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International Forecaster July 2007 (#4) - Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster



-- Posted Sunday, 29 July 2007 | Digg This ArticleDigg It!

The following are some snippets from the most recent issue of the International Forecaster.  For the full 22 page issue, please see subscription information below.

THE INTERNATIONAL FORECASTER

07_07_4_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

 

The MBA said mortgage applications fell 3.6% to the lowest level in 5-months in spite of multiple submissions. The 4-week moving average was down 0.4%. The 30-year fixed rate mortgage was 6.59%, down 660%. Refis were 38.5%, up from 37.7% in the prior week. The 15-year fixed mortgage was 6.24%, down from 6.29% and the one-year ARMs were 5.62%, down from 5.60%. The ARM share was 21% unchanged.

 

Securities regulators charged former Amaranth adviser trader Brian Hunter with attempted manipulation of gas futures. Now we will have another kangaroo court proceeding while the real culprit, JP Morgan, Chase gets off Scott free.

 

Countrywide Financial tells us more borrowers with good credit are falling behind on their loans and that the housing market might not begin covering until 2009, because of a decline in house prices that goes beyond anything experienced in decades. We predicted this nine months ago when Angel Mozilo was selling his stock. He knew so as well. Countrywide and Wells Fargo have stopped offering a 2-year ARM for 28 years.

 

Junk bond yields are now up to 84%. Case-Schiller says at the end of April home prices were down 2.1% yoy.

 

Countrywide said about 5.4% of home equity loans to customers with good credit that it held an interest in were past due at the end of June, up from 2.2% yoy. Twenty-one percent of subprime loans were past due at the end of June, up from 13.4% yoy.

 

At Countrywide’s conference investors asked Mr. Mozilo how he could justify selling while Countrywide was buying shares, which have since fallen 50%? Stock sales brought Mozilo $380 million.

 

Don’t forget, the parade of ARM resets is just starting to attain critical mass and will continue for a year before tapering off slightly. This exercise began last year in the fall and those loans reset in two years. The volume will still be large as a new set of ARMs reset and if interest rates are higher we’ll have a whole new problem to contend with. The nightmare is not going to go away for years. That means the economy and real estate will have problems for a long time to come.

 

JP Morgan says house prices could decline 15% over the next two years, as ARMs adjust higher and trigger waves of defaults, which will spill into other credit markets. They are talking about the overall housing market. The former 30 hot areas well fall another 15% to 30% until they are off 30% to 60%, depending on area and how much they rose in value.

 

As collateralized debt obligations are halted Wall Street will lose $8.6 billion annually in underwriting fees. Buyout groups rely on CDO’s for 60% of the loans to finance acquisitions. That is nothing compared to the $2.6 trillion of subprime and ALT-A debt that is falsely priced on the books of hedge funds, governments, pension and retirement plans and a myriad of other investors.

 

Moody’s says the credit market route caused by the slump in the subprime loan market gives serious reasons to worry and is a reality check.

 

Chrysler has abandoned plans to sell $12 billion of loans to complete its purchase by Cerberus Capital Mgt., after investors balked at purchasing the high-yield, high-risk debt. JP Morgan got stuck with $10 billion of the debt and Cerberus and Daimler Chrysler bought $2 billion. This is subprime contagion. Deals are frozen and won’t thaw soon.

...

GOLD, SILVER, PLATINUM, PALADIUM AND URANIAM

 

...

 

On Wednesday, it just happened to be gold option expiry and, of course, the $680 calls were worthless - another example of our free markets. Gold open interest rose 6,938 contracts to 401,603 and silver open interest fell 344 to 119,064. The large Tocom shorts increased their net short position by 719 to 100,122, as Goldman increased their shorts by 485 contracts to total 17,034. The same gang increased their net silver short by 148 contracts to 4,848.

 

As we suspected on early Thursday, the Dow was off 48, S&P -45, Nasdaq -11 and FTSE -16 Dow points. The CAC was -23 and the DAX was -14. The yen was +.19, the euro +.0002 and the pound -.0047. The 2-year Treasury was 4.70% and the 10’s were 4.88%. Oil was +$1.08, gas +$0.03 and natural gas +$0.04. Gold was +$1.60, silver was +$0.06 and copper was +$0.01.

 

Thursday was havoc and it is not going to get better for the market. This is a warning so take heed. The insiders have lost control of the markets. You saw the 312-point plunge and the 13,494 close. The market was off over 400 Dow points about 45 minutes before the close. The S&P fell 320 and Nasdaq 293 Dow points. The economy is in recession and the housing and CDO markets are collapsing faster than anticipated. The only way to delay an eminent collapse is to lower interest rates. If the Fed does so on August 7th the market fall will stabilize between Dow 11,700 to 12,200 and some pressure will be off the market and the economy. At the same time the yen will strengthen and the carry trade will diminish. The problem for the elitists is the dollar will fall to 72 to 75 on the USDX and gold will run to $1,000 an ounce and silver to $25 to $35. This will be a last ditch attempt to postpone the depression. Another risk is the dollar will be dethroned as the world’s reserve currency. The warning is, buy now. This could be the breakout if the elitists take this route.

 

At the close the producing gold stocks made back ½ of their losses, which in all likelihood was short covering. That clears the decks for the rally tomorrow for the shares and bullion. We missed the spot close so here are the August closes. Gold off $1.00 at $662.80 silver -$0.20 at $12.95 and copper off $0.03 at $3.52. Gold was up $1.60 at 4:00 a.m. and at the opening it was up $2.00 and in a 30 second timeframe it was off $5.00. At that time the Dow was off 100. The big Tocom shorts increased their positions by 2,951 contracts to 103,073. Mines took it up to 3,008 short to 103,777, as Goldman added 600 shorts to 17,646. The same group increased silver shorts by 14 to 4,862.

 

The yen rose 1.84 to $1.1867. There has to be some massive carry trade hedge fund losses. The euro rose .0016 to $1.3741, the pound was -.0050 at $2.0487 and the Canadian dollar fell 1.21 to 94.89. The 2-year Treasury yield fell to 4.57% and the 10’s were 4.79%. Oil fell $0.93 to $74.95, gas fell $0.01 to $2.00 and natural gas fell $0.02.

 

Early Friday was a bit disappointing with the yen down .28, the euro -.0097 and the pound off .0157. The Dow was +16, S&P +20, Nasdaq +3 and FTSE +8 Dow points The CAC was -1 and the DAX -35. We expect another weak day in the market averages because most of the short covering came yesterday. The 2-year Treasury was up to 4.58% and the 10’s were up to 4.80%. There has to be an end to the slide in the Treasuries because the yield is no longer attractive. Oil was +$0.47, gas +$0.01 and natural gas +$0.02. Gold was +$0.20, silver -$0.12 and copper was +$0.01.

 

Friday was an improving day for gold and silver. Gold fell $2.80 to $659.50 and silver fell $0.23 to $12.60. The outside month closed -$2.70 to $660.10 silver fell $0.23 to $12.71 and copper rose $0.02 to $3.55. Gold open interest fell a very large 20,063 contracts to 365,449. In the recent COT report the large specs increased longs by a giant 39,463 contracts and reduced shorts by 3,748. The commercials increased longs by 19,767 contracts and reduced shorts a massive 29,327 for a net long of 49,094, which wipes out the previous short of 43,000 leaving the commercials long 6,000 contracts above their core short position. This means it was not the shorts driving down gold but naked shorts out of London and physical selling. Silver OI fell 710 contracts to 120,497.

 

Tocom shorts increased their short position by 7,675 contracts to 11,748 as Goldman added 1,450 to 18,981. Silver shorts added 181 to 5,043. The XAU fell .61 to 146.64 and the HUI staggered 7.99 to 338.

 

The Dow ended Friday -208, S&P -213 and Nasdaq -133 Dow points The yen slipped $0.01 to $1.1877, the euro fell .0106 to $1.364, the pound fell .0230 to $2.0258, the Canadian dollar off .69 to 94.22 and the dollar index up .53 to 80.83. The 2-year Treasury was 4.56% and the 10’s were 4.78%. Oil was up $2.07 to $77.02, gas was up $0.01 to $2.10 and natural gas rose $0.17 to $6.11.

 

In looking at a chart on ARM resets, something stood out that pretty much seals the fate of financial markets.  A fate worse than death.  The subprime ARM resets went to highly elevated levels in May 2007 and will remain at those levels through February 2007, so we are just getting started.  The peak of subprime ARM resets will be reached in October 2007, and will stay near that elevated level through February 2008.  Is that not almost the entire heating season?  Are not natural gas and oil headed much higher as the year progresses?  Not only are the mortgage payments going way up, but also utility bills are going to rocket at exactly the worst possible time.  And this will be most devastating in the Northeast, which has suffered substantially from offshoring and outsourcing.  Can you imagine a Michigan winter where ARMs reset and heating costs escalate simultaneously while continuing layoffs in the auto industry add to the mix of woe and misery?  How does that BTO song go: "You ain't seen nothin' yet!  Dah! Dah!  Ba-ba-ba baby, you just ain't seen nothin' yet!"


          And can you imagine the stratospheric levels to which PMI and FHA Mortgage Insurance premiums are going to climb?  Then consider the increase in interest rates that will take place due to risk reassessment and rising bond prices caused by surplus dollar reserve nations climbing over one another in a hysterical panic to dump their treasuries as the dead-cat bounce in the dollar ends, and the dollar descends to its final resting place in fiat money hell.  Wait until first-time buyers get a look at their potential closing costs without a 20% down payment!  And imagine their stares of disbelief as the mortgage broker unveils their proposed schedule of payments!  They are going to head for the hills and start giving thanks for their wonderful, cheap apartments!  Forget about that mortgage crap!

 

Without these buyers the real estate market is dead in the water.  This will kill real estate values, which are supposed to secure the various types of derivatives backed by real estate and pretty soon you won't be able to give CDOs and ABSs away, regardless of their ratings!  The snowballing layoffs being generated by the construction and mortgage sectors are just getting started and you are going to see a whole pile of prime loans get flushed down the same toilet as the subprime loans as the defaults caused by these layoffs spread across all tranches.  Real estate derivatives will become to investors what kryptonite is to Superman - something to be avoided at all costs.

 

           And with the resulting elevation in interest rates and therefore the cost of funds, you can forget about buyouts and mergers and acquisitions!  Wall Streeters will soon be asking:  "Buyouts, M&As - what are those?  Aren't those something the idiot investment bankers and moronic commercial banks promoted just before they became crispy critters in a nuclear subprime meltdown and a thermonuclear risk reassessment explosion?  Gee, I seem to recall that hundreds of billions of dollars in bonds, which were supposed to be issued in connection with those deals were retained by the lead investment and commercial banks because they could not find any buyers.  I wonder what happened to all that paper?"  Answer:  Whenever the executive washrooms ran out of toilet paper, they used the bonds as a substitute until the tissue stocks were replenished.


          And then of course there is the yen.  Ah, the yen.  You just got a small taste of what a carry trade unwinding can do to financial markets this week.  The Dow lost 678 points this week alone as the yen strengthened from 121.31 yen per dollar to 118.56 yen per dollar and from 167.614 yen per euro to 161.799.  That is almost 3 yen per dollar and very nearly a mind-blowing 6 yen per euro in one week.  They did this to hit gold. Stocks suffered as well and the market would have collapsed into a total free-fall without the intervention of the PPT.  Gold held up fairly well, considering the massive liquidity drain.

 

          The cartel keeps playing with the Yen Death-Star and they will soon hit the detonator button and be vaporized in the cataclysmic explosion.  Wait until the Japanese public, who own more yen shorts on the CME than all professional traders combined, get hit with the next yen manipulation that will be used in a vain attempt to stifle the fall rally in gold.  Can you imagine how much they will have to strengthen the yen in such a vainglorious attempt to keep the fall rally in gold under wraps?  When the Japanese public rushes in a state of stark, raving hysteria to cover their shorts as they watch their life savings disappear into thin air, the ensuing short-covering rally could send the yen to places unknown!  Traders at the CME will then start to hear Rod Serling's voice echoing in their heads:  "You have just entered - The Twilight Zone! Doo de doo doo, Doo de doo doo!"

 

          Mind you that inflation in Japan, where they lie about inflation even more so than in the US (I know it's hard to believe, but it is nevertheless true) is at extremely high levels. This is because Japan, over the past several years, has received record amounts of dollar reserves from record trade surpluses with the US.  This also means that they also received record levels of the only thing the US now exports, inflation.       

 

          They claim 0%, which is hogwash, in order to justify the weak yen and to keep Japan's trade exporters competitive, or should I say, more than competitive.  Their rate of inflation is probably akin to our own. The Bank of Japan risks destroying the yen and their entire economy if they do not raise interest rates, and quickly.  A token .25% increase is already scheduled for August and there very well could be more to come as politics in Japan turn ugly due to high levels of inflation.  The Japanese public is starting to catch on to the elitist lies just like the US public and pretty soon heads are going to roll if something is not done about it.  And if the dollar collapses this year, which is quickly becoming a highly likely event, the yen's resulting comparative strength will approach infinity and anyone invested in dollar assets purchased through the sale of borrowed yen will be immediately vaporized in the process regardless of what the Japanese do about interest rates!   

 

          The liquidity crunch is quickly becoming "the perfect storm."

...

 

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 Sunday, 29 July 2007 | Digg This Article



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