IT'S HAPPENING HERE!

This, from the latest International Forecaster (dated Saturday, October 7, 2006). Contact information: 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
www.theinternationalforecaster.com


The economy healthy because the Dow hit a new high last week? Don't bet on it! Continue buying gold and silver if you are doing so. Thanks to Cal S. for this.

U.S. MARKETS

We just happened to catch a Wednesday mid-morning CNBC flash. The Dow is making new highs quickly followed by a dissertation as to why gold is falling.

Finally more financial market participants are realizing that our government and its agents are intervening in our markets. The chief investment strategist for Raymond James cited as we did in an earlier issue that the change in the gasoline component of the Goldman Sachs Commodity Index and the massive selling this caused in gasoline futures, was responsible in part for the collapse in gasoline prices. They speculated as we did that this had something to do with the coming elections and the Republicans desire to have lower gasoline prices before voters go to the polls. Raymond James was correct, it is just that they were three weeks late. Another reference that lends credence to our and their synopsis is that the DOE has delayed the purchase of oil to fill the Strategic Petroleum Reserve until at least after the winter heating season.

The new high on the Dow is a total scam. While the Dow hit a new high this week, not a single component stock did. Seventy percent of the components are 20% or more. How can this be?

Only seven stocks made their new high in 2006, and of these only three of them are within 5% of their new high today, Wednesday, with 21% of the 30 Dow stocks, or 70%, down 20% or more.

Using the BLS’s inflation statistics, it would take a Dow of 13,817 to equal the Dow high of 11,750 of 2000. Inversely 11,754 is equal to 9,995 in 2000.

If you calculate the Dow using gold, the Dow is 5,100. Using an average gold price of $275.00 in 2000 and today’s price of $580, we have a 52.5% drop equivalent to Dow 5,000. Why is the Dow supposedly hitting new highs in October, when it is almost always the worst month? It’s the election of course. That is why gold was off $40 in two days.

The latest hedge fund to stumble is Vega Asset Management. It has $3 billion in assets and is off 75% in two years. 1,071 hedge funds have shut down in the past two years. They, like others, have made concentrated bets that have backfired. Vega two years ago managed $12 billion - that is now $6 billion.

A number of hedge funds are in trouble and for those of you who have not studied history, these same kind of investment pools were significant pools in part responsible for the collapses in 1929 and 1932. That is why they were outlawed and why banks were banned from having brokerage firms. That, of course, has changed again. A consolidation in hedge funds is about to take place and once the market collapses again, they will be outlawed again. Yes, in almost two years 2,622 new hedge funds have been launched. Once the market begins its decent the world had best run for cover.

Whirlpool announced it will fire 1,200 workers in Arkansas and Indiana and shift production to Mexico. Let’s hear it again for free trade and globalization.

The latest statistics show us that consumers depended on new debt for 88% of their cash flow during 2005. 2006 should run about the same. Historical usage has been 45% of cash flow. As home equity declines the consumer has two choices – either cut back on credit, borrowing, and spending, or increase debt to continue spending somewhere near current levels. We do not know as yet which way they will go, but we will find out over the next six months.

As you know we believe the economy topped out in the first quarter and if consumer direction is not changed the final quarter of 2006 could well be a negative one. M2 hasn’t changed since June and our estimated M3 in August was somewhat lower. We will have new figures in another week. We won’t know until early to mid-November where we are really headed, if then.

We wonder why politicians take trips and gratuities, which are legal, and then deliberately don’t report them? We ask how Oregon Speaker Karen Minnis can forget to file her $4,000-trip to Israel last year, paid for by the Portland Jewish Federation. It just isn’t Minnis – its scores of politicians that conveniently forget to report legal payoffs they received usually from lobbyists or specialized groups. Why hide them? The practice is so widespread that we believe those taking the trips are ashamed of what they are doing.

Jack Abramoff was told on 3/18/02 by Karl Rove that there was an up coming war with Iraq.

New orders at factories were unchanged in August. If transportation was stripped out they fell 0.7%. Transport orders rose 4%. Excluding defense overall orders fell 0.2%.
The ISM service index fell to 52.9% from 57 in August. Their measure of prices declined to 56.7 from 72.4, the biggest slide since the survey began in 1997.

The State of Ohio will use RFID chips to track all of its 44,000 prison inmates. The $415,000 contract went to Alanco Technologies. Inmates will wear “wristwatch-size” transmitters that can detect if prisoners have been trying to remove them and send an alert to prison computers. Staff will also wear the technology on their belts so they can be tracked for security purposes. Wardens can activate an alarm themselves, but the alert will also be sent if the transmitter is forcibly removed or the warden is knocked down. Facilities in Michigan, California and Illinois already employ the technology and evidentially three more states are ready to sign up.

The Bush administration has had another disastrous foreign policy debacle. Paraguay has refused diplomatic immunity for US troops and will not renew its military cooperation pact. Another factor was that European and Asian nations helped with road, hospital, school and infrastructure projects, which the US had no interest in doing. Their attitude was it is our way or the highway. The Mercosur bloc, Brazil, Argentina, Uruguay and Venezuela have completely outflanked the US. Eventually South American countries will all be in Mercosur, they want to make their own mistakes and run their own lives.

Democrats held leads in races for 11 of 15 key Republican-held House seats as the Speaker is being pressured to resign over the Mark Foley child molestation-pedophile scandal. Remember, do not vote for an incumbent unless he has voted the way you wanted him to at least 80% of the time.

Mortgage applications rose by the most since June 2005 as borrowing costs hit an 8-month low. The MBA Index of applications for both purchase and refi loans rose 11.9%, the second highest level this year. Refinancing surged 17.5% and home purchases 7.6% last week. The average rate on the 30-year fixed rate mortgage was 6.24%, up from 6.18%. Applications y-o-y fell 29%. Purchase apps fell 24% y-o-y.

Prices of existing homes fell in August for the first time in 11 years. The y-o-y median price of new homes fell in August as well. Inventories of new homes were the highest in more than 13 years. Housing starts fell 6% despite more than 50% of builders giving rebates.

Teddy Roosevelt once wrote, “Speak softly and carry a big stick ˆ you will go far.” Had Roosevelt been speaking at a recent Federal Reserve luncheon, rather than addressing the public at the opening of the Minnesota State Fair in 1901, he might have chosen to write, “speak loudly and carry a little stick ˆ you will have discovered economic spin.” Along those lines, the Fed continues to speak loudly against the evils of money creation and inflation. Unfortunately, total bank credit and money creation (estimated M3) continue to increase 8 and 8.5% year-over-year, respectively. Not only has the Fed mastered the art of speaking loudly, they do so without the need to carry stick. Just like the calculation of M3, sticks can be very expensive.

With the help of little in the way of wage increases until this year corporate profits have grown at a double digit rate for 17 consecutive quarters, which with offshoring and outsourcing have offset higher interest rates and energy prices. Wall Street looks forward to more of the same in 2007 with S&P 500 earnings of 12.9%.

Not so fast, wages are now increasing at a 5% rate, the cost of doing business overseas is rising and a housing slowdown has already affected consumer spending. It could be that lessening of the wealth affect and a consumer cutback in spending could take earnings down to 4 or 5 percent. This is what happens when wage gains are double productivity gains. Six years of labor exploitation are over. The era of the home being an ATM machine is nearing an end as well. Household savings are still -.5%. We do not see improvement in exports even if the dollar falls. All we have left for export is services and their costs are increasing, making them less competitive. In spite of what Wall Street thinks, 2007 will be a year of declining profits.

Nearly three years after hearing arguments in the case, a federal judge has ruled that the ACLU challenge to the constitutionality of the USA Patriot Act may proceed. The ACLU contends Section 215 of the Act, which allows the FBI access to any tangible things, such as books and documents through an order from a secret court, does not require investigators to show probable cause. The ACLU wants the judge to declare Section 215 unconstitutional, and block the Justice Department from using that part of the Act.

Sen. Joe Lieberman, the Democratic Senator from Connecticut running for reelection, as an Independent, says the party leadership has assured him he would keep his seniority if he returns to Congress. Local Democrats are responding in disbelief and Senate Minority Leader Harry Reid (D-NV) denies making a decision. Reid is a disgrace to even consider such a thing and Lieberman is a liar.

A study of 70 top CEO’s says most believe the economy will deteriorate over the next six months. 45.6% see problems and 41.2% see improvement.

House prices in metropolitan areas in Las Vegas and Washington may decline by more than 10% in the months ahead as borrowing costs increase. The slump may last into 2009.

On 9/21/06 Homeland Security announced Boeing has won a $2.5 billion contract to install sensors and radar along the US border. We’ve been told the sensors won’t work. When Chertoff was asked why Boeing was chosen, he refused to answer. The reason is the Boeing team includes an Israeli military contractor, which will play a lead role. It is called Kollsman, Inc., a wholly-owned subsidiary of Elbit Systems of Haifa, Israel. They will man 1,800 towers on the borders with cameras developed to spot people nine miles away.

The AP/IPSOS Poll found abut 50% of likely voters say recent disclosures of corruption and scandal in Congress will be very or extremely important when they cast their votes.

Our contacts tell us the US is training Sunni militias in Iraq that will eventually add to the chaos in that mutilated land. Our occupation forces now back both Shia and Sunni militias in different areas of the country. What can these people be thinking of?

The AP/IPSOS Poll also showed Bush’s handling of the war was 37% down from 41% last month and his handling of foreign policy and terrorism fell from 47% to 43%.

Apple Computer got caught backdating options and CEO Steve Jobs knew all about it. Corporate corruption marches on.

Freddie Mac says refinancing activity jumped 18% last week, accounting for 46.7% of total applications for the week and up 17.5% from the previous week. The 30-year fixed rate mortgage was 6.30%, down from 6.31%. The 15’s were 5.98%, unchanged and the one-year ARM averaged 5.46%, down from 5.47%.

The Monster Employment Index fell to 172 in September from a record 173 in August.

First time claims for jobless benefits fell 17,000 to 302,000 for the week ended 9/30. The four-week moving average fell to 313,500 from 316,250. Those collecting state unemployment benefits rose to 2.448 million from 2.433 million.

Service industries grew at the slowest pace in more than three years in August as the ISM Index of non-manufacturing businesses fell to 52.9 from 57. This includes banking, retailing and construction that account for almost 90% of GDP. This is the biggest fall since the survey began in 1997. There is little doubt as we predicted that the economy is slowing.

The MBA Index of applications rose 11.9%. Refi’s surged 17.5% and home purchases 7.6%. They saw the 30-year fixed rate mortgage at 6.24% versus 6.18% in the prior week. Year-on-year apps fell 29%. The purchase index fell 24% y-o-y. The y-o-y median price also fell in August, the first drop since 2003. Inventories are at record levels.

It was not a good week for the economy, despite the higher stock market. Our Fed Chairman finally has admitted housing is in a substantial correction. That is in spite of his having stopped raising interest rates and continuing to raise money and credit by more than 10%. The service industry and manufacturing industries are in the worst slump in three years and the job situation deteriorates.

Prosecutors in California have filed criminal charges against former Hewlett-Packard Chairwomen Patricia Dunn, and four others implicated in a corporate spying campaign, including a private investigator. Pretexting was part of the charges or lying to obtain the personal phone records and other data about company directors. They are accused of using false or fraudulent grounds to obtain confidential information from a public utility, unauthorized access to computer data, identity theft, and conspiracy. Corporate America continues to wallow in crime.

Sen. John McCain manages both the anti-Bush group within the party as he enables Bush to accomplish all his goals. He in great part was responsible for the torture bill and the warrantless spy bill. After challenging the bills both were passed in almost their original form. A scam pure and simple. The bills presently won’t stand up to the Supreme Court, but as we mentioned before, one more change in the court and they will uphold Bush’s tyrannical rule. Just pray that doesn’t happen. McCain votes 90% of the time as an ordinary right-wing conservative, and when push comes to shove, he gives the corporatist fascists what they want. He has even made overtures to the religious right. McCain is a dangerous phony who wants the presidency at any cost.