THE INTERNATIONAL FORECASTER

Wednesday - Mid Week 110707(2)_IF

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US MARKETS

Someone doesn’t believe the government’s figures. Yes, we know there is a credit crisis and that the banks and others will be writing off hundreds of billions of dollars, but too many investors and professionals are finally realizing that our government lies about everything. Inflation is over 11% and government expects us to believe we have the lowest inflation in 50 years. They are not even believable liars. If you remember our government and those on Wall Street and CNBC told us over and over that we had reached the bottom of the real estate market. Now they tell us we may have a little farther to go in what will be the worst correction since the 1930s. Our economy has an inflation problem and the only resilience we see is the result of massive amounts of money and credit being injected into the economy. That is the result of a 15% increase in money and credit and a wide open discount window. This is how economic growth is being manufactured and the result is hyperinflation. You are supposed to believe that our inflation is as low as it was in the 1950s. We guess the neocons and Wall Street are hoping few remember the 1950s. Well, we do and this is nothing like that. How can anyone conceivably believe with oil close to $100 a barrel that inflation is 2-2/3%, never mind all the other inflationary factors? If we are correct in our inflation estimate there is no growth. The economy is hanging on by its fingernails even with massive stimulation.

The bogus third quarter GDP figures were a milestone in stupidity. If the formula for the second quarter had been used, GDP would have been over 2%, but that wouldn’t have been good enough for the charlatans and crooks of Wall Street and the beltway. This economy has been contracting for 1-1/2 years and official lies and massive amounts of money and credit have covered that up.

The Fed knows the economy is in recession and now that they have committed themselves to bailing out the economy and the financial sector we see another rate cut in either December or January. Inflation is 11.3%, not 0.8% monthly, as the Commerce Department would have us believe. The Fed doesn’t care about inflation - they just lie about it. They have abandoned the dollar, so we see a good chance of another ¼% rate cut on December 11th. The housing collapse is still in stage one of three stages and there were not 166,000 jobs created in October. We will soon have the numbers that show it should be close to zero. Do not forget they need 250,000 more each month just to say even. Their birth/death ratio could be helpful if it was refined and not politicized, but all it is used for is to justify the proscribed results. If you look at the BLS’s household survey there was no job growth last month. In fact, the labor force contracted by 211,000 jobs. Based on a real survey we will take the household survey over the birth/death projection and that is ample justification in the Fed’s eyes for another cut. It’s in Wall Street’s eyes justification for another cut. Wall Street and government have an attention spam of 6 seconds similar to a dyslexic child. They only think about the next trade and could care less about tomorrow or the future of the dollar. They care nothing about our future. Again, justification for a rate cut. We can assure you November’s employment figures will stink giving the Fed ample reason to cut again, while continuing their now ridiculous lie about inflation. As an example of how bogus October’s figures were, the B/D ratio added 103,000 jobs and then the BLS added 14,000 construction jobs and 25,000 in the financial industry. They must believe we are stupid. There are massive lay offs in both industries. Worse yet, GDP is growing at zero to 2%, and in all probability 1% and it has been at that level for a year. The Fed has to cut interest rates again. Unfortunately the result will not be successful even if money and credit increases more over 20%, which there is a great chance that will occur. Employment is a lagging indicator and we identified slippage 1-1/2 years ago. This is nothing new – it’s just been covered up. If you remember unemployment has already moved from 4.4% to 4.7% over the past several months and that is official. Can you imagine what the real numbers are?

The credit market is still frozen and greater losses will continue to be announced as more and more foreclosures disrupt the system. Foreclosures are up over 200% and high numbers should prevail for 1-1/2 years or longer. As many as 2.5 million homes could go into foreclosure. That is what we predicted three years ago. We cut that figure in half to project losses in the industry. That, of course, will have a devastating affect on homeowners, real estate prices and mortgage-backed assets. The financial blood will flow for sometime to come. Again, this is lots of ammunition for the Fed to lower rates. At 4-1/2% presently they could drop another point to 3-1/2%. Considering all the other problems we could see the dollar at 50 on the USDX. The credit crisis will last years, not months.

We believe domestic demand was 1-1/2% to 2% in GDP for the third quarter. That was fueled by equity cash outs of about $150 billion, which was equal to 50% of the rise in total consumer spending during the first half of the year. Over 5-1/2 years $1.1 trillion in equity extractions went toward consumer spending. This represented a 46% increase in total consumer spending over the same period.

At the end of the second quarter household mortgage debt was over $10 trillion versus $4.295 trillion in 1999. Thus, in 6-1/2 years the household sector mortgage debt increased by $5.8 trillion, or 136%. Mortgage debt relative to disposable personal income surged from 64.7% at the end of 1999 to 100.2% at the end of the second quarter. This 35.5% rise was greater than the rise over the 43 years leading up to 1999. Total household debt to disposable income was 131%, up from 93.6% at the end of 1999. Aggregate indebtedness has increased exponentially.

Regarding business, corporate debt averaged 34.3% of GDP. Both personal and corporate debt combined was 217% of GDP. Any reduction is short-term rates won’t help borrowers for a year or two.

This debt overhang will not be manageable in a recession. As we have said the high end of the real estate market has yet to come down, but come down it will. Homes today are still some 58% above the previous cycle high in 1989. We closed our home in Malibu in November 1988. We told our clients in September and October to bail out of homes and saved people millions of dollars. All the real estate market appreciation of the last 5-1/2 years have been accomplished by use of excessive debt and absurdly low interest rates. Now all that debt has to be serviced and it cannot be. Almost all homes bought in 2006 and 2007 are upside down.

Housing starts have not dropped fast enough and that is adding to the inventory problem. Housing starts are still 30% from where they should fall too. We must admit part of the builders’ problems comes from listening to government and innocently using bogus government statistics. In just the next 11 months $800 billion in ARM resets come due and the worst will be in the first six months of 2008. That process is 18 months long and following will be a new crop coming due from resets that started a year ago. Lower house prices will kill them as well. You have to divide the problem into two segments. The houses that went up 40% will drop 20%. The houses that went up 150% will fall 30% to 60% from the peak. We are looking for $10 trillion in losses from June 2005 to the bottom. We know you do not think that is possible. When we told investors in April 2000 that the stock market would fall and $8 to $10 trillion would be lost, they laughed. They were not laughing in 2002. We will see a recession and massive inflation, a combination that will send the stock market down and gold and silver soaring. This is how you will retain your wealth over the next five years and how thinking people will make money.

...

GOLD, SILVER, PLATINUM, PALLADIUM AND URANIUM

 

Note that the one month gold lease rates have suddenly dropped off from .20% to .07% so it looks like some sort of short term manipulation might be on its way now that gold has crossed 800 and has its eyes on 850. Or it could be that no one wants to lease it and then sell it and they are trying to make it more attractive to do so.  Or they could be accommodating the commercial shorts by giving them some cheap gold to lease and hold to cover their shorts. They have something up their sleeve, but knowing precisely what kind of evil thoughts they have on their minds may be difficult to determine. This may be a situation similar to that of shorter-term silver lease rates, which are now so negative that they have dropped off the lease rate charts.

 

Right off the rip on Monday, the yen has strengthened again and the Dow is already down over 100 at the open as the cartel tries to put the kibosh on the recent gold rally that took gold well above 800. The yen has strengthened from Friday's close of 114.74 to 114.084 yen per dollar and from 166.155 to 165.110 yen per Euro on Monday at about 9:30 am EDT, so the minus 100 open should not come as a surprise to our IF subscribers. The yen hit was accompanied by news from Citigroup of another 8 to 11 billion in additional losses on top of the 8.4 billion just written off, plus the resignation of its CEO Charles Prince, who now joins Stanley O'Neal, the former CEO of Merrill who also just resigned, in the Golden Parachute Clown Club. The cartel's motto will now be:  "Never waste your bad news when you can use it to hit gold." The truth will now start to leak out everywhere as the auditors of the big banks and brokers start to fear another Enron scenario developing and do not want to get caught in circumstances, which will lead to liability to shareholders for hiding losses. The big accounting firms cannot wait any longer or they will join the big rating agencies on the financial gallows. Let us now see how gold fares under further pressure from the cartel.

 

Every gold rally will now be accompanied by portions of the accumulated bad news which will be leaked out to the press by the various cartel and non-cartel victims of the subprime contagion at the most advantageous times to suppress the price of now unstoppable gold in a vain attempt to slow gold down, particularly news relating to massive losses in SIV's, structured investment vehicles.  Citigroup's latest harrowing news, which was conveniently leaked out this weekend before and after an emergency board meeting set up for Sunday, just after gold blasted through the 800 mark on Friday, started a worldwide sell-off in stock markets as more news of the damage from the subprime contagion now known as Greenspan's Folly came home to roost. This of course strengthened the yen slightly in Asian markets as oriental traders opted for the safety of yen and yen denominated bonds just the way US traders turn to dollars and treasuries in a crisis.  In some very telling market action, gold early on has not only held but has risen as the flight to the safe-haven which it now increasingly represents continues due to the fact that gold has become a much better alternative to dollar-denominated treasuries and money market funds.  Gold, which had slipped to as low as 800.10 in Asian trading and in London, held at the new support level of 800 which used to be a level of resistance, and later surged to a hair below Friday's close of 806.00 in later London trading.  Gold has been choppy but substantially higher than its earlier lows in Asia in early NY trading, and is currently going for about 804.30 as of 10:30 am EDT.  

 

This past Thursday, as we previously reported, Meredith A. Whitney, an analyst at C.I.B.C. World Markets, decided to downgrade Citigroup stock in anticipation of heavier losses from its exposure to mortgage-related securities in its investment bank and souring home and other loans in its big consumer operation.  How convenient that this should happen on the day of a big yen-hit on gold and as gold threatened to break 800, with an ensuing loss of 362 points on the Dow.  So the bad news leaked out about Citibank by the cartel, which suddenly came out after months of hiding most conveniently on the day before and on the weekend following the day spot gold broke 800, was used to crash markets overseas, which strengthened the yen and which laid the basis to forge a legitimate-looking yen-hit on gold.  The overseas sell-off put pressure on gold trading large specs overseas as losses started to mount and margin calls started to hit, with the Nikkei 225 tanking 248.56 and the Hang Seng losing a mind-blowing 1,526.02, down a brutal 5.01%.

 

Nevertheless, the reprobates failed to break gold's new 800 support level, which we are sure ticked them off to the nth degree.  This overseas sell-off helped to justify the strengthening of the yen as the NY markets opened up.  It was hoped this would help put a damper on the gold party, but the latest yen-hit has already failed and there are signs that the cartel has already backed off in humiliation.  The yen has already weakened back to 114.523 yen per dollar and to 165.723 yen per euro as of 11:10 am EDT, from its previous levels of 114.084 and 165.110, respectively, set at about 9:30 am EDT.  Not surprisingly, the Dow has already pared its losses by half, down now about 50 instead of 100.

 

Gold has held famously today, even in the face of a substantial drop in the price of oil and a tiny dollar rally, with a yen-hit thrown in by the cartel for good measure.  Nobody believes our government or Wall Street any more, and gold will now forge higher no matter what machinations the cartel throws at it.  The pros can now see where this is all headed as the terrifying and inexorable march to financial oblivion continues unabated in the United Goldilocks Matrix, where some people are starting to wake up from their slumber in their cartel-created pods to a nightmare beyond their wildest imagination!  Precious metals and their related assets are now the only place to be, so take your positions immediately or face utter financial annihilation.

...

1-YEAR $159.95 U.S. Funds

US AND CANADIAN SUBSCRIBERS: Make check payable to Robert Chapman (NOT International Forecaster), and mail to P.O. Box 510518, Punta Gorda, FL 33951-0518. Please include name, address, telephone number and e-mail address.

Or:

We accept Visa and MasterCard charges.  Provide us with your card number and expiration date.  We will charge your card US$159.95 for a one-year subscription.

 

You can email us in two separate emails (1- the Credit Card Number with full name, address and your telephone number and (2- the Expiration date on the card.

 

NON US OR CANADIANS SUBSCRIBERS:

Due to the time that it takes for your mail to arrive to us from a foreign country, we would like for you to email us as above the CC information in two separate emails.

 

Note:  We publish twice a month by surface mail or twice a week by E-mail. international_forecaster@yahoo.com or if_distctr@yahoo.com

 

                                                          *****

-- Posted Thursday, 8 November 2007 | Digg This Article | Source: GoldSeek.com

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