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International Forecaster November 2008 (#8) - Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster

-- Posted Wednesday, 26 November 2008 | Digg This ArticleDigg It! | Source:

The following are some snippets from the most recent issue of the International Forecaster.  For the full 30 page issue, please see subscription information below.




The US economy now headed toward completing its second year of recession is showing distinct signs of slowing. We are seeing less consumer spending and a lowering of asset values. This is deflationary, but what government is doing with money and credit far out paces any deflation – at least for now. Deflationists are wrong for now. Eventually they’ll be correct, perhaps 2 or 3 years from now. Our government, under the control of Wall Street and banking, has inflation schemes you never dreamed of. Do not forget the Fed has been increasing money and credit at about an average of 12% for five years.


What the Fed is now attempting is to re-liquefy the system. Keep funds flowing to business to keep them solvent and for expansion for those who can expand. At the same time they are bailing out banking, Wall Street and corporate America and financial institutions worldwide. The Fed did not do this during the depression. What this does is extend the recession/depression out 5 to 10 years. A period of stagnation and inflation better known as stagflation as coined by the eminent Harry Schultz over 40 years ago. De-leveraging will continue to spread over a longer time span.


Presently the dollar is strong due to coordinated central bank manipulation, de-leveraging, which is done in dollars, closing of derivatives in dollars and due to US financial firms repatriating dollars to shore up domestic balance sheets. Once these events are completed the dollar will fall. The immediate de-leveraging should be ended over the next few weeks as well as the derivative match-ups. The repatriation will occur over the next six months and we may have more de-leveraging in March to June as well.


The budget deficit should be $1.3 trillion for the fiscal year ended 9/30/09 and that will prompt some nations to ask the US to float bonds denominated in other currencies such as the yen, euro, Swiss franc, yuan, pound, etc. We do not see this happening, if at all, until the dollar is back in the 71 to 72 USDX zone. These might be known as Obama bonds.


Some of the same crooks who propelled America into the housing bust are now seeking to profit by exploiting billions in federally insured mortgages, that are part of an emergency campaign to rescue a faltering economy. These miscreants schooled in the art of subprimes will overwhelm the FHA and the American taxpayer with loans for people who are not really qualified and many of who cannot make the payments. The FHA doesn’t care; they just want the foreclosures occupied. These are 100% FHA insured loans. Many of these lenders have been already state sanctioned, are the subject of civil lawsuits, have filed for bankruptcy and some even have had criminal convictions.


As a result, we will soon be subject to a fresh wave of defaults and foreclosures and yet another costly bailout. Professionals believe this will cost the FHA $100 billion or more over the next five years. Some pros say that within the next 12 to 18 months there is going to be an FHA insurance catastrophe on the lines of the subprime-ALTA disaster.


This is how our government is solving the housing problem.


The FHA was founded to promote first-time home purchases. It allows as little as 3% down payments, lenient standards on borrower income, as long as mortgage and related expenses do not exceed 31% of household income. A small fee is paid for insurance. After subprime and ALT-A loans, which for the most part disappeared, FHA loans were all that was left for new and marginal buyers.


Thus a reservoir of government loan-guarantees were created, so far $300 billion worth. Federal housing officials say the agency isn’t equipped to deal with the onslaught of lenders seeking to cash in. 36,000 lenders now have FHA licenses, up from 16,000 one and a half years ago. The tsunami of ex-subprime lenders – crooks, who favor aggressive sales tactics and most of whom are fraudsters are about to rape us again with a stamp of approval from our government. Worse yet, the FHA cannot track these crooks because they really do not have the technology to do so. Investigative reporters can do so but they cannot. Then again government doesn’t care about that.


Banks and investment banks are buying FHA loans to bundle them as securities to be sold to investors just as they did with subprime and ALT-A garbage. They are bundling toxic garbage to be flogged by other criminals on Wall Street. Thus, the beat goes on as our country is looted.


Many funds that previously bought such offerings cannot buy these offerings due to their bylaws pertaining to value. They cannot buy anything at more than an 85% discount.


Losses on loans are widening on credit cards, home equity loans and residential mortgages. Even commercial mortgages are all but frozen. That means banks that have suffered grievous losses in the real estate subprime fiasco are now faced with credit card losses as their capital sits at depleted levels. That means banks will have to raise more and more capital over the next few years. That is a difficult task with their shares off 70% to 90%. If sovereign funds do not lend to them then only handouts from the taxpayer, via the Treasury are left. The cruel facts are that most of our major banks and financial firms are broke and the derivative bomb hasn’t even exploded yet.


The values of assets across the board continue to deteriorate just as they did in the 1930s. Commercial mortgages for AAA paper worth $0.70 on the dollar, whereas lower rated tranches are trading at $0.30, which is slightly higher than CDOs and SIVs on residential properties.


That is why yields on high-yield bonds are close to 20%. That means this low end of the market is virtually frozen due to the cost of new capital. Those businesses cannot expand. They have to cut costs and lay people off. This deepens the recession.


As a result of tightening up in markets and solvency problems, deflation has been persistent, as it has been for the past more than five years. Thus far the FED has been able to offset deflation via massive creation of money and credit. There will come a time when this will no longer work, but are not as yet at that juncture. Most economists and analysts still do not understand that inflation can only come from the Fed and government. Price inflation and wage inflation are manifestations of inflation in the latter stages. They are not the cause but the result of inflation. All major central banks are creating money and credit at an average of 14% and at the recent G-20 meeting those gathered told us that they would continue to massively create money and credit and bring their interest rates to zero. At the same time our new President tells us he’ll spend hundreds of billions of dollars in make work programs similar to those created by FDR, which in the end were positive but unsuccessful. The only reason the depression ended was World War II.


If a few others and we were not reporting real inflation figures and M3 government would get away with reporting their bogus numbers. The only thing that has really come down in cost is oil and gasoline. At $1.97 a gallon it is off $0.33 from the previous week and a far distance from $4.05. All other prices have held their gains and are still rising especially food. You haven’t seen those food packages return to their original size have you? And you won’t because manufacturers won’t pass on those savings. All they care about is the bottom line and shareholder value. Rents are still rising as more and more families loose their homes. Lower oil and gas prices are not the result of improved productivity and efficiency or even market demand, but the product of manipulation. Due to government manipulation of markets economics and finance have been turned upside down. We will soon see zero interest rates. Those who see eminent deflation are wrong. It will come but not now. We are about to go through the Japanese experience only we won’t see it drag out for 17 years. The Japanese had the US to export too. We have little to export and an unnaturally strong dollar. For US goods to compete we would have to see the dollar at 50 on the USDX and then it would only add .05% to GDP, or so the BIS tells us.


There will be no fall in inflation in 2009. How can there be with massive amounts of money and credit being created and a fiscal deficit of $1.3 trillion or more year after year? The Fed is monetizing debt every day. It has to otherwise the financial system collapses. Who will not curtail spending in 2009 as profits fall 25% more to a level last seen in 1938. Unemployment will be more than 10% in 2009. GDP will be minus 5% next year. We will continue to see very high inflation and much higher gold and silver prices.


In the Treasury’s latest move to fend off another catastrophe it will buy the $6.3 billion Reserve US Government Fund, insuring investors are paid in full at the expense of the US taxpayer.


The funds are being drawn from the ESF, the Exchange Stabilization Fund, which is a little known slush fund, a subsidiary of our Treasury. It was created in the 1930s to help control and contain currency fluctuations. It was last used that we know of in the mid-90s to bail out Mexico; so foreign banks wouldn’t get stuck with losses on Mexican investments. That was illegal in spite of the fact the money was paid back and a large part of the Mexican banking system was taken over by foreign banks. Today’s loans purchase of this Reserve Fund is also illegal, but in today’s government that doesn’t mean anything. The Illuminists do as they please and no one challenges them. This goes one step beyond guaranteeing money market funds. Our Treasury is buying all the fund’s toxic garbage at face value.




          Gold output by share price-battered miners has yet to respond to record Australian dollar gold prices, with output for the year tipped to fall to a 19-year low.


          According to an industry survey by Melbourne's Surbiton Associates, Australian gold production fell 9 per cent to 1.8 million ounces in the September quarter, compared with the previous corresponding period.


          The production - worth $2.18 billion at Friday's Australian dollar spot price - was the third lowest quarterly figure in 20 years although it was 3 per cent higher than the preceding quarter.


As professionals now fret over the budding Treasury bubble, they stand in awe of the quantum leaps in gold and fear for a fallback to reality for the dollar. Mind you, gold is running higher, as we recently pointed out, irrespective of a strong dollar and one of the lowest commercial (professional) gold short positions on Comex in history. We forecast sometime over the next couple of weeks de-leveraging would end. Well it has ended. The stock rally we expected in a week or so is underway and by the time you get this issue it could already be over and headed back down to test recent lows. For the moment the dollar is the best of a bad lot but that will change soon.


High gold and silver premiums persist in the physical market as the threat of possible default overhangs the Comex gold and futures pits. Worldwide demand for physical gold and silver has skyrocketed. Further to that GLD added 6.12 tons to 755.06 tons of gold last week. All World Gold Council ETFs rose 5.76 tons to 912.66 tons, worth $22.8 billion.


Barclay’s ETF, SLV, saw silver holdings fall 61.41 tons to 6,686.75 tons.


The commitments of traders report, the COT, for gold on the Comex, saw the commercial shorts rose only 1,620 contracts to a very low short position of 71,116. Normal is 95,000, so the position is very bullish.


Silver shorts cut 506 short positions to 27,458.



WEDNESDAY, November 26, 2008  -  112608(8)_IF

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

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