-- Posted Wednesday, 5 September 2007 | Digg This Article
The following are some snippets from the most recent issue of the International Forecaster. For the full 18 page MidWeek Reading, please see subscription information below.
THE INTERNATIONAL FORECASTER
09_05_07_MW_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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International_forecaster@yahoo.com
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US MARKETS
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The screw that has turned the consumer is fatigued, deeply in debt and sees his or her house depreciating in value. They certainly don’t believe the situation is healthy when central banks forced to inject $700 billion into the world financial system. Or when the entire markets are frozen such as CDOs, ABSs and commercial paper. Buyers of loans often now cannot get loans and all those hundreds of billions of dollars annually taken from home equity in cash-out and equity loans has fallen to a trickle. Now where will the money come from to continue lavish spending? Housing loans are so tight that subprime and ALT-A mortgage holders cannot ever reset loans at any price and most lenders won’t make jumbo loans. Like home equity low mortgage payments haul disappeared and that means the consumer has less to spend. In addition, builders all wanted to build homes and condos not apartment buildings, so now we have a shortage and rents are rising.
Kudlow and Cramer are panicked as is Wall Street, corporate America and our government. It has never occurred to these hucksters that Americans have borrowed more than they can never hope to pay back. This is one of the reasons that the financial system has to be purged. That is what really free markets are all about – not about intervention by central banks that prolong, and worsen an unsolvable problem. No magic can solve this problem. It has to be worked out in a very painful way. A step in this direction is a forced change in direction by lenders back to reality. That includes all lending. Central banks can create all the money and credit they want but in the end we will have a purge they cannot control and again they will be thrown out of the temple.
The dream of real estate riches ended when we called the top of the market in June 2005. It took 2-1/2 years for almost everyone to realize that the game is over. That is why CNBC wants a Fed bailout. They do not want the game to be over. The psychology of real estate has been broken and it will take years to repair it. Homeowners are terrified that they no longer have home equity and they may soon be sleeping under a bridge near you. Thirty percent of the homes sold over the past five years went to totally unqualified people and now the homes have to be given back to the lenders, who should have never made the loans in the first place. Of course, our President and our Democratic Congress want you, with your hard earned money, to bail out speculators and those who should have never had a loan in the first place. It is reality time and Americans are not going to like it.
As CNBC imitates real life, kept economists throughout our once great land are singing the praises of an interest rate cut. They all have demanded a cut, now it’s a question of how much ¼% or ¾%? Perhaps even 2%. The noise is deafening or should we say disinformation. Now the question is will Mr. Bernanke’s elitist handlers allow him to stand pat on rates and buy the dollar more time?
If rates are lowered we can expect hyperinflation. A falling dollar and eventually the Japanese disease, which has been 16 years of deflation and depression. Were it not for virtually no interest rate, a rigged currency and a supplicant export market in America, Japan would have collapsed economically years ago. Japan tried every Keynesian nostrum. Everything failed and all they have left to show for it is unbelievable piles of debt.
Unfortunately that is the path upon which we are headed. It seems the Fed and Wall Street are unwilling to learn the lessons of the past. In the last crisis the Fed lowered interest rates and the real estate boom was born. Prior to that it was LTCM, Russia and Asia that bent under liquidity problems. That brought the IMF to the rescue. This time it’s a credit crunch and to show you the gravity of the situation almost every central bank in the world is involved in the bailout.
Our dollar teeters on the edge of the abyss. Not only is it again challenging 80 on the dollar index, but also to add insult to injury, our manufacturers of breakfast foods rather than raise prices have reduced content and the size of the box to offset higher costs and inflation. If the fed lowers interest rates the manufactures may have to cut the size of the box in half. The dollar is the worst of major fiat currencies. Unfortunately the rest are little better.
We begin our 4th week into the destruction of the debt bubble as credit continues to contract in spite of a $700 billion worldwide infusion of credit. There is also now some question as to whether the yen carry trade will continue. That is $1.5 trillion plus a $500 billion annual injection of capital into world markets that may be over or partially over. Due to the veil of secrecy surrounding the financial markets we do not know all we should know. The central banks are telling us very little. As an example, there are 40 million Americans in money market funds and we do not know how badly the CDOs, ABSs and commercial paper are doing. These money market funds may no longer be safe. Liquidity has been hit in these funds in Britain and Canada as well. We are told that money market funds worth $3 trillion have probably $300 billion in CDOs and other garbage. If that wasn’t bad enough, we have a long line of hedge funds and banks ready to go upside down. This is still the beginning of the beginning.
Then there is the gorilla Countrywide Financial that could collapse. A $200 billion-asset mortgage lender that last week received a $2 billion infusion from Bank of America, which gave the bank an 18% interest in the company. We believe BofA invested because the elitists know if Countrywide goes down it will create big problems for Fannie and Freddie. They sold Fannie and Freddie 1/3rd of all their mortgages having repackaged them into mortgage-backed securities (MBS). Don’t forget that $2 billion by BofA, followed $11.5 billion provided by 40 banks, organized by Treasury Secretary Paulson. One of those banks was Impac Mortgage Holdings, which is an REIT whose stock had just fallen 80% that was called upon to anti up $500 million and Capital One, which had shut down its own mortgage unit and laid off 1,900 people. This is pure desperation and this is what your media again failed to tell you. Contrary to what you’ve been told, Countrywide was a bailout and most credit funneled through lenders. It should also be noted after the $11.5 billion had been made available to Countrywide in a deft piece of timing, the following day we saw a ½% drop in the discount rate.
In spite of these moves Countrywide’s debt has been rated distressed. The $13.5 billion had been employed yet the company cut back on originations by 15%, began laying off employees and discontinued subprime and ALT-A loans. Due to a minor run on its bank, Countrywide has to offer 5.5% interest on balances above $10,000, the highest in the nation. Then because commercial paper is frozen they had to invest their cash on hand into Treasuries at 2.5% losing 3% on the money it was borrowing from the public and even more from the lenders, which rescued it. Surreptitiously the Fed has probably lent out $500 billion over the past few weeks. We can only account for $250 billion, but we know there is more. The Countrywide rescue is one we know about. We can promise you there are more and they will come to light in the future. We suspect not only did MBS go toxic, so did many derivatives and it is being hidden from us. In addition, we have not even begun to see the fallout in the hedge fund industry and in pension and retirement plans. We also ask who is going to resurrect the $2.2 trillion commercial paper market? There is going to be failures everywhere. The central banks have injected somewhere between $700 billion and $1 trillion into the international financial system already and we see lots more coming, plus the 15% being added in their money and credit operations. It all has to be written off and in order to offset that and deflation, more and more money and credit have to be created and that can only bring hyperinflation and higher gold and silver prices.
This is why you should not be watching the stock market as a barometer. It’s a confidence game run by the Fed. It has nothing to do with the reality of the situation. It is pure misdirection. The condition of the globalized credit markets is dreadful and we haven’t begun to see their deleterious effects. The debt bubble is collapsing and the yen carry trade is as well.
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GOLD, SILVER, PLATINUM, PALADIUM AND URANIAM
Government policy makers, the Fed and Wall Street economists and analysts, are not ignorant of the basic laws of economic - they are liars. That is what they get paid to do. A credit crunch means less future economic activity and a recession during an up and coming major election year. All that money and credit being thrown around is not going to solve the current disaster of monetary policy and it is as a result very good for gold and silver as inflation roars upward. Yes, we just went through a couple of weeks of margin selling generated by the credit problem, but that once in 20 year event is over. You can see this in the consolidation of gold and silver prices and the signs of movement back upward in the shares. We find it significant in that period the commercials covered shorts in a large way, lease rates stayed high and the gold bullion holdings of the gold ETF’s climbed to all-time highs. That means during the time of trouble professionals were accumulating gold. That was all in the face of panic liquidation by hedge funds. The only players knocked out were the weak sisters, who really don’t understand the long-term mission of gold and silver.
Whether you realize it or not Wall Street, the Fed and the politicians have been struck dumb with fear. The psychology of the markets has changed completely and that will drive investors trying to find a safe haven into precious metals. The credit crisis reminds us of the 1970s and the Great Depression. The ramifications of a real estate crash are far more serious than the stock market crash of 2000-2001. Sixty-nine percent of Americans own homes.
There is no question in our minds that foreign investors have gotten burned for the last time by American debt. The losses are compounded by the rating lies. Wall Street and the Fed are no longer to be trusted. The decoupling from the dollar by foreigners will accelerate and that means a lower dollar and higher gold and silver. The US will not be able to export risk and inflation in the future and the Fed will have to start monetizing US Treasury debt in a big way.
The second wave of the gold and silver bull market is about to unfold, as $850 is broken to the upside. Phase two will be achieved much more quickly to $2,300 to $2,500. For the next few years’ inflation will run rampant not only against the dollar but every other currency that inflates, which is most of them. This breakout in gold and silver will prove fortuitous at the best possible time due to climbing costs of production at gold and silver mines. The producers are telling us that and they will soon break out to new highs and the juniors and exploration companies will follow. The greed of the elitists, the Fed and Wall Street will show that the Fed has no mastery over the monetary system. Do not be left behind, buy gold and silver now.
There are a number of very powerful fundamental factors, which will drive gold prices much higher in the near future. We do not have to remind you of the current credit crisis and the staggering international economic and financial imbalances, which has prompted close to $1 trillion to be pumped into the system worldwide. It won’t be long before there are some massive losses being taken in derivatives. No matter what the elitists do now it is getting harder and harder for central banks to hide what they are doing and the terrible condition of the world financial system. Problems do not get better. They continue to deteriorate. The production of gold continues to fall as physical demand rises and official gold reserves fall.
-- Posted Wednesday, 5 September 2007 | Digg This Article
