SATURDAY, JUNE 16, 2007
THE INTERNATIONAL FORECASTER
06_07_3_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
Regarding fundamentally misaligned currencies headlines state that the Bill does not specifically name China or any other country. In addition, headlines state that the Bill would require the US Treasury to develop a new biannual report identifying 2 categories of foreign exchange misalignment, and that currencies misaligned due to “clear” foreign policy action should be targeted for “priority” action. “Priority action” countries would be opposed by the US for more IMF Voting power, and foreign exchange practices would effect a US decision on whether a country is “market economy” under law. The Bill threatens further penalties if appropriate action is not taken within 5 months, and would make Treasury and central Banks consult on ”remedial” foreign exchange intervention if there’s no change to that country’s policy after one year, while also requiring the US Treasury to initiate a case on the currency at WTO. Furthermore, the Bill would allow currency undervaluation to be reflected in US anti-dumping duty calculations, and would deny misaligned currency countreis access to US Government procurement market.
The Mortgage Bankers association’s weekly mortgage index rose 6.6% for the week ended June 8th. The 30-year fixed mortgage was 6.61%, up from 6.35% for the week ended June 1st. The 4-week moving average for all mortgages was down 0.3%. Refis were 38% of all appls, unchanged and ARMS increased to 18.7% from 17.8%.
The perceived risk of owning low rated subprime mortgage bonds created in the second half of 2006 rose to a record as loan delinquencies and mortgage rates climb, according to the index of credit-default swaps linked to 20 bonds rated BBB-, which fell to 62.12 according to Markit Group. The 10-year US Treasury note has been trading between 5.20% and 5.30%, and that has put the 30-year fixed rate mortgages at 6.65%. That is only 10 bps away from the lower end of our projection of rates of 6.75% to 7.00% by yearend. These higher rates are putting further extreme pressure on the CDO and real estate markets, as well as the stock market and corporate America.
We just saw a video on WINK out of Fort Myers in Florida, which is very close to where we once lived. It was an auction of 50 townhouses that cost present owners $300,000, that were auctioned off at about $145,000. The present owners are furious because the builder said they would auction homes off. This is a former hot area as was most of southern Florida on both coasts.
The US agencies that supervise more than 8,000 banks haven’t censured any subprime lenders for violating fair lending laws, three years after Fed researchers began assembling data showing blacks and Hispanics are more likely than whites to be saddled with high-priced home loans. We believe that is true, but we also know that they were the least qualified and most should never have been given loans in the first place. The Fed has hundreds of lenders tagged for investigation, but, of course, nothing happens.
As we predicted 3 years ago, Morgan Stanley, Deutsche Bank, UBS and Citigroup will stand trial in connection with the 2003 bankruptcy of Italian dairy company Parmalat SpA. They are accused of market manipulation. Investors lost $13 billion and the company had $19 billion in undisclosed debt.
US antitrust officials are investigating whether some conductor makers manipulated prices in the $11.9 billion memory chip market. Being investigated are Micron Technology, Samsung and Infineon Technologies AG, which controls 60% of sales.
Samsung Electronics has agreed to pay $300 million to settle US criminal charges it took part in a global conspiracy to fix the price of digital memory chips used to make personal computers, mobile phones and other electronic devices. This is from 10/13/05 when we first reported it. As usual no one went to jail, all government wants is the money. We find it of great interest that there never is an investigation of the US Treasury, the Fed, and other central banks and their manipulation of the gold market.
The Fed’s mid-April through May Beige Book showed significant price increases for energy related products. There was continued weakness in residential real estate and construction, but rising strength in commercial real estate.
The crooks at Morgan Stanley will pay $4.4 million to settle a class-action suit with brokerage clients who bought precious metals and paid storage fees. They told clients it was selling them precious metals that they would own in full and that the firm would store. They shorted the metal to themselves and never owned the physical metal. They could get away with it until discovered because they were part of a US government conspiracy to suppress precious metal prices.
Wal-Mart loses $3 billion a year due to theft and it’s increasing due to shoplifting, employee theft, paperwork errors and supplier fraud. The firm no longer prosecutes minor cases focusing on organized shoplifting rings. They have cut staffing and that as well has resulted in more theft.
Collectively retailers lost $41.6 billion last year, or 1.61% of sales in 2006, up from 1.60% in 2005. Forty-seven percent is from employee theft, 34% from shoplifting, 4% from supplier fraud, and 14% from administrative errors.
Business inventories rose 0.4% in April as sales gained 0.7%. The inventory rise was the most since September.
The May import price index rose 0.9%, as the experts were very wrong again, projecting 0.3%.
For years private equity firms have basked in an era of cheap money and low interest rates. The breakdown in the bond market is telling us that era may well be coming to an end. The favorable conditions that have lined the pockets of corporate raider-asset strippers for Blackstone, Carlyle and others are coming to an end. We believe it will take another year to wind down, but the golden days are now behind them. We even have Bill Gross of PIMCO who has been dead wrong on interest rates telling us that over the next 3 to 5 years Treasury yields will rise as high as 6.5%. Bill is wrong again. Rates are going up but they will see 5.65% to 5.9% this year and 6.5% next year. At least he recognizes the era of cheap money is over. That sea of money has to find another home and it won’t be in bonds or the market. The only other logical choice is gold, silver, uranium and commodities. It certainly won’t be in real estate. Bondholders have finally seen the light, that is rising commodity and labor costs in low cost countries, such as China, India and Mexico. Major inflation is here and it is going lots higher no matter what official statistics tell us. Interest rates are finally being reflective of economic reality and decisions in the future are going to be very difficult to make. Rates should have gone higher three yeas ago, but the yen and Swiss franc carry trades were able to stall elevated rates. This means investment funds that went into private equity groups and hedge funds have to be reevaluated because some of the leverage is gone. That means they have to find a new home for those funds and that points directly toward gold, silver, commodities and uranium. Just to give you a small idea of what kind of money we are talking about, so far this year private equity transactions have accounted for about a quarter of the $2.3 trillion of worldwide deal activity. That figure was 10% in 2002. That is $575 billion. As buyout activity diminishes so does a key source of support for stocks on Wall Street. When a buyout firm takes a company private, it decreases the number of shares available in the public market, thereby raising prices for the shares remaining. That prop is going to be lost to the market. The higher interest rates come at a time when these groups are overpaying and when leverage is at its height. This all isn’t going to happen overnight, but the trend is set and in a year or two the heyday of the buyout kings will be mostly over.
Government tells us inflation is 2.8%. They should tell that to Arizona Public Services, which is raising utility rates 20.4%.
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According to the MBA, 1.28% of all loans outstanding in the US were in the foreclosure process in the first quarter of the year. That is up from 1.19% in the fourth quarter of last year and is up from 0.98% in the first quarter of 2006. The average since 1990 is 1.1%. 0.58% of all loans were starting the foreclosure process, up from .54% in the last quarter of 2006 and from 0.41% a year ago. This .54% is an all time high.
4.84% of all loans outstanding were delinquent for the first quarter down from 4.95% in the fourth quarter of 2006, but up from 4.41% a year ago.
Foreclosure on subprime ARMS jumped from 2.7% to 3.23%. The delinquency rate increased 13.77%.
Freddie Mac posted the 30-year fixed-rate mortgage at 6.74%, up from 6.53% a week ago. There you have it. Our prediction of 6-3/4% has already been reached and we’ll soon see 7%. The 15’s were 6.37%, up from 6.22%, and the one-year ARMS averaged 5.75%, up from 5.65%. This couldn’t have happened at a worse time.
Investors should demand more transparency and accountability from managers of collateralized loan obligations says S&P. The rising popularity of so-called covenant-lite loans imposed significant risks on investors in the opaque CLO market.
In the first quarter of 2007, they reached $48 billion compared to $24 billion recorded the whole of last year. The use of these loans to fund buyouts is already well established in the US and is becoming more accepted in Europe.
The SEC has eliminated the uptick rule for shorting that has been in place since 1938. We believe it should have stayed in place. The rule had simply become unenforceable.
Now the SEC tells us that they are going to end naked shorting. We’ll believe it when we see it.
May house sales in Southern California fell 34% to the lowest in 12 years. That is in Los Angeles, Ventura, Orange, San Diego, Riverside and San Bernardino counties. Sales have fallen for 20 months in a row. The median home price was $505,000, a record level. Prices rose 6.8% in L.A. country, 0.5% in San Bernardino, and 0.1% in Orange country. It dropped in the other three counties.
Riverside sales fell 47% and San Bernardino 45%.
Monthly mortgage payments on a median-priced home were $2,364, up from $2,356 in March and $2,359 a year earlier.
Nationwide the number of mortgages entering foreclosure rose to .58%, from .54% in the 4th quarter. Subprime loans entering foreclosure rose to a 5-year high of 2.43%, up from 2% in the 4th quarter, as prime loans rose to .25% from .24% the highest ever.
Ohio had the highest foreclosures at 1.07% followed by Indiana at 1.04% and Michigan at 1.01%.
The share of overdue payments, or delinquencies, on all types of loans was 4.84%, down from 4.95% in the 4th quarter. Payments between 30 days and 60 days late dropped to 2.93% from 3.08%, the 60 to 90 days grew to 0.93% from .90%, and the share over 90 days increased to 0.98% from 0.96%.
In the first quarter, 2.5% of prime borrowers sent their mortgage payments in at least 30 days late, a fifth the rate of subprime borrowers. The subprime loans climbing to 13.77% from 13.33% in the 4th quarter. The inventory of foreclosure saw subprime loans climbing to 5.10% from 4.53% and the prime share rose to 0.54% from 0.50%.
First time filings for state unemployment benefits were unchanged at 311,000. The 4-week moving average of new claims rose 3,750 to 311,250, a 5-week high. Those receiving unemployment fell 43,000 to 2.487 million.
The May PPI rose 0.9% versus a +0.7% in April. As we can see inflation is not moderating.
On the most recent polls they found only 19% of Americans believe we are going in the right direction, only 29% approve of what Mr. Bush is doing, only 23% approve of the Democrats performance, and only 16% approve of what Congress is doing. And, they call this democracy.
There have been huge increases in food prices over the past few months with food and beverages up an annual 6.7% versus a 2.1% gain last year. Energy prices were up 4.1% in May, the biggest monthly rise in six months. Food makes up 15% of consumer spending. Can you believe that our government, Wall Street, corporate America and our media wants us to believe that inflation is 2.8%?
Senior Treasury officials say that the federal government may reach its debt limit before the fiscal year ends on 9/30/07. The current debt is $8.850 trillion and the limit is $8.965 trillion, so the government has only $115 billion available debt increase left. The growing debt combined with suddenly increasing interest rates will also increase the governments’ interest expense, further fueling the debt. If the debt limit is reached this fall or winter, it also may become an election issue as Congress will have to raise the limit at a time that the presidential campaigners are defining their platforms.
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GOLD, SILVER, PATINUM, PALADIUM AND URANIUM
Wednesday gold ended up $0.30 to $648.80 and silver rose $0.02 to $13.02. The September gold contract closed at $652.70, -$0.40, silver fell $0.03 to $13.06 and copper rose $0.03 to $3.32. The access market traded higher after the close. During the Comex session, gold rose $3.00 and fell $2.00 during the day. Gold open interest was up 2,673 contracts to 412,150. Silver open interest went up 477 contracts to 119,583. On Tuesday, the big Tocom shorts increased their shorts by 1,118 contracts to 138,475, as Goldman increased their short by 150 contracts to 24,137. The same group increased their silver shorts by 123 contracts to 3,454. The XAU rose 1.93 to 136.70 and the HUI rose 4.45 to 325.97. The XAU is an index traded on the Philadelphia exchange. It consists of 11 precious metal mining companies. HUI is the AMEX Gold Bugs Index.
Wednesday’s Dow jumped 187 points to 13,482,S&P rose 204 and Nasdaq rose 195 Dow points. The yen fell again 1.03 to $1.2274, which is absurd and it shows how the US and Japan arrogantly manipulate the market. The euro rose .0004 to $1.3305, the pound was off .0016, the Canadian dollar was up .04 to 93.78, and the dollar index rose .14 to 83.00. The 2-year yield eased to 5.08% and the 10’s were 5.21%. Oil rose $0.91 to $66.26, gas rose $0.02 to $2.16 and natural gas fell $0.07 to $7.61.
Credit Suisse sees gold testing $700.00 this year. What a fantastic crystal ball they must have.
India’s rising gold imports promise a good year. They imported 211 tons of gold in the first quarter, a 50% jump yoy.
Zimbabwe’s gold output is expected to fall 23% this year to 8,700 KG from 11,354 KG last year.
Early Thursday, the Dow was +31, S&P -2 and Nasdaq +20 Dow points. FTSE was +90 Dow points; the CAC was +57 and DAX +115. The yen was -33, the euro -.0003 and the pound -.0033. The 2-year was 5.08% and the 10’s 5.20%. Oil was +$0.17, gas +$0.01 and natural gas +$0.01. Gold was +$0.60, silver +$0.01 and copper +$0.01.
The massive sales we have seen over the past few weeks have been recorded as ECB central bank sales during that period. Unless the ETFs made some very large sales of gold, that can only mean one thing - gold leasing! We know that gold lease rates have not plummeted the way they used to, but that is because you exposed what was happening and now they are stuck with higher rates. But, let's face it, with rates at .2%, that is a small price to pay as far as the cartel is concerned when it comes to silencing the gold alarm.
We believe the central banks are leasing the gold to the bullion banks, which are then selling the gold to a different central bank, thereby re-monetizing the gold as opposed to a sale to a non-bank, such as a jeweler, which would demonetize the gold. The new central bank then leases the gold to another bullion bank, which could then sell it to a non-bank, demonetizing the gold, or sell to yet another central bank, thereby re-monetizing the gold again. This way multiple sales are created using the same gold bullion, thereby giving the cartel greater manipulative power than any other market player.
Basically the same gold bullion can be both leased and sold multiple times, and the same bullion can end up serving as gold reserves for multiple central banks. This explains why they are running out of gold even though the books of central banks around the world show 30,000+ metric tonnes of reserves. Most of the gold shown as reserves has eventually been demonetized by sales outside of the banking system, and what actual bullion is left is a fraction of paper gold reserves shown on the books of central banks. And this is all made possible by the fact that leased gold is still treated as an asset by central banks, and still shows as part of their gold reserves even though the lessee bullion bank has actually sold the gold. The convoluted rules allow the lessor central bank to treat the gold as if it had title to the gold even though the gold has been sold by its lessee bullion bank. In addition, we know of no other business situation where a lessee can sell anything the lessee has leased from a lessor without the lessor's consent, or, in the case where a lessor's consent is obtained, where that lessor can continue to carry the asset sold with its consent on its books as if it still owned the asset! This has got to be the scam of the century!
The Washington Agreement is then used to launder all these convoluted lease transactions. All planned sales under the Agreement are made public to push gold down, while purchases by bullion banks all clamoring to square their leases when gold shoots up are done as private sales with the central banks so the bullion banks do not have to go into the public marketplace, thereby driving gold prices up. This is how bullion banks are bailed out of leases that have gone bad, especially when gold suddenly skyrockets and messes up their books, and is the primary reason for heavy-handed manipulations, which we call gold-bashing, since sales between banks are probably made at market. The gold restored by the bullion banks to the central banks in order to square their leases can then be used for further manipulation or leasing. We have observed that the Swiss National Bank and Bank of England under the first Washington Agreement, followed by the Bank of England and the central banks of France and Spain under the second Washington Agreement, have acted as sacrificial lambs, along with producers like Barrick and their forward sales, to provide the gold needed to square leasing accounts. The Washington Agreements were necessary because the US had already been taken out of its gold (or as much gold as it was willing to contribute to the elitist cause) and those with unencumbered bullion had to agree among themselves who would take up where the Fed and the US Treasury had left off. Preventing gold manipulations such as those used to save Long Term Capital Management had nothing to do with it whatsoever!
It should also be noted that the principal demonetizers of the central bank gold who have taken it out of the banking system are the Illuminists themselves, who are hoarding it for a tremendous profit and to fund their next Ponzi-scheme currency. They have effectively raided the gold reserves of their own banks or the gold reserves of national treasuries controlled by their implanted underlings, and always at bargain-basement prices, like the Rothschilds buying gold from the Bank of England at the bottom of the gold market.
In the case of the US, all of our gold has been either stolen or swapped out. The swaps were initiated in the US, at the direction of the Fed, by the United States Treasury acting through its Exchange Stabilization Fund, but actually manifested in the European markets as multiple lease-sale transactions until the gold pushed into the market by use of the swaps was sold several times and then largely demonetized. This is how the Fed and the US Treasury kept a low profile, making it look as if most of the selling was being initiated in Europe when the Fed was the real culprit. Otherwise the US public would have become very suspicious of the Fed and raised an outcry against it, even more so than it did and much earlier on. So now we have "deep storage gold," but we might as well call it "deep six'd gold" since this gold is dead, gone and buried.
We will get into all of the above in considerably more detail in the article I am working on. The article may take some amount of time as the subject matter is very complex, and due to the secrecy maintained by the cartel concerning many aspects of these gold transactions, one is forced to make conclusions based on logical extensions of the small kernels of facts, which we have been left to pick from.
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