International Forecaster Weekly

Uncertain Numbers For Growth

uncertain numbers for growth, growth in holdings at the Federal Reserve, home sale decline in the future, the return of the markets to fundamental value, the American exit from Iraq, and the president who looks ever more like a 12 year old with a shotgun. 

Bob Chapman | June 10, 2007

Our president’s economic advisers lowered their forecast for economic growth in 2007 to 2.3% from 2.9%, which they forecast six months ago. Now all the “experts” are projecting an average growth rate of 2.8%. We see 1.8% to 2%, but we’ll never really know because our government lies about everything.

The Federal Reserve banks’ income climbed 25% to $38.41 billion in 2006. The Fed paid the US Treasury $29.05 billion, up from $21.47 billion in 2005. The average daily holdings of securities and loans was $795.40 billion, an increase of $32.89 billion in 2005. Holdings of US government securities grew $32.88 billion, while loans increased by $7 million.

The NAR says home sales and prices are going to decline more then forecast. Sales of existing homes should fall 4.6% and the median home price 1.3% to $219,10. New home inventory fell to 6.5-months from a 16-year high of 8.1 months in March. Sales of new homes they say will probably fall 18% this year. That puts us on a 1992 pace.

The MBA mortgage application index fell 1.7%. The purchase index rose 1.5% and the refinancing gauge fell 6.1%. The 30-year fixed rate mortgage rose .03 to 6.35%. That is the highest level since last October. Refis represented 38% of apps, down from 39.7 in the prior week. The market index is off 2.1%, the purchase index is off 0.3% and the refinance index is off 4.3%.

After telling us for a year that interest rates were going to fall, Goldman Sachs has changed its mind and sees no cuts this year, nor in 2008 as well. They had forecast a ¾% cut in rates. They have also raised their estimate for 2007 GDP from 2% to 3%. They were not alone in being wrong, Merrill Lynch has said a year ago rates would fall 1% and Bill Gross at PIMCO forecast a 1-1/2% drop in rates. They and many others were wrong and we were right.

When polled only 23% of Americans were for the current amnesty bill being considered; 51% said they want no bill if it’s anything like this bill; 84% of Americans want English as the official language of the US and 77% of Hispanic Americans also prefer English.

On Wednesday, Morgan Stanley advised clients to slash exposure to the stock market after its three key warning indicators began flashing a “full house” sell signal for the first time since the dotcom collapse. This very powerful signal has only been triggered five times since 1980. Interest rates are rising in the real interest rate market and are reaching critical levels and as you know we see rates ¾% to 1% higher, short to medium term. Morgan Stanley sees a 14% correction over the next six months, which would put the Dow at 11,700. We see support from Dow 10,000 to 10,300. The second phase of the correction should be to 7,286. After that who knows. The dangers are a P/E ratio at an all-time high of 20. A sea of money and credit that will become too expensive and could disappear relatively quickly. Markets “always” return to fundamental value, thus market participants, particularly institutions, are in for a rude awakening and some hefty losses. This could be the beginning of another giant correction.

Morgan Stanley’s forecast does not include a recession, which incidentally we have already long ago entered. They also say that interest rates will fall. They are wrong. The Fed is still in the box and cannot get out. If they lower rates the dollar will collapse and will lose its place as the world’s reserve currency. As we said earlier, Goldman, Merrill, PIMCO and many other pros have already been dead, dead wrong on interest rates. Lower interest rates will spell financial chaos and $3,000 to $7,000 gold and $100 plus silver.

Planned layoffs edged up by 0.6% in May, led by downsizing in the computer industry as businesses spent less on new technology, announced layoffs totaled 71,115 in May, up from 70,672 in April. May’s job cuts were up 32% yoy. Computer companies cut 13,631 jobs due to spending cutbacks and that is going to continue. The financial sector cut 4,804 in May. Weakness in the housing market and the collapse or subprime lending has contributed to 22% of the 55,025 job cuts announced by financial firms since January.

OPEC has warned that efforts by western countries to develop biofuels as an alternative energy source to combat climate change risk driving the price of oil through the roof. The oil cartel will cut its investment in new production in response to attacking its monopoly. This is a clear threat that the cartel will cut production now and in the future.

In his latest book, The Mess they Made: the Middle East after Iraq, Gwynne Dyer says there is no doubt that the US will withdraw its troops from Iraq once George W. Bush leaves office. The invasion and occupation of Iraq is having the same effect and impact on the American public that Vietnam had. He says Congress will be reluctant to vote new funds as the Arab world becomes more revolutionary, but he believes that the threat of terrorism upon the west would decline. The Muslims will be in power and they won’t want to bother with the US. If George and the neocons attack Iran in rogue fashion the whole scenario will change. Top illuminist Zbigniew Brzezinski says if the US attacks Iran, it will lose its place in the world. If Bush decides to invade Iran he will lose, and the Iranians will close the Gulf to tanker traffic and that will bring on a world economic crisis. America has become a rogue state and the world knows it. “George Bush is a 12-year old with a shotgun.”