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US MARKETS

That credit crunch that has troubled financial markets in recent months is continuing with no relief in sight and it will continue to take its toll on the American economy.

One of the things that investors and the public do not realize is that many banks and other institutions are loaded with toxic waste known as CDOs, MBS and ABSs that is why institutions do not want to lend to one another. It has become very difficult to sell any paper related to real estate, even if it’s quality bonds. That means over time we’ll see bank after bank, hedge fund after hedge fund and pension fund after pension fund reveal that they are holding this toxic waste and that their collateral is not worth what they say it is. We will see Northern Rock’s everywhere and the financial system will be rocked. It will become common knowledge that the banks are in fact speculators and being a depositor could be a dangerous pursuit. As a result of what the Fed, the banks and investment banks have done, bailouts and foreclosures could last for years as the elitist spin their game of smoke and mirrors. We could very well see runs on banks similar to Northern Rock in England and countrywide Financial in California.

Over the past two months, the Fed, the ECB and the Bank of England and many other central banks have dumped hundreds of billions of dollars in money and credit into the banking community in another bailout of banking and Wall Street. This rush of liquidity, along with funds, manufactured by the yen carry trade, the downward spiral in the financial world has been temporarily arrested and the stock market has been brought to new heights in an attempt to offset the massive losses in home equity. An attempt to mask Greenspan’s Folly.

Defaults among junk-grade European companies are likely to rise as higher interest rates make it harder and more expensive to borrow. Any company that is carrying high short-term debt is at risk as they struggle to refinance and if their collateral is CDOs or ABSs they can forget it. The first cracks will appear in commercial paper and junk bonds. In the junk bond area alone it is expected that default rates in the junk grade sector will rise by 300% as the credit squeeze hits the wider economy. That is an increase in the default rates from 1.4% presently to more than 5% in just over two years.

Banks and investors still are trying to value mortgage securities backed by subprime loans more than four months after valuation disputes came to light and helped precipitate the collapse of two high-profile hedge funds managed by Bear Stearns. At this time a number of hedge funds have suspended withdrawals because a true and proper valuation cannot be found. There has been little or no trading in certain lower-rated or un-rated subprime mortgage securities. The market is illiquid. As a result enormously wide spreads have developed between bids and offers on many of these securities.

As these problems persist in one sector of the financial market in another foreclosed homes are being auctioned by the thousands. In Washington, DC, in the past week, 240 homes worth $46 million were auctioned off.

These are homes purchased by borrowers who succumbed to subprime adjustable-rate mortgages to afford pricy homes that would be otherwise unaffordable to them. Homes that lenders should have never allowed them to purchase. Nationwide foreclosures were up 115% on 9/1 yoy. List prices for homes auctioned ranged from $30,000 to $1.1 million. Many sold for 20% below market value and 75 failed to sell, or 32%. One home listed for $1.1 million sold at $855,750. Mind you, the area where this auction took place is an urban area with a strong economy; a stable market of government-based industry. Overall homes sold at 72% of their listed value. Thus, listed value no longer means anything. The real market is that of complimentary sales.

Home starts fell 30% in Dallas in the third quarter and new home sales fell 20% yoy. Through the first 9 months of the year, new home sales in the Dallas-Fort Worth area are off 14%.

This past week demand for applications to buy homes and refinance rose because it’s near impossible to get loans and many buyers are filing multiple applications. Applications rose 2.4% and refinancing rose 2.7%. Refis represented 46.2% of applications, up from 46% the prior week. ARMs accounted for 13.8% of applications. The average 30-year fixed rate mortgage rose 13 bps to 6.40%. One-year ARMs fell 5 bps to 6.15%.

July posted the steepest drop in home prices in 16 years. An index of 10 cities fell 4.5% yoy and 20 cities fell 3.9%. The only bright spots were Atlanta, Charlotte, Dallas, Portland, Oregon and Seattle, as we predicted the recession drones on.

As we can see everything is not fine in America. Recession has so far been papered over by increasing debt by consumers. They still haven’t come to terms with inflation and a faltering economy. Massive increases in food and energy costs still haven’t gotten the message to the average American who lives in denial. They have no idea that the dollar reaches new lows everyday and how its depreciation in value will affect their everyday life.

As we predicted increased liquidity from the Fed has bailed out Wall Street and the banks temporarily but mortgage rates are still relatively high as are real interest rates are increasing and will persist for another 2-1/2 years and perhaps as long as four years. If some experts are right and ½ of hedge funds go under over the next two years the market will be flooded with hundreds of billions of dollars of CDOs and ABSs. If you noticed all these sharpies from Wall Street and the City of London incorporated their funds in the Cayman Islands and other offshore havens relieving them of legal responsibility. The truth is we cannot run an economy based on little more than investment and Ponzi schemes. The world is not going to buy our depreciation paper assets forever incurring continuing losses. There is confusion, uncertainty and a lack of confidence and trust in our markets at all levels. It is no wonder the Bank of England had to guarantee all deposits in the British banking system, which turned the banks into a state of being nationalized. This allows private shareholders in banks to engage in even more speculative behavior. We have had bubble after bubble and recession after recession since 1972 when we left the gold standard and the dollar became a fiat currency. The current real estate collapse, which we predicted in chapter and verse, is just another manifestation of a much larger problem and that is the Federal Reserve. An economy based on conspicuous consumption is absurd. Any fool knows asset prices cannot rise forever.

This is not just an American phenomenon - it has spread worldwide. All G-7 nations are doing the same thing. It has been a commonality of purpose. Now that fraternity has to deal with American investment bankers and the Fed having sold $2 trillion in over-rated worthless investments to part of this fraternity. We do not know if this was by chance or by design, we’ll find out in time. It could have been a share the problems solution. Instead of US institutions taking the full hit from toxic securities there may have been an arrangement for them to be scattered across the financial world. Be as it may, the problem exists and it is not going to go away until they are purged from the system. Risk is being re-priced and over time massive losses will be taken. The free lunch is over. It never existed. We are now about to pay for it.

The dollar is plummeting against other currencies, and all currencies are falling against gold, that is why all investments other than gold and silver are just side events. We are in the biggest bull market in history in gold and silver. Why fight the trend? Be where almost all the money is going to be made in gold and silver related assets. The rest is just a waste of time. As a warning sign it is a great significance that Northern Rock was the first run on a major British bank since the Overend, Gurney collapse of 1866. The bailout of Northern Rock has proven again that financial market participants who indulge in grossly speculative activity can be highly confident that the Fed and the public sector will bail them out. That is by us tax slaves. It is abundantly clear as well that central banking has learned nothing over the last 318 years. There is still no concept of moral hazard. Central banks are still politically controlled and the citizens get to pay for their destruction of the financial system. A destruction created to control the messes. You do not really think these economic and financial collapses occur by chance do you? They are planned for the further enrichment of the elitists and for the control of the people. Thinking people must now realize that no central bank can be trusted, because they are all controlled by Illuminists. Do you not find it odd that currently 7 major central banks are being run by alumnae from Goldman Sachs?  We can promise you one thing you won’t hear any of them talking about and that is, imposing a gold standard to solve our monetary problems.

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GOLD, SILVER, PLATINUM, PALLADIUM AND URANIUM

             Gold support is now at $720.00 with nothing but blue sky ahead. Anything you buy in gold and silver related assets at this time is a gift. It’s not going to get cheaper. Gold closed at the highest level of this phase of the bull market at $749.75. Silver was a laggard, but is poised to exceed $14.00 in the December contract.

Comex commercial traders have the biggest gold short in history and silver is about to bury the four major market makers, although they did some major short covering in the last mini-correction.

The dollar remains under pressure against all currencies except the yen, which is on strings via the US Fed in order to help keep the stock market from collapsing. In this phase the dollar via the USDX, the dollar index, is headed for 72 to 75 and it won’t stop there. The credit crunch is only 5% over. Why else would the CEO’s of 10 major US banks be meeting in secret, until just now when their cover was blown? Remember, another currency isn’t the answer - gold and silver are the only answer.

As we said in Saturday’s report the commercial gold traders increased their new shorts by almost 15,000, putting new shorts at 113,000 a new record and net shorts at 212,031, or a 7% weekly increase. On Wednesday, Thursday and Friday, gold rose $11.58 and early on Monday as we write, gold is up $8.30. We hope the shorts increased their short because they will have to cover sooner or later. When gold was in the mid-$650’s the commercial net short position rose 12.2%. If taken over a 7-week period the shorts position advance 135,027 as opposed to a monthly figure of 113,000.

The increases are staggering. The commercials would only do something this foolhardy if they were operating on orders from the “Working Group on financial Markets.” The American public is taking these staggering losses. The only thing that can stop this gold rally is a massive sale of physical gold. Who will be the sucker? Who has gold left? Who has gold left that they will sell? We can assure you Germany won’t and we don’t believe the ECB will. What can be the only logic for commercials shorts increasing 147% in 7 weeks?

This happened last in October of 2005 at $450. At that time we said the shorts have to cover and that we’ll never see $450 again, and we were dead right. The shorts covered, $500 was broken, and gold rose 59% to $730. We have the same situation again. Now it is, we’ll never see $700 again and the upside dynamics are massive. This run could very well take us to $1,000 and the insiders know it. Gold is going to go parabolic. On Monday a.m. gold went through $750 like it didn’t exist. That is why you can’t use charts, waves and cycles in these markets. In a rigged, manipulated market they are worthless. The shorts are already buried. The question is, will they under orders from our government double up? They are net short 22,702,100 ounces of gold, or 706 tons worth $16.7 billion. That is almost equal to what is in the gold ETF. Almost all those positions are losing money. This is getting very, very interesting. Remember, we shall win.

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-- Posted Thursday, 18 October 2007 | Digg This Article