- By Bob Chapman, The International Forecaster - Thursday, February 2, 2006

US MARKETS

We have an ad from Centex, the homebuilder in front of us. It says on Saturday you can buy almost any Centex home in Northern California and take $40,000 to $100,000 off the price on selected home sites, or on a new completed home; it does not matter. The commission is only 4%.

A year ago there was a line and a fight to buy property. The tables have turned. Sellers are aggressive in their offers, and buyers are reticent to move. All those who bought with nothing down and used exotic mortgages over the past year see their net worth collapsing before their very eyes. The US is about to follow Australia and the UK down in real estate.

US consumer demand has continued to hold the US economy together with a 3.5% growth rate in 2005. Compensation in real terms officially was up 2.5%, but still languished $390 billion below projection. As the Fed says - if equity extraction by US households had not been $600 billion we would have been in a far different situation in 2005.That kind of infusion won't be available this year. Savings are at the minus level, the worst since the 1930s. The debt burden is colossal. In 2006, we are facing even more offshoring and outsourcing, which means the availability of good paying jobs will plunge again. This and a drop in home equity extraction will be very detrimental to the economy. Without savings and deeply in debt there will be little growth except perhaps in bankruptcies and in gold and silver. Constriction in US growth will affect world growth and that will inhibit foreigners' ability to fund our debt. Interest rates will be higher and stocks, bonds and real estate will trade lower. Keep in mind that already home mortgage refinancing activity is off 45% from its mid-2005 peak. People are not listening to countries such as China and South Korea and others that are diversifying out of dollars. 2006 begins a classic squeeze. The reasons listed above are compelling.

We are sure you will be interested to know that states now spend more on healthcare for those without insurance and illegal aliens than they do for elementary and secondary education. 21.9% of revenue goes to Medicaid and 21.5% to education. The only alternative is to remove people from Medicare rolls and only have emergency rooms treat real emergencies. As companies dump their medical plans this problem will get much worse.

More late figures on home equity extraction. Consumers dug more money out of their homes in the second quarter with equity withdrawals rising 27% to an estimated $904.4 billion after falling in the two prior quarters. For the first nine months of the year, equity extraction totaled $2.6 trillion versus $2.4 trillion for the same period of 2004. Those are Goldman Sachs' figures. In an earlier paragraph we quoted the Fed's figures of $600 billion for 2006, we can understand that a drop from $2.4 trillion to $600 billion is a stretch and takes a big bite out of consumption. Cooling housing markets in Australia and Britain had a significant impact on consumer spending in those countries. You see the numbers we publish here every week. People in those countries tapped their equity far less than Americans have. That means US growth should be 2 1/2% this year and 1 1/2% to 2% in 2007.

The University of Michigan Consumer Sentiment Index rose to 93.4 in January from 91.5 in December. Even though its come back it is still below 96.5 in July before the hurricanes. The current conditions index rose to 112.0 in January from 109.1 in December. The expectations index rate rose to 81.5 from 80.2.

Michigan lost another 24,000 jobs in 2005 and unemployment is 6.7%. The national rate is 4.9%. Michigan lost 1,000 in December. Three years from now unemployment will be over 20%. You can thank GM, Ford and the parts makers. Offshoring and outsourcing is killing this state and our country.

The December Realty Trac figures show December had 81,290 properties in some stage of foreclosure, up 13.5% from November. Higher interest rates being applied to ARMS are making it harder for some homeowners to stay current on their mortgage payments. Texas was the highest with a 61% increase with 12,753 properties in foreclosure. Ohio was up 36% and Indiana 28%. Nevada saw a 30% jump and Utah 22%. California saw a 27% increase.

Gold Banc Corp. is laying off 25% of its workforce as it prepares to merge with Marshall & Ilsley.

COMMODITIES

Like gold and silver, copper has at least for now made the transition from an industrial raw material to a financial instrument. Copper has risen above the level that would otherwise be seen as a commodity. It is another way of hedging against the dollar by professional investors, particularly hedge funds. Some say it is a bubble and that may be so, but demand is greater than production and inventories are very low. At least for now the fundamentals say copper will stay where it is or go higher. The monetization of lead, zinc and aluminum are in the making as well. This is nothing new, it has happened many times before. Professionals have accepted the long term role for commodities as stores of value to be held for purposes of diversification, as an inflation hedge, offsetting the dollar and other weaker currencies and their ability to generally participate in growth and to act as a hedge.

GOLD, SILVER, PLATINUM, PALLADIUM AND DIAMONDS

Platinum group metals production fell in the three months to November and total mining production fell 3.8% from the previous three months.

Production of the group that includes platinum, palladium, rhodium, ruthenium and iridium fell 13%. Coal production fell 2%. Global demand for platinum is expected to rise 2% to a new high of 6.71 million ounces last year. The problem is the estimated production will only be 6.59 million ounces.

CNBC has not reflected gold prices except pre-opening and occasionally during the day. This week they began quoting gold along with the Dow, S&P and Nasdaq, etc., we guess $550 gold was the magic number.

The gold shorts are being overwhelmed and they are living in terror. We are also receiving intel that some of the gold derivatives are starting to blow up. The gold suppression cartel and its players are in serious trouble and that trouble is not going to go away soon. The short position is enormous and as we said before, it would take at least two months to work out off 10% of those positions. That means 20 months of short covering in the midst of the greatest bull market in history. Much higher gold prices are a 'lock.' Never have we been able to invest with such guarantees of success. Sell the farm. This is the opportunity of a lifetime.

Wall Street has been so busy screwing the American public they cannot conceive of why gold is going up. They know nothing about gold. They think its inflation and it is, but that is just part of it. We have a sea of liquidity and dollar owners want a safe place to deposit and invest their funds. Gold is the answer. It is now the alternative currency. The dollar is headed lower and these holders need protection. George and the neocons want another war in Iran' gold is a safer haven than the dollar. Investors and governments are looking for diversification - they are holding too many dollars. Speculation is rampant, but gold has seen little speculation. It's been five years of slow relentless upward movement based upon economic, fiscal, monetary and financial fundamentals.

Gold is on a catapult. Banks have sold as much as they dare to sell without being hung by their citizens. They can no longer use bullion to suppress prices. In the derivative markets their agents are buried on the short side. This is the most highly explosive market of any market in history. This is why every correction fails. The physical off-take is simply killing the elitists. Like in Iraq, they obviously have no exit plan. A position borne of arrogance. It should now be crystal clear even to the dumb, that gold will soar. All the announcements of gold sales by central banks mean little anymore. The demand has already passed them by and their fiat money systems and mad dreams of world government are about to blow up in their faces.

Deutsche Bank has lifted its gold forecast for 2006 to $570 and $660 for 2007.

Lots will be happening in March. Our foreign debt is $8.184 trillion, and Congress must approve another hike in the debt limit. The current account deficit is headed up over $800 billion. Fiscal debt will again be close to $600 billion. M3 publication ends in March and the Iranian Bourse opens to trade oil in euros. The only reason it won't open is if the lunatics in Washington nuke Tehran. We have a solid 2 1/2 months of upside in gold and silver. We see a possibility of $850 gold and $15.00 silver in that time frame. We see desperation in the catacombs of the Illuminati.

As we have said over the last several months, gold's breakout against all major currencies has regained gold its position as a reserve currency, whether the elitists like it or not. This puts the central banks in a terrible position. They spend most all their reserves suppressing the gold price in order to cover up what they were doing in other markets. The actions of central banks threaten their very existence. It means they have to start buying gold again.

All those institutions and governments long US dollar assets have to be considering buying gold or have already begun buying gold back.

It should be indelibly etched in your minds that fabrication demand for gold remains very strong even as prices rise, yet mine production falls and exploration is not keeping up. Gold companies are mining faster than they are finding new reserves. A new real large gold deposit has not been found for years and only one in 50 becomes a mine. Twenty-nine new mines are scheduled to come on stream over the next five years, or 9.7 million ounces. Even if that materializes we will still need 500,000 ounces of fresh additional production to meet demand. The Barrick/Placer gold company needs to find eight million ounces of gold just to stand still. This is equivalent to seven times the annual gold production of Driefontein, South Africa's biggest producing mine. Do you see the fundamental picture' are you getting it?

Now that the gold suppression cartel has stopped its physical sales, gold action is superb. This is the way it was in the late 1970s. We are still in phase one of this bull market. Physical is in enormous demand and it is going into strong long-term hands. You will become very rich from gold and silver.

Gold is the canary in the coalmine. It is telling us the financial and economic systems are in trouble, even though gold's price has been suppressed for many years by elitist central banks. The illuminists are in trouble. The little people in India, the Middle East and China have derailed their program with their physical purchases. They see all those monetary aggregates being created and they see five years of fiscal deficits of over $550 billion. They see that the elitists are plundering America via free trade and globalization - something Americans, Canadians and Europeans are too dumb to understand. The foreign gold buyers see George and the neocons only serve the 1% that run everything to further enrich them and enhance their power. They know what interest-only and adjustable-rate mortgages are, and the havoc they are capable of creating. They know America needs a $3 billion foreign infusion every day to stave off bankruptcy. They know these unnatural things cannot go on forever. How can any sane person like a country whose leaders unilaterally declare war, torture prisoners, spies on its own citizens, and jails them indefinitely without charges? Any sane person knows that if government continues in this manner there is revolution and that means the dollar become worthless. They know what is being done is unsustainable. They know Americans will never stand still for a police state even if a packed Supreme Court sanctions it. Soon our corporate fascist government will become more overt. Fatherland Security will start wearing jackboots and brown shirts. Foreigners see all this and myopic Americans don't and that is why they buy gold. 

Just like clockwork, the repo pool goes up to $110 billion and a stock market that should be plunging only does down 100 Dow points in two days as Japan has to stop trading because the carnage is so bad. The hedge funds are fleeing in terror. They then took gold down $20.00 or so on Tuesday and Wednesday and bond yields on Treasuries fell to accommodate their sale in a week. This is all classic market manipulation. We know it's short term, but manipulation nevertheless. Fears over Iran and Syria and an oil shutdown is still with us. Earnings results are fair at best. Who was the gold seller? Goldman Sachs of course, acting for our government. They increased their short position on Tuesday by 3810 contracts. This manipulation will pass and six months from now you won't remember it' it wasn't relevant.

The media again is talking about a gold sale by Germany's Bundesbank. Just more manipulation by the Fed. They have to cool the gold market off as best they can because it's a red hot market. All they are doing is delaying the inevitable.

THE INTERNATIONAL FORECASTER

JANUARY 2006 (#3) Vol. 10 No. 1-3

P. O. Box 510518, Punta Gorda, FL 33951-0518

An international financial, economic, political and social commentary.

Published and Edited by: Bob Chapman

E-mail Address - International_forecaster@yahoo.com

http://www.theinternationalforecaster.com/