Chapman International forecaster Recs: 0 bob chapman international forecaster
US MARKETS
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We are seeing the beginning of a new stage in the credit crisis. Companies do not have cash, they were too busy buying their stock back with cash flow and loans so executives could cash in their option gains, and banks won’t give most of them any more loans. This is the beginning of a second era in the credit crisis.
Wall Street, banking and our government think the worst is behind them. Well it isn’t. The de-leveraging has only just begun. As an example, a hedge fund with $2 billion borrows $10 billion. Their assets fall 10% and the leverage increased nine times. That forces the hedge fund to sell 50% of assets, if the lender reduces leverage. That is what is beginning to happen in markets right now. Banks and financial institutions have lost $400 billion in the US and must raise $400 billion to replace it. They could slide by with $300 billion, but they won’t be able to recover their losses. $300 billion has been raised so far. That, of course, doesn’t include all the assets that they have yet to write off in the hundreds of billions. We don’t know how these institutions are going to raise this cash in as much as Sovereign Investment Funds have already quickly suffered billions of dollars in losses. If they think they can raise funds in foreign markets they are sadly mistaken. Who in their right mind would buy a hybrid security or do a rights offering? You are buying stock in a wounded animal. The banking system, investment banking and brokerage houses ability to borrow money and supply credit has been significantly impaired for sometime to come. The global central banks are rationing credit not lending it. We have already seen the de-leveraging of $3 trillion in assets and it is accelerating. Credit isn’t available at all stages of the economy. The cost of money has increased when it is available. In the next two years $300 billion in corporate debt has to be renewed – we ask from whom? Sixty-five percent of bond financing now is junk. Who can be so stupid to chase a yield? Personal debt will come unglued as well. As the economy slows further de-leveraging will cause more and more problems. The lack of credit overall and the results of financial engineering will take its toll. The Fed has directly maintained liquidity in the markets and continues to inject money and credit at an 18% clip. Without that we would have financially collapsed months ago.
Level 3 assets, toxic garbage, have increased in recent months. There is no market for the securities and the holders give them whatever value they please and the Fed and SEC encourage such Mickey Mouse bookkeeping. These junk assets increase day by day. Worse yet, the Fed is swapping Treasuries and valuing the toxic waste collateral at 80% to 98%, when in fact it is worth an average of $0.30 on the dollar. The Fed is lending close to $500 billion a month in funding to banks and investment banks.
The bottom line is the Fed is underwriting and rescuing insolvent banks. Wall Street and banking would like to see this support as permanent - a nationalization of the financial system similar to that of Italy and Germany in the 1930s. As you know we no longer have a free market. Due to manipulation by the Illuminists it has become unbalanced and dysfunctional.
Over the past six months the Swiss franc is up 12% versus the dollar and up 5.1% versus gold.
People are really concerned about real inflation and the higher costs to live. In the same breath people fail to recognize that their homes have lost 18% to 50% of their value and most are not saleable except at much lower prices. People have lost sight of value. Everyone should be concerned that 23% of ALT-A loans are in foreclosure and 31% are 60-days or more delinquent. The real massacre hasn’t even begun yet.
We remember in September of 1987 when the Bundesbank had the same kind of disagreement with the Fed, that is going on between the European Central Bank and the Fed today, now 27, almost 28 years later. The result was a collapse in the stock market on October 19, 1987. The disagreement today is how to handle the biggest global banking and credit crisis since 1929-30.
The result of the Fed’s monetary policy and Wall Street and banking, corruption has sent the dollar down sharply, causing dollar inflation that has been and will continue to infect the world. The Fed is only interested in saving Wall Street and the banks. They do not care about the investors, the American public, the foreign banks and investors they defrauded nor about the dollar. Wake up America and world, these arrogant criminals do anything they please. This is why energy and agricultural commodities hit new highs every day. And, you know what, inflation is just really being rediscovered and has a long way to go on the upside. That is why the Baltic Dry Index, a monitory of shipping costs is up 50% yoy. Virtually every central bank in the world is increasing interest rates to combat inflation, except the Fed, the UK and the ECB. We will know this week of the ECB’s response - they decide on interest rates again. If they raise rates the dollar will get slammed. If they do that we could have another 10/19/87 on our hands.
The Fed knows full well that inflation has to result when you have a Fed funds rate of 2%, inflation at 12-7/8% and M3 up 18%. How can any sane investor endure such a negative handicap? It is no wonder consumer confidence is at a 16-year low in the US and it’s falling everywhere else as well.
In spite of a massive M3 injection we have an auction program – a wide-open discount window. Unfortunately we believe those figures are going to get much bigger before they collapse in deflation and depression.
World stock markets are starting to get hit hard and next will be the bond markets.
We have to laugh when the politicians, the Fed and Wall Street say we are going after the speculators in energy and food and Goldman Sachs holds the biggest spec energy position in the world.
Then columnist Novak tells us Bernanke thinks high oil and gas prices are deflationary. They are way down the line.
Even if the ECB raises rates Bernanke cannot follow. If he does the US economy collapses.
The stronger dollar talk is a bluff. The dollar will continue downward and the price of gold and silver will continue higher. The Fed blinked and has lost.
You can equate this Fed attitude in their quest in the worst of circumstances of demanding increased power to regulate. People – professionals – stand still for this nonsense. Now that the Fed has refused to raise interest rates, refused to stop flooding the economy with money and credit and lies about everything it speaks about, they have lost all credibility. It is with great shame the American people have to put up with such corrupt tyranny. Since M3 ceased publication, the report on the issuance and credit, in March 2006, M3 has increased by more than 15%. We forecast that this was what the Fed was up too, but few listened. The result today is hyperinflation. The Fed has never had a sound money policy. Their mission has been to enrich Wall Street and the banks. They wouldn’t know price stability if it jumped up and bit them on the nose. Nor do they really care about inflation; to them it is just an occupational hazard. The truth cannot be suppressed indefinitely. Reality always wins in the end. The Fed has no credibility left. Even Wall Street is getting the message. They are issuing sell recommendations, even against fellow Illuminist firms. Is it every man for himself? Have we reached that level? We’ll soon find out.
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GOLD, SILVER, PALTINUM, PALLADIUM AND DIAMONDS
Citigroup forecasts that “gold is to regain $1,000 an ounce by the end of 2008 and to work higher through 2009-2010.” Their analysts predicted that “longer term they believe that gold is capable of doubling or tripling from current levels.” They say they are positive on gold, based on macro and supply/demand factors.
