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

By: Bob Chapman, The International Forecaster

-- Posted Wednesday, 1 August 2007 | Digg This ArticleDigg It!

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.


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




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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Note:  We publish twice a month by surface mail or twice a week by E-mail.



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As we have said, ethanol and a booming demand for biofuels are turning the entire global food chain upside down. The production of massive amounts of ethanol is affecting the price and availability of everything from popcorn, yogurt, meat, wine and chicken prices. As always the poor are the ones who suffer the most. In the US alone 100 ethanol plants are under construction and vast amounts of corn are being grown to supply them. This soaring biofuels production is in part to blame for the upward spiraling food prices. The IMF tells us food prices have risen 23% over the past 18 months.


It is very evident that ethanol is too costly to be pursuing, which is why North American ethanol producers receive billions of dollars in subsidies. The fuel would not exist without handouts. Why these handouts to farmers when wild, naturally occurring switch grass can yield three times the yield of corn for ethanol? That is because elitist politics are involved.


George and the neocons would have us believe the reason to the switch to ethanol is to be less dependent on foreign oil as well as cutting greenhouse gases. This is the official mantra. The subsidy is $0.51 per gallon that is paid to the blender, usually an oil company that blends it with gasoline for sale. When those 100 ethanol plants are finished the demand for corn will double and food prices will double again.


          As you remember in March Mr. Bush met with Brazil’s president to sign a bilateral Ethanol Pact to cooperate in R&D of next generation biofuels technologies and to stimulate expansion of biofuels’ use in developing countries, especially in Central America, and creating a fuel like OPEC cartel that would form a Western Hemisphere ethanol market. Using ethanol will not affect global warming because the physical changes do not exist. That ethanol is better than gasoline is untrue. It has little effect on exhaust-pipe emissions in current car models. It does have significant emissions of formaldehyde and acetaldehyde, a neurotoxin, which has been banned as carcinogenic in California. Ethanol is highly corrosive to pipeline seals and fuel systems of existing car or other gasoline engines. It requires special new gas pumps, so conversion is expensive. It produces 30% less energy per gallon than normal gasoline and a loss in fuel economy of at least 25% for the Ethanol-E 85% blend. The whole episode isn’t worth it. The cost of the subsidy, conversion cost, less power and mileage and exploding food prices. It is a giant boondoggle. In addition, we never hear that Brazil uses sugar not corn for manufacturing ethanol, which is a better substitute and doesn’t drive food prices up. As prices soar reserve stocks of all grains fell at the of end of 2006 to 57 days consumption – the lowest level since 1972.


One fifth of last year’s corn harvest went to bio-ethanol and it met a mere 3% energy needs. In 2006, more than 50% of Iowa and South Dakota corn went to ethanol refineries. This has caused 41% of all herbicides used to be applied to corn. Monsanto is laughing all the way to the bank.


A research study showed a net energy loss of 22% for biofuels. It uses more energy than it produces. The big winners are, ADM, Cargill, Monsanto and Syngenta. This whole show is to enrich these companies and increase food prices and inflation, never mind all the poor souls who will die because they cannot afford the price of food. As Henry Kissinger said, “control the oil and you control entire nations; control the food and you control the people.” In the final analysis this is what ethanol is all about. You should let your elected representative know how we are being taken and demand an end to corn ethanol production and its subsidies.


Very few people realize it, but the currency markets of the world trade somewhere between $2.2 and $2.9 trillion daily. This is ten times the daily trade in world equity markets. Incidentally, bond markets are more than ten times larger than stock markets. April year-on-year trading increased by 38%. It’s no wonder as 18 of the world’s top 20 central banks increase money supply by more than 14% annually. If all this mega volume wasn’t enough, we now have derivatives growing 24% a year in just interest rate, currency and stock indexes to more than $550 trillion in the first quarter yoy.


All these markets are important factors, but the most important markets are the foreign exchange market and the gold market. They delineate what the wealth of a nation really is. It used to be that $50 billion over three days could change the direction of the dollar. That is no longer true, as money supply enlarges each year. It now takes $100 to $200 billion to turn a market like you saw the dollar turned last Thursday and Friday. That might last for 4 or 5 days and then the market goes right back to what it was doing previously.


It is monetary and trade policy of many countries to manipulate their currencies. In fact almost all countries engage in this unfair exercise, particularly Japan and China. They do this to cheapen their currencies and make their products more competitive in their export markets, namely the US market. Congressional Democrats complain about how it has ruined our industry and now our service jobs, but nothing is done about it as the heart of our economy is being ripped out by these crooks. Both currencies and many others are 30% to 50% undervalued. This currency manipulation is a subsidy on foreign goods. The cheaper the currency, the bigger their foreign currency reserves. Japan has more than $913 billion in foreign currency reserves and China has $1.3 trillion. Japan earned $25 billion in interest alone last year by owning foreign bonds. Japan has interest rates at ½% and creates 1.5 trillion yen a day. Japan says they have no inflation, which is a lie. That is the justification for low interest rates and massive injections of money and credit into their financial system. If the truth were known, interest rates would be 1% to 2% higher, the yen carry trade would be history and world markets would fall 20% or more. This policy enriches the transnational conglomerates that are run by the same fascist families that have run the country for hundreds of years.


That brings us to the carry trade. In the yen it is somewhere around $1 trillion; in the Swiss franc it is probably $200 billion. This past week participants got hit badly and it could be a harbinger of even wilder markets as the central banks and particularly, the Fed and the US Treasury, attempt to save what is left of the US economy and financial system. If Abe is ousted on Sunday you can expect an interest rate hike to .75% from .50%. That could easily bring the yen to $1.15 and that would really curtail the carry trade and that would negatively affect investment markets worldwide. Standing pat on a monetary policy for a long time is a sign of weakness, so expect a little face saving. The real reason for the carry trade is directions from the US Treasury and the Fed. They will use the carry trade as long as they can to keep the world economy from sinking. We find it of particular interest that once Nippon Oil agreed to pay Iran in yen, the dollar has fallen 3.5 yen. The US foreign policy that created this monstrosity deserves punishment. Iran is forced by George and the neocons to switch. The question is how many other oil producing nations are going to follow? They have ample reason to tell the US to pay in euros, some other currency or gold. That is justified by the dollar’s fall and producer’s loss in buying power. China buys 15% of Iran’s oil and they have been paying in euros for eight months. You didn’t see that in the media, did you? That means they sell dollars to buy euros to buy oil. We are also sure that the CDO, contagion, debt contraction on Wall Street has a lot to do with other currencies finally catching up to all the problems the US has. They come one after another, day after day, just like the scandals. If one more major oil producer switches to euros or another currency for payment for oil, we can assure you the dollar will break 80 on the USDX. Many foreign entities own CDOs and the ABX, BBB- is trading at $0.39. That is hardly inspiring. They are now well aware of the serious collapse taking place in the US housing market. Paulson’s platitudes won’t work anymore. We saw Art Cashin interviewed on CNBC Friday at the end of the market day and he said this is very bad and we are going lower. Shortly no one will believe a thing the Treasury and the Fed says. The Ponzi scheme is unraveling. 


The biggest economy in the world has to increase its money and credit at a 13-14% rate to keep deflation at bay and with the deflationary results of the CDO contagion and the collapse of real estate, the increase is headed to 20% by the US and the other 18 of 20 major central banks. We can assure you they are coordinating their efforts. We have a falling stock market, 11% inflation that will be 15% in a year, higher oil prices, a falling dollar, an economy in recession and monetary and fiscal pressure to say nothing of perpetual wars for perpetual peace – that is profit. Gold has to be the only investment answer. How can it be anything else?




Early Monday the markets in general were slightly lower and that is not unexpected after last week. The Dow was -26, S&P -9, Nasdaq -18 and FTSE -30 Dow points. The CAC was -21, the DAX was -54. The yen was +.46, the euro +.0036, the pound -.0006 and the dollar index was -.11. The 2-year was 4.49% and the 10’s were 4.75%. Oil was -$0.46, gas +$0.01 and natural gas was +$0.04. Gold was +$1.30, silver +$0.08 and copper -$0.01.


The COT report showed an increase in the commercial short position of 49,094 contracts. If you add in the 43,000 already newly short you get a newly shorted total of 92,000, which is over our 80,000 target. That means they will cover and gold will start moving back up. We want to apologize for publishing faulty information on Saturday. The way the market turned on Monday fortunately negated any harmful affects. We thank those who brought it to our attention. As you can see from the action the commercials were coordinated by the PPT to short big just before the dollar rallied.


The Gold ETF, GLD was virtually unchanged over the past week to Tuesday, off 0.62 to 496.53 tons, or $10.54 billion, down from a previous week’s increase of 12.31 tons. Holdings in LYXOR Gold Bullion securities rose 1.55 tons to 94.65 tons and Barclay’s iShares Gold Trust IAU on the AMEX added .61 to 46.51 tons. All of the ETF’s in creased net gold holdings a net 1.43 to 617.94 tons worth $13.13 billion. Over two weeks they have added 14.3 tons.


Barclay’s iShares, Silver Trust increased another 30.92 tons to 4,406.49 tons over last week worth $1.8 billion.


Gold finished Monday at $664.20, up $4.70 and silver rose $0.22 to $12.82. Copper closed at $3.59 +$0.04. Gold open interest fell 5.339 contracts to 361,110 and silver open interest sank 1393 to 119.104. The big Tocom shorts increased their net short positions last Friday by a giant 17,417 contracts to 128,165. If minis are included the net increase was 17,430 to 129,024. Goldman made up 4,819 contracts. Desperate people do desperate things. The same group increased their silver shorts by 185 to 5,229. The HUI rose 9.43 to 347.43 and the XAU rose 4.72 to 149.53. Those are both substantial recoveries.


The Dow rose 93, S&P 95 and Nasdaq 126 Dow points. The yen fell .36, the euro rose .0057 to $1.3691, the pound rose .0005 to $2.0245, the Canadian dollar fell .59 to 93.59 and the USDX, dollar index, fell .09 to 80.72. Oil fell $0.19 to $76.83, gas fell $0.02 to $2.09 and natural gas rose $0.29 to $6.50.


Markers were up strongly early on Tuesday. The Dow rose 61,S&P 64, Nasdaq 60 and FTSE 74 Dow points. The CAC was +89 and DAX +132. The yen was -.20, euro -.0023 and the pound +.0004. The 2-year was 4.63% and the 10-year was 4.85%. Oil was up $0.36, gas +$0.01 and natural gas was +0.09. Gold rose $2.30, silver +$0.08 and copper was +$0.04.


 On Monday, the Dow was down the first half of the day by as much as 121+ points, and then finished up 92+ points, for a total swing upward of 213+ points, compliments of the PPT.  Then on Tuesday, the Dow gapped up and soared upward by as much as 140+ points, only to finish down 146+ points.  What are we to make of this?  First, this upward swing of 353+ points from Monday's to Tuesday's high was built into the Dow by the cartel's PPT as a shock absorber for continuing bad news.  The 286+ point downward swing which followed is basically the market's rejection of the jawboning by Wall Street that caused the 353+ point rise, together with some dreadful news.


Monday lacked any significant reason for a rise in the Dow which was powered up by the PPT through sheer force.  The yen was left alone for a change so as to keep stocks steady while the cartel pushed the Dow up.  Tuesday saw a multifaceted approach by the cartel to build a cushion to absorb the blows that were coming later in the day.  They started with a weakening of the yen to take pressure off the carry traders.  Then the usual buyout/M&A news was brought out, Rupert Murdoch's New Corp.'s buyout of Dow Jones & Co. which appears to be succeeding, and Nelson Peltz's Triarc Cos.' buyout of Wendy's International, Inc.  They also brought out better than expected GM earnings (never mind that none of the gains were from North America) and Sun Microsystems earnings.  They also brought out better than expected Core PCE of .1% for June (forget about the fact that this is greatly massaged downward and is completely irrelevant due to the exclusion of energy and food) and a six year high of 112.6 on the Consumer Confidence Index for July (we wonder if the survey's phone calls were intercepted by aliens who wanted us to think everything was just great before commencing their space invasion, yeah, that must be it!).  The figure of 112.6 is so ludicrous we are unable to come up with the words to describe just how preposterous it is.


This all worked fine until the market started to say, hey, wait a minute, not only is this news silly in light of actual facts, but it is irrelevant to the markets as a whole.  After all, who gives a hoot if Murdoch or Peltz succeeds?  How does this benefit us?  And will they be able to get the necessary financing to pull it off under the current liquidity crunch?  What about Germany's banking industry, which is now being hit by subprime fallout, like IKB and Commerzbank?  That problem is quickly becoming global.  And now we hear that American Home Mortgage has had its lines of credit shut down and is contemplating bankruptcy!  Personal spending is the lowest in nine months at .1% for June.  Wasn't it .6% in May?  How can the American consumer heading for the hills be good for the economy?  And the Chicago PMI for July came in way below expectations at 53.4, indicating a future slowdown is in the cards.  That ties in pretty well with the decrease in personal spending, does it not?  And now oil has gone and set a new record of 78.21 per barrel!  Who cares about core inflation with oil going to the moon along with food prices due to the ethanol debacle?  Johnson & Johnson wants to cut 4820 jobs.  And to top it all off, the S&P Housing Index shows that US home prices have dropped for 5 consecutive months up to and including May, which saw the steepest drop in 16 years.  It sure does not look like the real estate market is going to recover any time soon.  And how will that impact the ongoing subprime problems?  What if risk and interests rates increase and cut corporate profits as all these problems materialize?  What will happen if no one can afford to dip into the sea of credit, which has been created by the profligate policies of the Fed due to prohibitively high interest rates?  And who were they interviewing for the Consumer Confidence Index?  Crack addicts? It sure looks bad to us!




Gold proved stubborn Tuesday, adding to Monday's gains and peaking for the day at about 669 before more central bank sales were laid on gold by the cartel's hit men, bringing it down to 663.  Gold shrugged it off and rocketed back to about 667 at the close.  More cheap shots in the NY Access Market brought gold down to about 663 again, and now Hong Kong is continuing the work-over, bringing gold to about 661 in the early morning hours on Wednesday (EDT).  PM Stocks held pretty steady despite the overall sell-off in stocks.  The XAU dropped slightly from 149.75 to 148.71, and the HUI dribbled down from 347.43 to 345.04.  Helping gold, the USDX dropped from 80.849 to 80.770 per NYBOT, with its dead-cat bounce continuing to show weakness for the past two trading days after hitting 80.946 on Friday.


In the early going on Wednesday, about 3:30 am, the yen has strengthened again substantially.  The yen has gone from its Tuesday close of 119.13 yen per dollar to about 117.903, and from 163.339 yen per euro to 161.028.  This is very stock market and gold unfriendly.  It looks like the cartel intends to pound gold on Wednesday with a liquidity drain once again.  How they intend to hold the stock markets up with this kind of yen strengthening is anyone's guess but they are taking some terrible risks here.  Will a panic ensue?  How much more can the Japanese public take on their yen shorts?  Will the Yen Death-Star detonate?  Are the large specs ready for another hit?  Will there now be more carry trade carnage to add to the carnage being wreaked by the subprime debacle on hedge funds?  Stay tuned for an economic disaster coming to a theatre near you. Remember, disasters always eventually benefit gold.



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.

-- Posted Wednesday, 1 August 2007 | Digg This Article

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