US MARKETS

As we discussed in the last issue there are a number of ideas about to stop investment speculation in commodities, particularly in energy, grains and beans. We believe it is impractical to ban speculation because funds would move to other commodity exchanges and legislation would result in currency controls and the end of free trade and globalization. It would in the long run be inefficient and counterproductive. Producers need forward markets to become liquefied and to plan the course of their business. Part of that exercise is the inclusion of speculators, otherwise the system doesn’t function. In the case of farming, production could reach markets at the same time driving down prices and perhaps putting producers out of business.

Another approach that could be taken by governments’ in Europe and the US would be legislation forbidding pension funds to engage in commodity markets. Or they could as well curtail index speculation and force all speculators to face position limits. They could also distinguish between physical hedgers and those that are speculative.

Another approach could be to cut off lending not only to pension funds, but to hedge funds and other speculators. The banks wouldn’t care for that because it would cut deeply into their income. Then there is the Fed, which creates bubbles and encourages speculative activity in order to enrich the banking and Wall Street communities.  The Fed may stop the yen carry trade from which speculative funds are borrowed. Then again if they do that the US stock market might collapse. Don’t forget the Fed created the Dotcom and real estate bubbles to enrich banking and Wall Street. The result of these policies is hyperinflation, which is going to get much worse.

Since 1987, the money, credit and interest rate policies of the Fed have been to supply endless liquidity. In supplying it they cannot direct where those funds should go, like into plant, equipment and research or into different forms of speculation. Thus, in spite of the myriad players the liquidity comes from the Fed. That means there should be controls on Fed and bank lending to stop speculation. We all know that isn’t going to happen because the Fed owns the system. Another aspect of cutting off speculation is that it would be deflationary and the Fed has enough trouble with inflation already. That is why money and credit is being created at an 18% rate. A sharp drop in commodity prices could overwhelm the system and the Fed would then have to increase M3 by perhaps 25%. Can you imagine 20% plus inflation? Again the Fed is in a box and cannot get out. Commodity speculation is here to stay no matter what politicians and the Fed do. It is the lending system that is the problem. The liquidity is going into all the wrong places. It is feeding more speculation. The intervention of Congress then presents no guarantee that speculation in commodities will end. As we said, funds will go offshore to other commodity markets and the legislation will not solve an insolvable problem created by the Fed. As you can see, every which way you look, the Fed is responsible for all our financial and economic problems. The speculative investors are only to blame in a small way.

The system has worked reasonably well in our commodity markets - that is when the Fed, the CFTC and the “Working Group on Financial Markets” isn’t rigging the markets. You cannot regulate speculators without almost totally destroying the markets.

We are in direct contact with sources, that you’ve seen in previous issues, that have told us oil producers, or speculators or Wall Street bankers have been holding oil tankers offshore hoping to catch higher prices. This past Friday the energy complex rallied based on low inventories created by this manipulation of oil deliveries. This means oil prices could remain under pressure for the next few weeks and oil could slide back.

Again, the Fed supplies the loans or credit and banks sell a swap for a specific commodity and there is no limit on the amount of the commodity that can be hedged. Thus, funds can accumulate positions far in excess of what they could do directly by working with an investment bank. The bank in effect is creating a futures trade. The bank guarantees the trade and bypasses the futures market leaving no trace of the trade. They can do this with any commodity. The bank selling the swap is a hedger and there is no limit as to what they can do. That is not true though because they’ll never have to deliver the hedge as a producer would. Commodity speculators could be up against regulators and politicians, so we believe you should temporarily be out of these markets in case they correct further. That does not include gold and silver, which you should stay long. Who knows what these two groups of idiots may do.

CEO of Analog Devices, Jerold Fishman, neither admitted or denied and made a settlement for backdating options for a fine and penalties of $4.5 million. Fishman was not charged with wrongdoing. The SEC’s only function is to collect fines and let the crooks go for paying off. We have two cases where CEO’s wouldn’t cooperate and they ended up in prison. Those who payoff, and are Illuminists, go right on stealing from the public.

The Fed is only interested in saving banks and Wall Street – not caring about the value and fate of the dollar or the inflationary consequences of the wild expansion of money and credit. This decision to cut interest rates to a negative official minus 2% has brought about hyperinflation, so it is no wonder commodities are on a tear. As far as we can see thus far lower interest rates have been a bust. The credit made available by the Fed to the banks, which have in turn lent it out, have seen a good part of those funds go into speculation, a part of which has gone into commodities. The Fed and the bankers gave the speculators the money to run commodity prices up with reckless abandon and terrible inflationary consequences, as well as putting downward pressure on the dollar. As the dollar falls commodities prices rise. Oil is a perfect example. The head of OPEC, Chakeb Khelil says every time the dollar falls 1% oil rises $4.00. That is why it is going to be hard to get oil below $100 a barrel as we don’t see any sustained dollar rallies. After G7 they tried to rally the dollar and got really nowhere. Demand in the US for oil has slid via conservation but demand continues to rise in Russia, India and China. Instead of trying to move the dollar index, the USDX, 10% to 80 from 73, the Fed is saving Wall Street instead. They do not seem to understand the dollar and oil are synonymous. The same phenomenon has beset the British pound. After 3, ¼% cuts in their interest rates the pound fell 20% versus the euro. Thus in pound terms oil is more expensive as the pound falls. Further rate cuts by the BoE due to a falling real estate market and a slowing economy will only make energy more expensive. Britain is on the edge of recession and stagflation is just now taking hold. Not only are citizens of the US and UK going to pay higher energy cuts, but so will China, which has had price controls on gasoline since November, as prices have risen elsewhere by 35%. India has done the same as China for 20-months as their inflation heads up strongly. Year-on-year India’s oil imports have risen by 9%, India’s increase in M3 has been 22% and China’s has been about 18%. 

As a summation to our problem called the Federal Reserve, we quote the famous Chevalier Harry D. Schultz, editor of the Harry Schultz Letter, “part of the purpose of the Fed, (a privately owned-by elitists-corporation) is to prevent markets from functioning, via supply and demand.”

This past weekend Illuminist Treasury Secretary Henry Paulson was in Jeddah, Saudi Arabia, on his knees, convincing their finance minister, Ibrahim al-Assaf, that the Saudis should keep their dollar peg. As a result the Saudi will keep the peg for now at least, and there will be no revaluation. As a result of the Saudi decision their 10.5% yoy inflation has a good chance of moving up to 13 to 15 percent by yearend.

Paulson’s trip to the region was to get more OPEC nations in the region to help bail US financial institutions and to get them to keep buying US bonds, notes and bills. Last week he said it was speculators pushing up oil prices. This week he says it is supply and demand.

...

THE INTERNATIONAL FORECASTER

WEDNESDAY June 4, 2008  -   060408(1)_IF

P. O. Box 510518, Punta Gorda, FL 33951-0518

An international financial, economic, political and social commentary.

Published and Edited by: Bob Chapman

E-Mail Addresses:

international_forecaster@yahoo.com

if_distctr@yahoo.com

CHECK OUT OUR WEBSITE

www.theinternationalforecaster.com

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

RADIO APPEARANCES:

To check out all of our radio appearances click on this link below:

http://www.theinternationalforecaster.com/radio.php

-- Posted Wednesday, 4 June 2008 | Digg This Article