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

By: Bob Chapman, The International Forecaster

-- Posted Wednesday, 8 August 2007 | Digg This ArticleDigg It!

The following are some snippets from the most recent issue of the International Forecaster.  For the full 21 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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At the moment the stock market is in free-fall, because the cost of borrowing money is increasing, mortgage and debt markets are in disarray and earnings are a long way from what they are supposed to be. It also means the orgy of senior US companies borrowing billions to buy their stock back could be coming to an end. In the first quarter they spent $118 billion, in the second quarter $157.4 billion, which was up 58% from a year ago. It looks like the price support operation may well be over.


Last Friday just about every major index broke down, now trying to put support on a bottom will be like trying to catch a hot knife. The S&P has fallen 7.7% to 1,433 since 7/19, the day it established a record. The last two weeks were the worst such periods in more than 4-1/2 years, and the Dow, the broad market index, has fallen 5.9% to 13,182 since 7/19, but it is up 5.8% for the year thanks to company stock buybacks. The market in part moved up based on 13.5% more profits. Those profits for the six months are up 9.6% for 80% of the companies in the S&P Index that have released results for the second quarter. We see lower profit increases in the second half. That is being fueled by the Fed’s 13.3% creation of money and credit and that now diminishing sea of liquidity.


As we write over the weekend, the dollar index, USDX, is about to test 80 again and the elitists have to try to hold the dollar to keep it from collapsing. The government engineered support effort of 79.97 didn’t work. The question is what do they do for an encore?


As we speak housing and the CDO markets are heading lower. Next come the bankruptcies of the homebuilders, following 107 mortgage lenders in lock step.


Last week Oddo & Cie, a French stockbroker and money manager, said it plans to close three funds totaling one billion euros, $1.37 billion, citing the unprecedented crisis in the US asset backed securities market. Oddo said it will wind down the funds within the shortest possible timeframe after struggling to value holdings of collateralized debt obligations. They got bagged like so many others. As you can see this dance is just beginning.


Professional loudmouth, Jim Cramer, speaking for Wall Street called for the Fed to aggressively cut interest rates and open the discount window. He obviously hasn’t been following the progression of M3 for the past four years, nor the rampant credit creation by banks, derivatives and other private entities. We wonder if he realizes that lower rates will send gold totally out of the gold suppression cartel’s hands and into the wide blue yonder.


World liquidity is fast drying up and Wall Street has become conditioned over the years to bailouts, never mind what is good for the economy and for the American people. Greenspan illegally bought index options in October 1987 to turn the market around as it was collapsing and sold gold the Treasury had consigned to the IMF through the Bank of England to in one day knock down the gold price $100 an ounce. He then arranged the bailout, via Wall Street, of LTCM. Bernanke played an instrumental role in the Fed taking the risk markets higher in late 2002. These are the bubble makers who keep Wall Street in their riches and power and the Illuminists in power. If you do not subscribe to the IF you do not know what is really going on.


We already know the government is running Fannie Mae and Freddie Mac from behind the scenes to absorb as much junk mortgage paper as possible to keep the markets supplied with liquidity.


Neocon attack dogs, Larry Kudlow and Larry Lindsey, have also called upon Fannie and Freddie to loosen the lending standards to help ameliorate the rapidly accelerating mortgage credit crunch.


These are just a few of the whores of Wall Street; 80% of the Street is singing the same song. They should be, not only has CDOs, ABS, MBS and junk gotten hit, but AAA paper has taken a liquidity hit as well. Not only has Fannie and Freddie taken in subprime and ALT-A paper, but have been instrumental in ensuring abundant cheap mortgage credit. Then behind that is non-agency MBS filling the liquidity void created by the constrained GSE’s. They have provided virtually unlimited inexpensive jumbo mortgage finance to inflate upper-end housing bubbles in California and the most desirable locations and neighborhoods across the country. They have to lend to and protect those neocon-rich-voters.


At first it was only the junk that got hit with higher rates and tougher qualifications. Now it’s a broad based tightening. The entities that were supplying the funds were mortgage insurers, MGIC Radian’s faltering C-Bass securitization unit, REITs, such as failed American Home Mortgage and hedge funds, such as those that failed at Bear Stearns and many more in the broker/dealer community and the mortgage derivatives market generally. Buried in this morass of garbage paper are professionals who should have known better such as mutual funds, money market funds, pension funds and investors throughout the entire system chasing yields, which is some thing professionals should never do. They knew the triple A ratings were junk. In the end mortgage exposure now permeates the entire global system and is highly susceptible to “Ponzi Finance” dynamics.


The trust and confidence in the quality, safety and liquidity is gone not to return for some time to come. The biggest abuses in real estate of leverage are at the top of the heap. Now there are few to push new buyers up into expensive and mega expensive homes. As the market de-leverages, serious problems will finally develop at the top of the market. The perceived risk is no longer minimal. When the upper-end of the housing market in places finally gets hit the fall will be 30% at a crack, with losses of up to 60%. It will be devastating, particularly in California. We know we were there to see it in 1989-1992. Credit tightening in all sectors will end up devastating California.


Those who have not as yet reset ARMs are in serious trouble. The cost has turned prohibitive. The home equity well of funds is empty because lenders now do not really want to lend at these levels.


Yes, there is a severe tightening in mortgage credit, but it is throughout the entire system, including corporations. The junk bond is doomed. The spread between AAA and junk was 1.5%, it is going to 10%. The ABS and CDO markets will fade away over the next few years. The crisis for the entire system has begun.






We have seen gold and silver stocks more or less trading in tandem with other stocks. Soon they will diverge as investors finally recall that gold is the only real money. That will cause these stocks to lead the actual metals again to be only outperformed by selective exploration shares.


We have also seen the 10-year US Treasury note yield fall from 5.30% to 4.68% in what is described as a flight to quality. What quality – when you have a plunging dollar? Soon such repugnant facts will occur to investors, particularly foreigners, and the stampede out of US debt instruments racket up a notch.


Early Monday, 8/6/07, most everything started higher. The Dow was +73, Nasdaq +56, S&P +79 and the FTSE +10 Dow points. The CAC was -39 and the DAX was +7. The yen was up .17, the euro +.0032 and the pound -.0096. The 2-year Treasury fell 4.43% and the 10’s were at 4.69%. You could see the hand of the Fed pushing the 2-year yield lower. Oil was down $1.28, gas was -$0.03 and natural gas could be in the process of basing out at of -$0.17 at $5.92. Gold was higher, up $1.80, silver was up $0.02 and copper was off $0.03.


During early morning trading the USDX again briefly broke 80 to 79.97 before recovering. It was 80.08 about an hour later at 6:15 EDT.


We expect the Fed will leave rates unchanged as the ECB continues to raise rates. These events will send more buyers into gold. We are getting closer to another gold breakout.


Bullion inventory of the world’s largest gold exchange traded fund (ETF) Street Tracks Gold Shares-GLD, hit a record high of 506.7 tons last week, despite slipping prices, which tells us more professional money is migrating to gold. We believe gold will be strong to stronger until February. Finally investors are going to get a long awaited wake up call on gold and silver.


Newmont Mining Vice-Chairman Pierre Lassonde has forecast the price of gold to surge above $1,000 and he says the global resources boom still has a ways to go. He didn’t give a time frame; Mr. Lassonde is Chairman of the World Gold Council. He also said, “The bull market in natural resources will last a whole generation. That is 20 years.”


Monday was another manipulation day. All stock markets rose in Europe and as Dow futures traded up 73 points early on. The Dow closed near its highs, up 287 to 13,469, S&P rose 311 and Nasdaq rose 216 Dow points. You could see the rigging all the way. We saw a panel on CNBC Kudlow, Forbes, etc., and they were talking about capping the gold price. They know full well that the gold price has been capped since October 1987. Gold finished the day down $1.30 to $671.40, silver fell $0.12 to $12.97 and copper was off $0.05 to $3.47. Gold open interest fell 16,260 contracts to 351,159 and silver OI rose 927 to 119,897. Last Friday the big Tocom shorts increased their net shorts by 1,138 contracts to 127,052 as Goldman covered 220 to net 25,736. The silver net short was reduced by four contracts to 5,050. The XAU lost 2.57 to 141.05 and the HUI lost 3.92 to 335.41. The surprise of the day was the government was unable to move the dollar higher. The yen fell 1.02 to $1.1902, the euro rose .0005 to $1.3780, and the pound fell .0109 to 2.0295, the Canadian dollar rose .26 to 95.09 and the dollar index rose only 0.08 to .8014. The yen was the big target to save those in the carry trade. The 2-year Treasury was 4.52% and the 10’s rose to 4.75%. Oil was smashed $3.42 to $72.06, gas fell $0.10 to $1.93 and natural gas rose $0.12 to $6.21.


Tuesday’s opening was quiet in anticipation of Bernanke’s comments and the productivity report. The Dow was -15, &P -2, Nasdaq -17 and the FTSE +130 Dow points. The CAC was +88 and the DAX +68. The yen was -.04, the euro -.0002 and the pound -.0052. The 2-year was 4.51% and the 10’s were 4.76%. Oil was -$0.04, gas +$0.01 and natural gas +.07. Gold was -$1.50, silver -$0.01 and copper +$0.01.


Also of note is the fact that PM leasing rates have been trending down substantially into a very tight range for the various terms. The range of lease rates for gold is now a miniscule .13 to .17 percent, and one-year rates are lower than the 3 and 6-month rates, a sure sign that leasing is still ongoing. Silver lease rates have dropped into a range of an equally miniscule -.05 to .41 percent. The -.05% is for the one month contract, meaning they will pay you to rent their silver…yes, it is that bad!


Spain just cannot seem to control its economy. Their gold sales during June were reduced by another 25 tons. They have sold 134 tons under the Central Bank Gold Agreement ytd, and total disposals were 149 tons. They are utilizing Germany’s quota. We are six weeks away from the end of the year’s 500-ton sale. The Swiss want to be sellers as well in a slow basis to rebalance its reserves of which 42% are in gold and they want to reduce that to 1/3 in gold. The average weekly sale in July was 17-tons. The Chinese should be in the market buying gold to dump dollars.


On Tuesday, gold and silver turned in a decent day. They both should be substantially higher, but due to suppression we’ll have to wait just a little bit longer for higher prices. Gold was off $0.50 at $670.90 and silver rose $0.08 to $13.05. Gold open interest fell 67 contracts to 351,092 and silver OI rose to 121,275. The Tuesday big Tocom shorts cut their net positions by 5,346 contracts to 121,706 as Goldman Sachs cut their shorts 1,171 to be net short 24,375. The same group reduced their silver shorts by 119 to 4,930. The leader of the pack, Goldman is telling us we believe that the gold suppression cartel is in serious trouble. Why would Goldman be continuing to increase their longs? The XAU gained .48 to 142.11 and the HUI fell .39 to 335.42.





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, 8 August 2007 | Digg This Article

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