International Forecaster Weekly

Dollar Diving

Dollar to fall to metals in upcoming rallies, rate hikes soon wont be able to fix economic problems, real inflation understated for years, USDX contracts plummet,why arent people fleeing from the stock market... Exchange Traded Funds are a disaster, losses from global write downs, Fed still invited to intervene in spite of failures

Bob Chapman | June 21, 2008

The dollar has once again collapsed.  Get ready for the next dollar debacle and the coming rally in gold and silver which have just broken out.  The elitists have lost all credibility.  The would-be lords of the universe have told so many pathological lies that no one "in the know" believes anything emanating from the forked tongues of Buck-Busting, Bear-Bashing, Big-Ben Bernanke and Hanky Panky Paulson.  If our Fed Head and Treasury Secretary had been characters in the Walt Disney movie entitled "Pinocchio," their noses would have quickly grown to lengths that could have been wrapped around the earth's equator several times.  God would have had to reverse the earth's rotation to extricate them.

Wall Street tells us the odds favor two quarter percent rate hikes to the Fed funds rate by the end of the year.  We ask whether that would be before or after the economy collapses?  If before, the Fed's rate hikes will destroy what is left of our economy, and the dollar will collapse, thereby erasing any benefits from the rate hikes. If after, you will see rate cuts instead of rate hikes as the Fed attempts to save the fraudsters on Wall Street who are not even remotely close to recovering from the credit-crunch despite what the elitists might tell you to the contrary.  We ask who the morons are that make up these odds, and what planet they come from.  They give aliens a bad name.  These index predictions are just another form of jaw-boning and disinformation.

As soon as the economy starts its final descent into Davy Jones' Locker, which is likely to occur in the very near future, the Fed and the US Treasury will unceremoniously toss the so-called "strong dollar" policy into the nearest financial dumpster in order to save the economy and the fraudsters.  Accompanying the "strong dollar" policy on its way to the dumpster will be the next round of derivative toxic waste that is on its way courtesy of the upcoming surge in fallout from tanking real estate markets in a process that will see the Fed blow what remains of its general collateral in exchange for such waste.  Once the Fed's general collateral is exhausted, we will be ushered into a new hyperinflationary era characterized by direct monetization of US treasuries to fund our deficits and to absorb more toxic waste as it continues to pour down on elitist financial institutions like Niagara Falls.

A few measly quarter percent cuts will do absolutely nothing to slow the acceleration of inflation, especially if the Fed keeps the M3 at current levels.  Only a double-digit Fed funds rate and greatly reduced M3 could have any eventual and meaningful impact on the inflation that is built into the system for at minimum the next year and one half at levels in the area of 15% to 18%, and even then the impact will not be felt until the current baked-in inflation has run its course.  Direct monetization of treasuries to replenish Fed collateral and to absorb our growing deficits will put inflation beyond the point of no return, as will the breaking of OPEC dollar pegs.

As you can see, there is no way that any of the proposed diminutive rate hikes will have a positive impact on the economy, on the dollar or on the balance sheets of the fraudsters.  Therefore, there will not be any rate hikes.  Any increase in the Fed funds rate would be accompanied by an economic catastrophe of epic proportions that would occur as a direct result of the raising of that rate.  Any rate hike would take a year to a year and a half to have an impact on inflation.  By the time the anticipated Fed rate hikes could have any kind of impact whatsoever, the economy will already be in a state of rampant hyperinflation, and would be well on its way to depression, far too late to save the dollar or the economy.  Ergo, the new elitist motto will soon become: "Damn the inflation, full greed ahead!"

The Fed's and the government's lies about inflation and other economic statistics have trapped them in an impossible situation.  For instance, because they have tremendously understated official inflation for so long, they cannot impose a plausible solution to fight actual inflation.  Any meaningful action they might take to give people relief by lowering the level of actual inflation must be scaled down to match what they are saying about official inflation and would therefore be totally ineffective and pointless.  The same scenario holds true for other economic issues as well.

As if to accentuate the collapse of the dollar, open interest on the USDX plummeted on Wednesday by a gargantuan 20,461 contracts, from 46,665 to 26,204.  This also means that since last week Tuesday, when open interest was boosted by the PPT by a huge 14,393 contracts to a total of 52,520 contracts to boost the dollar and to make it look as though Big Ben really meant business about the buck, the open interest has been cut by half, with a total of 26,316 contracts having been liquidated over the course of the past week.

The last time this kind of a breakdown in USDX open interest occurred was on December 19, 2007, when open interest dropped a whopping 22,966 contracts, from 57,389 to 34,423, when the spot USDX stood at 77.587.  The spot USDX then plummeted to a double bottom of 71.459 on March 17 and 71.329 on April 22, before rebounding to a recent closing high of 74.146 on June 13.  This week Friday, June 20, the spot USDX has already dropped to 73.030 from its recent closing high of only a week ago as the collapse of the dollar got underway once again.  Between December 19 and June 13, the closing high for the spot USDX was 77.794 set on December 20, while the all-time low was set at 70.698 on March 17.  If that pattern is followed again, we could be looking at a dollar breakdown to the low to mid-67 area.  Then again, we could be looking at a total collapse as hyperinflation and severe recession continue to eat away at what is left of our hapless economy.  Gold and silver are headed for outer space.

We further note that as of Friday, there were 25,382 USDX futures contracts for September, 2,362 for December and only a handful for later months.  There certainly does not appear to be much interest in the "strong dollar" after September, which is when the supposed rate hikes are "expected" to occur.  

Gee, we wonder if it could be that traders don't believe Ben-the-Bear-Killer and Hanky Panky about the  "strong dollar" policy and have a sneaking suspicion that post-election America will mark the start of the final bloodbath that will destroy the real estate, stock, bond and derivatives markets along with the US and world economies?  Royal Bank of Scotland has warned of the potential for a full-fledged crash in global stock and credit markets over the next three months as inflation voraciously consumes and destroys everything in its path worldwide.  Morgan Stanley has predicted a "catastrophic event" in world currency markets during the coming months as occurred in 1992 due to opposing views between the Fed and the ECB about what to do about monetary policy and inflation and due to imbalances in the ECB itself.  Both RBS and MS are elitist insiders high in the food chain of Illuminist companies.  They know what is coming.

The ECB is history no matter what Trichet does.  If he hikes to fight inflation, the weaker members will be destroyed.  If he cuts to save the weaker members, Germany, the strongest member that is carrying  virtually the whole Euro Zone economy, will bolt, and the EU will be shattered by hyperinflation.  Germany is the holder of most of the Euro Zone's surplus dollar forex reserves which are being destroyed by inflation. Then on top of losing purchasing power with respect to its dollar forex, Germany's citizens are fed up with inflation from a euro they view as being too weak and the vast majority of them want the Deutsche Mark back.  Germans are savers and they resent having their savings destroyed by a weak euro as their wages stagnate.  Germany may soon join Ireland in their political rejection of the EU and its Lisbon Treaty.  Adding to Trichet's woes is the fact that if he hikes rates, and the Fed does not follow through with its jaw-boning about rate increases, which they won't, the damage to the weaker EU members will be accelerated as their exports become more expensive in the US on account of the resulting much stronger euro versus the dollar. That would make them less competitive in the US and in nation's with currencies pegged to the dollar, forcing them into tighter competition with domestic companies and with other foreign exporters of goods to the US and to other dollar-pegged economies, thereby increasing their growing trade deficits to intolerable levels.  Nothing could be more positive for the US than the break-up of the EU, which will delay the evil Illuminati's plans for a one-world government for over half a century.

In reviewing the movement of the yen versus the Dow, we are astounded that every human being drawing breath on the face of our planet and that every business entity with offices located anywhere on the globe are not fleeing in terror from the general stock and bond markets along with their related derivatives.  The last time the Dow closed below 12,000 (11,972.85), on March 17, the yen stood at 96.88 yen per dollar and 152.731 yen per euro.  On Friday, the Dow closed below 12,000 (11,842.69) with the yen at 107.42 yen per dollar and 167.855 yen per euro.  So despite yen weakness in the range of 10 yen per dollar and 15 yen per euro, the stock markets have gone nowhere.  If that doesn't freaking scare you, nothing will.  The carry trade can no longer carry the markets.  The de-leveraging from the credit-crunch, the destruction of corporate profits, stagnant consumer spending despite the stimulus, outrageous energy and food prices, the ongoing real estate debacle, the monetary profligacy of the Fed, wars for profit and eternal deficits in our budget, our trade balance and our current account are simply too much for the markets to absorb, even with the help of the PPT.  We are headed much lower.  We are 100 to 200 Dow points from a total catastrophe.  If gold and silver start to rally and the PPT crashes the markets with yen-hits to drain liquidity, it will be all over but the crying for stock markets worldwide.

The real catastrophe comes when elevated levels of risk push rates up despite what the Fed does with its funds rate.  LIBOR is up 1% despite the Fed's lower rates and this affects mortgages, credit cards, student loans and a host of other variable rate loans that are tied to LIBOR.  Higher real rates of interest will destroy principal values for corporate bonds and treasuries that are already way underwater on account of rampant inflation, and that inflation will administer the coup de grace to bonds and treasuries as everyone flees to the only real money - gold and silver.  When the towel is finally thrown in on the bond and treasury markets and all that money migrates into commodities, and especially into gold and silver, you will see gold and silver move in ways you never thought possible that will delight you with shock and awe as all the money in the world pours into the tiny precious metals markets and their related shares.  Already, some mainstream analysts are calling for gold prices to rise to $5,000 an ounce and beyond as investors decimated by miniscule returns in the face of hyperinflation seek to protect themselves.  This latest prediction came from Schroder Investment Management Ltd., which oversees $277 billion of assets globally.

This week, the PPT tried to blow out the specs' protective derivatives by driving stocks up at the beginning of expiration week for stock index and other options.  The specs struck back once again like clockwork and pounded stocks into the ground, racking up huge gains to fund the coming precious metals rally.  The PPT continues to press specs who are short oil to protect metals positions, and this is partly why oil keeps dropping and popping on short squeezes that are explained away with all kinds of jaw-boning pretexts in the fane-stream media.  The elitists have driven oil up while metals were suppressed to use it as a suppressive counterbalance against precious metals.  This will backfire as everyone exits oil and takes their proceeds into the gold and silver pits.  Stark, raving fear and the need for a safe haven from tanking markets and rampaging inflation will take over where oil left off.  Resource stocks will greatly benefit from lower energy costs as oil gets tanked to hit the next metals rally, so its time to LOAD UP!!!  The bottoms are in and its up, up and away!

Don't worry, be happy.  The fact that the ETF's are a disaster due to the piles of gold and silver they have put into elitists hands for naked-shorting, leasing and swapping against the owners of those piles, and due to the diversion of funds away from producers' shares, is nothing to worry about.  Just convert your worthless paper (ETF shares, mint certificates and leveraged futures) into physical gold and silver bullion and then take possession of it.  The elitists have unwittingly drawn many into knowledge about the gold and silver markets who otherwise might have stayed clear with their ETF machinations.  We can turn their ETF gambit against them!  Although you have been incorrectly instructed as to how to invest in gold and silver, that is what we are here for, to tell you how to do it right.  The elitists have built their position on a house of cards.  Their weakness is their lack of physical gold and silver in deliverable form.  If you push them, their house of cards will collapse.  Only a little push is necessary.  Just empty out the COMEX cupboards and the dealers vaults by taking possession, avoid the casino leverage and we can take over the markets.  Then you can gamble with impunity.  Fabulous fortunes will be made.  If you are not sure who you can trust, call us, we'll tell you.  We've been in this for 50 years.  You should also consider joining Jim Sinclair's battle against naked shorting.  He has some great ideas about exposing these reprobates who are stealing from us.  When people find out who they are, they will be ruined and their reputations will be destroyed.  You must get proactive.  Do not be lazy and keep your gold and silver in paper form, unless you are buying resource stocks, which are now dirt cheap.  Holders of resource stocks will be the big winners when all is said and done.  The whole reason we are now in the predicament we are in is because our citizens swill beer, view meaningless sports games and watch inane television programs while their country, their economy and their freedoms fall down around their ears!  Do not be like them!  Go after that gold and silver like your life depends on it, because it does!!!

Regional banks are now getting hit with defaults. Huntington Bankshares, National City and Sun Trust have as much as 20% of their loans in home equity loans. The FDIC says total outstanding home equity loans total about $625 billion.

The ABC/Washington Post consumer confidence index rose 1-point last week.

The rumor is that Lehman may have to cut 20% of its workforce.

Commercial real estate investment fell 69.5% in the first four months of 2008 yoy. That is $48.2 billion versus $157.8 billion.

The quarterly CEO Economic Outlook Index fell 5-points to 74.5 in the 2nd quarter, its lowest since 10/03. They see 2008 GDP up 1.3% not 1.5%.

We stated some time ago that the losses from global write-downs and losses from the credit crisis would reach $2 trillion. John Paulson says they will reach $1.3 trillion. Finally there is someone in our league in the securities business who is willing to tell it like it is. He sees no sign of stabilization. He manages $33 billion, returned 12% ytd May and last year his fund was up 6-fold. The GAO, the Government Accounting Office, has backed Boeing’s protest against the US Air Force, and its award of a $35 billion contract to Northrop Grumman-Airbus to begin replacing Stratotankers.

The MBA, Mortgage Bankers Association, purchase index for homes fell 4.3% and their market index fell 8.7%.

Another startling revelation is that the Fed doesn’t follow normal accounting rules, rather it creates and writes its own as it goes along. Picture an accounting system where a bank never had to recognize losses on any security it holds, as long as it continues holding them. That, too, is the Fed’s policy.

Now that the Fed has taken on Bear Stearns’ toxic garbage and may have to take on more garbage in its auction exchanges of Treasuries for junk, the Fed could become a bottomless pit for garbage. In addition, the Fed’s Board of Governors can change the rules anytime it wants.

The Fed has taken on $30 billion of Bear’s bonds probably worth on average $0.40 on the dollar. To put that in perspective, the Fed’s total capital was $40.4 billion as of 6/11/08. JP Morgan Chase will lend the Fed $1 billion to absorb any losses, which is laughable. Morgan is the Fed’s biggest shareholder, so they have a sweetheart deal. If there are losses they will never be taken. They can be held on the books indefinitely at cost, never being marked to market. If they followed FASB’s rules they would have to recognize a charge against net income whenever the securities declined in value.

This is a joke and this is how the Illuminists control our banking system and our lives and reap enormous profits. This is pure accounting trickery to avoid losses.

We want to see this manual, which is held in secret. We want exposure to what the Fed is doing. A reporter asked for one under the Freedom of Information Act, received it 18-days later, so redacted it was near useless.

How can anyone have any confidence in the privately owned Fed when such things go on?

What we do know now is that the Fed is lying about almost everything it does. That considered, Congress should disband the Fed and turn operations over to the US Treasury.

The risks associated with the vast, unregulated market for credit default swaps played a crucial role in the bailout – assassination of Bear Stearns, or at least that is the excuse to further enrich JP Morgan Chase, largest shareholder in the Fed.

The question now is will MBIA, the big bond insurance company, renege on a promise to shore up a crucial unit with $900 million in capital. We do not think so. They have written $137 billion in swaps, privately traded insurance contracts. In addition, MBIA insures $670 billion in municipal bonds and mortgage-related securities. We do not see how they can survive and if we are right, many bondholders will lose billions. Losses look to be $14 billion presently. The company no longer has an AAA rating.

House prices fell again in San Diego County in May, with the median reaching its lowest level, $380,000, since 9/03. That is down 23% yoy. The peak was in 11/05 at $517,500. That puts prices down 26.5%. We predict San Diego, dependent on the area, will fall 40% to 60%. As we forecasted April’s slightly higher prices were misleading. New homes and condos have gotten hit the worst. May sales fell 51% in those two categories. Resale homes fell 3% by comparison. Builders dumbly refuse to stop building.

Sales of bank-owned homes made up 36% of all resale purchases. Re-sales of single-family homes fell 3% yoy, but prices of re-sales fell hard from $557,000 to $420,000 yoy.

In the first half of 2008, 36% of buyers got jumbo loans in May – only 17% did.

The correction for San Diego, which led the charge upward several years ago, is 40% to 50% from the bottom. That will take place over the next two years.

Fifth Third Bancorp, Ohio’s second biggest bank, cut its dividend from $0.44 to $0.15 and must raise $2 billion.


National City Bank, Key and Fifth Third have more than $65 billion in additional losses. We forecast this would spread to banks all over the country. Do not have more than $100,000 in any bank account.

Office Max will eliminate 2,700 management positions.

The CFTC said the oil market was ripe for illegal manipulative activity, and imposed limits of the speculative positions on some trades made on overseas exchanges, particularly in London. All large trades would be reported to the CFTC.

The Confidence Board’s Leading Index rose 0.1% in May, matching April’s gain.

Phoenix based real estate lender Mortgages, Ltd. will lay off 17 of their 43 employees. They have halted making new loans in commercial real estate.

Weekly jobless claims fell 5,000 to 381,000. The 4-week average of initial claims rose 3,250 to 375,250.

If you can believe this, Treasury Secretary Henry Paulson wants the Fed, which caused all of our monetary, financial and economic problems, to intervene in the workings of Wall Street firms to protect the financial system that they destroyed. They would step in to avert events that pose unacceptable systemic risk. What this really means is that the Fed will further nationalize the financial industry via consolidation in a true fascist manner. The Fed has neither the statutory authority nor the mandate to anticipate and deal with risks across our entire financial system. This is a power grab, plain and simple. This takeover has been in the works for well over a year. The Fed wants to extend its open discount window and auctions beyond September when they expire, so they can stop a bankrupt system from collapsing. The loans will be extended and Wall Street and the banks can gamble and speculate to their hearts content.