International Forecaster Weekly

Games, Delusions, War Drums, and the Irrelevant Status Quo

War drum beats for oil rich nations, The Fed makes itself irrelevant, status quo needs to be hit hard, pondering metals again, corporate delusions, games to play, and  more

Bob Chapman | April 16, 2008

As the war drums in the Middle East start beating louder and oil crosses $114 a barrel to set a new all-time high, as real estate foreclosures and repossessions due to no-bids soar 57% and 129% yoy, respectively, as totally abysmal earnings from world class companies like GE drop into the tank, and while Wall Street suggests you go further into debt to take advantage of paying it back in inflated dollars based on what the Fed is doing to the dollar, analysts at Goldman Sachs and Wells Fargo describe investor sentiment as "delusional."  The "irrational exuberance" is back.  At the risk of sounding like Pink Floyd we ask: Is there anybody out there?  Anyone, that is, who is not a pipe-dreaming space cadet?  Earth to America, Earth to America, it's time to climb out of your suspended animation pod in the USS Goldilocks Starship, to wake up and smell the bitter, and ever-more-expensive coffee and to come home to the reality that all these factors are screaming for a precious metals rally as the PPT hopelessly attempts to suppress gold and silver and to keep the stock markets in a state of suspended animation hoping to revive them at a later time.

The Fed is now irrelevant, and has been irrelevant for some time now.  Its only choice was to either save the dollar and have us take our medicine now, cleanse the system immediately and send us into deflation and depression, or to destroy the dollar and inflate us into a hyperinflationary recession to be followed by an even worse deflation and depression, perhaps the greatest of all time.  Like the cowards they are, interested  only in saving themselves and their Wall Street cronies, and the rest of America be damned, they have chosen the latter course.  To use a phrase from our 911 saga: God may have mercy on them, but we won't.  The Fed must be disbanded even if we have to drive them out at the point of a sword like our Founding Fathers did to the British and to their banking allies like the Rothschild sociopaths.  In fact, we are now in a replay of both 1776 and 1812.  May we find the same courage as our forefathers to drive these conniving reprobates out of our country once and for all.  We face the Black Nobility and the European Bankers once again, and we also have our share of Tories and Benedict Arnold's as well, people like Rockefeller, Morgan, Bush, Cheney, Clinton and virtually our entire Congress.  Let's get ready to rumble!!!  All incumbents MUST be voted out of office, except for Ron Paul.  If you think the status quo is acceptable, then "may posterity forget that ye were our countrymen."

What everyone keeps forgetting is that bond prices are at 50-year highs due to plummeting rates of interest that are destroying the dollar.  If the Fed keeps lowering rates, speculation and inflation will get worse, and gold will soar.  But if they start to stabilize rates, or to raise them to support the dollar, bond principal will get cremated and a goodly portion of those many trillions of dollars in bonds will flee in terror and find their way to precious metals as a safe-haven and inflation hedge.  The other huge factor that everyone seems to keep forgetting is that inflation is determined not by the Fed discount and funds rates, but by the money supply, which is now north of 17% and climbing for M3, with MZM (money with zero maturity) over 30%!  That means that inflation is baked into the cake.  The Fed can raise rates to a zillion percent and that won't change a thing in the near to mid term.  Inflation is already 12% and headed toward 15% and beyond by the end of the year, which will drive gold and silver much higher.  So no matter what the Fed does, gold and silver can have only one trend - up - and that could get parabolic very soon indeed as our entire economy comes unraveled.
 
Another senior moment that Americans seem to suffer from is a psychotic delusion concerning corporate earnings.  Has everyone gotten Alzheimer's disease?  Is this what all these Chem-trails are about?  They certainly seem to be working if that is the case.  Where do they think corporations are going to get the money and capital to grow their businesses as energy prices climb out of sight, imports get more expensive due to the declining dollar, the credit-crunch worsens and consumption drops off a cliff?  Has everyone completely lost it?  For once we agree with Goldman Sachs, so you better write that one down as you may never see that happen again.

How can the stock markets do anything but go down from this point forward.  The PPT cannot hold them up forever.  Earnings are going down and they are not coming back up anytime soon.  We are losing 600 billion in home equity withdrawals that fueled the 2007 economy.  No new home equity lines of credit are being offered, existing lines of credit are being closed down and banks are often requiring that existing accounts  be paid off on sale or refinance due to declining home equity caused by the subprime foreclosure debacle.  That huge 600 billion injection of money which corporations enjoyed last year is now being replaced by a stimulus package that is a quarter of that size, two thirds of which will be used to add to savings or to service debt, so how can this be viewed as anything but ineffective and useless?  Rising real estate loan defaults and mortgage foreclosures, which have caused home prices to plummet at breakneck speed to the tune of about 2.5 trillion in losses to US home values thus far from the peak, has completely cut off the funds used to fuel consumption that were previously withdrawn through refinancing by use of the home ATM/piggy bank machines that used to be called "homes that we lived in."

If we get another Middle East war or one in Kosovo, oil is going to rocket to levels that will inflate everything out of sight.  All goods must be delivered to their markets, and that requires energy no matter what mode of transport is used.  Even without a war, energy prices are now eating away at profits at prodigious rates.  Food prices continue to skyrocket as well, and this puts a huge damper on family spending.   This will only get worse until the bio-fuel scam is stopped dead in its tracks.  And heaven forbid that we should suffer some sort of inclement weather such as flooding and draughts that could further strain food supplies.  Food riots are breaking out everywhere, not just because there is no food available, but because people can no longer afford the food that is offered for sale.  Between 2006 and 2007, food prices have soared 40 per cent according to a key UN index, and the rate of inflation has accelerated this year.  Then add in skyrocketing medical insurance and healthcare costs, and you have the formula for a consumerism disaster.

The credit-crunch continues to deepen as we write this article, and even now, eight months later, the IMF says that only about one quarter of subprime losses have been recognized, which the IMF anticipates will be close to a trillion dollars.  And has everyone forgotten about the rising defaults in Alt-A and prime mortgage-backed bonds and derivatives?  How many more trillions in losses will those categories suffer?  And what about credit default swaps and interest rate swaps?  How many trillions more are waiting to be vaporized in the monstrously huge gambling casino created by "financial engineering?"  And you wonder why we have a credit-crunch in our unregulated, opaque system of blackjack and roulette (sorry, we meant to say financial derivatives)?   All the money and credit and loans of government securities that the Fed is lending out at breakneck speed are being hoarded against insolvency and no one wants to stick their necks out because they cannot even figure out their own balance sheets much less those of prospective borrowers with equally labyrinthine financial statements.  Money and credit is what greases the wheels of commerce here and everywhere else.  So how can corporations get their hands on the money they need when even the largest players on Wall Street are afraid to lend to one another?  We see things getting progressively worse.  The upside has been completely taken out as far as we are concerned.  You must exit all non-resource equities.

And while we're at it, let's debunk a few myths that are emanating from the Street to keep you in the market so you can be raped with all the other idiots who want be like the 1930's morons who kept bidding up the market because they could not allow their stock market profit fantasies to fade.  First, don't think that equities will be good to hold because inflation will cause them to grow in value while bond principal and fixed incomes get slaughtered.  Hyperinflation will lead to skyrocketing interest rates, either because the Fed raises rates to keep us out of Weimar Republic status, or because skyrocketing costs have cut consumers off from spending on anything but necessities, and then even the necessities will be cut off as we move toward riots and revolution.   As consumers are devastated, the rate of defaults on all types of loans will start to skyrocket, and this will cause interest rates to rise to cover ever-increasing risk.  All corporations will suffer, and most are going to go under, as rates go into double digits.  How can you pass on the increasing cost of corporate borrowing to consumers who are defaulting on their loans and have little left to live on as their earnings are inflated into oblivion?  Betting on which corporations will survive is a poor bet, especially when you can own tangible assets like gold, silver and commodities instead.  Those assets will always have value.  Zimbabwe has the fastest growing stock market on the planet.  Are those the types of equities you want to end up owning?  What tripe.  Give us all a freaking break.

This myth about buying and holding equities ties in with the second myth, that you should borrow more money so you can pay the loan back with worthless future dollars.  That plan works great until you have no money left because you have lost your job or inflation has raised the price of necessities beyond what your ever-decreasing paycheck can purchase.  Unemployment is already over 14% (not the bogus official 5.1% we get from the Bureau of Lying (Labor) Statistics) and is heading for 35% and beyond as we all get to do a reenactment of the Great Depression in the very near future.  So getting deeper in hock at this point is essentially a future guaranty of a trip to bankruptcy court when gold, silver and commodities could have had you rolling in dough instead.  Why would you borrow money to buy a depreciating assets like real estate, autos or general stock equities when you can buy appreciating assets like precious metals and certain types of commodities like oil, food and base metals.  If you are going to borrow money, at least have the good sense to use most of it to invest in assets which will retain their value with the potential for tremendous increases, although we do not recommend use of leverage due to the risk inherent in margin plays.  Also, interest on debt service erodes what you have left to pay for necessities, assuming you are one of the lucky ones who stays employed during the upcoming economic catastrophe.  Wall street is trying to hype you into borrowing money to buy general stocks so they can get out and leave you holding the bag.  Do not listen to these miscreants.

Gold and silver are consolidating nicely now and are preparing for a huge move up.  All the fundamentals are in place.  Large specs should be using all PPT rally candy to de-leverage with proceeds stored for an assault on physical gold and silver as well as their related stocks, especially the small caps where potential leverage is now in many cases higher than is even available in futures.  Do not enter the casino until you own it.   Do not play their game - MAKE YOUR OWN GAME!  We were very encouraged to hear one of our subscribers say that he will be using the futures markets to make cash purchases of silver by paying for his purchases in full and not by using margins.   The same can be done with gold.  Finally someone who gets it!  This is one of the cheapest and best ways to buy physical bullion without getting soaked by unscrupulous dealers most of whom are out of product now anyway.  Also, stealth physical purchases could expose the cartel's soft underbelly - the lack of gold and silver in deliverable form.  Come on people.  It's time for a gold and silver induced bank holiday once again.  As a bonus, failure to deliver in the commodities market means the seller forfeits all its assets to you!