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International Forecaster December 2007 (#1) - Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster

Posted Monday, 3 December 2007


US MARKETS


The credit massacre we are witnessing that began with the Fed, our banks and Wall Street with subprime and ALT-A loans has spread worldwide. Throughout Asia a massive flight to safety is underway as well as in Europe. Yields on 3-month deposits have fallen in some countries to 1%. If this isn’t a serious warning sign, we do not know what is. Even the Chinese are curbing lending, as they have to contend with dollar inflation. In Europe, Interbank Covered Bond Trading has been temporarily suspended. That is a trillion euro institutional market. They are AAA securities not subprime toxic waste.



We have Treasury Secretary Paulson telling us problems in mortgages will be significantly worse next year and California’s governor trying to save homeowners who are about to go into foreclosure by the hundreds of thousands.



Paulson wants Congress to allow the FHA to buy mortgages in greater volume. The FHA has been loading up debt to lenders in the hundreds of billions of dollars already. As we said long ago, why don’t they give them the houses?



Liquidity and the credit crisis is worsening and the financial system is in meltdown. All the economic and financial news is dreadful, yet our government manipulates the stock market up 550 Dow points in two days. Not a peep from Wall Street or Congress. They’ll have lots to answer for. Yes, America and the world are in deep doo doo.



Rumor has it that Bank of America recently had to inject $600 million to prevent the fund from breaking one dollar, because of their losses in CDOs.



The Beige Book was slightly pessimistic about the holiday retail season. Labor markets remained tight with wage pressures unchanged. Residential real estate demand remained quite depressed with only a few tentative and scattered signs of stabilization amidst the ongoing slowdown.



The number of mortgage applications dropped last week 4.3%, led by the biggest decline in refinancing this year, off 15%. The purchase index rose 6.1%. Home prices fell 4.5% in the 3rd quarter yoy, the most in 20 years and building permits fell to their lowest level in 16 years. The 30-year fixed rate mortgage was 6.09%, down from 6.28% the prior week. The 15’s were 5.69% off from 5.71% and the one-year ARMs were 6.28%.



Building permits were revised down to 7.2% in September and October, they were off 6.6%.



Los Angeles and Orange Counties outpaced declines in other major metro areas in September as home prices fell at a record pace. Prices fell 7% yoy as opposed to an average of 4.9% in 20 metro areas nationwide.



The 2nd quarter had fallen 3.2%, which had been the sharpest fall since the index began in 1987.



San Diego recorded the third worst decline, with a 9.6% drop from the previous year and in Florida, Tampa fell 11.1% and Miami 10%.



A US Conference of Mayors predicted a 16% decline for California home prices in 2008 and a nationwide decline of 7%.



Home foreclosures in metro Atlanta in 2008 will reduce economic growth by almost $100 million. The Conference of Mayor’s report assumes 1.4 million homeowners will face foreclosure in 2008, walking away from $316 billion in houses. We see a far higher figure.



Such declines will translate into a minimum of 524,000 fewer jobs being created and $6.6 billion less in taxes being collected nationwide. They did not mention the layoffs and a collapse of auto sales. The worst markets look to be Myrtle Beach, SC, Merced, CA, and Sarasota, FL, which will see 1.5% to 1.7% cut from growth rates. In dollar amounts the worst hurt will be metro NYC and northern New Jersey, which will lose $10.4 billion as housing problems there shave 0.65% from growth, leaving overall expansion at 2.1%. We see zero. Los Angeles and Dallas/Ft. Worth are the next two most affected areas, losing $8.3 and $4 billion respectively.

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GOLD, SILVER, PLATINUM, PALLADIUM AND URANIUM

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Wednesday was a "puff the fluff" extravaganza as the cartel turned once again to the yen nitro pill to keep things alive and kicking! And this theme was continued through the end of the week. The excuse this time was that some Fed-head indicated on Wednesday that a cut was on its way, after the contrary had been indicated by two other Fed-heads the previous day to make sure that precious metals were hit hard on the Tuesday expiry day for gold and silver options. After most of the December futures contracts for precious metals had been liquidated on Monday, Tuesday and Wednesday, suddenly the stock markets lit up on the new Fed-head jaw-boning, reversing what had been said the previous day to support stock markets still staggering from yen-hit after yen-hit that had been applied to stock markets like a hickory switch on their backsides to hit gold and silver by draining liquidity. Note how the new liquidity provided to carry traders by the weakening of the yen on Tuesday afternoon after precious metals markets closed in New York came right after the precious metals options expired and after the December precious metals futures had been mostly closed out so that the new liquidity could not be used to support gold and silver. Between the yen and raw PPT power the stock markets went up dramatically despite nothing but bad news, creating a yet another short squeeze situation because so many traders were making very reasonable negative bets against the stock markets. This is how your government and Wall Street steals from you. They always trade based on inside information and make money when markets move counter to all reason because they know when and how the manipulations will be done for any given day, manipulations that make the markets do nonsensical, unexpected things out of the blue against all fundamentals. This is why charts, technical analysis and black boxes do not work. In fact, the cartel regularly uses what they know about the charts, technicals and black box equations to devise schemes to make profits off of non-insider dupes. Non-insiders using such tools are led right down the garden path by the cartel. How do you think Goldman makes money when everyone else is getting jack-hammered. Goldman may actually be losing money when they finally mark to market, but at the very least they are losing proportionately less than anyone else. To confirm what we said about the yen once again driving stock markets up, on Tuesday morning at 8:10 am EDT, the yen was at about 107.673 yen per dollar and 160.032 yen per euro, which were very low levels to keep pressure on carry trading large specs and their precious metals positions as precious metals December options expired and as precious metals futures for December were being unwound. By Friday at 7:50 pm EDT, the yen stood at 111.110 and 163.276. That's about 3+ yen a piece in three days! And you wondered how the Dow gained 623 points in 4 days? Stock market rally mystery solved again by Sherlock Yen and P. P. T. Watson.



Well, we can see that the gold bulls need a refresher course on squeezing PM (precious metals) shorts in the futures markets. We'll take our lesson from the year 1999, when George Soros noticed that the Bank of England and Goldman Sachs had shorted a whole lot more gold than they had in their possession. Cagey George, working off of inside information about this shortage of physical gold and a high likelihood that these parties would be unable to make delivery under their futures contracts without first buying a whole lot of gold bullion, thereby driving the price of gold up substantially, simply decided to take advantage of this scenario. First, he took a huge long position in the gold futures market. Then, instead of rolling over his contracts like the large specs just did this past week to avoid having to take delivery, he did something quite unusual and demanded physical delivery of the gold bullion covered by his futures contracts. The Bank of England and Goldman were not allowed to simply cash out, they were made to deliver the actual physical gold as required in the futures contract upon proper notice. Failure of the seller to deliver under a futures contract means that all assets of the seller are forfeited to the buyer. Well, there was a whole lot of scrambling for gold to cover and the price of gold was lifted from about 250 to 330, about a 30% gain in a very short period of time. Soros made a fortune, and very nearly ended up owning both the Bank of England and Goldman Sachs, who were having "hissey fits" beyond belief. Interestingly, Edmond Safra, a Monaco banker known for clandestine dealings in gold bullion, and who may have been helping and advising Soros in his efforts to corner BOE and GS, came to an untimely end shortly thereafter in an "accidental" fire that was started by two masked individuals near his penthouse apartment after breaking into the highly secured bank building on the lower floors where a branch of the bank he founded and owned a major stake in was located, right near the famous Monte Carlo Casino in Monaco. Although Soros is elitist scum, which is probably the only reason he is still alive, we must say he has got a whole lot of brass! We wish we could say the same for our large specs, but as circumstances would have it, we are going to get a second bite at the apple near the end of January, 2008!



There were about 240,000 December gold shorts at one point on the COMEX. That number of contracts covers about 750 metric tonnes of gold, or about one third of all gold production for an entire year. That is 250 tonnes more than one year worth of gold to be sold under the Washington Agreement! And we can assure you that the cartel is out of gold for sale. There is very little gold in deliverable form out there, and most of the gold reserves are phony paper reserves on gold that has been leased out and "ain't never comin' back." Just ask the Bank of England which has leased or swapped out all of its gold and the US Treasury that has nothing left but Depression Era coin melt. The last thing any bank wants to do right now, in light of the ongoing credit-crunch debacle and impending hyperinflation of virtually all currencies, is to sacrifice their gold to save commercial shorts in the gold futures markets. The Swiss National Bank, we can assure you, will not put up any more gold bullion after getting its derriere ripped to the tune of 250 tonnes worth, most of which has already been sold. The future appreciation of gold may be all that stands in the way of any bank's future implosion and a trip to bankruptcy court. All the large specs had to do was demand delivery. If you ever want to see blood run from a gold bears face and enjoy the look of stark, raving terror in its eyes, just call the commercial shorts' bluff at the last second and say: "Incidentally, we are not cashing out our futures contracts this month. We want delivery instead. And we don't mean paper gold or gold certificates, we mean load-it-in-the-truck, "touchy-feely," real gold bullion in deliverable form as required by the contract. You can be assured that we will weigh, assay and count every brick to make sure every freaking ounce is accounted for. And by the way, if any of it is missing, we own you! Have a nice day."



There are now, as of Thursday, 252,393 February gold futures contracts, 53,289 for April and 44,600 for June. That is a total of 350,282 contracts covering approximately 1,100 metric tonnes of gold or about one half of production for a whole year, and that is just what is on the COMEX, much less in other markets like the TOCOM. That is over two years worth of gold under the Washington Agreement! Granted, some of the shorts are owned by large specs, but not many, and the short positions of the commercials will grow over the time period remaining for these contracts. Well yes, but we would have to pay for all that gold at a cost of about 28 billion dollars at 800 per ounce! That's correct, and your point being...? There are 148 of you that are currently long. That is a stinking 189 million a piece, chump change in today's markets. But we will have to store and insure all that gold! Again correct, and again your point being...? What is the worst that can happen, that you end up owning a physical commodity that will triple in two years? That would be a 100 percent return per year. How many of you have ever come up with those types of returns for your investors? Do you have any idea what could happen to the price of gold if the cartel had to cough up 1,100 tonnes? Is there anyone left out there who thinks out of the box, who is creative and daring and/or who has some George Soros-type brass? Will you continue to do the same thing over and over again, making the cartel's job all the easier because of your pathetic predictability? It is high time to call their bluff. The cartel is and has been running as naked as a jaybird on their gold futures. And that goes for silver as well. It may be fortuitous that the December contracts were cashed out and that the cartel was let off the hook for now. This scenario could be a real barnburner! When these new gold futures contracts near their expiry, the real estate, rate reset debacle will be at full tilt, the credit-crunch will be going critical, hyperinflation will be at the door, the US consumer will be tapped out, real GDP will be negative, we will be in a full-blown recession, earnings will be abysmal for the financials as derivatives are marked to market and commercials write off their whopping losses from their recent gold futures debacle, stock markets will be tanking, Fed interest rate reductions will have shredded the dollar into Crane paper confetti, the seasonal spring gold and silver rallies will be in full bloom, and the gold left under the Washington Agreement will have been mostly used up! This all sounds to us like the perfect freaking storm! We could skip from 800 or 900 right to 2,000!



The Fed is likely to cut several more times, starting in December and again next year. This will tank the dollar, which is currently undergoing a dead-cat bounce, and support gold and silver while we are waiting for the next short squeeze opportunity to hit the commercials. Large specs must use some of their profits from the recent rally to protect the price of gold and not allow the cartel to do undue technical damage and put them too far underwater to the point where they cannot reach the surface again. Physical gold buying is the key. Precious metals stocks must be supported also to prevent other investors from being discouraged. Large specs need all the help they can get. They have done well against an almost implacable enemy and with a little chutzpah and some thinking out of the box they should be able to win this battle hands down. Forget the futures market for now and focus on supporting the gold price and running the cartel out of their physical gold bullion. A Fed hold is unlikely because such a move would destroy the stock markets and send the credit-crunch into a China Syndrome meltdown that could take everything else down with it, with a derivatives disaster thrown in for good measure, so that scenario is not much of a worry for gold and silver. The dollar is still incredibly weak and has been powered up with more false economic data and PPT brute force. We could have a stock market rally in the short term while the yen weakens, and this will serve to help gold as liquidity is added to bring stock markets up so they can be crashed again if gold gets too porky due to all the ongoing problems, being now the safe-haven asset of choice. Friday marked the first two- consecutive day rally for the dollar in two months! With rates being cut further by the Fed, the dollar will become a carry trade currency which will accelerate its demise as everyone flees dollar-related assets in terror, selling dollars and using the proceeds to purchase currencies with better returns and/or which are likely to appreciate against the dollar. The dollar will replace the yen and the Swiss franc as the carry trade currency of choice.

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