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The GoldBugg Report March 18th

March 18, 2008

In this week's GoldBugg Report:

• How Subprime Killed Bear Stearns.
• Gold breaks $1000, but Silver could be an even better buy!
• Fed cuts rates by 3/4 of a point as it risks lower dollar in effort to ward off recession.

How subprime killed Bear Stearns

A problem with risky mortgages has led to a global financial crisis. The bigger issue: Experts don't know when it will end.

http://money.cnn.com/2008/03/17/news/economy/gothere/index.htm?postversion=2008031716

-Gold touches $1,000 once more into the breach! Silver rising even faster. With gold touching $1,000 before pausing for breath, it seems the psychological barrier breach is upon us at last but silver could be an even better buy!  Read more at-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=49334&sn=Detail

Fed cuts rates by 3/4 of a point

Central bank lowers key rate to lower borrowing costs for consumers, businesses, as it risks lower dollar in effort to ward off recession. http://money.cnn.com/2008/03/18/news/economy/fed_rates/index.htm?postversion=2008031814

-Consumer Price Index (CPI). A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living. Sometimes referred to as "headline inflation".

The U.S. Bureau of Labor Statistics measures two kinds of CPI statistics: CPI for urban wage earners and clerical workers (CPI-W), and the chained CPI for all urban consumers (C-CPI-U). Of the two types of CPI, the C-CPI-U is a better representation of the general public, because it accounts for about 87% of the population.

CPI is one of the most frequently used statistics for identifying periods of inflation or deflation. This is because large rises in CPI during a short period of time typically denote periods of inflation and large drops in CPI during a short period of time usually mark periods of deflation.  Investopedia.com

-Producer Price Index (PPI). A family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time. PPIs measure price change from the perspective of the seller. The PPI looks at three areas of production: industry-based, commodity-based, and stage-of-processing-based companies.  Investopedia.com

-"Regardless of the dollar price involved, one ounce of gold would purchase a good-quality man's suit at the conclusion of the Revolutionary War, the Civil War, the presidency of Franklin Roosevelt, and today." Peter A. Burshre

-30 years of gold highs and lows.  Read full story at-http://news.bbc.co.uk/1/hi/business/7284184.stm

-Precious Gold 101: As Reliable as Ever.  Read more at-http://www.resourceinvestor.com/pebble.asp?relid=41179

-Mortimer Zuckerman, co-founder of Boston Properties Inc., the largest U.S. office real estate investment trust, said the U.S. economy is in a recession and there's no sign of a recovery.

``We are looking at the worst set of macroeconomic conditions since the Great Depression,'' Zuckerman said in an interview with Bloomberg Television. ``I don't know where the bottom is. The federal government's going to have to do a lot more to contain what I think is the potential of a perfect storm.''  Read full story at-http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aHLKk89J4tW8

-Bank of Canada Governor Mark Carney said an end to the turmoil in financial markets ``is not yet in sight,'' though regulators should use their new understanding of the problems to craft a careful response.  Read full story at-http://www.bloomberg.com/apps/news?pid=20601082&sid=aSd1i6N7PHjg&refer=canada

-If anyone still has money in any stocks or mutual funds, it's time to exit. The sooner the better, because the longer people wait, the less they get for their paper. And then, guess where they are going to put it? Got gold?  Alex Wallenwein

-"Mr. Bernanke, with his monetary policies, he will destroy the U.S. dollar,'' Marc Faber, with $300 million under management at Hong Kong-based Marc Faber Ltd., said in an interview with Bloomberg Television. The publisher of the Gloom, Boom & Doom report predicted U.S. rate cuts will spur inflation.  Bloomberg

-Marc Faber remains a long-term gold bull. With prices hitting $1,000 (U.S.) an ounce this week, gold has risen so high in price he says some other bullion lovers he knows have already returned to cash. He has not. He thinks the metal could pass $3,000 an ounce, if only temporarily, like in the spike of the early 1980s.  Thestar.com-Read more at-

http://www.thestar.com/printArticle/326371

-IMF's Lipsky warns of 'unthinkable' in global credit crisis. The International Monetary Fund today warned authorities worldwide to "think the unthinkable" in planning to cope with a mounting crisis in the global financial system.  Read more at-

http://www.iht.com/articles/2008/03/12/europe/france.php

-Miners Top MBAs as Metal Boom Makes Geologists Scarce.  Read more at-http://www.bloomberg.com/apps/news?pid=20601109&sid=aa9YCwmKdSKA&refer=home

-Crisis in mining deepens.  Read full story at-http://working.canada.com/toronto/resources/story.html?id=faf9b33d-f118-4622-92bb-9c4ccafd70e1

-Consumer confidence lowest on record. RBC Cash Index surpasses the previous low set in February, sinks to the lowest point in data going back to 2002.  Read more at-

http://money.cnn.com/2008/03/07/news/economy/consumer_confidence.ap/index.htm

GOLD

-Gold at $1,000 on Weak Dollar, High Oil.  Read more at-http://biz.yahoo.com/ap/080313/gold_record.html?.v=7 or http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aBg.5gK.T.78 or http://money.cnn.com/2008/03/13/markets/gold/index.htm

-Sprott Sees Financial Turmoil Pushing Gold to $2,000 an Ounce. Read more at-http://www.bloomberg.com/apps/news?pid=20601082&sid=aVMsmS.ikYd4&refer=canada

-Yamana sees gold at $1,500 this year. Soaring gold prices are likely to breach $1,500 an ounce in 2008, the chief executive of Canada's Yamana Gold Inc said on Tuesday. "There is a good chance we will see it before the end of this year," Peter Marrone told the Reuters Global Mining Summit in London. Marrone said the current environment formed "a perfect storm" for higher gold prices, which would need to rise to more than $2,000 in adjusted dollars to match the previous nominal peak of $850 set in 1980.  Reuters

-Goldcorp Inc expects the price of gold to top $1,000 an ounce and stay there for a long time, a development that will allow the company to improve operating margins, Chief Executive Kevin McArthur said on Monday. In a wide-ranging interview at the Reuters Global Mining Summit, McArthur, who is also president of the Canadian gold producer, said he thinks the price of gold is not "anywhere near a bubble." "We are not replacing the reserves that we're mining, and yet demand continues to grow worldwide. We're going to run out of gold," he said of the global gold industry.  Reuters

-Important to Focus on Long Term. Those who call a top in gold or think it is overvalued or a bubble simply because it has reached record nominal highs in the dollar (nearly the weakest currency in the world) show a fundamental lack of knowledge of markets and long term financial and economic history. Gold today is akin to the Dow Jones Industrial Average in 1954 when it had recovered to the same price that it had been prior to the Wall Street Crash in 1929 and the subsequent Great Depression.

The DJIA fell from over 400 in 1929 to as low as 50 in 1933 prior to increasing in value by some 800% in the next 20 years. Those who called a top in the DJIA in 1954 were very wrong despite the DJIA having risen some 800%. Subsequently it rallied from 400 in 1954 to over 1000 on 1966. Gold too is likely to double or treble in value from its record nominal highs of $850 set some 28 years ago.

Simply because a market has surpassed a very old nominal high or reached a new record high does not mean it is overvalued. Witness the DJIA in recent years. Was it overvalued when it reached new record highs in the 1980s (after the brutal bear market of the 1970s) and then again reached new record highs in the 1990s.

Calling a top in gold today and calling it a bubble is akin to calling a top in the DJIA in 1990 (DJIA was at 2,600) or earlier. All markets experience long term cycles of bull markets and bear markets and periods of undervaluation followed by periods of growth and then overvaluation. Gold is likely in the intermediate stage of its new secular bull market.  Gold.ie

-Oil has again surged to new record highs above $110 confounding the usual 'don't worry be happy' pundits who declared that oil was a bubble at $50 through to $100 per barrel. Gold will do the same thing in the coming weeks. Analysts who are either uninformed or would prefer not to face reality will say gold is overvalued and due for a correction (for the umpteenth time - as the same thing was said when gold was at $500, $600, $700, $800 and $900).

They will be proved wrong again as gold is more than likely to surpass it's inflation adjusted dollar high of $2,300 per ounce in the next 3 to 7 years. Unfortunately misguided and dangerous prognostications will have lulled many investors into a continuing false sense of security. Thereby resulting in the majority of investors being exposed to the coming serious recession in the UK, US and much of the western world.

Over optimism and irrational exuberance loses investors money. Paying lip service to diversification is particularly dangerous in the current times. Individual, pension and institutional investors are not diversified simply by allocating to cash, property and equities. Every portfolio also should have an allocation to commodities to protect against the ravages of inflation and an allocation to the finite currency of gold which is the essential financial insurance of a truly properly diversified portfolio.

The confluence of a possible energy and inflation crisis, monetary crisis (centered on the current global reserve currency the dollar), credit crisis and likely coming solvency crisis is a classic perfect financial storm. A 'hear no evil, see no evil' approach to finance and economics can be extremely injurious to an individual, company and nation's financial health.

While we all hope for a benign outcome to this the most serious financial and economic crisis since the Great Depression, it is important to deal in reality and be prudently prepared for any likely fallout from this economic crisis. As ever, paying down debt, avoiding extravagant and unnecessary consumption, risk aversion and real diversification should be the order of the day.  Gold.ie

-A Super-Dangerous Dow-Gold Divergence. Gold's been going up and the Dow has been dropping for months, now. If this persists for more than maybe two more months, it can spell utter doom for global equities markets and will cause a huge explosion in precious metals prices and shares.  Alex Wallenwein-Read more at-http://www.small-business-goldmine.com/dow-gold-divergence.html

-Potential targets for the Dow & Gold.  Read full story with charts here-http://www.financialsense.com/fsu/editorials/2008/0307.html

-South Africa's mine industry body confirmed the end of more than a century of dominance as the world's biggest gold producer as ageing ore bodies and safety- related mine stoppages slashed output by 7.4 percent last year.

The country, where three of the world's six biggest gold producers are based, produced 254.7 metric tons (8.19 million ounces) of the metal last year, the Chamber of Mines of South Africa said, pushing it below China's 276 tons, according to estimates by London-based researcher GFMS Ltd.  Read more at-http://www.bloomberg.com/apps/news?pid=20601116&sid=aRK_iG4wmyzU&refer=africa or http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=49132&sn=Detail

-CPM forecasts new gold supply, increased demand and mine production. CPM Group said Tuesday that the gold market is in disarray with 2008 expected to be more extreme as far as the economic and political conditions that affect gold prices, market trends and development.  Read more at-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=49237&sn=Detail

-Investment Demand Surges in Gold. While 2007 was a banner year for gold investors, the just released 200+ page CPM Gold Yearbook sees the potential for further strength for the yellow metal in years to come so as long as investor demand remains at historically elevated levels.

The CPM Group, which has been publishing its annual analysis of the gold market for over three decades, today unveiled its latest offering, which especially highlights the role of investment demand in driving the mammoth seven year bull market.  Read more with charts here-

http://www.resourceinvestor.com/pebble.asp?relid=41116

-Clive Maund-Gold/Silver Market Updates.  For story and charts click here-http://www.321gold.com/editorials/maund/maund031308.html

-Record gold prices spawn new lightweight jewellery trend. The era of bling and, in particular, big, heavy gold chains may be waning as record gold and platinum prices are forcing consumers to seek lightweight or hollow jewellery pieces.  Read more at-http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=49075&sn=Detail

-So, will gold play catch-up with oil in inflation-adjusted terms? Will we see gold at $2300 per ounce? My guess is that we will. Clearly OPEC is not in the mood to carry the burden of competitive currency devaluations further.

The historic relationship between oil and gold is likely to reassert itself, and it is unlikely that it will be because crude oil took a fall. Gold, when viewed in inflation-adjusted terms, looks like quite the bargain. Michael J. Kosares-Will Gold Catch-Up with Crude?  Read full story with charts here-http://news.goldseek.com/GoldSeek/1205263969.php

-Germany's central bank Bundesbank will hold on to gold reserves. For the present, the president of Germany's Bundesbank said Tuesday the central bank will hold on to the majority of its gold reserves until bank officials meet in September.  Read more at-http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=49215&sn=Detail

-The World Gold Council wants to cross-list its New York-listed StreetTRACKS Gold Shares GLD.P, a gold exchange-traded fund (ETF), in Japan and Hong Kong by September, the industry body's chief executive said on Tuesday. James Burton also said that the global demand for gold was likely to have fallen in the March quarter owing to high prices and volatility, but did not give an estimate of the change.

"I am pretty confident that in the next two quarters we will be able to cross-list our ETF in Japan and Hong Kong," Burton said after a board meeting of the WGC in Mumbai. Greg Wilkins, president and chief executive of Barrick Gold Corp, the world's largest gold producer, was appointed as the WGC's new chairman in the meeting. Wilkins said he would focus on developing ETFs and enhancing the reputation of the gold mining industry.

The WGC was looking at markets such as Dubai to sponsor new ETFs, but it had no plans to start such a fund in India, which has a nascent ETF market where five players collectively hold less than four tonnes of gold. "We have chosen not to launch our own product in India to compete with existing ETFs as we would like to see how the market develops," Burton said.

For now, the trade body funded by producers was content to promote gold jewelry in India, the world's largest consumer of gold, said Pierre Lassonde, the outgoing chairman of WGC. "We have increased our budget by six times in the last three years in India," Lassonde said. Demand in India, which imports over 700 tonnes of the yellow metal, has taken a hit from soaring gold prices.

In the fourth quarter of 2007, global gold demand dropped 17 percent from a year earlier to 843 tonnes due to a sharp drop in jewelry buying by India, WGC data showed, and Burton said demand was likely to have eased in the current quarter. "There are some positives and some negatives," but overall it would be a "down quarter", he said.  Reuters

SILVER

-Continue to watch silver, whose ratio with gold will surely improve. In other words, silver gains will outpace those of gold. The desperate central banks have no silver to dump on the market.  Jim Willie CB-Dollar-Gold: A Perfect Storm-Read full story with charts here-http://www.321gold.com/editorials/willie/willie030708.html

-Is Silver the Sleeper? "The major monetary metal in history is silver, not gold." Coming back to forecasting the price of silver, we need to define a methodology. One way is to use what I call the classic, or monetary, ratio. This is based upon a bimetallic standard, which was exercised when both gold and silver were used daily as money.

The ratio was fixed between 15-16 to 1. In other words, one ounce of gold bought 16 ounces of silver. If we use our gold price of $2900 derived in last week's column, and divide by 16, that puts silver at $181.25 per ounce. Is this possible? Under our current financial conditions I am reluctant to rule out anything, but I am also a practical investor.

Before we ever get to even $100, which I have forecast as a price I do expect silver to achieve, we must move above $30, then $40, and take out the old nominal high of $50. I think you see my point, and the ultimate high price is impossible to determine, because only the market knows. But in my view, silver has way too many things going for it not to continue higher over the next several years. Consider the following points:

•Silver has every monetary attribute of gold and is far more affordable to the general public
•Monetary worry was primarily U.S.-based in 1980; today it is a worldwide concern
•The U.S. was in far stronger financial condition in 1980 than today
•The Silver ETF did not exist in 1980
•Silver is a much smaller market than gold, and therefore any new buying (or selling) has much more effect on the price
•In 1980, silver hit $50 per ounce when there were at least two billion ounces of silver in bullion form; today there is less than one-fourth that amount.  David Morgan-Read full story at-

http://www.ibtimes.com/articles/20080307/is-silver-the-sleeper.htm

-Three Pictures of Silver. Short-Term Picture, 36 Months. There are two things to notice on this chart: The Upper bound of the Up-Channel has not been reached yet; so there is a potential here. Ascending triangle (grey area on the chart) places the up-side target at $25.00.



Mid-Term Picture, 7 years.
So far so good - the pattern proves persistent rate of growth and almost identical time span for subsequent consolidations, each consolidation lasted two years. However, we expect increased volatility and ascent of silver price to accelerate. We're five years into this bull market and there is no cycle top in sight yet.




-Longer-Term Picture, 28 Years. This chart is for those who thinks it's "too late" to buy Silver. As you can see below, Silver just broke out from a 28 year base formation. On a time basis, this cycle is just getting started.  SilverStratetgies.com team

-One of the most important aspects of investing is that it is genuinely hard work.  There are no shortcuts.  Taking it easy for a while simply isn't an option if you strive to make a decent return every year. One has to stay focused, in order that they will be able to anticipate and then take advantage of great opportunities, things which are rare.  And yet, we are now being handed a great opportunity on a silver platter.

This is an opportunity that could be life changing for many.  I know that I have said it before, and that to some of you may think I sound like a broken record, but it is crucial for investors to act quickly in order that they might profit from this chance of a lifetime. Several updates ago, in the October 2007 issue of the Resource Fortunes Premium Newsletter, I outlined my expectations for the price of silver during the coming years based on the gold-silver ratio. 

I made the case that silver should soon being accelerating its advance against gold if my thesis were true, and I think we have just witnessed the early stages of the declining gold-silver ratio. Lately, silver has been making huge daily swings, and the big picture is becoming clearer and clearer. If the weekly chart in this month's update is correct, we are on the verge of completing the presented head and shoulders pattern, triggering a gold-silver ratio of 12 to 14.

If the neckline is taken out, we should see the next stage in this cycle occur, i.e. another acceleration in the declining gold-silver ratio. If this transpires, silver producers and explorers could really take off, sending their share prices into orbit. Breaking this neckline would cause the price of Silver to explode, so much so that we might even begin to see the price rising dollars at a time, instead of just cents, quite similar to the price action in the late 1970s and early 1980s.

The difference is that this time the rise will be the cause of an ever growing crowd of individuals, rather than two brothers. Personally, I'm boarding this train before it leaves the station.  Even if it turns out that I'm a bit early, I'm confident that the real thing is underway and would rather suffer in the short term than be left wondering whether or not I should buy a ticket as silver vaults higher and higher.  Roy Martens-Read more at-http://news.silverseek.com/SilverSeek/1205273785.php

-Silver Nanoparticles Deadly to Bacteria.  Read more at-http://www.physorg.com/printnews.php?newsid=124376552

PLATINUM-PALLADIUM

-Platinum jewellery roundup for February 2008.  Read full story at-http://www.platinum.matthey.com/media_room/1204714817.html

-Norilsk-led palladium alliance to push jewellery usage. Palladium's lower unit price means that it continues to eat into platinum's market share in the jewellery industry. The industry overall continues to show a very healthy rate of growth, however.  Read more at-http://www.mineweb.com/mineweb/view/mineweb/en/page35?oid=49009&sn=Detail

COMMODITIES

-Farmers struggle to keep up with world food demand. Read more at-http://www.iht.com/articles/2008/03/09/business/crop.php

-Investors Plan to Buy More Commodities, Barclays Says.  Read more at-http://www.bloomberg.com/apps/news?pid=20601082&sid=aB_d6g4UnuGE&refer=canada

OIL-GAS

-Oil, a dollar-denominated commodity that has reaped big gains from the greenback's recent tailspin, is likely to keep pushing higher as the dollar continues its slide, say analysts. Read more at-http://www.marketwatch.com/news/story/dollars-continued-drop-could-mean/story.aspx?guid=%7bEEC538E0-F5C8-4D28-9321-B076DEE21BF7%7d&dist=TNMostRead&print=true&dist=printTop

-Oil Prices Too High But Don't Look to OPEC for Help.  Read more at-http://www.resourceinvestor.com/pebble.asp?relid=41146

-Oil spike to last through 2008: OPEC president.  Read more at-http://biz.yahoo.com/rb/080310/opec_khelil.html?.v=1&printer=1

-Natural Gas Hits $10; Higher Utility Bills for Canadians Expected.  Read more at-http://www.resourceinvestor.com/pebble.asp?relid=41107

-European Gas Sector Threatened by Shortages.  Read more at-http://www.resourceinvestor.com/pebble.asp?relid=41058

INFLATION

-Surging costs of groceries hit home. Read more at-http://www.boston.com/business/personalfinance/articles/2008/03/09/surging_costs_of_groceries_hit_home?mode=PF

-China Inflation Surges 8.7% on Blizzards, Food. Read more at-

http://www.bloomberg.com/apps/news?pid=20601087&sid=ayx1ENtw.uK4&refer=home

-Surging Commodities May Be Signalling Stagflation, Hicks Says. Read more at-http://www.bloomberg.com/apps/news?pid=20601012&sid=anHP.rxOfFRY&refer=commodities

-Recession, GDP and Inflation: Conventional Wisdom or Data.  Bud Conrad-Read full story at-http://www.321gold.com/editorials/casey/casey031208.html

U.S. FINANCIAL CRISIS CONTINUES

-Fed to Lend $200 Billion, Take on Mortgage Securities. Read more at-http://www.bloomberg.com/apps/news?pid=20601087&sid=aXFA6cyhCF7M&refer=home

-Subprime-related losses at global financial institutions have so far totaled as much as $215 billion, with about 55 percent of that coming from the United States, the head of Japan's financial regulator said on Monday.

The estimates from Japan's Financial Services Agency (FSA) come after JPMorgan Chase & Co said in a report late on Friday Wall Street banks are facing a "systemic margin call" that could deplete them of up to $325 billion in capital. European losses totaled about 8 trillion yen ($78.5 billion), while Asia and Canada together accounted for about 1.4 trillion, FSA Chairman Takafumi Sato told reporters at a regular briefing.

Japan's financial institutions have so far avoided the massive subprime losses taken by overseas rivals, but they have not escaped unscathed. Subprime losses at Japanese banks more than doubled to 600 billion yen in the last quarter of last year, with total exposure to subprime investments hitting 1.5 trillion yen, the FSA said last month. "Compared to overseas, Japan's subprime-related losses and exposure are relatively limited," Sato said.  Reuters

-Fed takes boldest action since the Depression to rescue US mortgage industry.  Read more at-http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/12/cnfed112.xml

-S&P Says End in Sight for Writedowns on Subprime Debt. Standard & Poor's said the end is in sight for writedowns by the world's largest financial institutions. Writedowns from subprime-mortgage securities will probably rise to $285 billion, New York-based S&P said today in a report titled ``Subprime Write-Downs Could Reach $285 Billion, But Are Likely Past The Halfway Mark.''

The ratings company had previously estimated losses of $265 billion in January. S&P raised its estimate because of increased loss assumptions for collateralized debt obligations, the company said. ``The positive news is that, in our opinion, the global financial sector appears to have already disclosed the majority of valuation writedowns,'' S&P credit analyst Scott Bugie said in an accompanying statement.  Bloomberg

-U.S. Treasuries riskier than German debt, default swaps say.  Read more at-http://www.bloomberg.com/apps/news?pid=20601103&sid=aVl4JGYmkX0M&refer=us

HEDGE FUNDS IN COLLAPSE

-Carlyle Capital Nears Collapse as Rescue Talks Fail. Carlyle Group said creditors plan to seize the assets of its mortgage-bond fund after it failed to meet more than $400 million of margin calls on mortgage backed collateral that plunged in value.  Read more at-http://www.bloomberg.com/apps/news?pid=20601087&sid=aFDtyjWMME5M&refer=home

-Drake May Shut Largest Hedge Fund; GO Capital Halts Redemptions. Drake Management LLC, the New York- based-firm started by former BlackRock Inc. money managers, may shut its largest hedge fund, while GO Capital Asset Management BV blocked clients from withdrawing cash from one of its funds. Drake told investors today that it would either liquidate its $3 billion Global Opportunities fund, continue to restrict redemptions or allow clients to shift assets to a new fund. Read more at-http://www.bloomberg.com/apps/news?pid=20601087&sid=aka3h3.0KKrg&refer=home

-ING New Zealand Suspends Withdrawals From Two Funds.  Read more at-

http://bloomberg.com/apps/news?pid=20601208&sid=abSxJA8iOjOc&refer=finance

U.S. FISCAL-TRADE DEBT

-Federal budget deficit up more than 60%. Government spending rises to trillion-dollar range while revenue is up slightly. The federal budget deficit for the first five months of this fiscal year has risen more than 60% from the prior year after ballooning by more than expected in February, the Treasury Department said Wednesday. In its monthly finance review, the Treasury Department said the budget deficit totaled $263.3 billion for the fiscal year that began Oct. 1, up from $162.2 billion reported in the same period a year earlier.

The deficit for the month of February reached $175.6 billion. A consensus of analysts polled by Briefing.com expected a budget deficit for the month of $170 billion. Thus far, government spending has risen 10.2% to $1.2 trillion compared to the previous year, while revenue has risen only 1.3% to $967.2 billion. "In the short run, given the economy is weak, budget deficit is probably a good thing because that means the government is spending money to stimulate the economy," said Gus Faucher, an economist with Moody's Economy.com.

Faucher said that we still have yet to see the affect of the government's stimulus package. Stimulus rebate checks $600 for individuals and $1200 for couples filing jointly, plus $300 per child are expected to be mailed out to qualifying households in May. The government projected that the budget deficit for all of fiscal 2008, which includes stimulus package spending, will total $410 billion, unchanged from last month's estimate, and near 2004's record high of $413 billion.

However, "budget deficit in the long-term means that the government is essentially soaking up money that would normally be invested in the private sector to grow the economy," added Faucher. Congress began debating two rival plans Wednesday aimed at balancing the budget. One, backed by Democrats, would rely on tax hikes when President Bush's tax cuts expire in about three years. The other, backed by Republicans, would preserve the tax cuts, but slash costly entitlement programs such as Medicare and housing.  Cnnmoney.com

-U.S. January Trade Deficit Rises 0.6%; Exports Gain. Read more at-

http://www.bloomberg.com/apps/news?pid=20601087&sid=aV5igqR6Ae38&refer=home

JIM ROGERS SAYS ABOLISH THE U.S. FED

-Federal Reserve Chairman Ben Bernanke should resign and the Fed should be abolished as a way to boost the falling dollar and speed up the recovery of the U.S. economy, investor Jim Rogers, CEO of Rogers Holdings, told CNBC Europe Wednesday. Asked what he would do if he were in Bernanke's shoes, Rogers, who slammed the Fed for pouring liquidity in the system and accepting mortgage-backed securities as guarantees, said: "I would abolish the Federal Reserve and I would resign."

If this happened, "we don't have anybody printing money, we don't have inflation in the land, we don't have a collapsing U.S. dollar," he told "Squawk Box Europe." The Federal Reserve announced on Wednesday a rescue package that it would put around $200 billion into banks and investment houses and allow them to put up risky home-loan packages as collateral. Wall Street responded to the news with the biggest rally of the year, but Rogers reminisced of the 1970s, when the Fed printed money to avert a recession, boosting inflation and then forcing interest rates to more than 20 percent to keep a lid on price rises.

"No country in the world has ever succeeded by debasing its currency," he said. "That's what this man is trying to do. He's trying to debase the currency as a way to revive America. It has never worked in the long term or the medium term." The Fed's move to accept risky collateral is not part of the central bank's business, he added. "What is Bernanke going to do? Get in his helicopter and fly around the world and collect rents? That's absurd," Rogers said.

A recession may be a good way to clean up the economy, while trying to prevent one may cost more and actually worsen the recession, Rogers said. Also, investment banks should be allowed to fail. "Listen, investment banks have been going bankrupt since the beginning of time. If people make mistakes if you bail out every investment bank that gets in trouble, that's not capitalism, that's socialism for the rich," he said.

The weakest financial institution is Fannie Mae, in Rogers' opinion, "but all of them have problems." He said he had a short position on all investment banks and is buying agricultural commodities such as cotton, wheat, coffee and sugar and was also buying the Chinese yuan and the Japanese yen. "Buy agriculture. Agriculture is one of the few places where you're going to make a fortune in the next years," Rogers said.  CNBC

DERIVATIVES THE NEW TICKING BOMB

-Derivatives the new 'ticking bomb.' Buffett and Gross warn: $516 trillion bubble is a disaster waiting to happen. "Charlie and I believe Berkshire should be a fortress of financial strength" wrote Warren Buffett. That was five years before the subprime-credit meltdown. "We try to be alert to any sort of mega-catastrophe risk, and that posture may make us unduly appreciative about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside.

In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." That warning was in Buffett's 2002 letter to Berkshire shareholders. He saw a future that many others chose to ignore. The Iraq war build-up was at a fever-pitch. The imagery of WMDs and a mushroom cloud fresh in his mind. Also fresh on Buffett's mind: His acquisition of General Re four years earlier, about the time the Long-Term Capital Management hedge fund almost killed the global monetary system.

How? This is crucial: LTCM nearly killed the system with a relatively small $5 billion trading loss. Peanuts compared with the hundreds of billions of dollars of subprime-credit write-offs now making Wall Street's big shots look like amateurs. Buffett tried to sell off Gen Re's derivatives group. No buyers. Unwinding it was costly, but led to his warning that derivatives are a "financial weapon of mass destruction."

That was 2002. Derivatives bubble explodes five times bigger in five years Wall Street didn't listen to Buffett. Derivatives grew into a massive bubble, from about $100 trillion to $516 trillion by 2007. The new derivatives bubble was fuelled by five key economic and political trends:

Sarbanes-Oxley increased corporate disclosures and government oversight

Federal Reserve's cheap money policies created the subprime-housing boom

War budgets burdened the U.S. Treasury and future entitlements programs

Trade deficits with China and others destroyed the value of the U.S. dollar

Oil and commodity rich nations demanding equity payments rather than debt-Read more at-http://www.marketwatch.com/news/story/derivatives-new-ticking-time-bomb/story.aspx?guid=%7bB9E54A5D-4796-4D0D-AC9E-D9124B59D436%7d&dist=sp_inthis&print=true&dist=printTop

U.S. DOLLAR

-Chart of the Day. Thanks in part to a large US trade deficit and a weak US economy, the US dollar continues to trend lower. For some perspective, today's chart illustrates the current trend in the US dollar (blue line) as well as that other world currency, gold (gray line). As today's chart illustrates, the performance of the US dollar has varied inversely to that of gold since October 2005. It is worth noting that the US dollar is currently testing support.

-James Turk-A New Record Low for the Dollar. The US dollar took centre stage this past week by plumbing new depths. The US Dollar Index made a record low, as we can see on the following chart.

I first presented the arrow on the above chart in my alert on November 11, 2007, and made the following observation. "When taken together, the eerie calm as the dollar collapses and the arrow in the above chart pointing to the building downside momentum suggest that the dollar is nowhere near its final low." That eerie calm remains. Few people are yet facing the facts.

For example, this past week I heard a business television reporter make the following ridiculous comment: "The dollar is at an all-time low because the European Central Bank doesn't want to cut interest rates." It is of course easy to blame others for the dollar's problems, rather than those truly culpable, namely, the spendthrifts in Washington, D.C. and the apparatchiks in the Federal Reserve who provide the politicians with all the dollars they want.

Another example of ignoring reality are the misguided media reports that state rising commodity prices are due to crop shortages. In reality, a tight supply of wheat cannot possibly explain why the prices of nearly all commodities are rising. It's not because there are too few commodities, but rather, too many dollars.

The Federal Reserve stopped reporting M3, the total quantity of dollars, in March 2006. But thanks to the work of John Williams of www.shadowstats.com we know how rapidly M3 is growing. The red line on the following chart shows the growth in M3 since the Fed stopped making that data available. The Fed obviously did not want us to know how many dollars they would be creating, which is now approaching record rates of growth.

The dollar is falling off the edge of a cliff, and for good reason. I continue to believe that the possibility of a dollar collapse is both real and imminent, and the probability of this outcome for the dollar increases with each new high in the precious metals like those achieved this past week. Ominously for the dollar, the following charts indicate that more new highs in gold and silver look probable in the weeks immediately ahead.

-Dollar still stronger than it might be, IMF says. The euro's rise has put it on the "strong side" on a medium-term basis but the U.S. dollar's value still needs to come down despite its recent decline, the International Monetary Fund said. Just a few months ago the IMF said the euro's exchange rate was broadly in line with medium-term fundamentals.

"Our view now is that after the appreciation it is now on the strong side in relation to its medium-term fundamentals in relation to its broad trading partners," IMF spokesman Masood Ahmed told a news briefing.

He said the dollar's decline had brought the U.S. currency closer to its fundamentals "but it remains within that framework still on the strong side," adding: "Our view on the dollar hasn't changed. The depreciation of the dollar in terms of its multilateral real effective exchange rate has brought it much closer to its fundamentals but it remains within that framework still on the strong side."  Read full story at-http://www.gata.org/node/6074

REAL ESTATE

-Next-door foreclosures slam home values.  Read full story at-http://www.businessweek.com/ap/financialnews/D8VC3T483.htm

-Misjudging The Depths Of The Real Estate Bust.  Read more at-http://thehousingbubbleblog.com/?p=4263

-They Just Wanted A Little More In California.  Read more at-http://thehousingbubbleblog.com/?p=4249

-Where Is The Bottom To This Housing Free Fall?  Read more at-http://thehousingbubbleblog.com/?p=4251

FORECLOSURES-MORTGAGES

-Foreclosures hit all-time high. Over 900,000 borrowers are losing their homes, up 71% from a year ago, and a record number of home owners are behind on payments.  Read more at-

http://money.cnn.com/2008/03/06/real_estate/defaults_continue_climb/index.htm

-U.S. Home Defaults, Foreclosures Rise 60% in February. Read more at-http://www.bloomberg.com/apps/news?pid=20601087&sid=auB36HQoB6Uw&refer=home

-Foreclosure crisis has ripple effect. Read more at-

http://www.usatoday.com/news/nation/2008-03-11-foreclosures_N.htm

-The next shoe to drop in housing. Rising foreclosures and big losses at Fannie Mae and Freddie Mac are making it harder for people with good credit backgrounds to get a traditional mortgage.  Read more at-http://money.cnn.com/2008/03/13/news/economy/conformingloans/index.htm?postversion=2008031308

-House's Frank Unveils Foreclosure-Prevention Legislation. U.S. House Financial Services Committee Chairman Barney Frank unveiled legislation to expand the federal government's role in shielding consumers from losing their homes as foreclosures reach record levels.

Frank's proposal would allow the Federal Housing Administration to insure and guarantee refinanced mortgages after lenders and loan holders reduce principal to a level borrowers can repay, according to a draft of the legislation released today by Frank's office in Washington. ``This could potentially refinance between 1 and 2 million loans and help these families stay in their homes, protect neighborhoods and help stabilize the housing market,'' according to the draft from Frank, a Massachusetts Democrat.  Bloomberg

GEOPOLITICAL

-Cost of Afghanistan and Iraq operations soars. Read more at-http://www.guardian.co.uk/politics/2008/mar/10/iraq.defence/print

-Iraq war costs US$12 billion per month: study.  Read more at-http://www.abcnews.go.com/International/wireStory?id=4418698

-MI5 targets four Met police officers 'working as Al Qaeda spies'.  Read more at-http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=528813&in_page_id=1770

© 2008, Worldwide Precious Metals.
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The GoldBugg Report March 18th
Posted by Worldwide Precious Metals on Tuesday, March 18, 2008