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-- Posted Monday, 10 September 2007 | Digg This Article
US MARKETS The Fed continues to tell us the credit crunch will have little impact outside of real estate. They must think we are all morons. In the Fed’s Beige Book, four of 12 districts reported that their economies continued to grow. They failed to tell us the conditions in the other eight regions. They evidentially are not interested in full disclosure, only reflective disclosure. The report is full of lies and omissions and it is enough to make you puke. Planned layoffs rocketed in August as the housing slowdown and subprime mortgage debacle led to record job cuts in the financial sector. Announced layoffs surged 85% to 79,459 in August from 42,897 in July. Fifty percent came from the financial sector at 35,752. The first truly global bubble in asset pricing has broken and unfortunately it is accompanied by a credit crisis. The OECD says, “The US economy faces a significant economic slowdown that should lead the Fed to ease interest rates. The housing sector is set to exert a longer- and more-potent-than-expected drag and confidence has weakened in the US. As a result GDP growth is projected to fall distinctly below potential during the second half of the year, following the strong rebound in the second quarter. This may be a case for some easing on rates.” Downside risk has become more ominous. Martin Feldstein says the economy faces a triple threat from housing: a sharp decline in home prices and construction; higher borrowing costs and a freeze in the credit markets stemming from subprime-mortgage losses; and fewer home equity loans and refinanced mortgages, leading to less consumer spending. His speech ending the foray at Jackson Hole, Wy. was a gloomy end to the conference, which had many pessimistic participants. Commercial real estate prices should fall 15% over the next year in the broadest decline since 2001. People are not willing to do deals right now. They expect lower prices. In July, investors bought the fewest commercial properties since 8/06 and apartment building acquisitions were down 50% from June. There is a stampede to get out. The estimate we project is a 15% drop over the next two years. The Bloomberg Property Index fell 2.7%. We are starting to see forced sales of assets to pay off outstanding debt. Some companies need cash infusions and in this market they are not easy to come by. Money markets are failing to offer any reassurance of stability or calm and the sense of crisis in the interbank markets actually seems to be growing, especially in London. The cost of borrowing funds in the 3-month money markets is continuing to rise mainly because no one wants to lend. The lenders do not want to let go of their cash. This is another example of banks running our countries. The central banks have acted but not the banking community. The banks are neutralizing the moves of the central banks. As a result the Interbank lending business has broken down almost completely and the problem is global in nature. The Asset Backed commercial paper sector is frozen and we are talking some $2.3 trillion. Investors refuse to touch the paper. The situation could become increasingly dangerous in part because many other markets, such as swaps, are priced off 3-month Libor and Euribar rates. Thus, we are approaching a time that this interbank freeze could very well have knock-on effects throughout the financial system. The central banks created this monster and it could bring down the financial system. The big experts on Wall Street are finally realizing that there is an increasing possibility of recession. They are a little late, it started 18 months ago and all the signs were there to see last November when the manufacturing sector turned down. GOLD, SILVER, PLATINUM, PALADIUM AND URANIAM On Wednesday, the cartel got a really nasty surprise. Wednesday's mini-yen-hit on gold which took down the stock markets failed to produce the expected outcome. The Dow plummeted by as much as 245 points before the PPT stepped in an pushed it back up 102 points for a closing loss of 143 points. This result was expected based on the small strengthening in the yen versus both the dollar and the euro by about one yen each and the horrifying economic news about pending home sales. The carry trade unwinding started early on with Japanese jawboning about the spreading of the CDO contagion, as if we did not already know that. This is how the cartel lends credibility to their gold manipulations. The blame goes to new news, which is really old news, when it is really the cartel behind it. They also knew about the housing data and decided to use Wednesday for a little one-two punch on gold, when all they got was a one-two punch on the stock markets. They must have been totally chagrinned when all their machinations produced a plummeting dollar and a very resilient gold, silver and PM shares market, and this despite an increase in gold futures OI of 16,915 contracts on Tuesday and Wednesday (mostly Wednesday), which increase was probably due to the cartel pumping out the shorts in a vain attempt to keep gold down after it blew past 680. The PM's and their stocks barely budged while the dollar was taken to the woodshed, with the spot USDX taking a .258 hit bringing it down from 80.880 to 80.622. This is the exact opposite of what the cartel intended. The cartel has a real problem now. Rates on US treasuries, which were again reduced on Wednesday as the flight-to-safety continued, are now competing with the LIBOR (London Inter-Bank Offering Rate) rates, which are the rates offered by certain large London banking interests for US dollar deposits at various terms up to a year. Many ARM rates are tied to the LIBOR rates, so this is devastating news for the real estate markets. This is what the cartel gets for its duplicity on CDO's, dumping them around the world and duping unsuspecting bankers and investors. Banks in Europe are in serious trouble as a direct result of this duplicity by the cartel. They are quickly losing liquidity and must attract deposits to increase their cash reserves, and they are willing to pay ever-higher rates to get those deposits, rates that have reached record levels above the Fed funds rate. So when the stock market got hit and the carry trade unwound, some of the sales proceeds must have been diverted out of dollars and US treasuries and into British pounds and euros instead. Otherwise, how do you explain a plummeting dollar after a stock market liquidation? Is not the dollar usually a beneficiary of such circumstances? We would have to make quite an effort to come up with a scenario that would be more horrifying for the cartel. They can no longer allow markets to be hit in order to put pressure on gold. If they do, the dollar might get pounded (pun intended) instead of being supported, with the result depending on the collective moods of traders, so they and everyone else can throw their black boxes and charts out the window as new territory is explored by panicking markets. We also suspect that some of the proceeds went into PM’s and their stocks, which helped support them as safe havens while traders fled stocks. This is a very bullish development for gold, and it is providing a sense of poetic justice for the foreign bankers and investors who have been burned by the Fed-created CDO/MBS contagion. The virtual collapse of the dollar has sent the yen into outer space along with gold as the dollar was taken to the woodshed just as we predicted would happen if the dollar collapsed. The yen as of 5 am EDT on Friday, September 7 was at 115.133 yen per dollar and 157.580 yen per euro, but as of 9:45 am EDT the yen is at 113.808 yen per dollar and 156.881 yen per euro so we'll have to see what that does to the carry traders and gold. The Dow is already down 150 points right off the rip, so look out below. It should be interesting to see how this affects gold and whether gold's safe haven status will be enhanced. How can it not be enhanced now that the magic 700 line has been crossed? Why would you buy treasuries when you could own gold under these circumstances? Wow, what a wild day this is going to be! September 7, 2007, 9 am EDT, a day to remember! Gold blew through 700 the same way it blew past 690 yesterday, like it was not even there! Right out of the box at the Comex open spot gold rocketed to 704.40 per the GoldSeek site.
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-- Posted Monday, 10 September 2007 | Digg This Article
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