* .... read chapman! *

International Forecaster December, 2004 (#4) - Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster

THIS IS THE LAST DECEMBER 2004 ISSUE GOING OUT.

WE MAY BE PUTTING OUT A SPECIAL ISSUE BETWEEN CHRISTMAS AND THE NEW YEAR.

A PEACEFUL AND JOYOUS HOLIDAY SEASON

TO ONE AND ALL

MAY THE COMING NEW YEAR BE PROSPEROUS

THE STAFF OF THE INTERNATIONAL FORECASTER

BOB, JUDY, JAN, SALLY AND HUGO



US MARKETS




Our Pentagon tells us more than 5,500 servicemen have deserted since the war started in Iraq. The majority of them say conscience, not cowardice, made them American deserters.



Morale in the US forces is the pits, because few believe in the mission. Without motivation, you cannot win. There has been a lessening of faith. That is why military personnel have challenged our Secretary of Defense face to face on issues. Some are suing the Army. Some are deserting to Turkey and Canada. Re-enlistment and retention is terrible. $30,000 bonuses are necessary to temp soldiers and Marines to stay. Who can blame them when mercenaries are getting $100,000 to $250,000 a year? Rome had the same problem. Then there is the back door draft, forcing servicemen to be held involuntarily after their enlistment contracts have expired. There is also lack of equipment. Equipment that does not work and suicide missions. Bush says like any wimp politician, “they deserve the best,” but we know he does not give them the best. Tensions are rising as a drop in optimism at home that a stable democratic government can be established in Iraq. We are in a quagmire, and now people are beginning to realize it.



We are happy to see Bernard B. Kerik abruptly withdraw his name from contention to be Secretary of Homeland Security. The excuse was that he had once employed a nanny, for which he did not pay taxes. Give us a break. Do they really expect us to believe such lies? Kerik was already a liability.



We are yet to figure out why the public has not cried out that their government is insane. Perhaps it is because; half our population is equally insane. George and the neocons trade in abuse, torture, terror, atrocity and tyranny. George’s captives get only a single hearing alone before a military tribunal without legal council, to access the evidence against them, just as prisoners were treated under Stalin and Hitler. Our leaders in Washington torture those who they believe disagree with them, after they are snatched from foreign countries. George’s stooges have put the world on notice that they have the power to seize anyone on earth - even little old ladies in Switzerland. Anyone can now be declared as an enemy combatant, including you and your family. That is even if you have not taken up arms against the government. Even if you do not know your actions were related to terrorism in any way, you can be abducted anywhere, tortured, and imprisoned just for disagreeing with our resident lunatic in the White House. They can hold you in jail indefinitely, at the President’s discretion. You have no rights left under your Constitution, or the Geneva Convention, thanks to the Patriot Acts; your women will be jailed, tortured, and raped just as they have been in Iraq by the CIA, mercenaries and the Mossad. That, they believe will make dissidents talk. In Iraq, they now have forced labor camps. Our government, for the first time in its history, has justified torture and unrestricted presidential power. They have put themselves above the law, both domestic and foreign. If you do not do something about it now, you will end up fighting tyranny in the streets later.



Over the past three years, residential property in developed economies has increased by one-third to $60 trillion. That is double the appreciation of 1997-8-9 prices. Prices have surged 35% in just this year in S. Africa, and they are up 31% in Hong Kong. Spain is up 17%, but prices have begun to fall in Australia. Year-to-year prices are off 1.5%. Prices are starting to fall in Ireland and New Zealand. Barclays Bank says prices could sink 20% over the next three years. Taking the average ratio of house prices to incomes in 1975-2000 as a baseline, American house prices are now at least 30% overvalued. We believe that continued low interest rates will not continue to add to appreciation. Conversely, as you know, we believe interest rates are headed higher. In case you do not believe we can have a real estate price correction, in 1989-93 house prices fell 15% to 60% and in Japan house prices have fallen for 13 consecutive years, or 35% from their 1991 peak. We live in a world with a bubble mentality, and that bubble is in the process of being broken.



Our VA in the US is incapable of servicing our many veterans. Iraq has a similar problem. The Army has less than 50 general surgeons and 15 orthopedic surgeons to serve more than 138,000 troops. These professionals are overwhelmed by the scope of severity of injuries occurring among troops in Iraq. Our military was unprepared for war, and so was the military medical establishment. The result is that, urologists, plastic surgeons and cardio-thoracic surgeons are performing general surgery. That also means civilian casualties go untreated. Making matters worse is an epidemic of multi-drug resistant bacterial infections, which is running at 8-10% of casualties. At least as many US troops have been wounded in combat in the 18-month Iraq war, as in the first five years of Vietnam. Ninety percent are surviving, compared with 76% in Vietnam. More are saved, but their future prospects are uncertain. This was an unnecessary war and this suffering did not have to happen.



Our President is considering cutting future Social Security benefits by 6%, even after the phantom potential gains from his so-called private accounts, which is nothing less than a subsidy for Wall Street and the economy. He tells us he expects significant sacrifices from every American. That is after he and his predecessors threw away the money paid into the system for our benefits. We do not believe he can raise the needed $2 trillion to get the private plan off the ground. In addition, what he is not telling us is that he will need a total of $10 trillion; that is if the stock and bond markets go up. Goodness knows how much he will need if we are right and the markets collapse. This is all a very bad idea. Our President, without a doubt, intends to reduce the planned growth of Social Security benefits. The reason again is that politicians have stolen your contributions and diverted them to projects calculated to get them reelected. One of Mr. Bush’s plans is to change the method of calculation of benefits from the current system of wage indexing to one that relies on price indexing, usually significantly lower. This, of course, is simply another method of screwing the public. Investing borrowed money into the shock market for future benefits is a sure loser. What is really galling is that no one, and we mean no one, is exposing the fact that Social Security revenues have been looted, stolen, and once the economy tanks, we can promise you benefits for all will be cut. Everyone in Washington knows that. The sale of $2 trillion in bonds is just another infusion to keep the stock market from collapsing.



If you can believe it, a war is developing between the retailers such as JC Penney, Liz Claiborne, and dozens of other companies and the textile industry. The retailers do not want the government to extend protection for the textile industry and the imposition of new limits on clothing from China. Due to a 1994 WTO agreement on 1/1/05, the textile quota in September is to end and the US will be inundated with inexpensive goods from the third world made by essentially slave labor. Of course, the whole concept is insanity for the US and Europe because their standards of living will eventually drop dramatically and they will join the second and third world. Free trade and globalization is a great leveling process calculated to destroy the wealth advantage of industrialized countries and to distribute that wealth worldwide. The result is the loss of ability to fight world government. What you are seeing now has been 40 years in the making, but few understand what the elitists are up to. Incidentally, the past will result in the loss of the remaining textile jobs and those who support that industry in the US. That is over one million jobs.



Over the last several years, foreigners have purchased about 40% of US government debt. In the last seven auctions in 2004, they averaged 17%. In the auction of 11/11/04, they purchased 12.1% in an auction that was 1.81 to one bid to cover. What that means is there were 81% more bids than necessary, but anything under two to one is considered a poor response. In that auction the $2.4 billion bid, and purchased by foreigners, really helped the $11 billion auction. On 6/10/04, they purchased 13.41%, on 9/9/04 they purchased zero. In last week’s auction, they purchased about 10%. What you are seeing is a foreign withdrawal from treasury and agency markets. We see total withdrawal shortly. It shows you the foreigners do not want any more dollar denominated assets. If they sell what they have, the roof will fall in. Someone has to show me how the Treasury is going to sell $2 trillion in bonds, to fund the privatized section of Social Security to keep the stock market afloat.



The privately owned Federal Reserve added $6.75 billion in repurchase agreements on Monday to start the week off with $72.091 billion in the repo pool, and promptly concentrated on driving the Dow up by about 100 points.



Foreigners who held over 43% of US Treasuries have the US over a barrel. If they sold just 10% of their holdings, it would send the markets spinning. If they sold 25%, the world financial system would collapse.



A price index of all imports excluding oil rose 0.7% in November from October, the biggest jump since January’s 0.8%. These costs will soon show up in higher prices for imported goods, either that, or cooperate profits will drop.



Debit levels of households increased at 9.1% in the third quarter. Net worth increased half as fast rising $545 billion to $46.7 trillion. Total debt increase 7.4% to $23.6 trillion, as federal debt slowed to a 4.9% growth rate. Business debt increased 5.1%. Mortgage debt increased 11.8% to $7.3 trillion. That was offset by higher asset values. Household real estate was worth $16.6 trillion, up more than at a 20% rate. Consumer credit rose $2.1 trillion, or 6% as disposable income increased to $8.6 trillion.



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GOLD, SILVER, PLATINUM, PALLIDUIM AND DIAMONDS


For the SEC to allow the gold ETF-GLD to be called for active trading on the NYSE is a blatant piece of duplicity, and surely proves the SEC is politically controlled and usually only does selective prosecutions. A blatant ongoing travesty is the stop trading in a company’s stock, pending an investigation. The company is destroyed, never trades again and investors lose their money. We never hear from the SEC again, as to why the companies’ shares never trade again. This happens thousands of times a year. Be as it may, the GLD listing “street tracks” was as bogus as they come; a piece of pure criminality by the elitist central bankers who give the SEC their goose-stepping orders. GLD should have never been listed. To say the bar inventory was fine, even though there were many bars with the same numbers. How the manufactures made them is ludicrous. We do not believe you. Johnson Matthey had to answer the question. The World Gold Fantasy Council refused to do so. Nowhere in the prospectus does it say sufficient gold is in trust to cover all fund inflows, plus market variations less the management fee. The SEC allowed this to happen. We can assure you this is the way the WGC wanted it. You can be sure the SEC attorneys were aware of it and were told to shut up. Upon trading, the trustee made its own news release and said GLD is an ADR like vehicle, using a “proprietary approach.” This means they are playing the derivative market. Of course, this is the same group of crooks, which consented to a finding of money laundering. This is typical of elitist neocon players. The trustee is saying that is not an asset backed trust, but a derivative trading operation. They are black box trading and the investors in GLD do not know that. No one told them that, and we can assure you few read the prospectus. Black box players, like horse bettors have to lose eventually. Betting the horses is entertainment; this is not. Remember LTCM, well it can happen again. GLD will only add to the volatility of the gold market, never mind the manipulative process, or perhaps the possibility of front running by the principals. The bottom line is, this is not what it is presented to be. This is a bogus operation and one Monday morning investors in GLD may wake up to find the listing is no longer trading and may be headed toward bankruptcy. The alternative is to buy bullion, coins, take delivery and buy under-priced gold and silver shares. It is a lot safer and you will not be assisting the enemy.



Gold is breaking out from important long-term accumulation patterns. Once it breaks out completely other currencies will follow.



Jewelry is now the third leading consumption item in China after housing and automobiles. That is $12.1 billion. That is 1.2 million ounces of platinum and 250 tons of gold annually. They polish and process three million carats of diamonds a year, plus 500 tons of pearls, which is 90% of the world’s total. They have the world’s largest center for jade processing and consumption, selling 6,000 tons a year. The tariff on jewelry has been lowered to 10% and silver, long considered a special commodity, has been traded on the open market since 1/00.



We still have technicians telling us gold is going down. These are most of the same soothsayers that attacked gold a year ago. They have been saying sell for a month and a half. They would like us to believe what they are doing is scientific, when in fact it is totally unscientific. Ask the Nobel founders of LTCM about probabilities. They proved they do not work. It is all nothing but guess work when you have the government and hedge funds shorting and naked shorting. There is intervention in the market. It is being rigged. You can throw your charts out the window. They cannot tell manipulation from legitimate selling. That is why more than ever decisions have to be made on fundamentals. There is no connection between economic events and price reality. The US dollar is not going to stop going down. Interest rates are going up and stocks, bonds and real estate are going down. The fiscal and current account deficits are getting worse. Then people tell us, because some charts say this and that gold shares are going up or down. It is insanity. Gold shares are cheap and should be bought now. Chartists, who might just as well have spirits guide us, are manipulating the owners of gold shares.



Gold buying in China is relentlessly surging forward, as a hedge against the falling dollar and negative real interest rates. This is a giant booming trade in not only gold bars, coins and jewelry, but also paper gold, in which the investor does not take possession of the metal, but trades it like other financial instruments.



Trading on the Shanghai Gold Exchange in the first ten months of the year reached 515,447.1kg, a rise of 45.35% over the same period last year. All commemorative coins were mostly oversubscribed and are long gone.



The Chinese and others are reacting to US government policy, which is to let the dollar fall. The ECB will not intervene because they do not want any more dollars. Seventy percent of their reserves are already in dollars. That is also noted in the diminished foreign central bank buying of US Treasury notes, bills and agencies.



Thousands of Chinese have reduced or closed their US dollar accounts in favor of yuan-denominated accounts, because they expect the dollar to fall further.



The gold sentiment in short-term gold timing newsletters in just several sessions fell from 52% to 19.6%. That is a huge drop and a very bullish number for gold. In January, and for the rest of 2005, we should see overwhelming interest in gold and silver coins and shares.



In Bombay alone, 700kg of gold is being sold daily. It is not only purchases for dowries, but also purchases by vacationers.



There is some question regarding Russian gold reserves. Some believe that they could be lending gold and are waiting to call it back, which perhaps is why some reserves are not listed. If that is true, they could force short covering and it would act as an upward slingshot on the gold price.



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bye.dub