International Forecaster Weekly

Some Hopes For Rebounds Will Only Fall Flat

Operation Twist, embargos, smoke and mirrors, the american city is in trouble, boomers retire into the pension crisis, the fastest fall on record, Spain wants more time to solve their euro problems, swiss recession, housing rebound chagrin, Fed under warning over low rates, housing hype, Moody's slashing credit ratings of Detroit debt.

Bob Chapman | March 28, 2012

Seven months after the official announcement on 9/21/11 of “Operation Twist” not much progress has been made at the long end of the market to reduce yields. The yield on the 10-year T-note has gone from 1.88% to 2.3% and the 30-year bond went from 3.03% to 3.41%. The episode has been marred by hedge fund and sovereign selling, which has left the short end a little higher, but the long end much higher. The question now is how much did this cost the Fed for such disappointing results? Or in fact was this really their objective? We may never know, because the Fed hides what they do not want anyone to know. These results might not seem important but US Treasury instruments are the foundation of the global monetary system. If yields continue to increase, like they are, it forces the Fed into QE 3, which we believe is inevitable. Other nations are not cooperating, as we saw in January and February that US banks bought more government paper than they had in all of 2011. If this continues the banks will be forced to lend. That could cause a minor recovery and more inflation. That is not something the banks want to do. They want the safety of low yielding Treasuries that is why they still sit on $2 trillion in Treasuries. As of yet stock markets may be trending higher based on recovery, but we are yet to see a follow through. Recent statistics tell us generally speaking the public is out of the stock market. We believe because they do not see recovery either and many are listening to alternative radio and getting news from the Internet, which tells them of the massive markets manipulation that the US government and the Fed are engaged in. You cannot win unless you understand what they are up too.

The embargo sanctions against Iran we have spoken about on the air and in this publication. We figured out long before almost all others that these moves had to be some of the stupidest in history. The elitists have this time shot themselves in both feet. SWIFT is very important, because it settles almost every instruction in US dollars. Denying the system to other currencies is foolish. The players in dollars can create something similar to swift code or have some other front for them. End running oil shipments are even easier. As a feeble answer the US will sell oil from its oil reserves to try to reduce prices. This action is nothing but smoke and mirrors.

It is no secret that municipalities all over America are in serious trouble. Their pension plans and those of companies are vastly underfunded and little is being done to solve the problem. In 1983, 62% of Americans had pension plans. Today that figure is 17%, but this is still a large group of future participants, who for the most part are not going to get what they paid for and some, will end up with nothing. The reason for municipal failures for the most part is that pension and health care plans were never properly funded, investment results were terrible and incompetence was the order of the day. Corporate managers did not do much better. We call this the pension bomb and it has finally arrived, late but lethal.

The terrible part about all this is that the pension plan you are counting on might not be there for you when you need it. You may also not be able to take it from the pension writer leaving you with absolutely no control. Being generally ignorant to most of these facts Americans have little put away personally for retirement. They are short close to $7 trillion.

For the next 20 years 10,000 baby boomers will retire every day, which presents a crisis of spectacular magnitude. Some will get partial checks from Social Security and pensions or perhaps nothing at all. Now you know why you have to invest into gold and silver coins, bullion and shares. They are your only protection. In addition if the Dow falls back to 6550, as it recently did, we could be looking at 50% losses in pension fund stock investments. Already the total amount of unfunded pension and health care obligations for just state and local governments in the US is $4.4 trillion. We hope you have gotten the message?

Unfortunately Spain is experiencing an accelerating fall in property prices that has been expected for some time. Spaniards expected higher prices, which turned out to be wishful thinking. The economy is saddled with depression. Unemployment is 23% and youth joblessness is close to 50%. Austerity reigns and all the seeds of revolution have been planted. In response at demonstrations the police have been brutal. If you want a violent revolution, that is the way to start it. As depression grows, so does discontent.

The banks mostly owned by outsiders are basket cases waiting for a bailout, which, of course, will be paid for by the people. We are talking about the fastest fall on record. Those prices fell 11.2% in the 4th quarter yoy, and versus 7.4% in the 3rd quarter.  This kind of fall is similar to what occurred in the US after the 2008 credit crisis. Banks that have been holding defaulted loans in construction and real estate worth $520 billion are far more than bankrupt. That is a monstrous debt and it will have to be dealt with along with sovereign debt of $1.5 trillion. That is not a pretty picture.

Spain’s public debt to GDP is now predicted to be 4.8%. They are not supposed to exceed 3% of GDP. Private sector debt, mainly the banks, have debt of more than 200% of GDP. Taking a lesson from Greece if the new administration cuts too much the depression will deepen, as will tax revenues as well as unemployment costs will accelerate. Bond rates have climbed even higher than those of Italy making the situation even wore. Like Greece, Portugal, Italy and Ireland be believe in time that Spain will have to default.

Spain’s PM Rojay in his recently stated position is saying we want more time to solve the problems. His challenge to the ECB and the euro zone members is do not push to hard and too far, or you will see a real banking crisis. We will just default like the rest of the weak members. It is obvious that newer politicians on the scene are not socialists in the European sense. They tend to be middle of the road and socialists on only certain issues. The lure of world government is not alluring to them, at least not presently. Europeans do not want the euro and perhaps not the EU as well. They were created to keep Germany from conquering the world. Connective alliances really have not worked even though they are still in place. Their failure gives Rojay an opportunity for challenge to the system. He seems, as well, to be giving assistance to Germany to allow it to exit the euro zone as well and perhaps the EU. We see little chance Germans will subsidize $3 trillion.

Not much is said about Switzerland, probably because they are outside the euro zone and the EU and they use the Swiss franc as a currency. The Swiss are major exporters and are dependent upon those exports. In the final quarter of 2011 exports fell 6.8% due to its strong currency. As a result the economy is headed for recession and deflation simultaneously. As long as the euro crisis continues you will see a flight to the Swiss franc by owners of euros. The SNB has been maintaining the franc at 1.20 to the euro and it remains to be seen if that can be continued. The Swiss and the Germans have to come to terms with their stronger economies and that is not going to change. All indications are that the Swiss are going to be soon touching on recession and Germany won’t be far behind, unless banks start lending to business.

Unemployment is increasing and retail sales are falling. Even exports within the euro zone fell 4.2%, as investments fell. As we have said before unless banks lend there can be no overall recovery. Falling employment and retail is taking Switzerland toward deflation. This is not good, because the Swiss could be the catalyst to take Europe and the world into deflation and perhaps even into depression.

Bob Chapman - Goldseek Radio - 23 March 2012

Bob Chapman - Financial Survival 1/2 - March 26, 2012

Bob Chapman - Financial Survival 2/2 - March 26, 2012

Interview 485 – The International Forecaster with Bob Chapman

Bob Chapman - USAprepares - March 27, 2012

The Cancer Report (Full Version)

Last week the Dow fell 1.1%, S&P fell 0.5%, Nasdaq 100 rose 0.6% and the Russell 2,000 was unchanged.  Cyclicals fell 2%; transports 2.5%; consumers 0.4% and utilities 0.4%. Banks fell 0.4%, as broker/dealers rose 0.3%. High tech gained 0.4%; semis rose 0.1% Internets gained 1.6% and biotech’s were unchanged. Gold bullion was about unchanged, the HUI fell 06% and the USDX fell 0.6% to 79.32.

The 2-year T-bill fell 1 bps to 0.35%; the 10-year T-notes fell 6 bps to 2.23%. The German 10-year bund fell 19 bps to 1.86%.

The Freddie Mac 30-year fixed rate mortgage surged 16 bps to 4.08%. The 15’s rose 14 bps to 3.30%, the 1-year ARMs rose 5 bps to 2.84% and the 30-year jumbos rose 4 bps to 4.61%.

Fed credit fell $0.3 billion up 10.2% yoy. Fed holdings of central banks rose $57 billion ytd and $76 billion yoy, or 2.2%.

M2, narrow, money supply rose $12 billion to $9.813 trillion. That is up 8.7% ytd and 9.8% yoy.

Total money market fund assets fell $15.5 billion to $2.622 trillion.

Total commercial paper outstanding fell $5.6 billion to $931 billion.


All the people and all the king’s men that were playing for the long-awaited housing rebound were chagrined on Friday.

February New Home sales fell 5k (to 25k, 2nd worst Feb; 60% not built yet) to 313k annualized; 325k was expected. Plus KBH reported ugly Q1 earnings…If Team Obama doesn’t produce a new scheme to boost housing soon, homebuilder stocks, which have more than doubled since October, will be very unhappy.

We have warned for the past several weeks that just like last year, perverted seasonal adjustments have overstated economic strength in Q4 and Q1 due to the Crisis of 2008-2009; and this year, record warm weather is purloining future economic activity.

The beneficial seasonal adjustments are about to turn negative. Be prepared!

Fed warned not to keep rates too low for too long. With Fed Chairman Ben Bernanke looking on from the audience, Masaaki Shirakawa, the governor of the Bank of Japan, and Jaime Caruana, the general manager of the Bank for International Settlements, said extremely easy policy is appropriate in response to a crisis but the costs of the policy rise as time goes by. He [the hypocritical Shirakawa] pointed to rising commodity prices as one of the unintended consequences of the Fed’s low rate policies.

Fitch: The Federal Reserve Bank of New York recently reported that as many as 27% of all student loan borrowers are more than 30 days past due. Recent estimates mark outstanding student loans at $900 billion- $1 trillion. Fitch believes that the recent increase in past-due and defaulted student loans presents a risk to investors in private student loan ABS, but not those in ABS trusts backed by FFELP loans.

Several macroeconomic factors are putting pressure on student loan borrowers. The main ones are unemployment and underemployment. The Bureau of Labor Statistics estimates the current unemployment rate for people 20 to 24 years old at nearly 14% and for those 25 to 34 years old, 8.7%. Underemployment is difficult to measure…but it is likely having a negative impact…

Diana Olick: Housing Hype: Recovery Turns to Relapse? And then an email from a Realtor in New Jersey: “Just reviewed March buyer clicks, Google’s analytics on all the sites we monitor – March is turning out to be the weakest month since last October re: Buyer interest..”…

Investors are still rushing into the market, with distressed sales making up a near-record 48.7 percent of sales in February on a three month moving average, according to a new report today from Campbell/Inside Mortgage Finance. Investors are now a full quarter of the market, and they are increasing their activity in short sales (when a lender allows the home to be sold for less than the value of the mortgage).

Don’t get me wrong, investors buying up the distress is necessary to cleanse the market, but it is not real recovery. Mortgage originations are at a 12-year low, despite record low rates. Normal, “organic” home buyers, move-up owner occupants, are not flooding back into this market…


The Rich Get Even Richer [Thanks to Ben; too many Ivy profs ignore facts that contradict their biases.]

In 2010…a dizzying 93 percent of the additional income created in the country that year, compared to 2009 — $288 billion — went to the top 1 percent of taxpayers, those with at least $352,000 in income. That delivered an average single-year pay increase of 11.6 percent to each of these households…the super rich got rich faster than the merely rich. In 2010, 37 percent of these additional earnings went to just the top 0.01 percent, a teaspoon-size collection of about 15,000 households with average incomes of $23.8 million. These fortunate few saw their incomes rise by 21.5 percent. The bottom 99 percent received a microscopic $80 increase in pay per person in 2010, after adjusting for inflation. The top 1 percent, whose average income is $1,019,089, had an 11.6 percent increase in income…


A senior House Republican on Monday accused President Obama of going back on promises he would not weaken U.S. missile defenses through negotiations with Russia after the president was overheard promising more concessions after his reelection.

Rep. Michael R. Turner (R., Ohio), chairman of the House Armed Services subcommittee on strategic forces, sought an explanation for the overheard comments made by the president Monday in a discussion in Seoul with Russian President Dmitri Medvedev…Senate Republican Whip Jon Kyl criticized the president for promising concessions on missile defense.


Moody’s has slashed the credit ratings of more than $2.5bn of debt issued by Detroit in a move that could trigger payments related to its swap agreements, placing further pressure on the city’s precarious finances.  More than $2bn of Detroit’s debt was downgraded… by two notches to B2 from Ba3. A downgrade below Ba3 results in a termination of agreements that swap payments on a chunk of that debt from floating to fixed rates. That termination allows Detroit’s counterparties to demand a payment of $350m over the next seven years, the mayor’s office said…  Detroit has accumulated debts of more than $10bn, and its budget deficit could swell to $270m by the end of June.