International Forecaster Weekly

Competing Narratives In Our Economic Outlook

The deception continues, silver manipulation, a criminal enterprise in the gold and silver markets, pension needs underestimated for an aging population, J.P. Morgan and Wells Fargo grilled by analysts, competing narratives in the market.

Bob Chapman | April 18, 2012

Deception continues, as we are told unemployment (U-3) is 8.3%; without a mention that (U-6) is 14.9%. That means if you eliminate the birth/death ratio you come up with an overall unemployment number of 22.4%.

As we mentioned earlier we expect the administration to try to attempt to push U-3 down to 7.5% before the election. Whether they will be successful in that endeavor remains to be seen. In reality almost 1/5th of working Americans are either unemployed or underemployed.

In a recent issue we included a link of an interview with the head of commodities for JPM, Blythe Masters. What she had to say concerning the silver market was very interesting. At least over the past five years even speaking about manipulation on CNBC has been forbidden. This latest encounter was staged in order for Morgan to officially cover its tracks in what the CFTC has allowed to become a rigged, manipulated market. JPM for the first time in Ms. Masters, answer has admitting silver manipulation.

The interview, a puff piece, was programmed ahead of time and was supposed to be an explanation of what JPM was up too, because more and more professionals were questioning the firm in what they were up too. Then again the CFTC may be finally being forced to do something in regard to Morgan’s market manipulation. This move by the CFTC could be prompted by the lack of silver inventory ready for delivery. The Masters appearance may be to stress legal normalcy when they are forced to reply to CFTC allegations. Best of all Morgan may be forced to cover.

This Blythe Masters incident had led to all types of speculation and it should, as it is a major issue. Her responses to the CNBC interview were full of misstatements. Now you can in part understand what JPM has at stake. In the eventuality that the JPM may incur massive losses in its speculative adventures. JPM moved its best assets into CIO, due to the Volker rule that protects the assets via the FDIC.

Masters said that JPM stores silver on their “clients behalf and the clients hedge the investment via JPM. This is tantamount to hedging your own client’s position. The hedge by JPM is a JPM action to play the other side of the trade.

You have to love this one by Masters. “Our commodities business is not about betting on commodity prices, it is about assisting clients in executing and managing their risk.” If you believe that you will believe just about anything. A parallel position is why do they need offsetting positions? If that is the case are we all to believe that of JPM’s $76 trillion in derivatives is client driven as well? Then the question arises is their largest client the US government? Does the CFTC allow Morgan’s 3 other major banks to hold such positions, because they really belong to the government? Or will the CFTC perhaps finally define swaps, which in retrospect is fraudulent fraud, but no action will be taken.

The statements of Ms. Masters without prior attempt to answer manipulation charges tells us something is on the way. Could it be pressure has been brought to bear regarding part of Morgan’s positions that were lent to three other big silver shorts to make it look like they were going to buy and assume their positions? That constitutes parking, which is against the rules. All four would be guilty of aiding and abetting and fraudulent conveyance.  This situation is a dark and dirty as it gets.

We hope the episode ends up in fines and jail time but that probably is too much to ask for. What has been done to all markets since 1988 has been despicable, especially the gold and silver markets. It all has been a criminal enterprise. You will be hearing the word concentration over and over again, if our guess is correct and that is what this is all about.


Last week the Dow fell 1.6%, S&P fell 2%, the Russell 2000 fell 2.7% and the Nasdaq 100 was off 2.3%. Cyclicals fell 2.3%; transport 1.7%; consumers 1.2%; utilities 1.6%; banks 3.5%; broker/dealers 3.6%; high tech 1.5%; semis 1.6%; Internets 1.3% and biotech’s 5.7%. Gold bullion rose $22.00, the HUI rose 2.7% and the USDX was unchanged at 79.89. Two-year T-bill rates fell 5 bps to 3.13%, the 10-year T-notes 7 bps to 1.98% and the 10-year German bund was unchanged at 1.73%. M2, narrow, money jumped $21.9 billion up 8.5% year-on-year.


Speculative-grade companies, owned by private-equity firms, got loans to pay dividend payments at the fastest pace in a year as buyouts wane.  Borrowers owned by investors including Blackstone Group LP and Bain Capital LLC, got $12.6 billion in funding to pay distributions during the first quarter, following $25.5 billion in all of 2011


U.S. corporate profit growth stalled in the U.S. last quarter as companies from McDonald’s Corp. to 3M Co. saw gains in the world’s largest economy eroded by a slump in Europe.  Earnings at Standard & Poor’s 500 Index companies, excluding financials, are seen gaining 0.6% in the first and the second quarter from a year earlier, according to analysts’ estimates… the slowest growth rate since 2009.  The European debt crisis and a slowdown in China are hurting S&P 500 companies, which derive about 40% of profits from abroad.

The U.S. government’s budget deficit widened 5.3% in March, as outlays increased on recurring benefit payments and a subsidy re-estimate for the Troubled Asset Relief Program.  The shortfall expanded to $198.2 billion from $188.2 billion a year earlier… ‘The government budget deficit is still bursting at the seams with little chance that either side of the aisle is willing to shake hands and get a deal done,’ Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi… said… ‘The economy is growing again but we can’t grow our way out of these trillion dollar deficits.

As you now know, James Corbett of the Corbett Report will be writing the editorial each weekend and I will write the report mid-week.

In order to access the Corbett Report:

BOB CHAPMAN w/Joyce Riley – Power Hour

The U.S. economy probably expanded at a 2.6% annual rate during the first three months of the year, according to updated estimates of economists surveyed by MarketWatch, following stronger-than-expected retail sales in March. Two weeks ago, the median forecast was for 2% growth in the first quarter. Economists have been tweaking their forecasts higher since then, based on improvement in the trade deficit, inventories and retail sales. In the fourth quarter, the economy expanded at a 3% pace, and has grown 1.6% over the past four quarters. Economists expect the economy to accelerate this year, with growth of 2.4% in the second quarter, 2.6% in the third quarter and 2.9% in the fourth quarter.


The U.S. and other governments are likely underestimating the life expectancy of their aging populations, a risk that could boost pension liabilities by nearly 10% and balloon already massive public debt levels, the International Monetary Fund warned… The IMF said many governments should act now to raise mandatory retirement levels and encourage pension plans to better hedge their risk.   ‘Delays would increase risks to financial and fiscal stability, potentially requiring much larger and disruptive measures in the future,’ IMF economists wrote


JPM earnings beat by .02 due to a $1.8B loss reserve reduction and increased mortgage lending. But CEO Dimon warned investors to expect higher costs and losses for mortgage-related issues. Then why is Dimon depleting loss reserves & capital? Where are the regulators? Who’s really in charge?

J.P. Morgan's quarterly profit got a $1.8 billion boost because the bank reduced its overall reserve, the money set aside for potential future losses from delinquent loans. That, "ultimately... carried the day," said JMP Securities analyst David Trone…

Overall, the bank's credit-loss provisions--funds set aside each quarter to offset loan losses—totaled $726 million, down from $1.17 billion a year earlier and below the $2.18 billion set aside in the fourth quarter. The provision in middle-market commercial and in consumer lending rose, but that is a reflection of loan demand in those divisions, Braunstein said. More loans require higher reserves for potential defaults.


J.P. Morgan Chase & Co. and Wells Fargo & Co., two of the strongest banks in the U.S., faced a barrage of questions from analysts over their problems containing expenses, which increased largely because of legal problems stemming from the housing bust. Although earnings at both banks exceeded Wall Street estimates, that was largely because both are scaling back the amount of money they have set aside to cover future losses... [After quarters of depleting loss reserves and under-reserving legal costs, the jig is up. Of course you’ve been hearing this from us for quite awhile.]


So Rep. Allen West thinks the Democratic Party is full of communists? Wait until he gets a load of the new Nazi lobbyist. No, seriously.

On Tuesday, the same day that West was fantasizing about 80 members of Congress being card-carrying members of the Communist Party, the actual American Nazi Party was making its move onto the Hill. One John Bowles registered with the Clerk of the House that day as a lobbyist for for the white supremacist group (hat tip LegiStorm). Bowles was the National Socialist Movement's presidential nominee in 2008.

What could the Nazis want to lobby the Congress about? "Political Rights and ballot access laws," according to the registration form, which also lists lists accounting, agriculture, clean air and water, civil rights, health issues, the Constitution, immigration, manufacturing, and retirement as "general lobbying issue areas." Who knew the Nazis had strong views on agriculture?

Bowles seemed genuinely puzzled when I asked him whether he really thinks that any members of Congress or Hill staffers would take a meeting with a Nazi lobbyist. "I don't see why not," he says, adding that he knows lobbyists rely on their credibility. "Of course I won't approach anybody in Congress unless it's a very interesting issue or law," he promises. "I'm going to be very careful about the issues I choose for this."

He might also be careful about the members he approaches. For example I'd avoid Debbie Wasserman Schultz, Joe Lieberman, and Chuck Schumer. Oh yeah, and Allen West too.


Rod Blagojevich is in prison. But the worst things the former governor did to Illinois weren’t even illegal.  This month, the Teachers’ Retirement System of the State of Illinois made a dire announcement to its members. TRS, which covers most public-school teachers in Illinois outside Chicago and has more than 360,000 members, said the following:  ‘If the General Assembly does not continue to provide all of the funding called for in state law, calculations done by TRS actuaries show that the System could become insolvent as soon as 2030. Preventing insolvency may include significant changes for TRS -- new revenues must be generated and if they are not benefits may have to be reduced.


California must increase contributions to teachers’ pensions by more than half to close a $64.5bn funding hole in the country’s second largest public retirement system, according to the actuarial valuation to be presented to the board of Calstrs this week.  The $144bn of assets managed by the California State Teachers’ Retirement System covered only 69% of future liabilities at the end of June 2011, a drop of 2 percentage points from the year before. In a sign of the problems faced by many public pension plans, the hole is too large to be covered by better investment performance.

The California State Teachers’ Retirement System, the second-biggest U.S. public pension, said the gap between its assets and projected obligations rose $8.5 billion as investment gains failed to cover earlier losses.  The unfunded liability climbed 13% to $64.5 billion as of June 30… The system had about 69% of assets needed to cover promises to current and future retirees at the end of fiscal 2011, down from about 71% a year earlier.

The NAHB/Wells Fargo Housing Market index slipped to 25 from 28 in March, shy of economists' expectations for the index to hold steady at 28…The index has a long way to go to the 50 mark that indicates more builders view market conditions as favorable than poor. The index has not been above 50 since April 2006…

The single-family home sales component fell to 26 from 29. The gauge of single-family sales expectations for the next six months eased to 32 from 35, while prospective buyer traffic waned to 18 from 22.

Consumer Price Rise Puts Fed in Quandary by Jon Hilsenrath [Fed maven] and Conor Dougherty The Fed has been predicting since the 2008 crisis that immense economic slack in the form of unemployed workers, vacant homes and idle factories  would hold inflation down because it would make it more difficult for firms to raise prices or workers to win wage increases. But inflation has repeatedly moved above the Fed's expectations during the recovery... [And that means no more QE]


El-Erian: What the Return of Market Volatility Tells Us.

The renewed volatility in stocks was due to conflicting signs of additional central bank liquidity support, both in Europe and the US. By providing time (and hope) for economic and financial fundamentals to heal properly, such support is seen as critical to sustain the recent rally in risk assets.

Yet, in listening to different voices here and across the Atlantic, equity investors come to different conclusions as to whether additional liquidity will indeed be forthcoming…

Some officials seem committed to renewed unusual central bank activism. Others feel that this would only postpone the inevitable adjustments required on the part of governments, companies and individuals.

And there seems to be no way, as yet, to get both groups on the same wavelength quickly. Market volatility has also been accentuated by competing narratives about the economic outlook.