International Forecaster Weekly

Cartel Delivers Sucker Punch to Market Investors

Markets in peril of coming down, Inflation threatens to destroy consumers, bonds without a market are worthless, the bane of a privately owned central bank, truckers threaten action, hedges blow up, Bush spreads manure on White House Lawn

Bob Chapman | May 24, 2008

The "sucker's rally" in the general stock markets took a big-time sucker punch from the cartel as the short-covering from the rolling over of gold futures from June 08 to August 08 kept upward pressure on the price of gold, which finished up $26.50 for the week, as silver joined the party by adding $1.31 per ounce.  The cartel has now expended 550 Dow points of market-crashing power to drain liquidity from the specs to put pressure on precious metals.  This latest bout of "yellow fever" was not the result of another super-yen appearance out of the Japanese bankers' closets because the yen traded in a fairly tight range all week of about 1.5 yen per dollar and per euro, although there was the usual correspondence of down days with a stronger yen and up days with a weaker yen.  Incidentally, that one-week range may not sound tight for most currencies which generally move up and down at a fairly slow pace, but it is very tight for the raucous yen which has changed its value against the dollar by twice that much in a single day when the cartel is on the warpath against gold - check out March 17, 2008 on the yen charts.  While the weakening of the yen for the benefit of financially crack-addicted carry traders is absolutely crucial to push stock markets up without the cartel having to go bankrupt, the strengthening of the yen is no longer necessary for a decline of stock markets and does not require a stronger yen for the process of decay and deterioration to occur.  That is because the stock market fundamentals are now so incredibly bad that all the PPT has to do is withdraw its support and the markets come tumbling down.  The yen is used to make the decline steeper than it would otherwise be, but the general stock markets no longer need any help to make their way down.  They crash and burn quite nicely these days even without super-yen.

The cartel is now afraid to strengthen the yen too much less it send the stock markets into oblivion as oil tops 135 and as some of America's largest cities like Vallejo, California goes bankrupt based on soaring costs and lack of revenue.  This will soon become commonplace as inflation destroys consumers, and as the resulting reduction in household expenditures annihilates tax revenues, especially sales tax revenues.  However, due to many capital losses for those being destroyed in the stock and bond markets, income tax revenues will soon plunge, and due to the burgeoning number of foreclosures, real estate taxes will also be hit.  That is a triple whammy that will send many larger and smaller cities alike into bankruptcy court.  When the revenues drop, the cities and towns will also drop employees, and this will feed into the loss of revenue by increasing unemployment benefits and decreasing sales and income tax revenues.  This is a vicious cycle that feeds on itself and that will soon ravage municipalities everywhere, many of which are on the verge of insolvency already, and this is just the beginning.  Next, come the constant and continual downgrades of municipal bonds and the inability of municipalities to raise funds due to much higher interest rates or a lack of interest in buying bonds from cities and towns that are on the verge of bankruptcy or that have already gone under.  This will destroy the municipal bond insurers and raise interest rates across the board as increased risk and risk reassessment become pandemic, a problem that has already destroyed the auction rate municipal bond market for which Wall Street will no longer make a market.  Hundreds of billions of old auction rate bonds that were rated AAA and considered the equivalent of cash remain without a market and are therefore functionally worthless.  We see nothing but bad things on the horizon for our cities and towns and their citizenry.

Note that the rollover of gold futures contracts will be completed next week.  The initial tally on April 30 had June contracts of open interest at 248,355 and August at 47,406.  As of Thursday, those numbers stood at 163,127 and 143,608, respectively, meaning that June contracts of open interest have decreased by 85,228 contracts while August contracts of open interest have increased by 96,202 contracts.   That means that the rally still has legs, and that after the current rally peaks next week based on short-covering, there will be a short period of consolidation after which gold and silver are up, up and away!  This rally has legs.  The correction is over and those who are waiting for the usual summer slump are going to get a very big surprise. Wait until you see what happens in July when the seasonal adjustments that have artificially lowered official CPI and PPI are removed and all the suppressed inflation flows back into official numbers.  Gold and silver are headed for the moon, so don't miss out on the coming rally.  Take your position now and sit back and watch the precious metals go to town.  There were some very telling large declines in open interest this past Wednesday for contracts that are further out in time.  The commercials are fleeing in terror as they contemplate how high gold and silver are going to go in the both the near future and in the more distant future alike.  On Wednesday, we saw various decreases in open interest for later expiration dates on gold futures contracts as follows:  October 08: minus 3004 contracts, February 09: 6,392 contracts, June 09: 1,167 contracts, June 10: 3,329 contracts and December 11: 1,368 contracts.  That is a decrease of 15,260 contracts in one day, on top of the 16,761 June 08 contracts that were closed out and rolled over into August 08, which gained 16,850 contracts.  Overall open interest on Wednesday dropped from 453,084 to 439,773, a decrease of 13,311 contracts which is roughly the amount that was lost on account of open interest losses on contracts with later expiration dates.

  We have seen what has to be massive naked shorting of resource stocks to prevent them from confirming the new rally in gold and silver.  Also, the market-crashing techniques used by the cartel cause sell-offs even in resource stocks, which have nevertheless held their ground while the rest of the stocks got slaughtered.  The effect of these market crashes will decline further and further as gold and silver go to the moon.  The stock market slaughter partly explains why resource stocks have barely budged from a week ago despite huge gains for the precious metals.  This type of suppression will be all soon be in vain as general stocks are pounded, as bonds and treasuries are shunned and as gold and silver become the go-to assets of choice along with their related resource stocks.

The existence of a privately owned central bank is a bane to our society, as is our puppet government.  This is the precise opposite of what our Founding Fathers intended.  The Fed can and will use their immense power to help insiders to the exclusion of non-insiders, bestowing their largesse on those who would do evil to the exclusion of those who attempt to operate legitimately.  This is what Bear Stearns was all about.  All incumbents must be removed and the Fed must be terminated. Otherwise moral hazard will run rampant and get completely out of control.

Truckers near Saratoga Springs, New York rallied and suggested that they stop delivering to New York City.  They have the right idea and should include Washington, D.C. in their driving embargo.  When Wall Street and the corrupt government officials have the problems caused by inflation and high fuel prices come home to roost in their own backyards, you can bet we will see some action taken.  We had several money bombs for Ron Paul recently and we ask the organizers of these fund-raisers to turn their efforts to the trucking industry, especially to the Independent Truckers.  Let's start a money bomb to support our truckers and help them survive as they take on the clowns that have pushed us into our current debacle.  Big oil and big government have suppressed the construction of oil refineries, killed off the production of domestic oil by wildcatters with price suppression schemes and have killed patents for alternative forms of energy by buying out, threatening or killing off inventors while they allow the technology for the creation of the bio-fuel scam to be promoted to kill off the "useless eaters" with food shortages.  Let's hear it for our truckers who fought off our corrupt government's attempt to introduce Mexican truckers to our highways in support of the upcoming formation of the now not-so-clandestine North American Union.  Our truckers get it:  "And we crashed the gate doin' 98, let them truckers roll, 10-4."  Sing it CW!

The Bush neocons will restart food aid to North Korea providing 500,000 tons of food, the largest one-year amount since 1999, as America’s food bills head into outer space. Although our liars at the State Department would deny it, this is part of a payoff to keep North Korea from developing nuclear weapons.

Global corporate defaults in 2008 have surpassed the total for all of last week. S&P reports 28 defaults on $18.9 billion of debt, compared to 22 for all of last year and 30 in all of 2006.

Lehman Bros is in serious trouble as their hedges blow up. Rumors are Merrill will announce more writedowns and Goldman has something going on a well. We believe Goldman has lots more toxic waste. The financial stocks have broken down again and this time should be a real bloodbath.

It is not wonder Pimco wants a taxpayer bailout of lenders and mortgage borrowers. Bill Gross must think he is an appendage of the US Treasury. He has tripled his holdings of mortgage debt to more than 60% of his fund. God help his shareholders.

A year ago he sold out of CDO’s, etc., predicting a housing downturn. That move allowed him to beat 99% of his peers with a 12.6% return. He based his latest buying back of toxic garbage on the US government’s (taxpayers) implicit guarantee of Freddie Mac and Fannie Mae. He says, “Government policy is moving to sanctify the status of the GSE’s.” His total Return Fund in now invested about 61% in mortgage debt, versus 20% a year ago. He also says it isn’t in toxic garbage, but we say other sectors will be hit.

Moody’s has cut the senior unsecured debt rating of American International Group from Aa2 to Aa3.

Mesa Air group may file for bankruptcy if Delta Air ends it contract with them.

Twice as many Americans expect the value of their homes to fall in the next 12 months than a year ago. The Reuters/University of Michigan report is the latest indicator of grim sentiment among consumers, who have been hit by the worst housing collapse since the great depression, in addition to record energy and food costs and a shrinking job market.

The proportion of respondents who expect their home’s value to decline during the year ahead rose to 28%, double the 14% yoy, only 17% thought their house would increase in value versus 35% yoy. The average annual gains they expect over the next 5 years slid to 2.5% from 3.9% yoy. Five-year inflation expectations for the overall inflation rate was 2.5% versus 3.3%, meaning they see a decline in the real value of their homes.

Yesterday, our President used a White Housed lawn stacked with props to press Congress to approve free-trade pacts with Columbia, Panama and South Korea, so he can send more American’s jobs to these countries.