International Forecaster Weekly

A Golden Response to Economic Declines

A plan for the euro, a response to declines is made with gold, pension benefits exposed, BP will default, Baltic Dry Index gets drier, oil deluge to flow for years, Fannie and Freddie to delist from exchanges, banks missing TARP payments.

Bob Chapman | June 19, 2010

Note how gold explodes whenever the euro takes a dive.  Those of you who think that the euro is going much lower in the near future had better think again.  The explosion of gold whenever the euro goes down will alone give the Illuminati powerful reasons to support the euro, as will the potential for a devastating trade imbalance that will aggravate the US debt problem from a balance of payments perspective.  Gold is now rising with the dollar because it is now competing with the dollar for safe-haven money, even when the stock markets are tanking.  Gold will win this battle eventually once it is clear that the US economy is going to go under, and that event is not far off. Silver may catch up with gold based on the ridiculous gold to silver ratio alone, but could suffer if the stock market starts to tank, since the combined attack from J P Morgan Chase and the ensuing downward expectation for commodities demand could take their toll.  Gold will continue strong in the current environment no matter what due to the unsolvable sovereign debt crises that have become evident around the world.  

Remember what J P Morgan himself said:  "Gold is money, period."  And soon it will be the only money that has any value, period.  Gold, silver and their related shares are the only place to be.  Stay clear of paper gold and silver and buy physical only and take possession.  These paper gold and silver Ponzi schemes, like GLD, SLV, OTC derivatives and mint certificates are going to be exposed soon.  The Sprott Gold Bullion Fund is a viable possibility if you want to buy some paper gold, otherwise go physical only.  Very shortly, JP Morgan will be sued in class actions by big players that have been criminally screwed in the silver markets, and this could be the catalyst that finally blows the whole precious metals fraud wide open.  So load up! Don’t forget as well, for those who want inherent leverage, do not forget the gold and silver shares that is where the most money is made with moderate risk.

Let’s start with your annual letter from the commissioner of Social Security. It recaps your work record and projects your future retirement benefits. It also warns that benefit payments will exceed employment tax collections by 2016. Worse, it says the Social Security Trust Fund will be exhausted by 2037. When that happens, employment taxes will cover only 76 percent of promised benefits.

As it turns out, the letter is optimistic.

Benefit payments already exceed employment tax collections. According to the Congressional Budget Office, a crush of retirees and fewer w

orkers has turned the expected surplus of employment taxes over benefit payments into a shortfall.

Fortunately, it’s estimated at only $29 billion this year, piffle in government finance. The piffle, however, is expected to continue. There will be a need to find cash, and we will be talking about it in 2012.

Some readers will say, “Gee, isn’t that what our Social Security Trust Fund is for?’’ It’s a reasonable, if naive, idea. While it is true that anyone who worked between 1983 and today has shoveled some extra money into the trust fund, it’s not sitting there like dollar bills in Scrooge McDuck’s vault. The trust is just a collection of IOUs from the Treasury.

In 1983, when Alan Greenspan led a commission that reformed Social Security, federal debt was only $1.4 trillion. Our reformed Social Security was supposed to be solvent for a full 75 years. Its accumulating surplus, held in trust, would cover the hefty cost of the baby boomers when they retired.

But the commission missed the mark. Today the unfunded liabilities of Social Security alone are $5.3 trillion. And the surplus is no more. Worse, Treasury debt is now $12.4 trillion which includes $2.3 trillion of IOUs held by the trust fund. So when Social Security goes to redeem its IOUs and cover that $29 billion shortfall, it will go to the Treasury. Sadly, the Treasury is empty except for its tax revenue and whatever it can borrow.

And what does that mean?

You can get an inkling by reading a recent report from the Senate Committee on Aging. It provides an extensive menu of steps to address the problem. Here are two extremes on the list:

■ “Increase worker and employer contributions by 1.1 percent.’’ Since worker and employer now pay 12.40 percent of payroll in employment taxes, the 2.2 percentage point increase in the tax would be a 17.7 percent increase on all workers, including those working short shifts at McDonald’s.

■ “Reduce benefits by 5 percent for new beneficiaries in 2010 and later.’’ That’s a hefty cut, but hardly enough. It would cover only 30 percent of the projected 75-year shortfall.

Between those two extremes, the Senate committee lays out a list of tools and calls it “modernization.’’ The bottom line is that more will be going in and less will be coming out at least to the people who paid it in.

BP and the Obama administration have reached a preliminary agreement that the oil company will place $20 billion in an escrow account to be administered by Kenneth Feinberg, a White House official said. Feinberg also oversaw payments to families of victims of the Sept. 11, 2001, terrorist attacks.

Credit investors are pricing in a more than 39 percent chance BP Plc will default within five years as it tangles with the Obama administration over cleanup costs and claims for the biggest oil spill in U.S. history.

The risk implied by credit-default swaps is up from 7 percent a month ago, according to CMA DataVision. BP swaps climbed 112 basis points today to a record 618. Investors are demanding 800 basis points more in yield to own BP debt due next year rather than Treasuries.

The Baltic Dry Index, a measure of commodity-shipping costs that’s tumbled 28 percent during its longest losing streak this year, may decline further, according to technical analysis by Barclays Capital.

The gauge fell to 3,020 points yesterday, extending a 13- day fall on speculation weaker Chinese construction may curb raw material demand. That may include iron ore, more of which is hauled at sea than any other dry-bulk commodity. The attached chart shows the index’s 200-day moving average of 3,164. It fell as low as 2,911 points in April, 3.6 percent less than now.

Fitch lowered BP’s credit rating 6 notches from AA- to BBB-, one notch above junk. Pensioners and other UK investors are about to get crushed, as if the black nobility run by the Queen and the Rothschild’s cared. It is obvious BP is destined for failure. Wait until the public finds out the oil fiasco was a false flag operation to pass Cap & trade and carbon taxes among other things. BP is junk and everyone knows it in spite of the attempted payoffs to Fitch. It won’t be long before the rating is junk and institutions are forced to sell the bonds for virtually nothing. It is even money BP will bite the dust. The bad news on the oil blowout gets worse every day as Obama tries to

hide what is really going on so they can get carbon taxes.

The Illuminists blew it. They didn’t know they were drilling into an oil volcano. There will be no way to plug the hole. The deluge will flow for years.

Between the real estate fiasco and now the oil mega disaster the banking system is closing in on collapse. Unemployment is definitely headed higher as millions of additional jobs are lost. Now the US economy is beset with the worst environment disaster in history that will cost hundreds of thousands of jobs. The banking system is beset with trillions of dollars in toxic assets to accompany financial entities with two sets of books. When have you ever heard of banks being given a trillion dollars to stay in business rather than go bankrupt and the taxpayer is allowed to pay for it. The main culprit in this fiasco, the Fed, is about to be rewarded with new monopoly power to financially subject the American populace. What kind of a system is that? In the meantime the public is thrown a bone. There is no end to the toxic assets and the monetization. Is it any wonder gold and silver are climbing higher?

Government-sponsored mortgage purchasers Fannie Mae and Freddie Mac plan to delist their shares from the New York Stock Exchange.

The companies' regulator, the Federal Housing Finance Agency, said Wednesday that it expects Fannie Mae and Freddie Mac shares to trade on the Over-the-Counter Bulletin Board, an electronic quotation service.

Wynn Resorts Ltd. on Tuesday laid off 220 hourly and 41 salaried workers from its two Las Vegas hotel-casinos, CEO Steve Wynn said.

Wynn told The Associated Press the cuts were made after some workers expressed support for layoffs instead of wage and hour reductions. The company cut wages and hours 18 months ago, and were meant to be temporary, he said.

"It became a morale issue," Wynn said.

Wynn says 2,300 hourly workers who want to work full time but were reduced to 32 hours per week will have their hours restored. Wynn said 1,400 workers earning less than $200,000 per year who took 15 percent pay cuts will have their salaries restored.

Wynn said the moves will add $7.7 million to the company's payroll. Without the layoffs, restoring the hours and salaries would have cost nearly $10 million.

Total housing starts were at 593 thousand (SAAR) in May, down 10% from the revised April rate of 659,000 (revised down from 672 thousand), and up 24% from the all time record low in April 2009 of 477 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959). 

Single-family starts collapsed 17.2% to 468,000 in May. This is 30% above the record low in January 2009 (360 thousand). 

The second graph shows total and single unit starts since 1968. This shows the huge collapse following the housing bubble, and that housing starts have mostly been moving sideways for over a year.


Housing Starts:

Privately-owned housing starts in May were at a seasonally adjusted annual rate of 593,000. This is 10.0 percent (±10.3%)* below the revised April estimate of 659,000, but is 7.8 percent (±9.7%)* above the May 2009 rate of 550,000.

Single-family housing starts in May were at a rate of 468,000; this is 17.2 percent (±7.9%) below the revised April figure of 565,000.

Building Permits:

Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 574,000. This is 5.9 percent (±2.2%) below the revised April rate of 610,000, but is 4.4 percent (±2.6%) above the May 2009 estimate of 550,000.

Single-family authorizations in May were at a rate of 438,000; this is 9.9 percent (±2.1%) below the revised April figure of 486,000. Authorizations of units in buildings with five units or more were at a rate of 117,000 in May.

Note that permits fell sharply, suggesting another significant decline in housing starts next month. This is way below expectations (I took the under!), and is good news for the housing market longer term (there are too many housing units already), but bad news for the economy and employment short term.

George Osborne, the UK's Chancellor of the Exchequer, a role equivalent to that of Tim Geithner in the US, at least in public office, not sure about tax "avoidance", has just announced the abolition of the FSA - the English just as worthless equivalent to the SEC. It is time Mary Shapiro's corrupt organization share the same fate. "George Osborne moved to redress what he described as the spectacular regulatory failure of the City, announcing the abolition of the Financial Services Authority and a sweeping increase in the Bank of England’s powers." And in other news, UK's Bernanke-equivalent will now double up as uber regulator and Viceroy of the West Indies, due to amazing new powers given to him by the Osbourne super mushroom: "Mervyn King, the Bank’s governor, will become one of the most powerful central bankers in the world, with a new remit to prevent the build-up of risk in the financial system in addition to his monetary policy role." In other words, one big step forward, and an infinite number of steps back. After all why bother with petty theft, when the Central Banks will soon be funneling trillions away from what's left of the global middle class, perfectly legally, in broad daylight, and at record 2s10s. [This is a move towards consolidation of power and a monopoly of everything to do with things financial in England, the same as we are seeing under financial legislation in the US. Financial tyranny is about to hit England as well as the US. Next will come exchange control.]

The former chairman of a large mortgage lending company has been charged in a $1.9 billion fraud scheme that contributed to the failure of Colonial Bank, one of the nation’s 50 largest banks before it was seized by regulators last year, the Justice Department said yesterday.

Lee Bentley Farkas, who led Florida-based Taylor, Bean & Whitaker, was arrested Tuesday in Ocala, Fla., after being indicted by a federal grand jury in Alexandria, Va., on bank fraud and other charges.

Taylor, Bean was one of the nation’s largest privately held mortgage lending companies before it filed for bankruptcy protection last year, and officials said the fraud scheme precipitated its collapse as well.

Court documents said Farkas and coconspirators at both companies misappropriated more than $400 million from Colonial and about $1.5 billion from a Taylor, Bean-owned firm to cover the firm’s operating losses.

Farkas, 57, is also charged with trying to defraud the government out of $553 million in Troubled Asset Relief Program bank bailout funds as the losses mounted. If convicted, Farkas faces a likely sentence of life in prison.


The state’s foreclosure crisis continued in May as the number of homeowners who lost their properties more than doubled compared with the same month a year ago, according to data released yesterday.

Warren Group, a Boston firm that tracks local real estate, reported that 1,283 residents lost their homes in May, a 119.7 percent increase from the 584 foreclosures reported in May 2009. There were 6,107 completed foreclosures reported from January to May, a 48.4 percent hike from the same time last year. But fewer homeowners are now on the precipice of foreclosure, which means the problem may eventually begin to ebb. Foreclosure petitions, the first step in the process, fell to 2,110 in May, a 9.4 percent drop compared with the same time last year, Warren Group said. Petitions also were down 13.2 percent from April.

The fact the HFT, which is nothing more than front-running customer orders, is still allowed is the strongest evidence possible that regulators and solons are grossly inept and/or abjectly corrupt.

One reason that solons allow, even encourage, HFT and other computer trading is because it is useful in manipulating stocks higher – by both the whims of traders and under direction by the elites.

Solons and regulators know that trader games and manipulations are usually to the upside, so they allow the pillaging of customers because it is a useful tool of market manipulation. Traders and wise guys know that upside manipulation is allowed and encouraged, so they eagerly manipulate stocks, futures and options to the upside. This is why there is a triple digit rally for expiration week for something like 10 of 12 expirations each year. After the 1987 Crash, program trading and OEX/SPU trading came under great scrutiny. So the Street colluded to prevent large downside expirations. This is not a guess or conjecture; we received the calls.

If there was a large imbalance of stock to sell on expiration, NYSE brokers called traders to buy up the shares in order to prevent the expiration from showing a large decline. The Street did this to keep Congress and regulators from shutting down the very profitable derivative schemes and trading.

Delaware Senator Ted Kaufman told CNBC’s Jim Cramer that aberrant trading recently in Diebold Inc. and the Washington Post Co. isn’t good for the market.

“Markets must be credible, or they’re no good,” he said. Such extreme advances and declines in stocks for no apparent reason is “death by a thousand cuts,” he said.

Note” Diebold plunged 30% in six seconds on June 2. Volume exploded to 11 times normal activity.

Senate Democrats suffered a blow Wednesday in an attempt to conclude debate on a sweeping bill that would extend a range of popular tax credits, renew several expired federal programs and provide financial aid to states.

In a defeat that saw Democrats abandoned by moderate lawmakers on both sides of the aisle concerned over the cost of the $140 billion measure, Senate leaders will now be forced to go back to the drawing board to devise a way to get a pared down bill through the Senate.

For almost a year, we have noted each expiration week that Ben Bernanke pours liquidity into the system to juice stocks. Even though the Fed’s MBS monetization scheme officially ended in March, Bennie Mae has been monetizing MBS for each expiration week since the official termination date.

Bennie Mae again monetized MBS for the current expiration week. The $13.922B of MBS monetized this week increased the Fed’s balance sheet by $12.778B.

Last week Ben told a Congressional inquirer that the Fed does not intervene in the stock market. This is another Bernanke deception. The Fed does not directly intervene, i.e. buy stocks or SPUs. But the Fed indirectly intervenes incessantly in the stock market by injecting juice into the system and by sending surrogates into the market. Think Al Capone ordering subordinates to do dastardly deed.

Consumer prices recorded their biggest decline in nearly 1-1/2 years in May as energy costs dropped, according to a government report on Thursday that pointed to tame inflation pressures and low interest rates.

The Labor Department said its seasonally adjusted Consumer Price Index fell 0.2 percent last month, the largest decline since December 2008, after dipping 0.1 percent in April.

The number of U.S. workers filing new applications for unemployment insurance unexpectedly rose last week as the manufacturing, construction and education sectors shed employees, adding to worries that the economic recovery is slowing.

Initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 472,000 in the week ended June 12, the Labor Department said on Thursday.

The four-week moving average of new claims, considered a better measure of underlying labor market trends, slipped 500 to 463,500.

In the first week of June, the number of people still receiving benefits after an initial week of aid rose 88,000 to 4.57 million, the Labor Department said.

The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, edged up to 3.6 percent from 3.5 percent.

The U.S. current account deficit widened in the first quarter to $109.0 billion, or 3 percent of U.S. gross domestic product, from a sharply smaller estimate for the fourth quarter of 2009, a Commerce Department report said on Thursday.

It was the third consecutive quarterly increase from a low of $84.4 billion in the second quarter of 2009, when world trade fell sharply because of a global recession.

The Commerce Department lowered its estimate of the fourth quarter current account deficit to $100.9 billion, or 2.8 percent of GDP, from a previously reported $115.6 billion. Wall Street analysts had expected the first quarter deficit to widen to about $120.7 billion.

The Conference Board, an industry research group, said on Thursday its gauge of leading indicators rose to a new peak, suggesting the U.S. economic recovery will continue. The leading index, which tries to predict future levels of economic activity, rose 0.4 percent to a record 109.9, after stagnating in April. Analysts polled by Reuters had been looking for a slightly firmer 0.5 percent gain.

The Conference Board found the average length of unemployment had risen to 34.4 weeks in May from around 30 at the start of the year.

Factory activity growth plummeted in the U.S. Mid-Atlantic region in June, a survey showed on Thursday, adding to worries that the short and tepid U.S. economic recovery is now fizzling.

The Philadelphia Federal Reserve Bank said its business activity index dropped to 8.0 in June from May's 21.4. Economists had expected a reading of 20.9, based on the results of a Reuters poll, which ranged from 10.0 to 24.0.

More than 90 U.S. banks and thrifts missed making a May 17 payment to the U.S. government under its main bank bailout program, signalling a rising number of lenders are struggling to meet their obligations.

The statistics, compiled by SNL Financial from U.S. Treasury data, showed 91 banks and thrifts skipped the May dividend payment under the Troubled Asset Relief Program, or TARP. It was the first missed payment for 23 of the banks; for the others, it was at least their second miss.

The number of banks missing their TARP payments rose for the third straight quarter. In February, 74 banks deferred their payments; 55 deferred last November.

SNL Financial's analysis found 20 banks have missed four or more payments since the program began in 2008, while eight banks have missed five payments.

Under the TARP program, the U.S. Treasury invested in preferred shares issued banks looking for funds. The banks were to make regular dividend payments to the Treasury, and have the right to repurchase the shares at some point in the future.