-- Posted Wednesday, 25 July 2007 | Digg This Article

The following are some snippets from the most recent issue of the International Forecaster.  For the full 23 page MidWeek Reading, please see subscription information below.

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 face a collapse in real estate and then in the stock market, which are parts of a larger banking crisis. We should have had our recession in 1992 and purged the system then, but the elitists didn’t want to do that. Now we have an approaching catastrophe, yet Dow Jones doesn’t want you to know about it.  What we are telling you is nothing new, it is just worse than it has ever been. The suppression of news will continue until we change the system. Hopefully that will be soon.

What you are seeing in credit markets is a borrowing mania assisted by the Federal Reserve. US leveraged buyouts have pushed sales of high-risk, high-yield debt paper up 70% to $1 trillion during the first half of the year. That could mean that borrowing could reach $2 trillion this year. When you compare that with GDP of $13 trillion you have an idea of how serious this is.

Banks doubled the amount of CDOs outstanding in the past two years to $2.6 trillion. A record $769 billion, or almost 30% of the total was sold last year.

As credit deteriorates, due to properly rating lower quality bonds, then bond values will fall away. That will be particularly true in asset-backed bonds. Bonds backed by consumer, commercial and other loans and receivable as collateral. This debt along with CDOs and junk bonds will all have to be marked to the market. No more of this computer driven mark to model.  

As we have pointed out in the past, $2.28 trillion worth of ARMs have to be set from 2007 to 2009. In the first quarter the MBA said 15.75% of subprime ARMs were 30-days or more delinquent.

For April, May and June durable goods orders fell 2.07% on average. Orders for capital gods, excluding aircraft and military are flat. The economy in goods and services is not performing well. Only the paper shufflers are making headway and that won’t last forever.

Our guess is that the US Treasury and the Fed will make a last ditch attempt to defend the dollar between 79 and 80 on the USDX – it’s down to 72 to 75 - then very possibly to 40 to 55 – with 55 being the reasonable correction. If the US wants to survive the US Congress must enact tariffs on goods and services. If that doesn’t happen they will be an indefinite depression.

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One thing is for certain when we reach the tops of markets about 90% of investors are wrong and they do not get out and they ride the market down most if not all of the way. The question is, how can so many be wrong? More than any other reason is it is because they do not understand the historical perspective of markets and they fail to see that investing is an art form. We have watched bull and bear markets come and go for 50 years, and in every one of them there are the stories of winners and losers. The best advice is do not invest in things you do not understand, and always base your investments on fundamentals.

Booms and inflation are caused by the excessive use of money and credit. They end when an event occurs and causes a loss of confidence, which leads to a contraction of money and credit. The world’s central banks, and particularly the Fed, are scrambling to maintain the perception that all is well. That is why they have worked so hard at market manipulation, particularly with the Dow and gold and silver prices. At any cost confidence has to be maintained, and liquidity has to be maintained even at the cost of hyperinflation. Today we see a late turn in the cycle turn on markets, as the need for credit is enormous and the financial expansion accelerates and at the same time the risk profile of the marginal new loans deteriorate. This leaves the large lenders in a precarious situation so they cut loan exposure. This is the same kind of credit bubble that existed in 1929. The Fed withdrew money and credit from the system during 1929, and that is what began the slide. Even if the Fed had reversed itself, as it has done today, there is never enough money and credit to sustain the bubble. Each day many billions of dollars is needed to sustain the unsustainable bubble that is based on asset prices, inflated and falling corporate profits and worsening economic and financial events. This is a serious systemic problem. Doesn’t anyone consider 101 subprimes – ALT-A lenders going under serious? The subprime problem has begun and will continue to ripple through the economy for at least three more years. Do players really believe spreads between junk and AAA are going to stay as close as they are today? Those spreads in time will widen back to 10%. That also reminds us that lenders are not in a good position having lent to all those CSO and ABS speculators, some of whom will go down in flames.

If all these problems were not enough, personal, corporate and government debt overhang is colossal. Debt continues to rise as the dollar continues to fall. Fannie Mae and Freddie Mac have to soon be in serious trouble. Suppose some of their derivatives fail – what do you think will happen to their portfolios? What you are witnessing is Ponzi finance and nothing less.

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The falling dollar has cut OPEC countries’ purchasing power by one-third making the cartel reluctant to increase production. Aggravating the situation is the fact the euro and pound have appreciated against the dollar and most of their external transactions are done in those two currencies. For every 10% the dollar falls OPEC producer purchasing power falls 5%.

The fall in the dollar, the possibility of the dollar losing its status as the world’s reserve currency, and free trade and globalization assure Americans that the living standards of our children and grandchildren will parallel those in the second and third worlds, especially now that we have 30 million illegal aliens in our midst.

These conditions can be completely blamed on the elitist Illuminists who run our country and the world from behind the scenes. They want globalization to break the back of the economies of the US, Canada and Europe to force them to accept world government and to increase the profits and power of the Illuminati. When the leveling process is completed there will be no significant class of people, even in wealthy countries. In the end you will all exchange your $32.00 an hour job for one that pays $8.00 an hour, and it may be the same job.

The effect of offshoring, outsourcing and unbridled illegal immigration will propel our standard of living to the bottom of the living scale. It is imperative that you continue to over and over again contract every member of Congress to tell him or her you want them to stop the planned destruction of our way of life. If you fail to do this you will have to in time engage in revolution in order to get your country back.

We should have accepted deep recession in 1992 and because the Illuminist’s foil, Sir Alan Greenspan was directed to avoid that calamity. We now face certain recession and depression. The basis for recovery, which began in 1993, was low interest rates. They reduced risk and encouraged asset and financial speculation. Cheap credit allowed the third and second worlds to compete with first world economies and it expedited competition as well as the destructive process of offshoring and outsourcing. Monetary policy in the form of lower interest rates has now been with us for 15 years and finally we are seeing higher rates. These lower rates have terminated savings in the US, and pushed asset price inflation, which has finally begun to recede. It also caused excessive consumption and a massive current account deficit, which has turned America into the world’s largest debtor. As interest rates rise, asset prices decline, which will lead to personal, corporate and perhaps government bankruptcy. That will complete the nightmare of the transfer of much of the West’s industrial base to Asia and the third world totally destroying Western infrastructure. Due to debt and high interest rates in the West and low interest rates in Asia and elsewhere, the power shift will be total and the elitists will implement the move to world government.

We are told there are no solutions. The solution is tariffs on goods and services and a fall in the value of the dollar to 50 on the USDX. That will have to be accompanied by the ejection of all illegal aliens and their offsprings from our country. That would also mean our exit from WTO, NAFTA, CAFTA and a stillborn NAU, North American Union. In this way the pain will be difficult, but we’ll survive as a first world leader.

Despite enormous risk and the failure of another $1 billion hedge fund, The Basis Capital Fund, headquartered in Australia, and June gains at only 0.2% and ytd gains of 3.7%, a handful of funds continue to draw in suckers to the tune of $58.5 billion ytd globally. This money is entering as financial fundamentals deteriorate. All the warning signs are there for all to see. In addition, ultimately gold will surge, once it becomes clear that the euro lacks the staying power to serve as an alternative to the dollar. The EU has no constitution and it’s an ill-assorted mix of 13 un-converged national economies, with national treasuries, debt structures, taxes, pensions and labor laws. They still do not accept the euro, drift apart daily and as we predicted, are flowing back into tribalism. 

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GOLD, SILVER, PATINUM, PALADIUM AND URANIUM

There is no question that the Treasury and the Fed are having great difficulty defending the dollar and that effort will get more and more difficult as time goes on. Trying to control the price of oil is like grabbing a greased pig. The effort to continue to suppress the prices of producing precious metals’ stocks has met strong resistance as the shares are ready to break to new highs. After the last burst of physical gold selling of some 181 tons over a 10-week period there has been little selling, which tells us the gold suppression cartel may be running low on salable gold. The only exception was the Swiss sale in late June, which we have to believe was a sale they did not wish to make, but were forced into it by the elitists. The COT report for last week showed a net short increase, but nothing substantial, which tells us they see gold going higher. The first 33,000 contracts they shorted were ineffective as gold rose $30. Then there is the yen carry trade. The borrowers of yen have to be jittery. On Friday the yen jumped up almost 1 cent. This is good - part is the financial flow that keeps world stock and bond markets from collapsing. We can see our day in the distance, and it is not far away.

Monday was a mixed day. The spot gold price ended down $2.70 to $680.80 and silver lost $0.04 to $13.24. The August gold contract ended off $3.20 at $681.50,silver -$0.07 to $13.33 and copper off 0.05 to $3.66. Today was another day of managed markets. The Dow was up 92, S&P up 68 and Nasdaq up 17 Dow points as the PPT did their magic. They were also in the treasury market holding yields down and the bond market up as the 2-year ended at 4.7% and the 10’s were 4.95%. The dollar was again under pressure all day, but our government managed to get a small gain of +0.06 to close at 80.35. A good example of gold’s strength was Friday’s open interest rose 16,830 contracts to 393,498 and that is 51.49 tons of gold. Silver open interest rose 1,143 contracts to 119,526. The yen fell .02 to $1.2121, the euro was .0027 lower to $1.3799, the pound rose .0016 to $2.0577 and the Canadian dollar rose .15 to 95.53. The big Tocom shorts on Friday cut their net shorts by 8,093 to 101,380. The mini contracts cut 8,926 standard contracts to 102,015. Goldman covered 790 contracts and their net short position fell to 17,103 contracts. The Tocom silver shorts were increased by 24 to 4,740. Oil prices fell $0.90 to $74.89, gas fell $0.06 to $2.10 and natural gas fell $0.41 to $6.04. Speculators should look to be buyers at $5.80 for a bottom and August turnaround to the upside. The XAU fell .19 to 158.20 and the HUI lost 1.30 to 368.93.

The Russian Gold Producers Union said gold production fell 3.4% yoy to 55.147 tons in the first half.

Unionized gold sector workers in South Africa won’t budge until they secure a “double digit” wage increase from the gold industry. If the problem is not solved by August 1st then a strike will ensue. The employers offered 7.5% and the union wants 15%. We see a strike of at least one month’s duration and perhaps as long as three months with bullion coming to market being cut substantially.

Tuesday gold closed up $3.60 to $684.40 after having been up $8.00. Silver rose $0.11 to $13.35. The August gold contract rose $3.30 to $684.80, silver jumped $0.11 to $13.44 and copper fell $0.04 to $3.62. The commercials were shorting gold, physical was sold and derivatives were employed, but they couldn’t break either gold or silver. We could see the commercials short 60,000 to 80,000 contracts when this week’s COT report is issued a week from Friday. The dollar was bombed again and this time it broke down. The yen rose $0.73 to $1.2033, the euro rose $.0020 to $1.3820, the pound was up $.0028 to $2.0618, the Canadian dollar hit a new high of 96.53, up 1.00 and lo and behold, the USDX, the dollar index, fell .29 to 79.93. There was enormous buying in gold both in physical and in futures. Gold open interest rose 1,167 contracts to 394,665 and silver open interest gained 118 to 119,408.

The ECB report saw gold holdings fall 288 million euros, or 17.98 tons. Last week the fall was 5.49 tons. This is the largest sale since May. They have ten weeks left to sell 182.5 tons. The Swiss who said they had finished selling for the fiscal year are selling about a ton a week. So much for honesty.

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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

-- Posted Wednesday, 25 July 2007 | Digg This Article

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