International Forecaster Weekly

To What Level Interest Rates?

pause and reflect upon the numbers, Plunge Protection Team keeps the reality hidden, Yen manipulations, impacts from inflating economy out of recession, Mississippi drowning, farmers starved out of business due to fuel and fertilizer costs, cost nightmares for health benefits

Bob Chapman | May 3, 2008

On February 7, 2008 the lead contract on the USDX closed at 77.120.  On that day, the Fed funds rate stood at 3.00%, the discount rate stood at 3.50% and the price of gold was trading between 896 and 912.  Now this past Friday, May 2, with the lead USDX contract closing at 73.690, the Fed funds rate at 2.00% and the Fed discount rate at 2.25%, the price of gold is trading in the 845 to 860 range, $50 per ounce less than the price range on February 7.  So, the fact that since February 7, the funds rate has been lowered 1.00%, the discount rate has been lowered 1.25% and the USDX has closed 3.43 points lower, appears to translate into lower gold prices, prices that are $50 per ounce less than they were on February 7!  Sure, there was some anticipation about rates being lowered after February 7, but come on, to what level?      We'll tell you what level.  The level we are at currently, of course, which is what was anticipated by virtually everyone according to futures that anticipated all these events.  And now we are told about a possible pause that is currently being jawboned by the Fed and the fane-stream media, but with the potential for even lower rates, and certainly not for higher rates that would send us into deflation and economic destruction.  

Does anyone in their right mind think that rates will be raised to support the dollar when the darlings of fraud on Wall Street are about to get a big "swirly" in the gargantuan financial toilet bowl where we now all collectively find ourselves?  At this point, we simply have a pause, so the Fed can retain some of its rate-lowering ammunition in order to thwart the next debacle, which will take the form of Alt-A mortgage and credit card defaults mixed with a further and ever-deepening bank insolvency, a worsening credit-crunch, hyperinflation, a sagging and negative GDP, nonexistent consumer spending despite the piddling stimulus, even lower corporate earnings and a potential war against Iran and Syria.  SO WHAT GIVES?  Can we suggest massive manipulation and gold price suppression by the cartel and their diabolical insider trading team known at the PPT (Plunge Protection Team)?!  Heaven forbid that the US public should ever be told the truth about the dire state of our economy.

    How can the dollar do anything but continue its drop into fiat money hell with actual, as opposed to official, inflation in excess of 12% which is currently rising and trying to catch up to an M3 of 18%?  Are traders now that brain-dead that they continue to listen to the fane-stream media's current mantra for sucker-dupes that the worst is behind us and its back to Goldilocks and the three cute, furry, cuddly bears?      The only bears we've seen are the bear market bears and the bear that was shot and slaughtered by a conspiracy between the Fed, JP Morgan Chase, the SEC and the Treasury, that bear being Bear Stearns, of course.  The dollar is currently getting a steroid injection by the PPT which will soon fade and wear off as reality sets in and all thoughts of a Fed pause or rate increase are vaporized into the dreams of dollar bulls that they really are.  How much further up can the dollar possibly be pushed as treasuries are shunned as an investment by foreigners and are exchanged for toxic waste while OPEC nations consider dropping their dollar pegs?  How much further can the dollar be supported when the support it needs will destroy the derivative asset bubbles, rate spreads and balance sheet chicanery that are now being used as Band-Aids and bailing wire to hold the bloodied and beaten economy together?

     The only thing supporting the general stock and bond markets is the PPT and their yen manipulations.  The yen was at 105.711 yen per dollar on Friday with the Dow at 13,058.20.  Compare that with a yen of 96.88 on March 17 and a Dow of 11,972.25.  Rally mystery solved.  It has nothing to do with fundamentals and everything to do with manipulation.  Japan has got to raise their rates soon or be completely and utterly destroyed by inflation as ever-declining dollars are flooded into their economy and as oil, food and other commodities which must all be imported and paid for with an artificially weak yen destroy the earnings of Japanese corporations.  The weak yen is a two-edged sword.  It makes their exports cheaper but raises the prices of goods imported that are used to produce those exports.  Soon, the cost of goods will offset the export price advantages of a weak yen and the Japanese economy will go down in flames like Yamamoto. When Japanese rates finally go up as the Japanese are forced to face reality, the carry trade will be taken down with a body-slam worthy of Hulk Hogan and all US financial markets will be destroyed in the process. The go-to assets at that time will of course be gold, silver and their related shares.  

     When the gold futures contracts on the COMEX were rolled over at the end of March into mainly the June contract, gold was trading at 904 to 1,012.  Does anyone think that the large specs are going to take this lying down with gold at current levels and very low levels of open interest?  These commodity contracts are all they have as they de-leverage their general stock market assets into PPT provided strength and flee bonds on account of "the pause."  They do not have the privilege of being bailed out by Fed loans of money and exchanges of treasury securities for toxic waste.  They cannot afford to be over-leveraged in stocks with such terrible fundamentals that will only get worse as time exposes the cartel's manipulations to be a mirage and the Wall Street fairytales become more like those written by the Brothers Grimm.  Oil will come down and the stock markets will be crashed by super yen as the precious metals start to rally, so any specs who do not prepare for these issues in advance can expect to join Bear Stearns in the slaughterhouse.  The precious metals consolidation is now complete and must be executed by the end of May or many large specs will face extinction if they do not get the ball rolling soon.  So be supportive and take your positions in gold and silver to help the specs as they take us to the next level.              

We have talked about draught, flooding, better diets and ethanol as the factors that affect the price of food, but we have overlooked the affect of lower interest rates. Lower rates mean more speculation as investors and speculators week out higher returns. Generally speaking the food supplies are there, but higher prices cancel that availability. Commodities are sold and bought in terms of US dollars and when the dollar is allowed to fall, as it has been that pushes prices ever higher. Low interest rates and a weak dollar are major contributors to higher food prices. Thus, an overlooked factor in the cost of food is the reckless monetary policies of major nations, and particularly those of the US and the Fed. The lowering of interest rates has been largely unsuccessful from a monetary standpoint, and it looks like for now this lowering has ended at least temporarily. Unchanged official interest rates are a holding action. Real interest rates have already risen substantially and that means that the US economy will move deeper into recession and that it will be more difficult to solve the credit crisis. Higher rates should bring a temporary easing of commodity prices. Once the stock market begins to fall and the correction in bonds widens the speculators will return to the precious metals and commodities markets. How long it will take is hard to say. PM’s and some base metals have already had substantial corrections, so the bottom in those investments could be close at hand. The beans and grains probably have a way to go. Be as it may the major part of the correction is almost over.

As you can see the Fed and other central banks, in an effort to inflate their way out recession, have caused a multitude of other problems. In Europe and England inflation is at 7% to 10% and in the US some 12-1/2%.  Now you ask where is this headed? If rates are to be left unchanged officially they’ll rise in the real market and that means, M3, money and credit, will have to rise further. If M3 is not elevated to a new level deflation will get the upper hand and we’ll quickly head into depression. In that event all commodity prices will eventually moderate but gold will rise in the flight to the only real currency that owes no one anything. We should again remind you that the dollar has been falling against gold for almost 8 years and for 4 years against other major currencies. Our take is interest rate reductions are probably over but no increases are planned. Thus, any lowering of prices of any commodity or precious metal will only be temporary and any easing of food prices will be transitory at best.

Even if the dollar remained unchanged at current levels the US would continue to export inflation and in time in the absence of any real monetary changes it will continue to deteriorate. The high cost of food and energy caused by rising inflation and a falling dollar are here to stay, unless the system is allowed to purge itself and we see little hope of that happening. The Fed is not serious about defending the dollar. Wall Street, banking, corporate America and politicians are more important. What the Fed should be doing is raising interest rates, but again, that isn’t about to happen. They want the people in the third world to starve to death. They are just useless eaters anyway. For that matter they could careless about anyone but themselves and their Illuminist collaborators.

The Mississippi River is at its highest level in 35 years and that has put hundreds of thousands of acres of farmland under water. There will be major agricultural losses and extensive damage. There are 855,750 acres under water and the damages will be in the hundreds of millions of dollars. Many farmers will never return to the land having gone bankrupt. The flood hit as farmers were preparing to harvest wheat and corn, soybeans and cotton. This follows a drought that left much of the region parched for several years.

Farmers are then facing $4.00 gas, $4.10 a gallon diesel and fertilizer costs that just rose from $68.00 an acre to $100.00 an acre. Farmers had already planted and each one is facing over $100,000 in losses already. That could be solved by the Yazoo Backwater project but environmentalists are fighting to kill that project.

Since rules took effect on April 1st for mortgage borrowers to be able to get jumbo loans over $417,000 all there has been is frustration and disillusionment, because the loans are either not available or the rates are far higher than expected. This program’s failure is now allowing a new wave of foreclosures and a rising inventory of homes for sale that will deepen and prolong the economic downturn. To illustrate the impact only 8% of loans were subprime and 14% in 2007 were jumbos. This will hit California, Arizona and Nevada the hardest. If these upper tier markets are unable to get refinancing or financing there could be contagion as we have seen in the subprime and ALT-A categories. This is a $3 trillion jumbo market and the lenders are not following through. The 30-year fixed rate mortgage was 6.07% last week and jumbo borrowers are being forced to pay 7% to 9%, when the 10-year Treasury is 3.80%. We call that greed on the part of the bankers. Loans are usually made 1% to 1-1/4% above that 10-year note rate or at 3.80% to 5.05%. You either pay the bankers toll or you are out on the street.

We have been receiving reports that some companies are discouraging cash payments to pay bills by charging an extra service fee for accepting cash. It is called a courtesy fee or at least that is what AT&T Wireless calls it. This policy of course targets the poor and those who refuse to use checks and credit cards.

Soldiers who need special waivers to get into the Army because of bad behavior go AWOL more and often face courts-martial. They also get promoted faster and re-enlist at a higher rate, get promoted faster to sergeant, have a lower rate of dismissal for personality disorders, have a lower rate for dismissal for unsatisfactory performance and are more decorated.

They have a higher desertion rate, higher misconduct rate, more courts martial and a higher dropout rate due to alcohol.

This may be rough a bunch but the Army seems to be able to handle them well.  

The National Association of Purchasing Managers – Chicago business barometer edged up to 48.3 from 48.2 in March. The employment component fell to 353 from 44.6 in March. Prices paid slipped to 82.9 from 83.9 and new orders eased to 53 from 53.9. This is three straight months of contractions.

The Treasury says it will bring back the 52-week bills after a 7-year absence because of higher borrowing needs prompted by falling revenues, higher spending and debt redemptions by the Fed.

They also announced a $21 billion refunding of 10-year notes and 30-year bonds to pay down $53 billion in maturing debt in auctions next week.

Defaults on privately insured US mortgages rose 37.2% in March, as a growing number of homeowners failed to keep up with loan payments. 58,130 insured borrowers were at least 60 days late on payments in March, up from 42,362 yoy, but down 4.6% from February’s 60,911. These are a precursor to foreclosure.

Our Treasury Department wants to give the Fed new regulatory powers to try to stop credit and asset market excesses from reaching the point where they threaten economic stability. They call it, if you can believe this, “Macro-prudential” authority to order, hedge funds and other entities to curtail strategies that put financial stability at risk. An investment commissar or a financial SS. This is a privately held corporation run by Illuminists that will complete the marriage of corporations, finance and monetary policy with and within government to more nearly construct a corporatist fascist government. This would be a centrally controlled command economy engaged in central planning and market manipulation.

As another example, Sheila Blair, one of the country’s top banking regulators, proposed fighting the housing crisis by using low cost government loans to assist borrowers pay down unaffordable mortgages that they lied to get by falsifying their mortgage applications.

ADP says US companies added 10,000 jobs in April following a 3,000 gain in March. They are using the same methodology as the BLS so forget it.

The US employment cost index rose 0.7%.

Personal consumption expenditures fell 1% in the first quarter.

The Gross Domestic Purchases Index grew 3.5% in the first quarter from 3.7% in the 4th quarter.

The CEO of hedge fund Citadel Investment said, “it’s the Great Depression on Wall Street. It sure isn’t on Main Street.” Ken Malis of Malis & Co. said, “until you see Wall Street put their party hats on again and get on the tables and start dancing is going to take years.” Leon Black billionaire investor said, “the banking system has been broken since last summer and has fostered a credit crisis” the likes of which I’ve never seen in the 30 years I’ve been in the business.

Mortgage application volume fell 11.1% last week. Refi volume fell 16.7%, while purchase application volume decreased 4.8%. Refis accounted for 45.7% of total application volume. The 30-year fixed rate mortgage fell from 6.04% to 6.01%. The 15s fell to 5.53% from 5.6% and the 1-year ARMs fell to 6.86% from 6.93%.
Health insurance premiums are increasing ten times faster than incomes. Workers with job-based coverage for their families saw earnings rise 3% from 2001 to 2005, while their health insurance premium contribution increased 30%. The average cost for job-based family insurance in California rose more than $2,650 to $10,551 from $7,898. Part of the cost nightmare is that more than 30,000 of the 3.6-million private-sector employers offering health insurance as a benefit to workers dropped it. Four million people lost coverage and the number of people with private insurance fell by 2.4 million, or 6%. The study found that 7% of Americans said they or someone in their household decided to marry in the last year so they could get healthcare benefits via their spouse. If that isn’t a sad state of affairs, we do not know what is. In job-based insurance employees picked up 24% of that cost, the employers the rest.