-- Posted Wednesday, 6 February 2008 | Digg This Article | Source: GoldSeek.com
The following are some snippets from the most recent issue of the International Forecaster. For the full 28 page issue, please see subscription information below.
US MARKETS
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Americans are about to pay for the sins of Wall Street and our international bankers whose greed and devotion to the implementation of World Government knows no bounds. The bankers must be saved is the cry from Wall Street to Washington. We have real estate, mortgage and credit crisis’s unfolding during a recession. The solution on a short-term basis is to give taxpayers $150 billion and to supply unlimited money and credit indefinitely.
The recession we are now in is a part of a depression, which will envelop the entire world, and will make the dotcom correction look like a Sunday school picnic. Eventually it will challenge the historical status of our “Great Depression.”
Underlying the evasive discussion on CNBC, the media, Wall Street and Washington, is truth and reality something all those people somehow cannot grasp. The silent truth lies among the average Americans. They know something is dramatically wrong, but cannot seem to get a handle on what it is.
Americans and those in other economies in relatively sophisticated, well developed economies have gotten hooked and buried in credit as never before. It used to be that income and savings funded consumption and lenders knew what tolerance levels had to be met to justify credit and loans. Growth has been based on credit, leverage and the illusion that it could go on forever. Lenders and borrowers understood the risks but ignored them. Borrowers lied on their mortgage applications and lenders willingly accepted those lies, knowing full well the eventual aftermath would be disastrous. There is, as you can see, plenty of blame to go around.
We watch helplessly as 23% of our economy shuts down. A component where spending is six times bigger than I.T., which triggered our last misadventure. The magnitude of the recession is not at all yet understood. The damage it will bring to the US and world economy will be devastating. This will be no average recession. Had the Fed and Sir Alan Greenspan allowed the 1990-1993 recession to play out fully we wouldn’t be facing such ugly choices today. This will be at least three times worse than what we saw seven years ago. This won’t be a one or three-year recession, this will be a five to 15 year degeneration into depression. From here on out each year will get progressively worse as the system is purged of its excesses and brought back into natural balance.
We will see a re-imposition of the Glass Steagall Act and legislation for the end of free trade and globalization, which means new tariffs on goods and services. There will be new and more stringent regulations put on banking and Wall Street.
A few years from now, once deflation and depression sets in raising capital will be a major problem for Wall Street. Interest rates will rise with the onslaught of depression. After a time they will fall again to 1% levels. Sovereign Wealth Funds will be very important as a source of capital as US business and financial interests complete for investment capital.
In the present time Sovereign Wealth Funds, as we have seen, are already fulfilling a very important investment mission. These funds are not transparent, but who are we under present conditions to dictate a code of conduct. If the banks and investment banks didn’t have access to their funds they might already have been forced into bankruptcy. Besides, how can we ask more of Sovereign Wealth Funds than we do of derivative writers and hedge funds, which are totally unregulated and opaque?
There is no free lunch. Interest rates have plunged 1-1/4% and the consensus is another drop of ½% in March to 2-1/2% from 4%. M3 is up 15-3/4% and the Fed is feeding the system $80 billion a month. Has it occurred to anyone that in order to bail out the banks and Wall Street inflation is headed over 20%? Every American is going to pay in inflation to keep these crooks in business. Lower rates attempt to give us another refi boom and to stop the collapse of the housing market. This isn’t some rough patch - this is the real McCoy. We find it very interesting that everyone thinks the Fed has finally got it – what to do. No one talks about the fact that the Fed has been pouring money and credit into the economy for four years or more at a 10% to 15% rate. That tells you that if you do not have an increase in M3 of 15%, interest rates at 1% and the discount window wide open, the economy cannot function. That has to bring perpetual inflation and an ever-declining dollar.
Mortgage borrowing costs have fallen, but they are still ¾% higher than they should be. Those rates may come down, but if they do not the housing recovery will be muted. Potential long-term benefits from 2% to 2-1/2% interest rates are highly overrated, and as you have seen, a 15-3/4% increase in M3 was not enough to stop a recession. Furthermore government is lying about inflation, it is 11.6% not 4.3%. In addition, we still have CDO, ABS, and SIV crises. It should also be noted the dollar is falling and that is inflationary as well. We are in inflation, wages are stagnant and the public doesn’t have the income or credit to maintain consumerism at 72% of GDP. Besides in a low interest rate environment savers have less income to spend. Then there is negative home equity, less room to borrow against equity and many have negative equity. Then we do not have to tell you how many people have lost their homes and how many will lose them in the future. Then there are those who will refinance and all their spare cash goes to higher interest payments. Lenders are not expanding credit, they are reducing and withdrawing credit – at least at this time. We could see another ½% or even 1% drop in mortgage rates, but we are skeptical. We hope they drop, we will see.
Then there are 18 or 20 major central banks that are increasing M3, money and credit at a 14% average rate. Inflation is being exported from many countries throughout the world. You would think the credit crisis and the bursting of the US; Irish, British and Spanish real estate bubbles would have its affect. No, they are still expanding money and credit and the ECB and the Bank of England are pouring trillions of dollars into their economies to keep them solvent. What happens if foreigners stop buying US investments? Wall Street and Americans in general refuse to experience economic or financial pain. The inflationary expedient forestalls the path back to balance and equilibrium in our economy. It avoids a return to manufacturing and on to further leveraged speculation.
International banking and Wall Street has no intention of ending the game that they began 15 years ago. They will game the system to the very end because they have no other choice. We on the other side of the war will load up on gold and silver related assets and Swiss franc government bonds and wait them out. We know what they know and that is they cannot win this time.
We hate to mention this, but it becomes more and more apparent in looking at indexes that mortgages have much further to fall, particularly the quality mortgages and, of course, the pick-and-pays as well. When all is said and done we expect a 50% correction in AAA mortgages and a net loss of 75% in subprime ALT-A loans.
The ECB should be raising interest rates due to the inflation rate of 3.2%, which in reality is over 6%. If you follow the actions, not the words of Mr. Trichet, you will find that he has increased M3, money and credit at 11.7%, down from 12.3% in December 2007. That means he is cooperating with the Fed and the Bank of England. We expect the next move will be to cut rates both at the ECB and at the BofE in spite of its inflationary implications. This is already being reflected in the pound and will soon be reflected in the euro. That means the dollar will rally again off 75 on the USDX and then retest 75 and move down to 72. The moves will delay the dollar downside, but how can one compare a 1/4% drop with the BofE and the ECB, when the Fed has cut 1-1/4% and looks to be ready to cut ½% additional in March. The quarter point cuts in Europe will give their economies a little breathing room, but not much. European official inflation will move higher. Manufacturers will continue to hedge forward in Europe allowing them to continue to compete even though the euro and the pound will continue to climb versus the dollar. They will have to as well continue to deal with market gyrations caused by the interference and manipulation of the elitist “Working Group on Financial Markets.” Although we believe that to some extent that the Treasury and the Fed lets them in on their plans, these are not unilateral moves.
As an example, the Fed probably engineered the ECB injection of over $1 trillion into the Eurozone banking system and the secret bailout of the Spanish banking system recently. We believe those injections came from the Fed by the ECB. Perhaps using the BIS, the Bank of International Settlements. The idea is to keep all major banks afloat even if it means mergers. Europe has CDO problems plus problems in housing in Spain, Ireland and England. In addition, the Germans are very unhappy with the management of the ECB and the continued reliance on Germany to keep the Eurozone afloat. We repeat again there may be mega mergers in banking, investment banking brokerage and insurers, but for now none will be allowed to go under - they will just paper it over via more money and credit. They have little concern about inflation.
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