International Forecaster Weekly

A Time To Be Cautious Of The Stock Market

A time to be cautious of the stock market... a massive volume of derivatives... What will the Saudis do when the US backs out of Iraq? GW Bush and his unilateral quest for dominance... a rise in applications for jobless benefits... 

Bob Chapman | December 2, 2006


Those of you who are still in the stock market should be very cautious. The Working Group on Financial Markets cannot manipulate the market indefinitely, just like they cannot support the dollar and suppress gold and silver indefinitely.

We are not in a bull market in stocks. We are still in an extension of a bear market rally that has persisted for four years, and is the result of manipulation. It is hard to call this a bull when 90% of NYSE trades are black box trades and IPO’s are being held back due to lack of investor demand. Recently three IPO’s totaling over $700 million were pulled from the market on the same day. There is little public interest and that doesn’t happen in a bull market. This phenomenon is also occurring in Europe. This is in spite of European markets being at five-year highs.

Then there is the prospects for the economy. It would be great to be able to rely on government statistics, but we cannot. They are simply a fraud. This week the Commerce Department restated 3rd quarter GDP from 1.6% growth to 2.2%. They must think we all live in a pumpkin patch. Even those false figures are not promising. By all measures the US economy is weakening in spite of the sea of money and credit available. The housing market is an example. The bubble really hasn’t even been broken yet. Wait until you see what the next few years bring. There has been reckless business lending as well that hasn’t even showed up as yet as being problematic. Foreclosures as we predicted they would are soaring, and the fallout of the sub-prime ARMS has only just begun. The inventory of new and existing homes is at record levels. Existing home prices are coming down. New home prices are holding because they are discounting and selling close to or at cost. That cannot continue indefinitely. The housing sector is no longer a sector for job growth – it is a producer of layoffs. Weakness can only lead to further economic deterioration.

Then we have $375 trillion in derivatives whose trading volume is half a quadrillion dollars per quarter. How’ that for madness? Sanity in our markets is history. By way of comparison, US annual GDP is $12 trillion. This market will explode and when it does lots of money will be lost.

We have offshoring and outsourcing under the title of free trade and globalization raping our economy. In moves planned 25 years ago, GM and Ford are on the edge of bankruptcy. This doesn’t sound like a Goldilocks economy to us. How does that fit with Ford shutting 15 plants and laying off another 45,000 workers making $31.64 an hour who will now make $10.00-$12.00 an hour if they can find work. Who is kidding whom, this economy is on the decline in spite of increases of money and credit of 14% with inflation over 10%. Retail sales are in a funk and consumers have to be lured into stores via discounts, freebies and extra store hours. Even Wal-Mart is showing flat sales with major discounts.

Rents, both residential and commercial, are accelerating. Energy prices are edging up. The cost of building plants and equipment is escalating at an alarming rate, yet we are told inflation is 3.4%. How dumb do they think we are? Prices of commodities are also moving up again.

The price of imports into the US is escalating, which means more inflation. Production costs in China and elsewhere are rising and so will the cost of exports.

Stay skeptical, as there is no such thing as coincidence. The market is headed down so be prepared for it.

Senior Pakistan officials are urging NATO countries to accept the Taliban and work toward a new coalition government in Kabul that might exclude the current Afghan President Hamid Karzai. The Taliban is winning the war and NATO is doomed to fail.

The Taliban represents the Pashtun population, Afghanistan’s largest and Pakistan’s second largest ethnic group. If NATO is to decide what to do in Riga they had best call Pakistan’s bluff and put pressure on Islamabad to handover the Taliban leadership. That will never happen. Thus, NATO either talks piece or they send in lots more troops.

One way or the other Saudi Arabia will have to intervene to prevent Iranian backed Shiite militias from massacring Iraqi Sunni Muslims once the US pulls out of Iraq. If they do not intervene they would be abandoning the principles upon which their kingdom was founded. On the other hand if they pursue the action Shiites could try to take down the Saudi government. They are in a tough spot.

Truck tonnage was just released and it doesn’t look all that good. It was down 4% YOY in the largest decline since February 2001 and -1.8% MOM and down 2 of the past 3 months. This is 2000 all over again. It is also extremely rare to have truck tonnage decline in October ahead of the holiday shopping season.


The number of workers applying for jobless benefits climbed by the highest amount in a year last week to 357,000. First time claims rose 34,000 to 357,000 for the week ended 11/25, which is dreadful. Continuing collectors jumped by 45,000 to 2.48 million. The four-week average rose 18,750 to 2.45 million.

Again the Army is seeing a marked increase in the number of troops barred from overseas duty because they are so deep in debt. They are considered security risks. 400 soldiers have been stripped of their clearances for financial reasons.

The latest Beige Book from the Fed of Economic Conditions showed little sign of deterioration in the US economy during October and November. Districts reported continued moderate growth, which means they have to be getting data on another planet. This is why they raised the third quarter GDP from 1.6% to 2.2%.

Democrat Senator Harry Reid would have us believe that there will be ethics reform. He is currently under investigation for payoffs from Abraham who said he gave $30,000 to Reid in campaign contributions from Abraham clients. Reid demanded that payoff. Reid collected on a $1.1 million windfall on a Las Vegas land swindle even though he hadn’t personally owned the property for three years. He illegally used $3,000 in campaign donations towards a Ritz-Carlton staff holiday bonus, while his campaign falsely listed the expenditures as salary. He owns 160 acres of land near the location of the Arizona-Nevada bridge for which $18 million in funding was included in the transportation bill.

The UN said that Israel used anti-personnel landmines, banned by most countries, as well as cluster bombs during its July-August war in Lebanon. These forbidden implements of dirty warfare were laid to injure civilians. What sick people.

The departure allowed by the elitists via George W. Bush and the neocons has been a rejection of the principles on which US foreign policy has been based since World War II. That is via the blatant use of force, a unilateral quest for dominance, which involved the reckless and unbridled use of naked power and the use of preventative war as a ruse to steal the assets of other nations.

It was inevitable that the administration and the Republicans were repudiated for imposing their brand of democracy by force on other nations and at home implementing a corporatist, fascist, totalitarian government. They have achieved this level of control via a phony war of terror that doesn’t exist. It has given us Patriot Acts I & II, and the torture act and the warrantless eavesdropping act. In January you will not be able to enter or leave the US without the Gestapo’s permission, that is Homeland Security.

A new foreign policy would be a complete reversal of the Bush neocon program. The world has no respect for the office of the US President and that respect has to be earned over the next 25 years, because that is how long it will take. That needs to be accompanied by economic and financial success, which is going to be very difficult. Our program should provide leadership that takes into account the interest of others and the good examples of the past. There has to be a reversal of Americans loss of freedom and if the members of Congress do not bring that about they won’t be in Congress very long.