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Chapman: Gold, Silver, Economy & More
by Bob Chapman
The International Forecaster
Sunday, 14 October 2007


US MARKETS

America’s mortgage crisis is going to get considerably worse because of the level of fraudulent lending by mortgage originators and banks is much higher than previously estimated and we predicted. Defaults on subprime mortgages will continue to soar for another 18 months as unqualified mortgage holders struggle to meet their repayments, and tightening credit markets make ARM resets impossible. Our projection for economic growth in 2007 is 2% and zero to 1% in 2008. Thus, as unemployment rises more panic will ensue. Our big question is if governments tell us there has been so much fraud, why haven’t they brought criminal charges against lenders? The answer is if they do the world will find out that the Fed and our government encouraged the fraudulent lending – that is why. Then we will have to indict the people who approved and sanctioned such actions, such as Sir Alan Greenspan and our President.

In August foreclosures jumped 115% to 243,947 yoy, or one in 510 households of which about 40% end in forced sale or repossession. As this takes place house prices fall exacerbating the situation.

In the Dallas-Ft. Worth area, new housing projects fell 30% during the third quarter yoy and sales of new homes fell 20% with homes under $200,000 seeing the biggest decline. Cargo containers coming into US ports were supposed to set a record this year, but in reality imports are shrinking, off 1.4%.

The average vacancy rate in strip malls stands at 7.3% as of 6/30/07, and is expected to rise to 7.6% by yearend, the highest level since 1935.

The US Treasury 2007 budget deficit reported in at $162.8 billion as of 9/30 and the prior deficit was revised to $248.2 billion from $247.7 billion.

Home foreclosures doubled in September yoy at 223,538, including default and auction notices and bank repossessions, an 8% decline in August. California led the way with 51,259 and Florida was second with 33,354. That is one for every 557 households.

The Business Council and Conference Board found that 44.3% of 61 top CEO’s forecast economic conditions in their own industry would get worse over the next six months, while 16.4% see improvement. Thirty-nine percent see conditions unchanged; 24.4% saw worsening conditions, while 60% saw conditions staying the same.

Countrywide funded 44% fewer mortgage loans in September, while delinquencies increased and foreclosures doubled. They cut 4,935 jobs last month, leaving them with 55,932. They will cut 12,000 jobs, or 20% by December.

What the public is finally starting to realize is that inflation is a deliberate policy that will go on endlessly. People now looking for a crunch-up boom and soon everyone will want to swap dollars for real goods, no matter whether they need them or not. The idea is to get rid of the fiat currency. This happened to the continental currency of 1781 and to the French mandates territoriaux in 1796, and with the German marks in 1923.

September import price index increases were 1% mom and 5.2% yoy. This is inflationary as our government and the Fed members tell us they see no import price inflation.

The trade deficit narrowed to -$57.59 billion in August from a -$59.25 billion in July. That was down 2.4%.

Jobless clams fell 12,000 to 308,000.

Downey Financial, the California S&L fell the most in six years and the S&L said overdue home mortgages caused an operating loss as the state’s house prices showed the biggest loss in 15 years.

Excluding a 5.4% gain in imported petroleum prices, import prices fell 0.2% last month. We do not believe these Labor Department figures.

Export prices rose 0.3% after rising 0.2% in August, as agricultural prices gained 4.1%, the largest rise in a year. There was a 1.4% drop in material prices.

Countrywide said late payments rose, foreclosures doubled and new loans fell 44%. Overdue loans increased to 5.85% in September from 4.04% yoy. Foreclosures climbed 1.27% from 0.51%. Mortgages funded fell to $21 billion.

Delinquencies rose 0.8% in September mom Their servicing portfolio of $1.46 trillion, is almost 15% of the total US home-loan debt. The company has needed an infusion of $14 billion in August and September because they cannot access the commercial paper market.

Beazer Homes will restate earnings back to 1999 after a fraud investigation found its mortgage unit violated federal regulations. It will cost the company $15 million.

The HUD program for non-profits like Ameri Dream that funded down payments for low and middle-income homebuyers and was reimbursed by the sellers of the homes has ended. As we predicted it led to higher house prices and more foreclosures. It was used by more than 100,000 buyers last year.

Mattel shareholders have filed a derivative lawsuit alleging that the company regularly delayed contacting federal regulators about possible defects in its toys after learning about problems, some of which date back into the 1990s. Since August Mattel has had three recalls of 21 million toys.

GOLD, SILVER, PLATINUM, PALADIUM AND URANIUM

The cartel is now caught between the Devil and the deep blue sea. They have tried everything to suppress the PM's (precious metals). Their futile, manipulative weapons have included hundreds of tons of central bank gold sales, hundreds of thousands of shorts in the futures markets, tens of thousands of calls on the USDX, rally-crash protective derivative blow-offs, carry trade unwinding and market crashes to produce PM liquidations, gold leasing to fund gold-hedging producers and to cover short positions off market that is out of control to the point where lease rates are at much higher levels than usual and central banks are afraid they will never see their gold again, naked shorting of millions of shares of stocks in the resource sector, constant deceptive jawboning and blatantly fraudulent economic statistics, relentless attacks on oil and other commodities on a 24/7 basis, execution of the gold suppressive Washington Agreement to bail out lease positions off market and to give the central banks an excuse to sell gold, always at just the right time, and the creation of oodles of phantom paper gold to make it look like they have some 30,000 tonnes of actual, physical gold reserves when they only have perhaps 5,000 tonnes, if they are lucky. And after all this, their efforts have this week produced a fresh 28-year high spot gold price of 753.65, a fresh 28-year high of the leading (December) gold futures contract of 759.30 intra-day and 756.70 at closing, a fresh all-time high for the XAU of 182.36 intra-day and 179.04 at closing, and a fresh all-time high for the HUI of an astounding 423.16 intra-day and 413.34 at closing. Now if that is what the cartel calls "suppression," PLEASE GIVE US MORE!!!

This state of affairs may explain the unconfirmed news reports in which several bullish gold traders doing business in Manhattan have alleged that a rather large and inexplicably airborne kitchen sink, which they suspect was probably from the executive lunchroom of some bullion bank, crashed into one of the COMEX gold pits, narrowly missing the traders as they ducked at the last second to avoid being hammered by the flying sink, which they thought might be some sort of newfangled gold bullion reserve. However, no gold was found in any portion of the sink, and several traders indicated that the lack of gold was most likely a sign of central bank involvement. Police are now checking the model numbers on the fixtures to see if they can find a match so they can narrow down their rather large list of suspects. This was probably a last desperate measure by the hapless commercial shorts to take out the gold bulls. We take this to mean they have run out gold and had nothing left but the kitchen sink to trade with. What a pathetic situation.

Thursday was a day to remember, where the best laid plans of cartels and men went wildly astray. Just as we predicted, the cartel went on a mission to destroy the protective derivatives of the large specs by rallying the stock markets just before the expiration of October stock index options, the objective being to drain the value out of their stock index puts and then immediately crash the markets on them while they were stripped of their puts, forcing them to liquidate their PM positions. Things were going "great guns" for the cartel, which managed to push the Dow up to within a few points of 14,200 on mixed news, when they noticed that they had, well, somewhat of a problem. The problem was that some of the liquidity they provided to propel the stock markets had wisely found its way to the gold and silver pits just as we predicted it might, causing the PM's to convert to a fiery hot plasma state consisting of blazing gold and silver ions which threatened to vaporize the cartel and its astonished commercial shorts. As the Dow neared 14,200, with all the bad news behind it, gold had suddenly gone ballistic, shooting past its previous 28-year high like it was not even worth a look, and the gold futures markets, the XAU and the HUI were right behind it, setting their own records as stated above, smokin' like the Roadrunner as the dumbfounded Coyote (cartel) stared at them with its jaw hanging on the floor, totally stunned at their brashness.

OOPS AGAIN!!!

Well, the cartel had no alternative but to abort its plan, and immediately pulled the plug on the once rising stock markets, as the Dow, for no apparent reason, except to those who understand the gold market, sank over 200 points, briefly dipping below 14,000 just before recovering to just over 14,000. This stopped trading in all the markets dead in its tracks and everything started to pull back, including the dollar. Despite the huge hit, gold stubbornly closed above its previous high of 747.75 on both Thursday and Friday and the XAU and HUI followed suit. The large specs are really hanging tough. They've grabbed onto this bull market like a bulldog and are not about to let it go. The previous high for gold has now become support as we move on to the next level. We can not help but suspect that some sort of a signal failure may have occurred among the dazed members of the cartel which caused the PM's and their stocks to fly, but do not sell the large specs short on this as they may have had a few tricks of their own up their sleeves which propelled PM's and which later tanked the stock markets. We hope they have been reading the IF thoroughly so they are prepared for everything the cartel is going to throw at them. Their focus on the physical gold pits and the PM stocks is both wise and cunning, and is a winning-strategy, which they should continue throughout this rally.

So does this mean the cartel if finished with their plans for a rally-crash hit on gold? Don't you believe it, not for one second! The rally-crash scenario may be the only thing that now stands between commercial shorts and financial oblivion, so do not think they will give this weapon up that easily. A mountain of shorts, which is evidenced by yet another all-time high of open interest in gold futures on the COMEX, a mind-blowing 475,644 contracts as of Thursday, hangs over the heads of the commercial shorts like a Sword of Damocles, ready to lop off their heads if they make one more false move. Another move like they made on Thursday and it will be hallelujah time for gold and silver bulls. The Indian wedding season is about to peak, so it is now or never for the cartel. And if the Fed wants to lower rates in October to continue the bailout of their buddies on Wall Street, they will be unable to do so unless gold is reined in, so the battle in the gold pits will now quickly reach a crescendo as bullets of sweat appear on cartel member foreheads. Pills of nitro are now in short supply at pharmacies near Wall Street.

We said they would try to go to 14,300 Friday, but that they might ignite gold in the process and have to back off, and that is exactly what happened. They got to within 100 points of that goal with a whole trading day remaining and would have reached 14,300 had not gold and silver foiled their plans. We said the yen would go to 118 to 120 yen per dollar and to 169+ yen per euro, and we have already seen the yen at 117.71 yen per dollar and 167.478 yen per euro with virtually a whole week left to go, and you can count on a continued weakening of the yen to support stock markets as the cartel attempts a continuation of its plans. We believe that it is quite possible, perhaps even probable, that the cartel will now attempt to complete their plan by taking a new tack. They will run the stock markets up mildly on Monday and Tuesday, perhaps 80 points each day, and then will try to ignite the stock markets on the two days prior to the expiration of the options, perhaps adding as much as 300 points more, taking the Dow to the 14,600 area just as we originally suggested, with an almost immediate crash of the markets following thereafter. You already saw this plan in action on Friday, as the Dow gained about 78 points. They will pound PM's and their stocks while they push the rest of the stock market sectors up. Also, oil and commodities will get hit and the dollar will get support while this is happening. The yen will be weakened as just stated in support. Large specs should continue to get out of short-term, leveraged stock index puts and yen calls, trading them in for un-leveraged, longer-term positions unless they plan on selling into the cartel-created strength and protecting their derivatives with a general market sell-off which we think would be risky simply because the cartel has an unlimited supply of money. The cartel does not, however, have an unlimited supply of gold, and this is their Achilles heel. Large specs should continue loading up on un-leveraged, long-term, stock index puts and yen calls as the stock markets climb, adding daily, with volume increasing at a pace that matches the upward movement of the stock markets. If the cartel then crashes the market, you know what to do. And if they do not crash the markets right away, do not let your guard down, and do not leverage yourselves to the hilt while the rally is in progress. Stay conservative with your stock holdings, and continue to pound the cartel mercilessly with physical gold, secure in your un-leveraged, long-term, protective derivatives if the stock markets turn downward. As we stated before - SHOW NO MERCY!!!

http://news.goldseek.com/InternationalForecaster/1192386900.php