our debt is so great that corrections in other stock markets throughout the world cause plunges in US markets and often in the dollar. That brings the “Working Group on Financial Markets” into action. We see these rescue scenes every day as the elitist fire brigade runs here and there putting out financial fires. This group now has to contend with a falling real estate market, a bubble they created to ward off economic collapse over the past several years.

 

While this is taking place the dollar – the world’s reserve currency – is falling in value and world central banks have been slowing removing it from their reserves. Official dollar holdings by central banks since 2000 have dropped from 72% to 64.7%. Now generally speaking the only big buyers of dollar-based assets left are Gulf oil producers and denizens of the carry trades. We now see economies overheating and inflation spreading as these countries attempt to further flee the dollar. As of late several nations are no longer pegging their currencies to the dollar. We also see rising interest rates worldwide to ward off dollar inflation as domestically generated inflation. This makes dollar-dominated assets less attractive unless yields on dollar based bonds rise as well. You have just seen a move in the yield on the US 10-year note from 4.70% to 5.10%, which has been caused by the sale of US Treasuries. If you look at the inflation rate of 11% in the US and then you see a yield more than 50% less you’d have to be a fool to buy Treasuries until rates are substantially higher. Needless to say, these higher interest rates will have a devastating effect on mortgage rates and the housing market. In order to remain competitive almost all nations have rigged their interest rates and the value of their currencies. That will soon come to an end as Congress passes trade tariffs. After a staggering defeat on the amnesty bill Democrats are going to have to find an issue they can be a winner with and that is the restoration of American jobs.

 

Foreign nations by raising interest rates are igniting inflation in the US. Foreign goods are going to get more expensive and that means additional US inflation. These factors along with higher energy prices will dampen consumer sending as foreign currencies strengthen the dollar weakens and prices move ever higher. This is just starting to manifest itself. There will be no soft landings for a facet of the US economy or the dollar and for that matter any other economy. This latest surge in interest rates should almost bring to an end the availability of accessing home equity to maintain lifestyle. As real estate prices decline, homeowners will see their life savings disappear.

 

Homeowners are still taking on mortgage debt at a 5.4% annual rate even as their homes have stopped appreciating in value. This is a rate of borrowing that is down from 9.3% growth in 2006. It is up from 2% in the first quarter. At the end of the first quarter the ratio was 54.3% at the end of 2005 and 57.9% in 2000.  It was 70% until the nineties. This drop in the ratio of equity to value is especially disconcerting given the country’s demographics. The baby boomers are retiring and one would expect that the ratio to equity would be rising, not falling, this is another negative for the housing market, and very, very disconcerting. In addition, we see substantial pressure on house prices that are already falling, productivity has fallen, material prices are rising as is inflation and mortgage rate are moving higher, which is yet another negative for the housing market.

 

As borrowing continues to fall with house prices and tighter lending standards prevail the ratio of equity to value will fall below 50 for the first time ever in 2008 and perhaps as early as 2007.

 

Another aspect is that many state and local government pension plans may not be adding sufficient reserves to cover commitments. As the economy turns down and government budgets become strained there could well be problems down the road.

 

The bottom line is that not only are some retirement plans under funded, but the home equity consumption boom is going to have to be paid for and many baby boomers are approaching retirement with relatively little equity in their homes and almost no assets outside their homes. You cannot live solely on Social Security.

 

Could it be that the bond vigilantes are back? Was that them this week driving up the 10-year US Treasury note yield interday to 5.25%? These pros were once the scourge of the bond market. We believe now that most of the usual buyers of Treasuries such as China, Japan and the Middle East central banks are laying low -maybe these pros have resurfaced. They also may be telling us the Fed era of low interest rates are over. As far as money and credit are concerned the former M3 is galloping ahead at 13.3%, so maybe with rates moving up, the Fed is going for broke to offset the effect of higher interest rates? We believe they are and we believe the bond vigilantes are going to be in the market big time. That means interest rates will climb further than anyone anticipates. The vigilantes will push them and rates are still far too low on an historical basis. The vigilantes are on the move in Europe as well. The German bund, which we have compared to the 10-year US Treasury, a number of times over the past two months, is yielding 4.48%, a 3-1/2 year high, while the German 2’s hit a 5-year high. That means ECB rates are headed higher and US rates probably are as well. The ECB has M3 up 10.3% and that is down from 10.9% in March. Is it any wonder that the ECB wants to raise rates? That creates real problems for the Fed because a raise in rates would collapse the house market and the economy.

 

Over in England as we said in the last issue, the Bank of England was stupid not to raise rates in June. If the bank won’t react the market will, as 2-year gilts climbed to 5.78% and the 10’s to 5.2%, the highest in seven years and five years respectively. The psychological barrier of gold approaching 500 euros an ounce is affecting both the euro and the pound. The ECB doesn’t want that resistance broken and that is one of the main reasons the ECB has had to raise interest rates. The ECB rate is 4%. We see it at 4.25% by September and 4.50% by yearend. That means the Bank of England’s quarter point increase coming in July will be followed by another rise by yearend. That will finally force the Fed to raise rates probably ¼% and ¼%. That is what the real US Treasury market is telling us. Now back to Britain. The British prime rate is 5.50%, headed to 6%. Inflation is 3.1% and the M3 is increasing at a 13.8% annual rate. It is no coincidence that all EU nations along with the US are increasing money and credit simultaneously. This is planned long-range monetary abuse, but then desperate people do desperate things. House prices in the UK are totally out of control as is price and wage inflation.

 

This phenomenon is not limited to the US and Europe. The Canadian economy grew 3.7% in the first quarter, commodity exports are booming and inflation is 2.5%. In June rates were left unchanged probably only because the Canadian dollar over the past few months went from 84.5 to 94.5 to the US dollar. No matter what they do longer term the Canadian dollar is going to parity, one to one. In the meantime in the name of solvency the government is reducing the national debt and by yearend they hope to have it down to C$472.3 billion or 35% of GDP, a 25 year low. M3 is up from 6.3% in June 2006 to 10% in April 2007. Unfortunately a strong dollar means a loss of more Canadian manufacturing jobs, but unfortunately there is no way around it. Unemployment has been stuck at 6.1% but Canada can easily live with that.

 

As we move into Asia we see South Korea’s interest rates have moved from 3-1/4% to 4-1/2% over the last year and the central bank raised bank reserve ratios, the money they cannot lend out, to 7%. As elsewhere, M3 is up 12.3%, another coincidence. As a result house prices are growing four times faster than consumer prices, up 9.7% yoy. Interest rates have been 4.5% for 10 months. They will be raised soon - another monetary system out of control.

 

          Australian bond futures have fallen to their lowest levels in three years. Bond yields are over 6% and headed higher. The Reserve Bank cash prime rate is 6-1/4% and is expected to remain at that level until yearend. Inflation is supposed to be 2.4%, down from 3.3%, but we hardly believe that. As we earlier reported unemployment is at 4.4%, a 32-year low, which means higher inflation. M3 is up 13.7%, another coincidence. Bond debt is only $60 billion, down 33% since 1996.

 

Chinese five-year Treasuries are yielding 3.82%, up 105 bps over the past two months, the highest rate in three years. The issuance of M3 is 17.2%. That means the Chinese desperately need to raise rates. They have done other things, mainly increasing reserve requirements for banks, but that isn’t enough. Inflation has quickly moved up to 3-1/2% and its headed higher. China’s stock market is in for real trouble.

...

GOLD, SILVER, PATINUM, PALADIUM AND URANIUM

 

Monday brought unsettled markets. The Dow was -15, S&P -12, Nasdaq -18 and FTSE +70 Dow points. The CAC was -2, DAX +2. The yen was +2, the euro -.0029 and the pound -.0035. The 2-year Treasury yield was 5.01% and the 10’s were 5.13%. Oil was +$0.57, gas +$0.02 and natural gas +$0.02. Gold was +$5.50, silver +$0.13 and copper +$0.06.

 

Last week saw gold fall $22.00 with two days accounting for $21.00. The producer gold and silver shares held up very well. This indicates to us that the correction could well be over. The losses to the downside were small during this correction suggesting that this may have been a false correction. Monday and Tuesday will let us know how right we are.

 

The Bloomberg Metals Survey of Traders shows 72% of polled analysts as bearish or neutral; 17% of 36 advised selling gold, 10 said to buy and 9 were neutral, which is very bullish for gold. The majority is never right.

 

Monday was a strong day for gold and silver bullion. Gold closed at $654.80, up $9.20 and silver was $13.23 up $0.24. The September gold contract was $659.00, up $8.70, silver up $0.24 at $13.28 and copper up $0.10 to $3.36. Friday saw gold open interest rise 2,859 contracts to 406,903. That tells us there are some powerful buyers in the market and they showed up today. Silver open interest fell 1,246 contracts to 120,998. At Tocom on Friday the big gold shorts increased their net shorts by 6,373 contracts to 126,862. In just the last four days they have added 16,785 shorts. Goldman increased their gold shorts by 300 to 23,047. The XAU rose .99 to 136.89 and the HUI rose .59 to 326.33. Wait until the dollar tests 80 then we’ll get the naysayers attention. Friday’s silver open interest fell 1,246 contracts to 120,998.

 

The Dow rose to 13,425, up 1 point on the day unable to hold its gains. S&P was +13 and Nasdaq -10 Dow points. The yen fell .07 to 121.77, the euro fell .0020 to $1.3353, the pound fell .0003 to $1.9696, the Canadian dollar was unchanged and the dollar index rose .02 to 82.31. The 2-year Treasury yielded 5% and the 10’s 5.15%. Oil rose $1.21 to $65.97, gas rose $0.02 to $2.15 and natural gas fell $0.06 to $7.61.

 

Dubai says demand for gold from Saudi Arabia and Egypt is expected to boost Dubai’s gold imports in the second quarter. Dubai is a center for the import and re-export of gold, bringing in 489 tons of gold in 2006 and exporting 274 tons.

 

Silver is being utilized more and more in nanotechnology applications. The market for silver conductive inks is expected to rise from current $176 million per year to $1.2 billion over the next seven years.  Silver is also the material of choice for RFID, antenna, and the printing of RFID tags to be used on an ever-increasing number of items. These are the kind of productive applications that makes silver so attractive as an investment.

...

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, 13 June 2007 | Digg This Article



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