THE INTERNATIONAL FORECASTER

SATURDAY  111007(3)_IF

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An international financial, economic, political and social commentary.

Published and Edited by: Bob Chapman

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US MARKETS

You would not think so by listening to all the lies and deceit but Citigroup is fighting to stay solvent. Their level 3 assets are almost totally illiquid and they do not know what they are worth. In all probability some $0.25 on the dollar on average. We might add here that thousands of the institutions worldwide are in the same situation and we won’t see the final damage reports for as long as another year. This is the worst financial crisis since the 1930s. They have stated their total liabilities at the 3 level were $40.36 billion, which was revised to $134.8 billion, but these are hedged positions. We do not know what the hedges are nor do we know how solvent the sellers of these hedges are. As we explained before many derivative writers have no collateral assets to cover the contracts they have sold. What is disturbing, counter to this fairly opaque announcement by Citi is, that the CFO of Citigroup said the market simply was not there. In other words, there were few if any buyers for level 3 junk bonds and that the market to hedge the CDO book was not there. That means Citi had few if any hedges in place. That said the CFO then said Citi might liquidate CDO’s if market prices come back. Sell to whom? How can CDO’s rally if there are few or no buyers? As we reported in the last two issues if hedge derivatives do exist, are they with Ambac or MBIA? If they are they may be uncollectible, because both they and the other bond insurers may go under.

This dilemma is proof that financial engineering doesn’t work. These engineers have designed securities and derivatives that do not work. As we explained in 1998 everybody uses the same mathematical models and when these models have to deal with excess volatility they collapse and they all collapse together. Being able to define probability is one matter but making it work under all circumstances is impossible. That is because investing cannot be defined by mathematical formula, because it is an art form. In the final analysis these formulas do not work and the carnage that follows is terrible. We are in the middle of such a situation presently and it will get far worse before it gets better, as all of these black box players try to escape simultaneously.

Citicorp like others fell victim to believing their own lies. Like valuing assets based on what they knew were a false premise. In collusion with the rating companies they rated BBB bonds AAA. Then when valuing their bonds for sale and their inventory by marking to model, which was pure fantasy, they knew at sometime in the future the scam would unravel. They just couldn’t lay off the toxic garbage fast enough. For three years firms like Citi perpetuated a myth - a fraud in evaluating its toxic bonds and inventory therein. They also engaged in fraud with the rating services. Citi and many others refrained from market sales in these securities because it would have exposed the entire scam. Banks, Wall Street, corporate America and our government simply refuse to tell the truth and this is the result.

Citi has $134 billion in CDO and ABS’s primarily backed by subprime toxic waste. They have $25 billion in commercial paper backed by toxic garbage. It should be noted Citi is watching a disintegrating housing market, which will depreciate these values further. Once they figure in the leverage you will find Citi is bankrupt. We expect the Fed will print the money and create credit to bail Citi out, and they will bail out all the biggies.

The dollar has fallen 36% under George and the neocons, or about 4.8% per year.

Total derivatives are now almost at $500 trillion. The current credit crisis has obscured this problem. The derivative positions will get larger and the implosion when it comes will be deafening. U.S. commercial banks increased their notional amount of derivatives in the 2nd quarter by $7.7 trillion to $152.5 trillion. These credit derivatives, which are the fastest growing derivative product, increasing 16% from the 1st quarter to $11.8 trillion. Credit default swaps, represent 98% of the total amount. That is up from 79% yoy. The five largest dealers hold 97% of the contracts. In descending order, HSBC, J.P. Morgan Chase, Citibank, Bank of America and Wachovia. This is what awaits us around the corner.

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GOLD, SILVER, PLATINUM, PALLADIUM AND URANIUM

We hear a thundering in the distance.  Could it be?  Yes we can see them now; the gold bulls of the COMEX are now performing their version of the "Running of the Bulls" in Pamplona Spain, with the gold bears running in terror at the sheer mass and velocity of the stampede of raging gold bulls as they chase the bears through the pits of the exchange.  Next stop, the New York Fed.

In unconfirmed reports, scientists have detected cataclysmic seismic activity with an epicenter near the gold and silver pits on the COMEX.  The tremors are gaining in frequency and hot ash and toxic fumes are sputtering out of the mountain of shorts which has recently grown a massive cauldron of molten gold and silver lava, some of which has already boiled out of the cauldron and started running down the mountain. The new volcano is now threatening to blow like Mount St. Helens or Mount Vesuvius, and the bear village in the COMEX is at the foot of the volcano.  Officials have been pleading with the bears to flee for their lives, but the stubborn bears refuse to leave and the National Guard may have to be called out to forcibly remove them for their own good.  In a sign of protest that they will not be forced out of their homes, many of the residents of the bear community have begun to tie white headbands with red suns around their foreheads and have started to cut themselves, indicating that they might stay to the bitter end.  Some have even noticed some of the bears clutching hand grenades to prevent the suffering and excruciating pain of being turned into Crispy Critters by gold and silver lava, or being trampled to death by a stampede of gold bulls. Officials are beside themselves with worry as the stubborn bears cling to their position, with some going even closer to the foot of the roiling mountain of shorts instead of fleeing in terror like any normal person would do.  Officials believe that the hot vapors and toxic fumes may have made the bears a bit woozy, thereby clouding their better judgment, and are seeking a court order to remove the bears based on temporary insanity on account of the impact of all the toxic fumes on their brains.  In true Tolkien style, the bulls have named the new volcano Mount Doom, although some have opted for Mount Bearkiller.  The cauldron has been named the Cartel Cauldron in honor of the group that has suppressed and pressurized the contents of the volcano for two decades and caused the economic cataclysm that has triggered the current eruption.

Stay tuned, as the final eruption is imminent!

In another continuing report on the Financial Heavyweight Championship of the World sponsored by the COMEX, a representative of Citigroup, who shall remain nameless, is rumored to have bribed the timekeeper to ring the bell early for the end of the round, saving the Raving Reprobate from defeat at the last second while the referee was in mid count.  The Reprobate had hit the mat with a resounding thud after receiving a jaw crushing right cross from the Barbaric Relic on Friday.  Unfortunately for the Reprobate, who should have thrown in the towel, the Relic turned absolutely beastly about the latest Citigroup antic, and immediately went on the warpath in the next round.  At the conclusion of the previous round that has been terminated prematurely by the Citigroup bribe, the Knight of Economic Reality put in a cameo appearance, flashing his silver Shield of Protective Derivatives and whirling his golden Sword of Financial Truth in front of an adoring audience.  When the next round resumed, the Reprobate was bleary-eyed and dizzy, staggering like a newborn foal, trying to keep his feet much less deflect the blows of the now savage Relic, whose fighting tactics can now only be described as, well, most appropriately, "barbaric."  After being brutally pounded in earlier rounds, the Relic has staged a brilliant comeback against overwhelming odds, and is now hitting the Reprobate with multiple jabs in such rapid succession that the scorers could not even count them properly.  After one particularly well-landed left jab, the Reprobate's head snapped back and his bloody mouthpiece was ejected into the cheering crowd, which was screaming for blood.  The Reprobate now has his back to the ropes as he is pummeled by the Relic, who has just wound up for the knockout blow!  Stay tuned as the now one-sided action in the arena drives toward a stunning conclusion!

...

Things will never get more bullish for gold than they are now.  Everyone is deathly afraid of the ongoing credit crunch, of the real estate implosion which is growing every day into a juggernaut of problems and of the ongoing thermonuclear meltdown of hundreds of trillions in derivatives, never mind the 400 billion in SIV's which are leveraged to the hilt.  The Fed has abandoned the dollar with the agreement of the G-7 group, so the dollar will now become a carry trade currency like the yen and the Swiss franc as the downside is so great that everyone will borrow dollars, sell them for euros, buy German bunds or other more secure assets like Swiss franc denominated bonds. They will do this even though the returns are not quite as good yet as the returns for treasuries because the downside in the dollar will more than offset any miniscule negative return differentials which are quickly getting smaller anyway as the Fed continues to lower rates to bail out Wall Street.  The returns from the destruction of the dollar could be stupendous for those who are short the dollar.

 

And do not think that banks will not come here to the US to borrow dollars, sell them for euros, invest them in the Euro Zone using fractional banking, and then wait for the dollar to plummet. This is how the elitists plan on bailing themselves out, and is the principal reason for the abandonment of the dollar.  For US banks, profiting from the destruction of the dollar by using foreign subsidiaries and offshore accounts to hide what they are doing is downright treasonous, but hey, never let a little treason get in the way of fun and profits, especially when you control the whole legal, economic and political systems from soup to nuts.  Hyper-stagflation is on its way, consumer spending is about to drop off a cliff, the stock market is beginning to look like it has breathed its last, we are in a recession and the dolts who run our government either are too stupid to know it or know about it and lie to cover it up.  The bailouts will now accelerate to light speed, monetization of bonds will accelerate as the bailouts grow bigger and bigger and get dumped on the US public, and inflation will soon rule supreme worldwide and especially in the US, sending gold past the Einstein-DeSitter radius at the outermost bounds of the visible universe.  We now predict five figure gold before this is all over!!!

...

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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 Sunday, 11 November 2007 | Digg This Article | Source: GoldSeek.com

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