THE INTERNATIONAL FORECASTER
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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For every two homes sold in August, one went into foreclosure in central California. Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties have this distinction. The numbers just get bigger and bigger. Prices in Sacramento and Placer counties are off 20% from their highs with 20% more to go.
As the dollar falls, consumption will fall and so will the US economy. That means stagnation and inflation, stagflation. As this transpires American’s dominance in all world affairs will wane. As we said long ago, the USDX dollar index will fall to 40 to 55 from its current index number of just over 79. This means higher interest rates, more inflation and a very bad recession if not depression.
That is why the life of the dollar as the world’s reserve currency is now limited. The break in the dollar has doomed the US economy and perhaps the world economy as well. We do not have June figures, but we guess that dollar foreign exchange holdings of foreign central banks has probably fallen to close to 60% from 64.75% at the end of 2006. As capital leaves dollar denominated investments, interest rates will rise and inflation will increase, as the Fed has to purchase more and more Treasury paper. That will bring higher unemployment and recession. The recent lowering of the prime rate and discount rate is only a stopgap. While this proceeds we are seeing higher inflation.
Consumer prices fell 0.1% in August as energy prices fell 3.2% and food prices rose 0.4%. We are expected to believe that CPI is up only 2% yoy, try 11.1%.
Energy prices declined 6.6% in August according to the BLS. Gasoline fell 13.8%, natural gas 8.5%, food 0.2%, and computers 3.2%. That is hedonics, so you can see the statistics are what they want them to be.
Foreclosures climbed 36% in Phoenix in August; some 1,093 people lost their homes. It is the first time they exceeded 1,000 in ten years. Homeowners at least 30-days behind in payments rose 29% to 3,203. Arizona is 4th in foreclosures.
The Fed and the bureaucrats have decided along with other central bankers that they will risk an inflationary explosion instead of allowing the system to purge itself of 15 years of more excesses. Though the cost of credit has been reduced, only a few will benefit, Wall Street and the bankers. This is just the latest attempt to allow the elites and The Street to unload crappy paper on the gullible and the goofy. There will be no resumption of “liar loans” or undocumented mortgages and real estate will be allowed to collapse. People with FOIC’s under 700 won’t get loans.
As Ben Bernanke, via his helicopter, brings us credit from above to bail out the banks and Wall Street, he smells repos in the morning. No matter what they do they will have a very hard time dumping all their crappy paper. The whole world knows what they have to sell and they will have a hard time selling it. That means financial liquidity won’t become a reality for a long time unless the Fed buys their toxic waste and they monetize it. Knowing the lenders, since they’ll be able to issue cheaper rates for loans, we are afraid they’ll just relax standards by re-popularizing ARMs, especially if more rate cuts follow.
Saudi Arabia has $800 billion in their future generation fund and the entire region has $3.5 trillion. Saudi has refused to cut interest rates in lockstep with the Fed for the first time, signaling the kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East. The Saudi central bank said they would take “appropriate measures” to halt the huge capital inflows into the country, but analysts say this policy is unsustainable and will inevitably lead to the collapse of the dollar peg. The dollar and the US bond markets are now in serious trouble. This week’s Fed figures showed a collapse in US bond purchases by foreign central banks. A fall from $97 billion to $19 billion in July. America will be stripped of foreign capital flows needed to cover the current account deficit. Wall Street went too far this time screwing bankers worldwide. Now that flight from the dollar has begun it will accelerate until we hit the bottom and the US dollar is no longer the world’s reserve currency. If foreigners stop buying Treasury and Agency paper, the Fed will be forced to buy it and that is monetization and that immediately means higher inflation. The current account deficit is expected to reach $850 billion this year or $3.4 billion a day and foreign central banks won’t be there to fund that debt. These banks have been funding 30% of the debt. Thus, the Wall Street-banker bailout, via two deep interest cuts – dooms the dollar and puts the problem of confidence and trust front and center. The short term palliative will push up long-term interest rates, which will drive up mortgage rates and drive the property market into deeper crisis. The money and credit creation will increase, bringing on hyperinflation, creating a major recession if not depression. The dollar is collapsing and next bonds will collapse sending yields rocketing.
GOLD, SILVER, PLATINUM, PALLADIUM AND URANIUM
Silver lease rates have fallen to terms that are now negative in order to attract leases to suppress silver prices. This means there is no carry trade in leased metals and no lease overhang of borrowed metal. PM leasing is dying and we could well see a scramble to cover. In addition, we believe that England and the US no longer own gold. The move in gold has been created by persistent physical demand, which has overwhelmed supply and central bank physical selling as well as shorts in futures and naked derivative shorts. The same may be happening in oil as well. For years financial professionals have avoided confrontation regarding the lies and deceptions of the central banks and other elitists. Now the great holders of wealth know they have to exit the dollar and can’t pile into the euro without damaging both currencies. We believe these big hitters have finally stepped into the gold and silver markets big time and they will continue to do so, as we predicted long ago. It is the only realistic way to dump dollars. Financial and monetary turmoil has begun and it is going to go on for a long time.
In an unbelievable watershed week for gold, so many records have been shattered that only the 1980 highs remain intact, although granted, in real terms, gold would be far behind the 1980 levels, on account of a long period of ongoing, insidious inflation, even if it did hit 850! When the system finally builds inflation into gold prices as the dollar plummets to its true, debauched value due to the devastating affect of inflation, gold is headed for four figures and may eventually even break into five figures the way things are going. As we mentioned in our last issue, on Tuesday, after the wild Fed cut unleashed it, gold shattered the 2006 record for the most active gold futures contract, in this case, December, by breaking the 732 electronic trading record of 2006 to set a new 26 year high of 735.50 in electronic trading. On Thursday, another banner day for gold, gold crunched the 2006 record for the lead contract, October in this case, resetting the bar at a whopping 746.30 for another 26 year high, while at the same time nuking the previous 2006 spot gold record of 730 by exploding to a new 26 year high in the 738-739 range depending on which site you were looking at. Spot gold added another dollar per Troy ounce to the spot gold price on Friday, moving into the 739 to 740 range, before moving back to consolidation mode to close at 731, a dollar per ounce above the previous 2006 high of 730.
The Fed has all but abandoned the dollar, and the only support we see coming is from some profit-taking on stronger currencies as well as possible moves by other central banks to ease rates, in sympathy with the Fed's move, to boost sagging markets in their home zones and to ease some of the pressure on the dollar as the credit-crunch crisis continues to crunch financial bones like those of Northern Rock and Barclays. But if they do that, they will unleash another round of speculation, profligacy and Weimar-type inflation that will completely destroy the world financial system in very short order. The credit markets sat on a low-risk wall, the credit markets had a great fall, and all the Fed governors, central banks and Treasury men, could not put the credit markets back together again. The credit markets and the dollar are now both broken beyond repair, and not even Superglue can hold them together.
We would like to point out one glaring bit of manipulation that occurred this week. When the Fed made its shocking announcement of capitulation to Wall Street criminals on Tuesday, the dollar tanked against all major currencies, with one exception. Can you guess which one that was? We'll give you a hint - it is the main currency of the carry trade. That's right, while all other currencies were literally hammering the dollar, the yen was in full retreat, moving from 114.93 yen per dollar on Monday, to 115.75 on Tuesday, to 116.21 on Wednesday. If you ever wanted proof in spades that the yen is the most manipulated currency in the world, here it is, in yo' face, Cleopatra comin' at ya'! For anyone who, through almost impossible naivete, is still sitting on the fence about whether markets are manipulated or not, let this remove all doubt, let this be the end of your innocence. This weakening of the yen was a counterweight to the massive downward pressure on the dollar and ensured good upward market action as the carry traders were spurred into action. Any professional trader worth his salt knows that the Fed's move is just a temporary fix and that it will be back to reality in the very near future when the next shoe drops, so the Fed was hedging its bets with the carry trade to make sure they got a strongly positive response from the markets in order to restore some confidence and positivity. A large portion of the gains this week in the regular stock market sectors like the Dow and the S&P were due as much to short-covering and carry-trading hedge fund support as they were to a positive reaction to the Fed's announcement, so don't put too much stock in the meteoric rise of these markets this week. You can expect the yen to weaken in the short-term as the PPT attempts to push back through 14000 on the Dow. The PPT cannot do this on its own anymore due to unparalleled market weakness, and needs the carry-trading large specs to pull it off. Large specs should now load up on long-term yen calls while the yen is weakening as this may be the last time they ever see the yen at such weak levels again. These protective yen calls will protect against a yen-hit on gold, which we have no doubt is on its way in yet another vain attempt to contain the price of gold.
Speaking of yen-hits on gold, on Thursday, a sense of reality was restored as the yen was manipulated from 116.21 yen per dollar back up to 114.18, and from 162.113 yen per euro on Wednesday back up to 160.903. This was the real reason that the stock markets back-tracked on Thursday. Boy, did the cartel ever get back-handed by gold on Thursday, as gold went on an unbelievably raging tear from 721 to 739 while the stock markets got hammered. So much for yen-hits on gold. This strategy may work again when gold tops out, but this is a nuclear option, especially when you consider that earnings season commences in October for the third quarter, an earnings season that could get very ugly. A yen-hit on gold under these conditions could very well create an all-time debacle that might be termed the "Blackest October!" So we say to large specs who have not loaded up on long-term stock index puts and yen calls to protect their gold positions - a word to the wise is sufficient.