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The GoldBugg Report - Investing in Gold

February 12, 2008

• "We are probably going to have one of the worst recessions we've had since the Second World War. It's not a good scene." Jim Rogers
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GOLD

• The gold price is there still upside? Gold reached its previous highs in 1980, at a time when Soviet tanks were rolling into Afghanistan, oil prices were being driven up by instability in the Middle East and the dollar was falling rapidly amid fears of a recession. Panicked investors sought refuge in the ultimate safe haven and the bullion price reached a record US$850 per ounce. Fast-forward 28 years and it seems to be deja vu all over again: trouble in the Middle East and South Asia, spiraling oil prices, and fears about the US economy and the dollar are all boosting the gold price.
  
  Yet despite these similarities, fundamental changes in the gold market mean that the two situations cannot be compared. In 1980, after surging from US$450 to US$850 in just five weeks, bullion prices collapsed to trade as low as US$300 a year later. This time round, the high price levels could be sustained a lot longer and could go even higher. One major difference between now and 1980 is that the current price rise has been slow and constant since 1999, with demand coming not only from traditional safe-haven seekers but also from other sources.
  
  Long-term investors now again see gold as a store of value and a hedge against persistent dollar weakness and rising inflation. Their interest is reflected, among other things, in the rapid rise of gold exchange traded funds (ETFs) which after an increase of 34% in 2007 now hold 865 tonnes of gold. The gold price is also supported by strong jewellery buying by the rising middle classes in China, India and Turkey.
  
  Another key difference is the decreasing supply of gold output fell by 7% between 2001 and 2006 and the shortage of substantial new projects as a result of reduced exploration in 1990s. Rising costs are likely to further constrain the development of new projects as well as existing production levels. Furthermore, gold is still relatively cheap by historic measures. In real terms, the current record price is less than half 1980 high and would have to be well above the US$2,000 level to match it. With no end in sight to the pressures that have pushed the gold price upward, the underlying fundamentals for the price therefore remain very positive. Mineweb.com
• Must see gold charts.
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• Citi ups gold forecast; to test $1,000/oz in '08.
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• David Davis Calls for $1,300 Gold by 2015. There was a "positive upward trend in the gold price with high volatility from time to time," Credit Suisse Standard Securities mining investment analyst David Davis told the Mining Indaba, predicting a gold price of more than $1,000 per ounce by the end of next year. "All the ducks are lining up in a row, and this time in the right row," Davis said. Davis estimated the gold price at $950 per ounce at the end of this year and $1,035 per ounce at the 2009. The price would continue up to about $1,300 per ounce by 2015, he said.
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• Precious metals consultant GFMS CEO Dr Paul Walker reiterated on Monday that the gold price could reach as high as $1 000/oz by the end of 2008.
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• Gold spent 27 years building a base, in the meantime bottoming at $250 an ounce. After it broke out from the previous record $850 high, most pundits are bravely forecasting $1,000 an ounce. It is our view that $1,000 is simply an intermediate target and that with a 27-year base, a "perfect storm" of drivers will push gold to be the ultimate 10 bagger investment, outperforming currencies, commodities and the stock market.
  
  Those drivers include a collapsing U.S. dollar, Wall Street's financial woes, inflation concerns, soaring demand from China and India, record investment demand and chronic geopolitical tensions. On the supply side, fewer gold supplies are expected due to the South African power outages. China has displaced South Africa as the world largest producer, but China's mines are limited in reserves.
  
  The lack of significant gold discoveries (Southwestern was yet another fraud), a "NIMBY" approach by North American regulators, higher taxes and escalating costs will also limit new production. The bottom-line? Gold will peak at $2,500 an ounce.
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• The monthly close above $900 last week, the first ever, is very bullish from a technical point of view and should see $1,000 reached in the coming weeks. With gold up by more than 10% in January, some profit taking and consolidation could be seen prior to then. However, if gold begins to move in a parabolic fashion, as it did in the 1970s, then those waiting for the correction will be left waiting on the sidelines.
  
  Our direct experience is that clients in the current bull market who try to 'time the market' end up buying at higher prices. Only some 1 in 100 clients has managed to successfully time the market. Anything can happen in the short term and buyers are advised to make the trend their friend and focus on the strong fundamentals and the very good medium to long term outlook. Gold.ie
• Amidst the growing hurricane, centered upon the housing crisis and mortgage debacle, gold will rise far past $1000. By summertime, the new base will be at one thousand bucks. The silver price will surpass the $20 mark before the leaves fall from trees in autumn. The price of gold at the last 1980 peak corresponds to around $3000 after adjusting for price inflation in a realistic manner, apart from corrupt USGovt statistics. Get ready for a very long ride, but not without some surprises for the USDollar in a possible upward bounce.
  
  However, if and when the Europeans cut their official rate, leading to a brief selloff in the euro currency, gold will rally in Europe even as gold softens in its US$ price. Volatility this way comes. The powerful factor pushing gold up will be much more global monetary inflation, broad easy money from fighting against both economic recession and broken banking systems, on a global basis. The days when the gold price is tethered to the USDollar are soon to disappear. The gold price rise is all about monetary inflation, a factor slowly being properly recognized. Jim Willie CB
• There has been a continual refrain from the bears that the decline in demand from India was negative for gold. This was claimed when gold reached $500, $600, $700, $800 and now $900. We have pointed out that this is extremely simplistic. India is a price sensitive gold buyer and thus will support the market on any sell off in gold's price. Just this week there were indications that Indian buyers were buying physical below $900.
  
  More importantly, there is now extremely strong physical demand globally and in particular from China, wider Asia and the Middle East. Turkey's gold imports in January, according to the Istanbul Gold Exchange, jumped 69.4% above December's to 18.55 metric tonnes. This was also 16.1% above January '07. January's weighted average $US price, according to the Exchange, was 10.4% above December's and a startling 41.2% above January '07. Presumably much of the buying was done in the brief break below $890 January 17-23rd.
  
  China gold futures were recently launched on the Shanghai Futures Exchange (SFE). "The launch of gold futures is very welcome as investors are eagerly looking for new investment tools given the stock market's high valuation and volatility, and the property market is under severe control," Hu Yanyan, a gold futures analyst with Shanghai Jiuheng Futures Brokerage, said.
  
  Bloomberg reported that the start of trading in Shanghai was "the biggest event in the gold market since the launch of the gold exchange-traded funds over the past few years," John Reade, analyst at UBS Ltd. in London wrote in a report. "Futures will allow leveraged investment in gold from Chinese investors and speculators."
  
  "Chinese investors obviously have enthusiasm for gold and the futures provide them with a leveraged, low-cost exposure to bullion," Zhu Bin, head of research at Nanhua Futures Co., said by phone from Hangzhou. "Given the wobbly equities market and gold's continuous climb in the past seven years, everyone seems to think that gold is a good investment." Gold.ie
• India's Glittering Jewellery Market. According to the World Gold Council (WGC), India's gold consumption this year could in fact cross the 1,000-tonne mark for the first time.
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• Gold Bull to Charge Through Short-Term Corrections.
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• Gold to De-Couple from the Euro.
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• U.S. Dollar Isn't the Only Driver in the Gold Market.
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• What's Next for Gold, Post U.S. Fed Rate Cut?
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• Dubai Gold Receipt Enables Brisk Trading in Bullion.
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• Has Gold Been a Horrible Hedge Against Inflation?
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• Connecticut editor helps sponsor gold-rigging ad in Wall Street Journal.
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Aden Sister's Commentary

• The point is, gold has been a super, consistently profitable investment for years. It's in a long-term bull market rise. The major trend is clearly up and it's strong. The fundamentals are solid, the technicals look great and as long as that's the case, gold is headed much higher.

Gold Is The Ultimate Safe Haven

• Gold has also risen due to its safe haven status in reaction to growing international uncertainty and tensions, especially in the Middle East. But there's more, and we believe these new factors could also be important in fueling gold's bull market rise this year and beyond.
  
  First, are the new developments in China, which has just become the world's second largest gold consumer. That is, Chinese demand is growing and in recent years we've seen what's happened to many markets when Chinese demand intensifies they soar. Plus, China just opened up gold futures trading and the exchange is prepared for big demand. With the Chinese stock market softening, one top fund manager expects China's wealthiest investors will pour into the gold market, driving the price much higher.

Mega Shift to Head Assets Underway

• The rise in gold is part of a larger phenomenon that's been sweeping the globe. It involves a mega shift that happened in 2000 from financial assets like stocks, to hard assets like gold, other metals and commodities. These mega shifts are rare. They don't happen often and they tend to last about 20 years. As you know, the rise in commodities has primarily been driven by the booming growth in China and other emerging nations in recent years. This has fueled massive demand for all commodities.
  
  As these countries continue growing and expanding their infrastructure, it's going to keep pushing these markets higher in the years ahead and we believe that'll be the main factor behind this mega, multi-decade upmove in commodities, which in turn will keep upward pressure on gold. Aden Sisters
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SILVER

• Gold Investments believes silver will reach $20 in the first half of this year and may trade as high as $25 per ounce. Gold.ie
• All markets go through four phases of emotion. First there is pessimism, then scepticism, then optimism, and finally euphoria. Right now we are still in the skeptics phase also known as the wall of worry. David Morgan-The Silver Investor
• How about silver, often called "the poor man's gold"? Silver used to be a monetary metal, and maybe some day it will be again. I've recommended silver before, and now I'm going to recommend silver again. Back in 1980, gold sold for 850 and silver sold for 50. Then, one ounce of gold would buy 17 ounces of silver.
  
  Today with gold near 900, one ounce of gold will buy a whopping 55 ounces of silver. It seems to me that silver, in terms of gold, is "too cheap." I think silver is cheap and a good buy here in this area. My position on the metal can be expressed in three words, "I like silver." Richard Russell
• Analysts forecast silver prices in the $15-30oz range. Silver, which is revered by some investors as the "poor man's gold," is in for a Nantucket sleigh-ride of price action in 2008, according to market-watchers polled by Platts; these analysts are forecasting annual average silver prices as high as $30/oz this year.
  
  "I'm looking for a clean double [of the price of silver] this year," said John Embry, a partner in the Toronto-based Sprott Assett Management. "We're in the early throes of a serious monetary debasement. It will attract investment in precious metals, and silver [will] be the major beneficiary, trading up as much as a buck in a single day."
  
  Embry continued: "Demand for silver is solid, but you can't get more production. Labor shortages in the mining sector are a critical issue. Silver is a coiled spring [that is ready to unwind], and the everyday market doesn't have a clue. I'm predicting $30/oz [silver price] this year."
  
  Jeffrey Christian, managing director of the New York-based metals consultancy CPM Group, who is not as bullish as Embry, noted that the silver price should average in the mid-teens for 2008. "It's easy to be bullish [on silver] today," said Christian. "Our published projection for 2008 [which was made around mid-2007] is $15.63/oz for the average.
  
  We are looking for higher prices, based primarily on strong investment demand. You have a number of investors who are buying silver for the same reason they're buying gold: They don't believe financial assets are safe." Christian continued: "The price of silver has risen to a very high level, but it's nowhere near the record highs you're seeing in gold and platinum. Silver will play catchup." A big boost for silver demand will come from the newly created, silver-backed exchange traded funds in Europe, he noted.
  
  James Turk, publisher of GoldMoney newsletter, foresees a silver price of $27.52/oz for 2008, based on a tightening of the silver/-gold ratio in the coming months. "Both silver and gold reached multi-decade highs in May 2006 of $14.85/oz and $720/oz, respectively, with a ratio of 43.6:1 in April of that year," said Turk.
  
  "Since then, gold has moved higher but silver is still lagging, and the ratio is now 55:1. This divergence is unusual because silver normally leads during precious metals bull markets, and the ratio falls." Turk noted that unusual occurrences in markets typically are not long-lasting, so this divergence will end, probably soon given the recent strength in precious metals. "When it does, silver will again out-perform gold," Turk predicted. "I expect gold to end 2008 at around $1,200/oz. If the gold-silver ratio returns to its April 2006 level, then you will see silver at $27.52."
  
  If the blow-off price of $48/oz reached in 1980 were calculated in current dollars, the white metal would command a price of nearly $100/oz, said newsletter writer David Morgan of the Morgan Report. "It's going to go higher. I'm looking for at least $18/oz, in a range of $18/oz to $20/oz," said Morgan. "It's an historic store of value, and people are looking for solid, tangible investments. I think we will see one more dip, perhaps as low as $12.50/oz, before it takes off."
  
  Analysts see silver as relatively recession proof. The pace in industrial demand for silver is not going to slow down, given eastern Asia's economic growth, and a weakening of Western currencies will only fuel investment demand for the metal as a "safe haven" from inflation and currency depreciation, according to Morgan. "All this money we've created is blowing up, and people are going to turn to precious metals," said Embry. "The $800/oz gold price of 1980 is probably equivalent to $2,000/oz now." Platts.com
• Silver may outshine gold, experts say. Metal has gained 40% in past five months. While gold has made all the headlines this year after passing through landmark highs, silver has very quietly kept pace. And many experts believe the metal could outperform gold in the months ahead. Silver prices closed Monday at $16.75 an ounce, marking a 12% gain for the metal this month, and a 40% gain in the past five months. Silver prices generally track gold closely, with gold trading at about 50 to 60 times silver.
  
  Like gold, investor demand for silver has been on the rise, especially since the silver exchange-traded fund started trading in April of 2006. That is the single-most important driver behind the high price. "Even though we see new supply coming on, investor demand continues to grow," said Haytham Hodaly, an analyst at Salman Partners. But while gold tends to move based on economic and geopolitical trends, silver has a broad range of other uses, and experts said its fundamentals are much stronger than gold.
  
  "Silver is used in industrial applications, and so above-ground stocks diminish, whereas gold supplies continue to grow," said Steve Altmann, president of ECU Silver Mining Inc., an emerging silver company with operations in Central Mexico. The most important industrial use of silver is non-digital photography, and that market has shrunk rapidly in recent years. But the metal is being used increasingly as a superconductor in a broad range of industries, and also in the medical world as an anti-bacterial agent.
  
  It is also now used in a number of new applications, such as plasma televisions and water purification. The continued strong demand from those sources will likely be "more than enough to offset the ongoing decline in photography demand and the expected increase in mine supply over the next two years," Richard Gray, a Blackmont Capital analyst, wrote in a recent note to clients. He is one of a number of experts that predict silver will outperform gold in 2008.
  
  Mr. Altmann agrees, as he believes silver will look like a more attractive investment as gold passes through US$1,000 an ounce. Experts noted that silver outperformed gold in past precious-metal rallies that took place in the midst of a turbulent economy. Financial Post
• The bottom line is despite silver's early-2008 surge, this metal still remains quite low in inflation-adjusted terms relative to its modern history. And this is not just in comparison to silver's fabled super spike in late 1979. In today's CPI-inflated 2007 dollars, silver spent about a decade straddling the 1970s and early 1980s well above its current $16ish levels. Silver could easily double from here yet still be very reasonably priced historically.
  
  And silver is particularly exciting today because gold has just broken out to new highs of its own. $900 gold is starting to get global investors really excited about the precious metals again. And when their capital starts to chase silver in earnest, its tiny market assures its gains will be fast and furious like usual. What an exciting time to be long silver. Adam Hamilton
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• James Cook interviews Ted Butler on the silver markets. Cook to Butler, will you summarize the bullish case for silver and why you think it should be purchased now? Butler: It's greatly undervalued compared to its supply and demand fundamentals. It's undervalued on a relative basis compared to everything else, including gold. There's a smaller amount available for investment than at any time in hundreds of years.
  
  It's under-owned, under-appreciated, misunderstood and overlooked by the investment world. It's about as far away from being in a bubble as it can be, yet is a prime candidate for becoming a future bubble. It has been pre-sold (shorted) to an extent never witnessed in any other item, which guarantees it must be purchased or delivered against at some point. Institutions can easily own it for the first time.
  
  It is vital for modern life. It can't go bankrupt or become worthless and can soar in price by many times its current price. It is easy to buy. All these statements can be verified easily and I can't think of one valid reason why it shouldn't be bought.
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• "Silver prices only rose 14% year-on-year (2006 -2007), having put gains of 25%, 38% and 42% over the previous three years," said David Davis analyst at Credit Suisse "We believe silver prices will likely play 'catch up' when compared to the year-on-year increases of the previous years, but also and more importantly, silver prices will likely receive impetus from the upward trend in platinum and gold prices and the investment (ETF) market. In the long term, gold and silver prices have been closely correlated. The fundamentals of the silver supply and demand dynamics are unlikely to have a major effect on driving the price. Silver has the potential to break through $20 by the end of the year." David Davis
• The Coming Investment Boom in Silver. I believe we are in the very early stages of a long-term price boom in silver that will be caused by investment demand. The combination of an extremely small and tightly-held existing investment inventory, combined with a large potential investor base, funded with the largest buying power in history, hungry for the next hot investment, and still unaware of the true silver story is the stuff that makes investment dreams.
  
  I have not forgotten, for one second, the industrial supply/demand situation, the coming industrial user inventory buying panic and the resolution of the largest concentrated short position ever witnessed, but an analyst should look at everything that promises to greatly impact prices. The purpose of this article is to get you to add the coming investment demand into the mix when you think about silver. But not before adding more silver to your holdings. Ted Butler
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PLATINUM-PALLADIUM

• Those outage issues are hitting the platinum market, and hard, as mine disruptions in South Africa, the world's source of 75 percent of the metal, may trigger a wider shortfall than analysts forecast. South African producers may lose as much as 500,000 ounces of output this year, Barclays Capital says, and the state-owned utility, Eskom Holdings, predicts that electricity capacity will be insufficient until at least 2013.
  
  "The main problem with the platinum market is the very small stocks of physical liquidity," says John Reade, head of metals strategy at UBS AG in London. "We estimate that total bullion stocks are less than 2 million ounces, and possibly as low as a million ounces." Kitco Daily Resource
• Platinum Climbs to Record on South Africa Supply Concerns. Platinum jumped to a record in New York on mounting concerns that supplies will drop from South Africa, the world's largest producer. Power shortages tied to Eskom Holdings Ltd., South Africa's state-owned utility, shut most mines in the country, source of about three-quarters of world platinum supplies, for five days last month.
  
  Eskom told major customers last week that it won't have sufficient capacity to guarantee adequate power until 2013. "Supplies were tight before the electricity problems in South Africa," said Walter Otstott, a senior broker at Dallas Commodity Co. in Dallas. "End users of platinum who used to buy on an as-needed basis are stocking up."
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• South Africa crisis may push platinum over $2,000-analyst.
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• Platinum forecast $1,350/ounce long-term but could reach a $2,000 high.
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COMMODITIES-OIL

• Resources Undervalued, Biofuels Overrated.
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• World Peace Will Help Sustain Commodities Boom.
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• Commodity Investment Set to Grow in 2008, Societe Generale Says. "Metals will extend their movement to the upside."
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• OPEC Keeps Market Tight.
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• Sakhalin-1 Oil Production May Decline 27.6% In 2008 Report.
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• Global oil production will struggle to cope with rising demand over the next decade, according to experts gathered today at international think tank Chatham House, for a conference focusing on Middle East energy supplies.
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• Exxon shatters profit records. Oil giant makes corporate history by booking $11.7 billion in quarterly profit; earns $1,300 a second in 2007.
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• Exxon Mobil Corp. won court orders in the U.S., U.K., the Netherlands and the Caribbean freezing more than $12 billion in Venezuelan assets amid a battle over the government's seizure of oil projects.
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• Royal Dutch Shell warned yesterday that oil and gas production was likely to fall for a sixth consecutive year in 2008 as it struggles to make up shortfalls at key projects, writes Dino Mahtani in London. High oil and gas prices helped the multinational oil company to report record full-year profits, with its current cost of supply earnings rising 8 per cent to $27.6bn in 2007. However, shares in Shell fell in early trade as investors focused instead on the company's declining production trend.
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• The United States is worried that Russia, China and OPEC oil-producing countries could use their growing financial clout to advance political goals, the top U.S. spy chief told Congress on Tuesday.
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GLOBAL CURRENCIES

• "Euros Accepted" signs pop up in New York City. In the latest example that the U.S. dollar just ain't what it used to be, some shops in New York City have begun accepting euros and other foreign currency as payment for merchandise. "We had decided that money is money and we'll take it and just do the exchange whenever we can with our bank," Robert Chu, owner of East Village Wines, told Reuters television.
  
  The increasingly weak U.S. dollar, once considered the king among currencies, has brought waves of European tourists to New York with money to burn and looking to take advantage of hugely favorable exchange rates. "We didn't realize we would take so much in and there were that many people traveling or having euros to bring in. But some days, you'd be surprised at how many euros you get," Chu said.
  
  "Now we have to get familiar with other currencies and the (British) pound and the Canadian dollars we take," he said. While shops in many U.S. towns on the Canadian border have long accepted Canadian currency and some stores on the Texas-Mexico border take pesos, the acceptance of foreign money in Manhattan was unheard of until recently. - Reuters
• The Flight from the Dollar. While on this 'history does repeat' theme, it appears to me that 2008 is shaping up much like 1974. There are many similarities. These include rapidly rising inflation and growing monetary problems not only in the States, but across the globe. In fact, the last serious global credit crisis before the present one occurred in 1974.
  
  That was the year when Herstatt Bank failed in what was then West Germany, bringing the international banking system to a near standstill. A couple of months later, Franklin National Bank collapsed in New York, which at that time was the largest bank failure in U.S. history. Slowing economic conditions (then as now) caused loans to go bad, causing losses and erosion of essential capital. Also, lines of credit not previously drawn upon during good times started being used in 1974, with the result that banks became over-leveraged (again, then as now).
  
  Given what happened in 1974, there is one piece of advice that I can recommend. If history is any guide - and I really do believe that it is then the current banking and credit crisis is going to get much worse before it gets better. Years of imprudent reckless lending is taking its toll on the global banking system. There is one last point worth noting. In 1974 gold rose 72.8%, while silver jumped 84.1%. James Turk
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• Qatar considers dropping dollar peg.
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• Greenback Has Lost 30% in Past 7 Years, Becomes "Bernanke Peso."
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• A Write-off Recession and a Dollar Crisis.
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• Greenback's days in Iran numbered. The Iranian Company of Commodities Bourse has been tasked by the government to establish the long-awaited Oil Bourse on Kish Island.
  
  The Cabinet of Ministers on Sunday issued an order to the Oil Ministry, Finance Ministry, Foreign Ministry and Central Bank to implement a plan to set up the Oil Bourse.
  
  The Oil Bourse will serve as a place to trade oil products and crude oil. The Ministry of Economy will be setting up the petrochemicals section by February 19. The Oil Bourse is supposed to trade oil products in non-dollar currencies and many analysts hold the opinion that it could deal a blow to the already declining greenback. Presstv.ir

INTEREST RATES

• Bill Gross-investment outlook for February.
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• ECB leaves interest rates on hold as England cuts.
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• Five Gulf Arab states, including Saudi Arabia and the United Arab Emirates, lowered interest rates today, following a half point cut by the U.S. Federal Reserve.
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• Lacker Sees Recession Risk, More Cuts May Be Needed.
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• Dozens of U.S. banks will fail by 2010
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FINANCIAL CRISIS - MORE BAD NEWS

• Jim Sinclair's Commentary. The following is not exactly wrong and does outline a present situation. Let us remember all central banks have unending blank checkbooks. You can bust a currency but technically you cannot bust a central bank. They just create it now electronically. Of course this type of activity will bust the currency. Lets not forget the law I published a while ago for your reference that gives the Fed the ability to reduce member bank reserve requirements to ZERO. Did anyone read it? Maybe not.
  
  Hi Jim, Many thanks to you and everyone there for all your efforts. First time contributor here guess I was looking to make a splash. Well here I go:
  
  Important links:
  http://www.federalreserve.gov/releases/h3/current/
  http://www.federalreserve.gov/releases/h3/hist/h3hist1.pdf
  
  Basically the credit system is insolvent. Check out that non-borrowed reserves number – 8751, meaning currently the banks have borrowed more than their required by law reserves from the Fed. Even more daunting is for the first time in recorded history the number is negative. Further to that the relative difference (between borrowed and non-borrowed reserves) is almost unbelievable by historical measures!!! Regards, CIGA CG-Chris-Jsmineset.com
• Has the Bank Bailout Begun? Non-borrowed Reserves Turn Negative for the First Time!
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• The debate is no longer about a soft vs. a hard landing, but how hard will the hard landing be. The recession train left the station in December. The recession will be severe because the U.S. consumer whose spending makes up 70% of our GDP is shopped-out, saving-less, and debt-burdened. There is a rising risk of a systemic financial crisis. Avoid risky assets like equities, which could suffer a sudden market crash. You want to buy protection against this by buying options on the CBOE volatility index, known as the VIX, or on the S&P 500.
  
  Be careful with money market funds. Some could have meaningful exposure to securities backed by risky mortgages, or even auto loans or credit card loans, which are also high risk. Finally, do not buy a home. The housing recession is not near the bottom and prices could fall by another 20% over another year and a half. If you buy now, you'll have a massive capital loss. Nouriel Roubini-Economics professor at New York University and chairman of RGE Monitor.com
• The sharply weakening U.S. economy, strong inflationary pressures (wheat surged to new record highs this week) and negative real interest rates will create safe haven demand for gold. This weeks services sector data was extremely bad.
  
  It was the weakest ISM reading since October 2001 (immediately after 9/11) and this in conjunction with the raft of other negative data (including the very poor jobs number of Friday) would suggest that the U.S. is already in a recession. The question continues to be not whether there is a recession but rather how deep is the recession and what form does it take. Given the massive imbalances facing the U.S. economy and the unprecedented property, credit and soon to be solvency crisis, this recession will not be a shallow and benign one as experienced in recent history.
  
  Rather it is more likely to resemble that of the stagflationary 1970s or of the Japan's lost decade of deflation in the 1990s. Weimar Germany's hyperinflation is unlikely at the moment but if 'Helicopter Bernanke' continues to rain paper dollars on the U.S. economy in order to prevent a 1930s style deflationary depression, a virulent form of inflationary recession could take hold. Gold.ie
• India's economy expanded 9.6 percent last fiscal year, the fastest pace since 1989, as rising incomes spurred demand for cars, mobile phones and motor-bikes. The growth rate for the year that ended March 31, 2007, was revised up from 9.4 percent estimated earlier, the government said in a statement in New Delhi today. The government also raised growth in the year ended March 31, 2006, to 9.4 percent.
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• The U.S. Senate approved a $151 billion economic stimulus measure that will send tax rebates to more than 100 million U.S. households.
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• Stimulus plan may not lead to many new jobs. Even if $150B tax rebate plan gives economy a shot in arm, it won't necessary prompt employers to add staff.
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• $60B Fed auction aims to ease credit crisis.
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• Banks may face additional writedowns of as much as $60 billion this year from investments in commercial real estate and non-traditional residential mortgages, Goldman Sachs Group Inc. analysts said. Commercial real estate prices may fall 21 percent to 26 percent from current levels, resulting in writedowns for banks of about $20 billion, Goldman Sachs said today in a report.
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• Subprime Markdowns Reach U.S. Central, Credit Unions. U.S. Central Federal Credit Union, the non-profit company that invests on behalf of 8,400 local lenders, lost its AAA rating from Standard & Poor's after reporting a $760 million drop in the value of subprime-infected securities.
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• Subprime Lenders Get Big Accounting Break at SEC: Jonathan Weil.
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• New $20B subprime bailout on the table. Senator Chris Dodd proposes setting up a fund that would buy defaulting subprime mortgages and restructure loans for borrowers.
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• Merrill Lynch to Reimburse Massachusetts City for CDO Purchase.
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• CDO Market Remains Almost Frozen, JPMorgan, Merrill Traders Say. Buying and selling of collateralized debt obligations based on mortgage bonds, high-yield loans or preferred shares has ground to a near-halt, traders said at the securitization industry's largest conference.
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• CDO Ratings to Fall as Losses Trigger Fitch Overhaul.
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• U.K. Adds Northern Rock Debt to Government Burden.
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• China Bank Sets Aside Subprime Reserves.
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• Global credit crisis hits Bahrain-based bank.
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• GMAC Posts $724 Million Loss as Mortgage Loans Sour.
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• Doomsday for financial world.
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• Marc Faber Predicts the End of the Financial World Again.
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• G-7 Frets Central Banks Can't Avoid Peril Without Helping Hand.
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• Fed Says U.S. Banks Are Tightening Lending Standards.
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U.S. BUDGET 3.1 TRILLION-DEFICIT 410 BILLION-STATES HAVE BUDGET GAP PROBLEMS

• The Bush administration's final annual budget request of $3.1 trillion is another example of serious fiscal irresponsibility. Taxpayer's money is being spent in classic 'guns and butter' fashion in a way that would give even the most fun loving drunken sailor a bad name.
  
  President Bush inherited a national debt of $5.7 trillion. Under Bill Clinton, it had grown by 35 percent. Since Bush came to power it has grown 63 percent in just seven years. The national debt stands now at $9.2 trillion and may surpass $10 trillion when President Bush leaves office. This will lead to further pressure on the U.S. dollar in the coming years and may lead to its recent historical status as the global reserve currency of the world being questioned. Gold.ie
• Bush Boosts Defence Spending in $3.1 Trillion Budget.
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• Bush to project $400B deficit in budget plan.
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• The trillion dollar deficit.
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• Half of U.S. States Facing Budget Gaps, Report Finds.
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BOND INSURERS THREATEN DEBT TSUNAMI

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STOCK MARKETS - DON'T BE A HERO-EXPECT FED TO LOWER DOW TO 8,000-HEDGE FUNDS HIT

• "Perma-bear's" advice: Hold cash, not stocks. Jeremy Grantham, the money manager who oversees $157 billion as chairman of Grantham, Mayo, Van Otterloo & Co., says investors should shun stocks and hold cash during the worst financial crisis in more than 60 years. "Don't be a hero," Grantham said in an interview from his office in Boston. "Move to cash and let the other guys fish around for the bargains in the wreckage."
  
  Dubbed a "perma-bear" for his dour view on U.S. equities for more than a decade, Grantham correctly predicted a crash in technology stocks two months before the bubble burst in March 2000. Now, he tells his firm's investors that if they want to risk investing in stocks, they should stick with the "highest-quality" large U.S. and emerging-market shares. "This is the most important U.S. financial crisis since World War II," he said.
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• The popular Wall Street adage is "As January goes, so goes the year" and that seems very likely this year. Yale Hirsch, the founder of The Stock Trader's Almanac, first introduced this concept in the 1960s. Gold was up 10% in January and most stock markets were down between 5% and 10%.
  
  The January effect is extremely likely to come to fruition this year, especially given the continuing and deteriorating credit crisis. The FT reports that "heavily indebted European and U.S. companies are facing growing financial difficulties because they cannot refinance their borrowings due to the continuing closure of the credit markets. Companies' inability to borrow is raising the spectre of defaults, particularly among the most highly leveraged companies in sectors such as property that have been hardest hit by economic uncertainty." Gold.ie
• Economist: Expect Fed to lower Dow to 8,000. Critic claims agreements involving billions used to shift market. Consumers should expect a deep recession, triggered by the "stealth methodology" of the Federal Reserve to "depress" the market even while lowering interest rates in an ostensible effort to stimulate economic growth, an economic analyst is charging. "The Federal Reserve is directly involved in manipulating the stock market," said economic analyst Mike Bolser in a telephone interview with WND yesterday.
  
  The New York Stock Exchange finished the day down 108.03 points, closing at 12,635.16, much as Bolser predicted, despite recent emergency Fed rate cuts of 1.25 percentage points aimed at stimulating the economy. "Fed wants the Dow Jones Industrial Average and other financial indicators to descend in a managed way," Bolser said. "The Fed wants to drive the DJIA toward the 8,000 level, or below, in order to help create a deep recession which will have the effect of slowing consumption across the board, and dampening the otherwise harmful effects of inflation.
  
  "A falling DOW is only one element of the recession effects of the excessive Fed-created housing and credit creation, whose bubbles are now bursting," he added. "Without this recession, we would be on quick trip to hyper-inflation," Bolser, the author of an internationally followed newsletter published in conjunction with his InterventionalAnalysis.com website, said, "and the Fed wants to prevent this."
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• Hedge-fund managers lost an average of 1.8 percent in January as stock markets around the globe got off to their worst start since 1990.
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WARREN BUFFETT - MADE MILLIONS ON THE LOONIE

• The woes in the U.S. financial sector are "poetic justice" for bankers who designed and sold complex investments that have since gone sour, billionaire investor Warren Buffett said on Wednesday.
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• Buffett Made Millions on Canadian Currency Bet, Post Reports. Billionaire investor Warren Buffett, chairman of Berkshire Hathaway Inc., made "several hundred million dollars" owning the Canadian currency and believes it will continue to strengthen, the National Post reported. Buffett, in an interview with the newspaper while in Toronto yesterday, said he wished he'd held on to the Canadian dollar, which has gained 17 percent against the U.S. currency the past 12 months.
  
  "I think those Canadian dollars are very likely, even from this level, to be worth more than the U.S. dollar five or 10 years from now than they are today," Buffett told the paper. While he doesn't own any direct stakes in Canadian companies, Buffett said that Canadian National Railway Co. has "the best record of any railroad I know of," the Post said. Bloomberg
• Buffett Sees No Credit Crunch, Forecasts Lower Dollar.
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• Buffett sitting on his wallet. The Berkshire Hathaway chairman became the world's second-richest man by buying good companies at low prices. But even as stock markets plunge, he doesn't see any bargains.
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REAL ESTATE

• Housing starts to cool in 2008: CMHC.
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• The number of Americans signing contracts to buy previously owned homes fell in December for a second straight month, signaling the worst housing slump in 25 years will persist well into 2008.
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• Housing Meltdown. Why home prices could drop 25% more on average before the market finally hits bottom.
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• Big Homes, Big Problems. How the size of our houses inflated the housing crisis.
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• There Used To Be A Housing Boom In California.
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• Sellers Are Willing To Give Away The Farm In California.
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• The Wave Is Finally Hitting The Beach.
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• Celebrity Real Estate Losers. Even Hollywood's rich and famous can't avoid the housing downturn that's sweeping the nation.
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• Construction spending drops by record 2.6%. Biggest decline since 1994 driven by 18.3% drop in residential projects by private companies, says Commerce Department.
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• Consumers, economy crimp U.S. retail store plans. The consumer spending slowdown that began in 2007 is turning into a new store slowdown in 2008. As many U.S. retail chains prepare to end their fiscal year on Thursday, they are already ratcheting back expansion plans for their next fiscal year, realizing the rocky economy and a cash-strapped consumer will no longer support heady store opening plans.
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FORECLOSURE - MORTGAGES

• Troubled homeowners: Can't pay? Just walk away. More and more borrowers are watching their house values sink while the cost of their loans skyrockets. What to do? Skip out on the mortgage all together.
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• Exploding ARMs Roil Bernanke's Drive to Calm Markets.
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• The Capital Times reports from Wisconsin. "Mortgage foreclosures in Dane County leapt nearly 80 percent in 2007, matching the national increase as the local housing boom went bust and risky loans went sour. Stella Morris and her family lost a west side condominium, last fall after the interest rate on their adjustable rate mortgage reset at a level they could not afford."
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• Kroszner Urges Lenders to Enact Fast-Track Loan Modification.
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AL QAEDA SEEN PLANNING ATTACK ON U.S.

• Senior al Qaeda leaders have diverted operatives from Iraq across the globe and are increasing preparations to strike the United States, senior intelligence officials told the Senate Select Committee on Intelligence yesterday. They said the terrorists had plans to attack the White House as recently as 2006.
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IRAN-IRAQ-ISRAEL-U.S.A.-PAKISTAN

• Israel's Mossad spy agency estimates Iran will develop a nuclear weapon within three years and continue to provide rockets to regional armed groups, a newspaper reported on Tuesday.
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• Iran launched a research rocket Monday and unveiled its first major space center, which will be used to launch research satellites, state-run television reported. The report said the rocket was the first launched by Iran "into space." But analysts have expressed doubts about similar technological achievements announced by the country in the past. Iran launched its first domestically built rocket last February, which did not reach orbit level.
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• Prince Andrew rebukes US on Iraq. The Duke of York has criticized the US administration for failing to listen to advice from Britain on how to avoid problems following the war in Iraq. Prince Andrew said the war had led to a "healthy skepticism" in Britain towards what was said in Washington.
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• Israeli security forces were on high alert Tuesday, sending beefed-up patrols to public areas such as shopping malls, bus stations and train depots after the first Palestinian suicide attack in more than a year.
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• An American missile ship set to dock at Haifa Port on Monday is equipped with an anti-missile defense system that could be deployed in the region in the event of an Iranian missile attack against Israel.
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• U.S. Military unready for homeland attack, says study.
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The GoldBugg Report - Investing in Gold
Posted by Worldwide Precious Metals on Tuesday, February 12, 2008