-- Posted Thursday, 11 October 2007 | Digg This Article
| Source: GoldSeek.com
The following are some snippets from the most recent issue of the International Forecaster. For the full 23 page MidWeek Reading, please see subscription information below.
THE INTERNATIONAL FORECASTER
Wednesday - Mid Week 10_10_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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US MARKETS
As you all know, the government statistics for employment are totally bogus. That said; let’s take an introspective look at the latest machinations.
They tell us that yoy average hourly earnings are up 4.1% and that they are growing at a 5% compound rate for the past few months. We call this simple wage inflation, which was a long-time coming.
Officially 110,000 jobs were created in September compared to a revised gain of 89,000 in July and August. Don’t these massive revisions just warm your heart, 110,000 increases, which is bogus and in and of itself is totally inadequate? The economy needs 150,000 to 200,000 new jobs monthly just to stay in place. Increases over the last three months have only averaged 97,000. In the last four months the ranks of the unemployed have officially risen 400,000. Can you imagine what the real figure is, perhaps 1 million? The BLS has only removed 200,000 from the rolls. That is why we contend the uncounted unemployed are well over 13%. 4.7% is a fairy tale. Of the 73,000 new jobs in the private sector, 58,000 were in healthcare and in the food service industry. Retail and finance supposedly lost 19,000 jobs. 20,000 part-time jobs were lost as well. Why part-time jobs are included we will never know. They should be reported separately. As you can see the private jobs created were all at the lower end of the pay scale. Those jobs are for our fellow citizens who lost their $32.00 per hour jobs to free trade, globalization, and offshoring and outsourcing, so they could take these $10.00 per hour dead end positions.
They expect us to believe that unemployment for 8-19 year old females fell from 14% to 12.4% in one month, which is ridiculous. If they are going to lie at least try to make it believable. Yes, equally as preposterous is the fall in unemployment for women over 55, which fell from 3.4% to 3%. The bottom line is 97,500 of these new phantom jobs were all $10.00 per hour jobs or less in services, bars, restaurants, kitchens, nursing homes, etc., or 89%. Although bogus it is still dreadful. Worse yet the rate of unemployment for all men under 45 is up and that for 18-19 year olds is 16%.
You ask what does all this mean? It means we are already in a recession and have been for some time. Our government lies to us about everything so why should economic matters, such as unemployment be any different?
The FED is creating money and credit at a 14.1% rate or 48% annualized and they cannot readily make the economy grow.
Inflation is over 11% because of the Fed’s policies so we are not gaining- we are losing even if wages are up 5%. Worse yet, next year inflation, real inflation, will be over 15%. Over the last 50 years growth has been 3%. Even with the Fed’s outsized growth of monetary aggregates real growth is running at 1.5%, and it is headed much lower. Payroll jobs growth is only 1.6% and those figures are false. We have had negative job growth for some time. Payroll, real payroll numbers, run parallel to GDP growth. The 4th quarter will be terrible. Lower or no Christmas bonuses and plunging house prices will certainly dampen results. How can real estate prices remain constant when builders sell inventory for 35% to 50% off aggregate prices. Homebuilders are not just losing money many will go under. That is why we are still short suppliers and builders.
Real statistics are mind boggling as the stock market reaches new highs. There are almost three million mortgage holders with ARMs of one kind or another. These subprimes made up $1.3 trillion, or 73% of ARMs in the first quarter and 57% of mortgages in ARMs were unable to refinance loans in August. We still project overall losses at 50% of ARMs for $750 billion to $1.3 trillion, never mind the losses for those holding CDO bonds. Do not forget we projected these figures a year ago while the experts slept. Even they now only project 20% in foreclosures. The do not get it. These people shouldn’t have had loans in the first place. They are unqualified for new loans. They have negative equity and no cash and many, many cannot make the payments. Those payments are going up on reset and interest rates are climbing. Now that Congress is about to reverse the tax liability of debt forgiveness on foreclosed homes, even more homeowners will walk away. Many have seen their neighborhoods deteriorate due to many foreclosures and some see massive numbers of legal and illegal aliens moving into their neighborhoods suppressing prices and destroying the local culture. Most foreigners are here today for the money. They are still Chinese, Koreans, Indians, Pakistanis, Mexicans and Argentineans only in America to make money and leave. One subscriber told us in his development there are many foreign festivals for holidays, but none of the American holidays are celebrated. In real estate you can bypass the early and late 1980s, we are going to the 1930s. The 30 hot area homes are going to correct 30 to 60 percent. Many areas are already off 30%. They will fall for 2-1/2 to 4 more years. We have been right, the experts have been wrong, not only about real estate but everything else. Our next stunner is that 60% of republicans now agree with us that free trade is a loser and that we need tariffs back on goods and services ASAP. Why does it take so long for people to wake up? And, why don’t they listen?
It is important that we note that the dollar has already broken a 26-year support level and that it is headed lower probably to the 72 to 75 area on the USDX. That has been caused in part by lower interest rates. The Fed has effectively abandoned the dollar to rescue Wall Street and the banking and hedge fund industries. Yes, we are in a recession. Now traders and experts believe the interest rates are headed lower. If that is so then the dollar will fall further. The added liquidity will help the aforementioned professionals, but it will do little to help the economy. The Fed has been pouring money and credit into the economy for four years and growth has been slightly above average as inflation has eaten up any gains made in any investments or in wages. The Fed is risking the dollar’s status as the world’s reserve currency, as one country after another begins to sell dollars and unpeg their currencies from the dollar.
The psychology in real estate has been broken. The only event to figure out now is where the bottom in this market is. Real estate is worth $19 to $21 trillion, and in the majority of the market, the former 30 hot areas, prices will fall 40% on average. That reduces the net value to $11.4 trillion or $12.6 trillion. In construction alone this time around we could see 50% unemployment and a 60% drop in home construction. That is 3.3 million people without jobs plus the illegal aliens laid off and all the people in support industries and real estate. The real estate collapse is going to be devastating. We estimate 460,000 have already been laid off if you count the illegals. Thus, the credit crunch and a failing economy, in spite of it being overwhelmed by money and credit, has the Fed, Wall Street and the banks in a state of panic. They know there is no way out. It is no wonder they abandoned the dollar. They are on a sinking ship and they know it. Real estate will fall until the inventory is absorbed and people can again afford to buy homes as places to live and not as investments. Sir Alan Greenspan sees an extraordinary period of disinflation ahead, but he knows the Fed will inflate first until they cannot anymore.
Inflation is coming at us from all angles, but strangely no one at the Fed or Wall Street, in government and in corporate America seems to be able to see it. They should take a look at the Baltic Day Index that over the past year rose from 4,000 to 9,474.
The US dollar is weakening and all major currencies are rising against it. Europe and the UK are slowing down. Their cheap currency days are over. Wait until the world finally realizes that the top 18 of 20 central banks are doing what the Fed is doing in creating massive money and credit. Two and a half years ago gold broke out against every major currency and that is because it is not only the dollar it is all the major currencies that have problems. In time there will be a massive flight to quality from all currencies to gold. It will become the only safe haven.
For now we will have to fight the fed, the Plunge Protection Team and the yen carry trade, but in the end we will win. The Fed can monetize all they want via special deals with other nations, but that will just push gold prices higher and buy some time.
Instead of banks writing loans now a days they originate loans, or warehouse them on their balance sheet for a short time and then circulate, distribute or bundle them to investors using collateralized dent obligations. That means banks require less capital, because they do not hold the loan for the full term. The game is profitable as long as liquidity doesn’t dry up and that is what has happened recently and US banks are stuck with $400 billion in loans. As we said earlier they are lending buyers money and then selling them the CDOs with leverage just to get them off their balance sheets before they are out of capital computation.
What this new money game has brought is elevated risk. As loans are sold off, more loans have to be written and larger volumes are necessary to maintain profitability forcing banks to rely on brokers. As the game goes on volumes increase, which is reduced capital available to absorb risk and the result is lower credit quality. These loans are bought by insurance companies, pension funds, asset managers, banks and private clients. Hedge funds also play in search of higher returns based on leveraged structured credit instruments. These loans have little liquidity and are very risky. Hedge funds borrow from the banks to affect these trades, or they engage in the yen carry trade to raise funds. That is why that trade is so crucial to the US markets. The Japanese fund $1.5 trillion of this action. Our financial markets are debt addicted. This is purely a pyramid scheme. It is no wonder gold keeps hitting new highs. It is only a matter of when before the collapse comes. This is what bank deregulation has brought us. It’s back to the 1930s. The bankers haven’t leaned anything more than how to become greedier. They were let loose by the Fed to target the poor and write loans for them that they were entirely unqualified for. As a result of the liquidity perpetuations we saw AAA rated CDOs and ABSs that were really BBB- and the house came trembling down. If you can, get a bid real AAA’s are bid at 80% of face value and AA’s and A’s lower. Most CDOs are bid 15% to 30% on the dollar. The subprime CDO and ABS problems after two months are still frozen and half of the commercial paper has no market.
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GOLD, SILVER, PLATINUM, PALLADIUM AND URANIUM
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We continue to receive reports of other investment mediums salespeople trying to get people to sell their gold and silver coins and shares. In the final analysis you are going to end up in gold. You are far more vulnerable in other investments. Do not let people talk you out of your gold and silver coins and shares and do not believe the talk of confiscation. It could happen, but probably won’t. Americans do not own enough gold and silver coins or bullion to make it worthwhile. This is not the 1930s and if they want gold and silver they would take the ETF’s assets first. Gold and silver shares have never been confiscated, although for a time markets could be shut down, all markets. Remember, government can take anything it wants from you, including your wife, children and your dog. You are a fool if you are talked out of your gold and silver assets.
Gold ETF’s have set a new high of 759 tons, up 21% since the end of June and valued at $18 billion. Since June the top gold and silver shares are up 28.4% with your AEM, Agnico Eagle, leading the way. The stocks are finally showing leverage to the gold price. Remember, the MS64 Saint Gaudens went from $500.00 to $5,000. This is the time for leverage as we approach $850 and the beginning of phase 2 of 3 or 4 upside bull market phases in gold and silver. Anyone who owns Barrick Gold should sell it. In their hedge book they are still short 9.5 million ounces.
Just as we predicted, the cartel's rally to wash out protective derivatives is now under way. On Tuesday, after weakening the yen into the 117 handle on Monday and Tuesday morning, they pushed the Dow up 120+ points to a fresh all-time high of 14,164.53, although they also managed to push the XAU to a fresh all-time high of 173.44, which must have ticked them off to no end. The HUI was also pushed to within a few points of its all-time high, closing at 398.39, so it looks like gold and silver will get a lot of PM stock support while the cartel orchestrates its yen-call-destroying, stock-index-short-killing rally of general stock markets by its weakening of the yen to bring in carry trader support. You could see the rally coming after the cartel used the soft holiday, Columbus Day, to hit gold in order to keep it from jumping to new highs on Tuesday when the stock rally was commenced. On Monday they took gold all the way from its Friday close of 741.30 all the way down to 731 before it rallied briefly to 734 and then settled in at 732, still above its 2006 high, while the Dow lost about 22 points. The weakened yen supported the stock markets until the cartel's jaw-boning, which took the form of minutes of the September 18 Fed meeting at which they agreed to kill the dollar to save Wall Street, a day that will live in infamy, was released to the stock markets on Tuesday. The rate-cut friendly, dollar-killing Fed-talk, together with some typical end-of-day brute force pushing by the PPT, propelled the Dow to new heights, and rallied the general stock markets, including the resource sector as mentioned above. Gold also benefited by the weakened yen and rallying PM stocks as carry traders opted for some safe-haven protection and Indian jewelers took advantage of Monday's dip which continued in the early going on Tuesday. As the Dow reached new heights on Tuesday, gold almost completely took back Monday's losses, driving up $14 dollars per ounce all the way to about 740, after receiving a further beating from the cartel which brought it as low as 726+ earlier, before settling in at about 737. Silver has likewise benefited.
After being hammered by the cartel from a high Monday of 13.40 all the way to a low Tuesday of about 13.10, silver had an extraordinary recovery all the way to 13.55 before settling in at 13.43.
We spoke of this coming stock rally in our two previous issues, and warned large specs to get out of any leveraged and/or short-term yen calls and stock index puts and to replace them with un-leveraged, longer-term derivatives. Those who heeded our advice stand to make a fortune when the upcoming follow-up crash occurs, which will happen after the October options expire. To those who did not heed our advice, if the cartel succeeds with their plan, well, all we can say is, we hope your Chapter 11 works out for you, and that its been nice knowing you. The cartel is going to try to wash out the shorter-term protective derivatives which large specs have purchased to protect their PM positions by pushing the Dow to 14,300+ or so by the end of this week and to 14,600+ by the time October options expire late next week in a rally similar to the one they used in July. At least that is their plan. Whether they can pull this plan off is very questionable, given the ongoing credit-crunch and abysmal third crunch-quarter earnings reports which will continue to hit on a daily basis now during earnings season. Also, PM's and their related stocks could explode from liquidity released to large specs to support the rally which could very well destroy the commercial shorts before the stock rally reaches the cartel's planned objective. Unlike in July, they will have to weaken the yen to accomplish this since July was pre-crunch and the yen at that time was already at very weak levels, and this will help power PM's. In addition, in order to help the stock markets to recover after the planned crash, the cartel will have to weaken the yen even further just as they did in July to help the crashed markets recover at that time, providing yet more support for PM's. Since Monday the yen has hit the 117 yen per dollar handle, a level of weakness not seen since August 15. And now, early on Wednesday morning, the yen has now also weakened against the euro, breaking into the 166 yen per euro handle, a level of weakness not seen since July 24. Both moves in the yen are just as we predicted. Unfortunately for the cartel, the Dow has been down today, Wednesday, by as much as 80 points already as of the time of this writing based on profit warnings and a Chrysler strike while spot gold has rocketed up to the 746 to 747 range, within inches of its all-time high of 747.75, and while the XAU and HUI have already broken their previous all-time intra-day highs like they did not even exist and will probably set new all-time closing highs today as well. OOPS!!!
The reason they are going to try to elevate and then crash the stock markets is because the cartel hopes that this will generate massive margin calls for the large specs after they leverage themselves to the hilt in order to take advantage of the rally. We could see a crash from 14,500+ to just below 14,000 on the Dow before a very quick recovery to 14,200+. Large specs who have had their protective derivatives washed out would then be forced to liquidate their PM positions. We cannot tell how many large specs have heeded our advice. Only time will tell. Large specs might also consider some short-term stock index calls to take advantage of the coming rally. If the large specs are ready for the cartel, gold will blow into the stratosphere as the mountain of shorts created by the commercials does the Mount St. Helens-Mount Vesuvius thing, utterly annihilating the hapless commercial shorts in a short-covering rally without historical precedent. We would like to point out to the non-US members of the cartel and the myriad of other parties who have been screwed and decimated by the fraudulent and diabolical CDO contagion initiated by the US cartel members, that if you were looking for some payback, a chance like this will not happen again in your lifetime. Your participation in the implosion of the US cartel's gold derivative positions on the COMEX and the TOCOM will provide you with a cherished and most satisfying memory which you can carry with you to your grave. We just thought we would mention this in passing, just in case you were interested.
The cartel's current objective is to drive PM's down into the subbasement so they can get out from under their ominous mountain of shorts, which on the COMEX alone has reached new heights as evidenced by the astonishing all-time high in gold futures open interest set on Monday, a mind-blowing 451,753 contracts. If the cartel breaks gold, the Fed will cut rates in October and propel the stock markets higher while they reestablish their mountain of shorts to continue the suppression of gold. If gold breaks the cartel, gold will slash past 850 like a knife through butter and you can forget about rate cuts for the rest of 2007 unless the stock markets threaten to go into a complete meltdown, which very well could happen. So you can see that what happens in the tiny, little gold market is now determinative of what will happen in the much larger stock, bond, currency and derivatives markets. Not bad for a barbaric relic, eh? What few in the world realize is that we are seeing "Clash of the Titans" on steroids in the gold pits right now, and the outcome will influence the future of financial markets like no other event or battle in the world.
The cartel's desperation is also showing in gold lease rates, which have elevated recently since the credit-crunch to levels not seen in well over a year. This has been caused by both a decrease in supply and an increase in demand. From the supply side, central banks are afraid to loan out more gold as they may never get it back if the bullion banks get blasted in a short-covering rally as their mountain of shorts grows a cauldron and spews out commercial short-annihilating molten gold and silver lava. At the same time, from the demand side, commercial shorts, many of which are also bullion banks, need to get their hands on gold bullion to cover their ever-growing and ever-burdening mountain of shorts without driving up gold prices by purchasing gold in the open market. We believe the commercial shorts are going to be catastrophically decimated, that the gold owed on many gold leases will never be returned to the central banks, that the central banks will then have to write off their phantom paper gold reserves and that this will put the ongoing credit-crunch on steroids and threaten a worldwide meltdown of financial markets. Gold and silver will then become the go-to assets as they blast through the Einstein-DeSitter radius at the outer visible bounds of the universe.
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-- Posted Thursday, 11 October 2007 | Digg This Article | Source: GoldSeek.com
