International Forecaster Weekly

Any New Growth Not Coming Fast Enough

Zero interest rates mean zero movement for elitists, austerity for Europe, Spain pushes IMF away, cheaper borrowing helping to stabalize the home market, US consumer confidence down, student debts way up, fears that growth is not fast enough.

Bob Chapman | April 25, 2012

Zero interest rates certainly limits what the elitists can do in that end of the market. It is becoming more and more evident that the Fed is not making the final decisions, they are being made by JPM and Goldman Sachs, as we touched on negative rates not all that long ago. The Fed was forced into the market. We fear that negative rates are on the way unless the Fed wants to buy all the Treasury issuance, not just 61%, which they admit too. This really would force all bonds higher and yields lower. Of course, there is always the possibility of the issue of floating rate bonds. Those bonds would tend to give higher yields overall.

Europe is reentering the spotlight and it is not an auspicious entry. The EU officials still believe Spain will not need financial support. This, the 5th largest economy in the euro zone and presently has public debt of GP OF 68%. Experts believe that that number will be 120% in 2013. Their property bubble ended in 2007 and since then prices have fallen 38%. Spain borrowed $225 billion about 50% what everyone else was borrowing. This past week it did 2 and 10-year paper for about $333 trillion. The bid to cover was 3.3% (2 to 1 is normal), so there was plenty of demand for the bonds. We might add a good part of the buying came from banks that borrowed LTRO funds to do so. Rumors of recapitalization are in the works, but we do not see that happening. It would force the opening of Spain’s domestic banking to industry and foreign ownership. The banks in turn lose the subsidies and we are sure the Rothschild’s and Europe’s royalty would not like it very much.

The IMF raised $420 billion in new capital to be thrown into the pot and is looking for an additional $262 billion. At the same time Spain for the 10th time says we do not need rescue funds for their banks – we will see. It could be a difficult affair inasmuch as Holland will have a new government in the fall. Lending free funds is one thing, but borrowing to lend and creating debt to lend is another. The Dutch are going to have to go into austerity just to financially help others and that be over. Worse yet, Fitch is now going to probably lower their debt rating.

Spain’s answer looks to be two sets of books which so many banks, sovereigns and corporations used in the US and UK. One for good assets, one for bad, the latter to be written off over 50 years. Even after $200 billion or so was borrowed to purchase it was not enough for Spanish banks, 10-year bonds to keep the yield from rising to almost record levels.

We do not think Spain will be rescued. $1.5 trillion is a lot of money and even if it is, how long will it last? The world has to recognize monetization problems but the major problem is a global system that is out of control. Global credit has been expanded, unchecked and each day it worsens, particularly among banks and sovereigns.

As we wrote in 1991, the euro was going to be a disaster and essentially it has been. As we wrote long ago one interest rate cannot fit all, because of different stages of development. This caused more then 10 years of prolonged mispricing of pricing in credit and bonds. What we have as a result is a dysfunctional global monetary apparatus. Leveraged speculation is what is going on and it hasn’t stopped. Use of derivatives has gone exponential, which makes it even worse. 

This past week was not a good one for bonds, particularly that of Greece, Spain and Italy. The Europeans keep talking recovery and none has appeared as yet.

The ECB has to sort this mess out and it is impossible for them to do. There are not going to be any soft landings. Everyone is going to be touched by this disaster. China will be touched as well. The Fed, and other central banks will continue to inject massive amounts of funds into their monetary systems. They have no choice.

We have a long way to go. These conditions could last for five years, who knows? What we do know is hyperinflation is on its way. Accumulate your gold and silver shares, coins and bullion while they are still inexpensive. You have no other choice. Go long and stay long.


Last week the Dow rose 1.4%; S&P rose 0.6%; the Russell 2000 added 1% and the Nasdaq 100 fell 0.9%. Consumers rose 1.4%; utilities 1.9% and cyclicals were unchanged and transports added 0.7%. High tech fell 0.5%; semis fell 2.7%; Internets rose 0.3% and biotech’s rose 8.1%. Gold fell $15.00, the HUI fell 2.5% and the USDX fell 0.9 to 79.19.

Two-year T-bills were unchanged at 0.27%. The 10-year T-note fell 2bps to 1.96%, and the 10-year German bund fell 2 bps to 1.71%.

The Fannie Mae 30-year fixed rate mortgage fell 2 bps to 3.9%. The 15’s rose to 3.13%; one-year ARM’s rose 1 bps to 2.81% and the 30-year fixed fell 1 bps to 4.47%.

Fed credit jumped $21.7 billion, up 7.8% yoy. Fed foreign holdings of Treasury, Agency paper rose $2.2 billion. Custody holdings were up 2.1% yoy.

M2, narrow, money supply fell $6.2 billion to $9.828 trillion; that is 6.9% annualized and ytd was up 9.6%.

Total money market funds were unchanged. Commercial paper outstanding rose $4.1 billion to $933 billion.

Bob Chapman - Erskine Overnight - April 22, 2011

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Bob Chapman - USAPrepares - 24 Apr 2012


As we predicted the Dutch Parliament has collapsed. That means the right will take over and a coalition government will take place, and that means no more bailouts from Holland, and perhaps a withdrawal of from previous commitment. The Dutch debt is 4.6% of GDP and that must be cut 3%. This is for interest on bonds sold to pay off the debts of the banks. Now the big question is will the rating house downgrade Holland?

The Iranians have said they are going to control the Straight of Hormuz. Let’s see what happens. There may be another twisting of the US’s tail.

The covering of Holland over the few weeks by the IF made readers aware that, that was Holland was headed for big trouble and as we predicted in September or October it was a big bubble. Now, we have been able over time to keep track of Belgium the home of the EU and euro zone. Earlier in the year it cost them $7.13 billion and another $71.9 billion plus they took $182.2 billion in and guaranteed bank debt. Plus, $20.7 billion and $11.4 billion in additional bank guarantees. Debt to GDP was 139.2. The numbers are unbelievable yet, no one ever discusses it. That is why we include Belgium with the other six users. They are the next victim.

The Dow fell 102 to 12,926, the S&P fell 105 and Nasdaq fell 180 Dow points. The 10-year T-note yielded 1.94%. The yen fell .0064 to $.9038; the euro fell .0069 to $1.3050; the pound rose .0019 to $1.6112; the Swiss franc fell .0064 to $.9138 and the Canadian dollar rose .0010 to $1.0067. The USDX rose .27 to 79.41.

Oil fell $0.80 to $103.00, gas fell $0.04 to $3.18 and natural gas rose $0.98 to $2.21. Copper fell $0.06 to $3.64, platinum fell $26.00 to $1,558.20 and palladium fell $5.50 to $671.46. The CRB fell .80 to 300.40.


Authorities in Georgia say a grandmother foiled a robbery attempt by two armed men by getting into a shootout with them, injuring one man.

Police told The Telegraph that Lulu Campbell just dropped off her grandson at her daughter's house early Saturday morning when someone demanded money outside her car, threatening to shoot her.

Campbell says the man fired at her, missing. The 57-year-old fired back, striking him in the chest. Her truck sustained eight bullet holes in the hood, one in the grill. Both front side windows were destroyed. The second man fled after she shot at him.

Campbell, who owns convenience stores and gas stations, always is armed.

Police say 32-year-old Brenton Lance Spencer has been hospitalized and was charged with aggravated assault and attempted armed robbery.


Wal-Mart Stores Inc. may spend hundreds of millions of dollars investigating $24 million in alleged Mexican bribes as the U.S. government weighs whether the company or executives also broke the law by covering up an internal probe, former federal prosecutors said.

The company said it’s aiding U.S. probes of payments detailed April 21 in the New York Times. The newspaper said Wal-Mart de Mexico failed to fully investigate the bribe claims as well as well as $16 million in “donations” to Mexican local governments to fuel store expansion in the country up to 2005.

Wal-Mart disclosed the payments to the Justice Department and Securities and Exchange Commission, according to a December 2011 regulatory filing, and said its outside advisers are briefing the agencies on its own probe. Prosecutors will want to know why Wal-Mart didn’t fully examine claims in 2005 by a company lawyer that he funneled bribes to Mexican officials, said Paul Pelletier, a former federal prosecutor.

“If somebody put the kibosh on the investigation, a good prosecutor would ask a lot of questions to figure out why,” said Pelletier of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, who previously supervised foreign bribery cases. “It may not be just about the bribery scheme anymore. The questions about why it was or wasn’t investigated fully are going to have potential legal ramifications for the company and individuals, which is why the company would want to dig in there.”


Demand for new U.S. homes was stronger than projected in March, showing more jobs and cheaper borrowing costs are helping stabilize the market.

Houses sold at a 328,000 annual rate, down from an upwardly revised 353,000 pace in February that was the highest in two years, according to Commerce Department data issued today in Washington. The median estimate in a Bloomberg News survey forecast a rate of 319,000. Other reports showed home prices are stabilizing and consumer confidence was little changed.

Job gains, mortgage rates close to all-time lows and cheaper properties are underpinning residential real estate, which has been the economy’s weak spot. At the same time, immediate progress will be limited by distressed properties that will continue to hold down property values.

“Housing is going to gradually dig out of this deep hole because the job market is going to be firming,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, the only analyst to correctly forecast the sales pace.

“The one thing is the foreclosure pipeline,” Sweet said. Home values “may still have a little more room to fall, but this will probably be the year that prices find a bottom.”

Stocks rose, led by homebuilder shares. The Standard & Poor’s 500 Index climbed 0.5 percent to 1,373.19 at 12:01 a.m. in New York. The S&P Supercomposite Homebuilding gauge was up 3.3 percent.

Elsewhere today, reports showed Britain’s budget deficit unexpectedly widened in March and inflation in Australia cooled.


A gauge of U.S. consumer confidence has declined for a second month, ticking down in April on lower expectations, even as views on the present situation increased, the Conference Board reported Tuesday. The consumer-confidence index fell to 69.2 in April from a revised March reading of 69.5. A prior estimate had pegged March's confidence level at 70.2. "As was the case last month, the slight dip was prompted by a moderation in consumers' short-term outlook, while their assessment of current conditions continued to improve," said Lynn Franco, director of the Conference Board's consumer research center. "Overall, consumers are more upbeat about the state of the economy, but they remain cautiously optimistic." Generally when the economy is growing at a good clip, confidence readings are at least 90. Economists polled by MarketWatch had expected a reading of 70 for April.

            Confidence among U.S. consumers was little changed in April as expectations over the outlook tempered increased optimism about the present.

The Conference Board’s confidence index was at 69.2 com- pared to a revised 69.5 in the prior month, figures from the New York-based private research group showed today. The median forecast of economists surveyed by Bloomberg News called for a reading of 69.6.


As the cost of attending U.S. colleges and universities surges, student-loan debt is turning into ‘a significant drag on the housing market,’ according to Pierre Lapointe, a Brockhouse & Cooper Inc. strategist.  …tuition expense has risen about three times as fast as wages since 2001 before accounting for inflation, according to data from the Labor Department. At the same time, the average wage for American workers between the ages of 25 and 34 dropped 7%.  Borrowing to pay for college exceeded $1 trillion within the past few months…”


Law school graduates are leaving college with an average of $100,433 in debt at a time when new lawyers outnumber legal jobs, according to a survey from U.S.  News & World Report.  Graduates of California Western School of Law have an average of more than $153,000 in loans, the most among law schools nationwide…  Average tuition and fees for private law schools have jumped 73% since 1999 to $35,743 in 2009, an American Bar Association survey shows.


States’ tax collections grew for the eighth straight quarter at the end of 2011, for the first time topping peak revenue levels seen at the start of the most recent recession, according to the Rockefeller Institute of Government and Census Bureau data.  States’ tax revenues rose by 3.6% in the fourth quarter of 2011, compared with a year ago.


The smallest increase in employment in five months may have raised concern that growth is not fast enough to reduce unemployment. The report also showed households trimmed buying plans for automobiles, homes and vacations, showing that more jobs will be needed to boost consumer spending, which accounts for about 70 percent of the economy.