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International Forecaster July 2007 (#3) - Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster



-- Posted Sunday, 22 July 2007 | Digg This ArticleDigg It!

The following are some snippets from the most recent issue of the International Forecaster.  For the full 20 page issue, please see subscription information below.

THE INTERNATIONAL FORECASTER

07_07_3_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 Address

International_forecaster@yahoo.com

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www.theinternationalforecaster.com

 

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US MARKETS

 

...

 

As the dollar weakens foreigners are scooping up American assets. The Chinese and others are diversifying their reserves away from the dollar. Foreigners are not buying US assets because of a robust economy; they are buying to dump dollars, which are shrinking in value daily.

 

This is going to go on for years unless the US declares bankruptcy. In 2006 foreigners bought $147.8 billion of US businesses, up 77% from 2005. The Europeans dumped $109.9 billion, twice what they got rid of in 2005. Germany was the largest buyer at $22.7 billion. Middle Easterners spent $12.4 billion and the Japanese $8.7 billion. Have no fear the Chinese are on the way. Selling will turn into a tidal wave over the next few years as the dollar drops 35% to 50%.

 

Fitch Ratingsí global credit derivatives survey of 65 banks and insurers found that the total amount of credit derivatives bought and sold reached nearly $50 trillion at year-end 2006, an increase of 113% over the $23.4 trillion reported for year-end 2005. It also represents a 1,326% boost from the volumes of credit derivatives bought and sold in 2003, when Fitch first started the survey. Credit derivatives include credit default swaps, which allow investors to bet that a company canít pay back its debt. They also include collateralized debt obligations, or CDOs, which bundle together bonds, loans or other kinds of debt securities and sell notes that represent different levels of risk in the group. The levels of risk range from large triple A-rated tranches, which pay modest returns, to small-unrated equity tranches, which are most likely to be among the first defaults. Banks and broker-dealers dominate credit derivatives volumes, according to Fitch. Around 44 banks held about $24.6 trillion of the securities at the end of 2006, more than double the $11.3 trillion of volume at the end of 2005. However, a rising proportion of last yearís debt derivatives have low credit ratings, which means the banks are often holding securities that have a higher risk of defaults and difficulty in paying them back. At the end of 2006, 38% of the credit derivatives were speculative grade, meaning junk status, or unrated. Thatís more than double the proportion of unrated credit derivatives in 2003, when they made up only 18% of the market. The banks primarily use credit-default swaps as a way to hedge their risks. However, banks increasingly said they use credit derivatives in general to aid their trading operations, Fitch said. The study also found that most of the respondents have concerns about a credit crisis, but put the greatest risk beyond a year from now. Among the top 20 traders of credit derivatives, only five increased their use of the securities last year: Morgan Stanley, ABN Amro, Dresdner, Bear Stearns and Royal Bank of Scotland. Nine others reduced their volumes, including Goldman Sachs, Deutsche Bank, Merrill Lynch, Credit Suisse and Citigroup. Earlier this week, a report from Phoenix Partners Group found that the top investment banks, including Bear Stearns, Lehman Brothers, Goldman Sachs, Merrill Lynch, Morgan Stanley, Bank of America, Citi and JPMorgan, have seen significant increases in the cost of protecting their debt against default. Bank of America saw its cost of protection jump 48%, while Citiís cost rose 45%. The independent banks, including Bear, Goldman, Lehman, Morgan Stanley and Merrill, have seen their cost of protection grow in the range of 20%.

 

The tide is turning against those who only sight core statistics in the CPI, PPI and employment. Owners Equivalent Rent (OER) is about 40% of Core CPI, yet only 26% of Americans rent. Subtracting rent controlled and subsidized housing probably means about 20% of Americans are impacted by apartment rents. However, virtually all consumers are impacted by food and energy inflation. The politicians get it; the usual street suspects donít.

 

Housing starts increased 2.3% in June, but single-family starts were down 0.2%. The gain is due to a 12.5% rise in multi-family starts. This contradicts the BLSí release that asserts there is a high vacancy rate in multi-family housing.

 

The London Telegraph says, ďThe US subprime marked debacle has only just begun say experts, with defaults on risky home loans likely to soar as temporary teaser rates come to an end this year and next.Ē

 

FIDAC, a CDO investor, says home loans worth up to $1 trillion could revert to much higher floating rates in the next two years. More than half will be subprime, most of which will default when higher rates kick in.

 

Letís face it, Wall Street, George and the neocons and the Fed invented CDOs, which were nothing less than a sophisticated pyramid scheme. The AAA securities offered little protection when a leveraged market melts down. Pension and retirement funds will get hurt and the lawsuits may take some into bankruptcy.

...

GOLD, SILVER, PATINUM, PALADIUM AND URANIUM

 

...

 

           Thursday, the cartel is in big-time trouble.  The XAU is now in a clear breakout at 158.11 and the HUI just joined it at 371.11, both forging into new territory unseen for quite some time now.  The last time they were at these levels was in May 2006, when gold and silver were MUCH higher.  Gold has broken out past 674 and is currently trading at 676.  Silver has broken out past 13.15 and is currently trading at 13.29.  The USDX just closed down yet again yesterday to close at an abysmal 80.419 despite 44774 contracts of open interest per the official NYBOT site.  Oil is currently up .14 to 76.21, quickly approaching its all time high of about a year ago, and without an actual war going on between Israel and Hezbollah, as cuts by OPEC and peak oil continue to push it upward.

 

           And then there are all those Death-Stars looming over the cartel's collective heads like omens of doom: The Subprime Derivatives Death-Star, the Real Estate Market Collapse Death-star, the Adjustable Mortgage Reset Death-Star, the ABS/CDO Revaluation/Downgrading Death-Star, the Carry Trade Unwinding Death-Star, the Rising Bond Rate Death-Star, the Risk Reassessment Death-Star, the Diversification Out of the Dollar Death-Star, the Stagflation and Hyperinflation Death-Star, the Iraq War Death-Star, the Iran Nuclear Issue Death-Star, the Nuclear Terrorist Death-Star, the Middle East War/Skyrocketing Oil Death-Star, the Central Bank Gold Depletion Death-Star and the Collapsing Dollar Death-Star.

 

So it does not take a genius to see why the cartel has now cleared their wall of shorts by a substantial margin three times in as many weeks!  The reason is stark, raving fear!

 

           On 6/27/07, two days before the false flag London attacks, gold futures open interest per the COT report stood at 40,7972 contracts.  On 6/28/07, the cartel "serendipitously" reduced open interest by a whopping 32773 contracts the day before the false flag attacks.  They then ran up the wall of shorts to 377,361 on 6/29/07 before reducing it the following trading day by an insignificant 2253 contracts to a total of 375,108.  Next the cartel ran up the wall of shorts again to 388,461 on 7/11/07 before reducing it the following trading day by a significant 14,806 contracts to a new total of 373,655.  And most recently, the cartel yet again ran up the wall of shorts to 385,595 on 7/17/07 before reducing it yet again the following trading day by a significant 10,266 contracts for a new total of 375,329 as of 7/18/07 (Data for the nineteenth is still pending).


           That is a total of 3 significant reductions and 1 smaller reduction in the wall of shorts, which makes for an accumulated and rather telling total of 60,098 contracts, which have been closed out over a period of 3 weeks!

 

So what is going on here?  I'll tell you what is going on.  The cartel is living in a 24/7 nightmare where their worst dreams could become reality in any given instant.  If they allow the wall of shorts to climb too high and any of the Death-Stars detonate while their pants are down, they will be completely, totally and utterly annihilated!  They are now being forced to give ground to the gold bulls and to keep targeting about 375,000 contracts so they have room to work if disaster strikes.  Otherwise they could be dragged kicking and screaming into a short-covering massacre that would make the LTCM and Bear, Stearns debacles look like hiccups by comparison.  It would be Bernanke's Last Stand.  If this kind of short-covering disaster ever occurs, Big Ben can forget about his helicopter, as it would be immediately vaporized in the process. Gold will continue to march higher and there is nothing they can do about it without taking many terrible risks.  

 

And to top it all off, the Indian brides may administer the coup de grace to the cartel in a couple of months, providing a most satisfying poetic justice as the big, bad cartel boys get torn to shreds by a group of young women who do not even know the cartel exists!   

 

The cartel is playing right into the hands of the large specs.  The market crash caused by the unwinding of the carry trade due to manipulated yen strength is making the large specs rich as their stock market index shorts start hitting pay-dirt.  Note that they have only strengthened the yen against both the dollar and the euro by about one yen each.  They know very well that if they press the yen button too hard and too long they could start a short-covering rally in the yen that could bring the markets down, and now with the dollar at such low levels, they themselves could administer the coup de grace to the dollar, annihilating it with yen strength.  Gold, silver and all the base metals are up even as the Dow tumbled by as much as 200+ points.  This is not what happened in the past when the Dow took a tumble like this.

 

The Dow has now started a recovery, as the cartel must have realized that crashing the market has not had its intended effect.  The intended carry trade liquidity drain due to the strengthening of the yen has been offset by profits from index shorts and I suspect yen calls as well.  The Dow is down now by about only 130 points.  The cartel must now sense that something has gone very wrong.  They are trapped and they cannot get out!  And look at all this good action on a Friday no less.  The high price of oil and the near collapse of the dollar together with the subprime derivatives debacle has struck fear in the hearts of investors as gold off take accelerates in what normally is a slow time for precious metals.  All of the cartel's usual weapons are not working.  They are both toothless and helpless and with today's action, a short-covering rally could easily be triggered that sends gold past 700.  Gold has been as high as 686 today as it presses toward its spring high of 693.  Sell in May and go away? No way!

 

Friday was another super gold day with spot up $6.80 to $683.50 and silver rose $0.03 to $13.28. The August gold contract was up $6.60 to $684.70, silver was +$0.04 and copper again jumped +$0.04 to $3.71. It was only two months ago it was $2.50 when we recommended buying. Enjoying a good day were nickel up 2.43%, lead up 3.93%, copper up 1.07%, zinc up 2.58% and aluminum up .43%. Adding to the symphony, the yen rose .97 to $1.2118, the euro rose .0025 to $1.3824, the pound rose .0064 to $2.0549, the Canadian dollar fell .47 to 95.37 and the USDX, dollar index fell again -.12 at 80.15. The Fedís presence in these currency markets was very evident, but they couldnít stem the tide here or in the market. The Dow was approaching -200 when it rallied to finish off 150 to 13,850, S&P fell 171 and Nasdaq fell 195 Dow points. Pros jumped from the market into bonds, which rallied, and the yields fell. The 2-year Treasury bill yield was 4.77%, the lowest in two months and the 10ís crashed 5%, closing at 4.95%. Oil was up early but faded to a -$0.35 to $75.57, gas was -$0.03 to $2.16 and natural gas fell $0.26 to $6.45. The silver shorts held silver down all day to keep it from breaking out over technical resistance at $13.40 to $13.50. Gold open interest rose 1,339 contracts to 376,668 as silver OI rose 641 to 118,384. The big Tocom shorts reduced their net short position by 3,716 to 110,316 contracts. If minis are included it is -2,739 to total 110,941. Goldman covered 1,259 net shorts to 17,914. We do know know what the Swiss are thinking, but they sold 13.9 tons of gold in June, which is what they said they would not do.

...

SUBSCRIPTION and RENEWAL INFORMATION: 1-YEAR $129.95 U.S. Funds.   

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. We accept Visa and MasterCard charges.  Provide us with your card number and expiration date.  We will charge your card US$129.95 for a one-year subscription.

Foreigners please use foreign U.S. dollar denominated checks or Money Orders.

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


-- Posted Sunday, 22 July 2007 | Digg This Article



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