International Forecaster October 2009 (#1) - Gold, Silver, Economy + More

October 4th, 2009

By Bob Chapman


The bear market rally will soon be over. It rallied 1,300 Dow points that it should have. All the back up data as to why this is in process was included in the last issue. The rally induced many investors to stay long and they did recoup as much as 80% of their losses in some instances. Now it is time to exit and move into gold and silver shares. Probably the biggest key is that gold recently spent two weeks above $1,000 and we believe gold is prepared for a breakout that will take its price anywhere from $1,200 to $1,700 an ounce. Gold’s long-term reverse head and shoulders pattern, one of the most powerful patterns in charting is in a breakout mode.

Yields on some short-term bills are so low we do not understand why anyone would buy them. Could Weimarization be just around the corner? The reality of investment today is that there is only one place to be and that is in gold and silver related assets.

We have abnormally high bond and stock markets that are headed toward serious trouble. In addition, Americans are looking at weaker residential and commercial real estate prices, higher taxes and inflation, more quantitative easing and government crowding out commercial borrowers, due to the Treasury’s constantly growing thirst for cash to keep the economy and the government from collapsing. They will also be an endless demand for cash to bail out banks, Wall Street, insurance companies and the chosen among American corporations. What else would you expect with a government that is growing four times faster than the economy? Over the next three and a half years the size of government will double. There will be millions more parasites to feed off the carcass of government. Throw in buckets of corruption and you have a failed government and a failed system.

The current FASB (The Financial Accounting Standards Board) rules allow lenders to carry most loans at cost, instead of marking them to market. They are allowed to be held to maturity or for investment. Loans are worth trillions of dollars less than shown on balance sheets. That means their financials are not worth the paper they are written on. In some instances loans are worth $0.40 on the dollar or less. This mark-to-model travesty has gotten much worse over the past year. Those who say the credit crisis is over are just dead wrong. Admitted bad loans in many banks are greater than equity. Some are bankrupt, even with TARP money, and some are very close. It was Paulson and Bernanke and members of the House and Senate that forced the Financial Accounting standards Board to abandon mark-to-market to virtually no standard at all, known as mark-to-myth. That was the result of an avalanche of campaign contributions used to pay off our political class. As this travesty goes totally unnoticed by the public the value of mortgages, residential and commercial, continue to fall, as do bad corporate loans. More than 13% of home loan are underwater. More than 1.5 million loans have gone to foreclosure and four million more are on the way, as the Fed desperately drives down interest rates and mortgage rates. There is an 11-month supply of loans on the market and 600,000 more are being held from listing. Some homes have been thrashed, some empty for 2 to 3 years and in some former owners are living in the homes and haven’t made a payment in two years.

Under these and other conditions zero interest rates and 20% increases in money and credit can never end, contrary to what the liars at G-20 have to say. These foreclosures threaten the entire housing edifice, which we are sorry to say is nowhere near the bottom and probably will bump along the bottom for 5 to 20 years. Americans’ greatest store of savings is being destroyed. The 50% that own their homes outright are about to lose almost everything they have in the way of savings, that was in their home. The fed is engaging in an exercise in futility, and they are quite well aware of it. They are preventing quick outright collapse so they do not immediately get hung. They are trying to ease down the damage. Due to the situation the $8,000 housing credit for first time buyers will probably be extended, but it will do little good, nor will the subprime loans being written by Fannie, Freddie, Ginnie and the FHA. Their failures will again start to hit the market next year along with ALT-A, option-ARM-pick and pay loans and prime loans, which presently make up 52% of foreclosures. As prices fall the market is monetized and worse yet, the American taxpayer gets to pay for it all. The Fed is not only buying mortgages from US lenders, but foreign lenders as well in the form of CDOs, collateralized debt obligations, which is money the Fed has created out of thin air, which is immediately monetized. This is one of the greatest frauds of all time and it is not yet half over. There are no regulators, there are no policemen, there is no Congress; everyone in NYC and Washington is in on it, except the poor taxpayers. Commercial real estate is just as bad and faces perhaps more than $1 trillion in refinancing next year. As we predicted four years ago losses in residential real estate would average 45% to 55% countrywide, and commercial would be hit for 70% and we are going to be dead on if not conservative. Over the next three years the total world financial system is going to collapse, the dollar devalued, massive default and the world will be brought to an economic and financial standstill. That is why you must have all your assets in gold and silver coins and shares. It is the only way you can preserve your wealth.

It is bad enough that Americans are tax slaves but most are debt slaves as well.

What we have observed over the past two years is that the credit crisis has not improved one bit. In time it will be much worse than it had to be because banks, Wall Street and insurance companies had to be bailed out. Instead of having a purged system and a two-year depression, we are now facing years of depression and the blame lays squarely on the actions of the Fed, banking, Wall Street and government.

Cash for Clunkers just took future buying into the now and cut future sales. The housing credit was another subsidy that created the same effect. Like price controls, none of this will work. Neither will taking bad assets, such as CDOs off banks’ balance sheets and monetizing them. We find it of interest that the Fed won’t divulge what they paid for this toxic waste. Currency swaps won’t work either; it is more monetization and that produces inflation. Manipulation of currencies, the surreptitious foreign purchase of US Treasuries and back door bailouts are only temporary solutions that cause more inflation and make the problems worse. Government has been insuring subprime loans again; 70% of which will fall into foreclosure a year from now creating a whole new pressure on the housing market. What we see are a group of criminals who are above the law.

What we see is privatizing of profits and socializing of losses for the rich. Where are the Congressional investigations to stop front running euphemistically known as flash trading? It accounts for 70% to 90% of daily trading volume as both investors and professionals get screwed over and over again. This is outright theft. We have still yet to see the SEC stop naked shorting. That is because trading departments are profitably stealing from the public and the SEC is in on it. There is one civil suit against rating agencies, but no criminal or civil actions against rating agencies for deliberately misrating collateralized debt obligations. They conspired with banks and brokerage houses, and the Fed, to mislabel and misrate bonds. Trillions of dollars were lost and no prosecutions. Nobody goes to jail. They just neither admit nor deny and their firms pay a fine to get them off the hook that shareholders get to pay for. On top of these criminal acts the SEC and the FED allows 40 to 1 leverage for banks, brokerage houses and hedge funds. What absolute madness. The banks and brokerage houses are still using 40 to 1 leverage. Where is the up-tick rule for shorting? We still do not have it back. Then there is $1.3 quadrillion in derivatives. A failure of only 5% will wipe out the world financial system. The lurid tale goes on and on. It has to be stopped and the participants have to all be tried and thrown into jail. That moment is fast approaching and vengeance will be ours.

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