THE INTERNATIONAL FORECASTER

09_07_5_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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US MARKETS

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As new home sales fell 4.3% in August, the median home price fell from $228,700 to $224,500, down 0.2% yoy. Inventory is 10-months, a new record since 1992, when data began. The inventory of single-family homes was 9.8-months. The record is 10.2-months in February 1988. Lennar’s average price of a home delivered was $296,000, down from $316,000 yoy. Lennar also said subprime loans are 1% of total loan volume. ALT-A was 25% of third quarter volume and 88% of originations were at fixed rates.

The CDX North American Investment Grade Index Series 9, a benchmark for the cost to protect bonds from default, rose 3.5 BPS to 53 BPS after the Lennar housing data was released.

$31.8 billion worth of ARMs were reset this month. This is the highest one-month amount due to reset for this housing cycle. By December, resets will fall to $25.2 billion per month for a year.

The Conference Board’s Consumer Confidence Index declined a large 5.8 points in September from 105.6 to 99.8. Present situations fell from 130.1 to 121.7. Expectations fell 4 points from 89.2 to 85.2.

Weekly fails to receive Treasuries by dealer banks rose as high as $124 billion in the week to August 24th, but have since declined to $44.1 billion.

As long as the US fails to address its savings problem its large balance of payments deficit will persist and the dollar will keep dropping and as long as interest rates are not raised inflation will flourish. The American consumer is at great risk, due to personal debt. Consumption expenditures currently account for a record 72% of GDP, a number unmatched in the annuals of modern history of any nation.

Home prices are headed lower and they will stay that way for years. Recession and weaker employment will put pressure on income and debt, the days of open-ended consumption expenditures are at an end.

What has previously saved the US in its current account deficit has been the ability to finance the deficit by borrowings denominated in its own currency. This has been what prevented the death spiral where interest payments on debt got more and more difficult to service. Real return to finance US debt for foreigners is negative and they are in the process of withdrawing from US debt markets. Eventually this will force interest rates higher. If that doesn’t happen the Fed will monetize the paper, creating more inflation as well as simultaneously increasing money and credit, M3.

When the Chinese central bank interest rates on mortgage loans increase it will put their five-year mortgage rate at 8.6% or higher. That will pressure the US dollar further and force up US interest rates.

In seven months of 2007, 54,000 scheduled flights affecting 3.7 million passengers experienced ground delays of 1 to 5 hours or more, up 42% from 2006. That is dreadful and a disgrace.

Las Vegas housing prices are plunging and it looks like it will have the largest decline in the nation. Prices fell 1.6% in the second quarter yoy. Michigan fell 1.42% and California 1.38%. The experts see 20% over three years. They have always been wrong. We see 45% minimum.

In August, Vegas had 24,341 single-family houses on the market, up 19% yoy and 6,221 condos, up 23%. Condos fell 8% from a year earlier to $190,000. The single-family median home price fell 3.9% to $299,900.

August California home sales plunged 28% yoy, to leave an 11.8-month supply, double that of a year earlier. The median price in the Central Valley fell 12%, as did Sacramento’s median. Riverside and San Bernardino counties fell 7.4% and L. A. country rose 2.6%.

Nationwide unsold homes were at an 18-year high as sales fell to a 5-year low and prices were up only 0.2%, which we can hardly believe. The numbers are from the National Association of Realtors.

September, which is not in yet, will reflect the beginning of the credit crunch and the subprime and ALT-A resets. You haven’t seen anything yet as we predicted long ago. In addition, heavy discounting by builders and now the existing home market as well will continue to drive house prices downward. The psychology was broken long ago and consumer confidence remains low. As yet, we see no opportunity in this market and we will probably not see any for at least 2-1/2 years.

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GOLD, SILVER, PLATINUM, PALLADIUM AND URANIUM

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We are seeing estimates popping up all about, for gold to see $750 to $850 an ounce over the next six months. We agree, but we think the time frame will be much sooner, perhaps within two months you will see $850. We have seen the abandonment of the dollar in order to save Wall Street and our banking fraternity, after they defrauded other professionals worldwide in the CDO-ABS scam. The money and credit injected into the system via lower interest rates was solely to bail out America’s financial lords. It had nothing to do with saving homeowner’s homes. Our next expectation is ever lower interest rates to try to reverse recession, the real estate collapse and a resumption of the bear market. The Weimarization of America and the world is underway. The major beneficiaries are gold and silver. Be sure you have loaded up, because once $850 is broken the speed of the climb to $2,000 will be swift and furious. You have to have the hedge and they are the best hedges.