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The GoldBugg Report - Precious Metals: The best performing financial assets this year.

March 11, 2008

-Gold Beats Financial Assets as Investors Seek Haven. Gold, silver, platinum and palladium may be the best-performing financial assets this year as inflation and slowing growth erode the value of the world's major currencies, bonds and stocks. Precious metals have risen at least twice as fast as the euro and yen in 2008 and returned six to 20 times as much as U.S. Treasuries. The Standard & Poor's 500 Index and all other major gauges of equities are down. Gold futures reached an all- time high this week, while silver traded at its most expensive price since 1980.

Investors are using metals to preserve their buying power as the U.S. Dollar Index falls to a record and inflation accelerates. Gold, platinum and palladium may gain at least 27 percent this year as Federal Reserve Chairman Ben S. Bernanke prioritizes cutting interest rates over controlling consumer prices, said Ron Goodis, a trader at Equidex Brokerage Group Inc. in Closter, New Jersey, who has been buying and selling gold since 1978.

"It is hard to see how the monetary environment is going to be anything but supportive of higher gold and commodity prices anytime this year," said Chip Hanlon, who holds gold as manager of $1.5 billion at Delta Global Advisors Inc. in Huntington Beach, California. "If currencies don't carry a favorable interest over metals, then why not own gold or platinum?" Read full story at-http://www.bloomberg.com/apps/news?pid=20601087&sid=a32yIjCiPM9E&refer=home

-Agflation. An increase in the price of food that occurs as a result of increased demand from human consumption and use as an alternative energy resource. While the competitive nature of retail supermarkets allows some of the effects of agflation to be absorbed, the price increases that agflation causes are largely passed on to the end consumer.

The term is derived from a combination of the words "agriculture" and "inflation." Interest in alternative energies contributes to agflation. In order to produce biofuel (such as biodiesel and ethanol), manufacturers need to use food products such soybeans and corn. This creates more demand for these products, which causes their prices to increase.

Unfortunately, these price increases spread to other non-fuel related grains (such as rice and wheat) as consumers switch to less expensive substitutes for consumption. Furthermore, agflation will also affect non-vegetative foods (eggs, meat and dairy) as the price increases for grain will make livestock feed more expensive as well. Investopedia.com

-"The natural tendency of every government is to grow steadily worse that is, to grow more satisfactory to those who constitute it and less satisfactory to those who support it.' H.L. Mencken

-"I've reluctantly discarded the notion of continuing to manage the portfolio after my death abandoning my hope to give new meaning to the term "thinking outside the box.' Warren Buffett-On the search to succeed him as investment manager of Berkshire Hathaway-Read more at-http://money.cnn.com/2008/02/29/news/newsmakers/barr_buffett_succession.fortune/index.htm

-Gold near $1,000 no panacea to falling supply. A jump in the gold price over the magical $1,000 per ounce level would not be enough to bring on a surge of new production due to uncertainty over long-term prices, logistics problems and scarcity of projects. Global gold production has slipped by six percent since 2001 and analysts say current record prices are not expected to reverse the eroding trend in the next several years. Read full story at-http://www.reuters.com/article/hotStocksNews/idUSL0475144320080304

-On an historic basis, the statement "Gold is a better buy than oil" makes sense. During the past 18 years the gold/crude oil averaged 14 times. The current ratio is 9.71 and recovering. Gold is cheap relative to crude oil. Read more at-http://money.cnn.com/2008/03/03/news/economy/bank_failures/index.htm?source=yahoo_quote

GOLD

-When gold breaks above $1,000, then what? Should the the price of gold burst through the $1,000-per-ounce barrier, which it nearly did on Wednesday, experts predict it could reach higher records and even double this year. "We could see gold spike this year and hit $1,500," said Jay Taylor, who produces an investor newsletter, Gold & Technology Stocks.

"Gold has a shot at $1,200 or even $1,500 this year and ultimately will go a lot higher," said Peter Schiff, chief executive of Euro Pacific Capital in Darien, Connecticut. Peter Spina, who runs goldseek.com, a gold investor web site, said of the surge: "It's mostly institutional investors now, but we are seeing more enthusiasm and $1,500-$2,000 gold in the next 12 months is definitely possible."

Thomas Winmill, portfolio manager of the $290-million Midas Fund in New York, said, "If gold crosses $1,000 and does not significantly jump in price, I would say that the rally has legs because we haven't gotten to the point where people are investing just because gold is going up. Read more at-http://in.reuters.com/article/businessNews/idINIndia-32321120080305

-Short term support is now at $950 below that at $930 and $915. Strong support in gold is now seen at $890 to $900. The $1000 price level remains a realistic short term price target and $1,200 remains a realistic possibility in the coming weeks. Gold.ie

-It seems that many in the financial markets and even in the precious metal markets do not fully understand the ramifications of a real short squeeze in the precious metals. A massive short squeeze could propel gold and especially silver to far higher levels in the coming weeks. As always best to focus on the medium to long term and the continuing strong fundamentals with uncertainty in equity and property markets, oil at over $100 a barrel, the dollar under continuing pressure and the credit crunch deepening.

These will likely result in any correction in gold being of a short duration prior to challenging the inflation adjusted high of some $2,400 per ounce in the coming years. It is important to focus on the long term fundamentals and not get too caught up in what might be a wave of bullishness followed by a short term correction before continuing higher. We can't say for sure if this current wave will turn into a parabolic short squeeze which will result in a significant increase in volatility and markedly higher prices.

Thus it would be wise to continue to avoid 'timing the market'. Investors nervous of buying near a top should adopt a dollar cost averaging approach and maybe buy 33% or 50% of their bullion allocation now and the balance in the coming weeks. This ensures not buying near an intermediate top and ensures getting an average intermediate price. We continue to be confident that our 2008 predictions of $1,200 in gold and $25 in silver remain more than likely. Gold.ie

-Commodity research analysts at London-based Standard Chartered wrote that gold will probably rise more than twice as fast as last year. The price will probably average $934 an ounce in 2008, they predicted, and increase to an average $1,100 an ounce in 2009. Kitco Daily Resource

-Gold, More room to run? Yes, says Mark Hulbert, editor of the Hulbert Financial Digest. Hulbert reports that despite the runup in price, "the editors of gold timing newsletters aren't becoming commensurately more bullish.' And "Therein lies a contrast that, from a contrarian point of view, bodes well for gold.' Kitco Daily Resource

-Will gold finally break $1000 this week? This month? "The answer is any day now,' said Kevin Kerr, editor of Global Resources Trader. "The talk of yet another rate cut and the dollar continuing to spiral down is all it will take.'

Kerr said he expects $1,000-an-ounce gold in the back months within a week or so and in the spot market within two or three weeks, as long as the dollar continues to slide. "Stops are also likely heavy at that level [$1,000] since it is so psychological,' he added. After breaching $1000, Kerr thinks gold will hit a wall around $1,150 to $1,200 an ounce. Kitco Daily Resource

-People's aversion to paper is not just an American phenomenon any more. From the mid-summer trough last year, gold is up about 40% against the British pound, 35% against the euro, 25% against the Japanese yen, and 35% against the renminbi. We don't know where this trend is heading, but we do know what's driving it. Paper is paper, and gold is gold. Kitco Daily Resource

-$10,000 per Ounce Gold. Shayne McGuire, an investment expert in the U.S., director of global research for the $115 billion Texas Teacher Retirement System and author of the forthcoming book 'Buy Gold Now', said that world gold mining had peaked in 2001 and fallen since, squeezing supply.

"There are strains on supply, as the mining industry struggles to increase production, and there are signs that central banks may begin to slow down their sales of gold after decades of dumping. Clearly, to this last point, there has not been a free market in gold. Perhaps we will soon discover gold's real value, and I think it's not cheap. Clearly, central banks have impeded a truly free market in gold. In the years ahead we will discover gold's true value, and I think it's several thousand dollars higher than what we see today."

He said that all the gold in the world was worth $3.4tn, yet only a small fraction of that amount was traded on financial markets. "If 1% of the global value of stocks and bonds roughly $960bn went into gold, the precious metal would sky-rocket." McGuire added: "Thinking of prices well above $10,000 per ounce would suddenly become rational. Guardian.co.uk

-Gold rises during times of uncertainty, it rises during times of inflation and easy money, it rises when the dollar is weak, and all of this is currently keeping a strong foundation under the gold price. So again, keep your gold for the long-term. It's today's best investment and it's been a great investment for years. Despite normal ups and downs, we strongly believe you'll be glad that you continued to hold onto your gold, and of course your silver too. Mary Anne & Pamela Aden-Read full story at-http://www.kitco.com/ind/Aden/aden_feb292008.html

-Higher inflation to push gold to $1000/ounce, says RBC. RBC Capital Markets says increased inflation expectations are not priced into the gold price, but it highlights risk of significant physical selling. Read more at-http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=48479&sn=Detail

-Soaring cost of gold causes jewellery market pandemonium. Read more at-http://www.ft.com/cms/s/0/0b05b67c-e733-11dc-b5c3-0000779fd2ac.html

-India Consumed 715 Tonnes of Gold Last Year. Read more at-http://www.resourceinvestor.com/pebble.asp?relid=40919

-IMF says any gold sales will only substitute for unsold central bank quotas. Read interview here-http://www.gata.org/node/6051

-Video of Richard Nixon announcing the end of the gold standard. Watch video here-http://alsblog.wordpress.com/2008/01/25/nixon-ends-gold-convertability/

SILVER

-Silver Price Trades at Record $20 an ounce. The spot price of silver reached new record levels, touching a fresh 28 year peak. The price of silver was quoted bid $20 a troy ounce in overseas trading, surpassing the $20 mark at just after 23:45 Eastern Time, Sunday March 2, 2008. This historic event is document below showing the opening of markets starting in Australia and Asia with a slight pullback to $19.73 before seeing two significant buying waves. Silverseek.com

Silver Hits Record $20 an ounce on Sunday, March 02, 2008!

-Silver breaks through $20 up around 35 percent this year. Read more at-http://www.mineweb.com/mineweb/view/mineweb/en/page675?oid=48478&sn=Detail

-Silver Buying Spree Pushing Prices to Record Highs. Read more at-http://www.resourceinvestor.com/pebble.asp?relid=40898

-How high can gold and silver go? David Morgan has the answer. Read more at-http://news.goldseek.com/SilverInvestor/1204614180.php

-Silver is still in the early to middle phase of the current intermediate uptrend that promises to drive the price rapidly to the long-term uptrend channel return line now at about $30, so this figure is our target for this advance, on a medium-term basis. Note that silver may considerably overshoot the $30 objective, because the uptrend could well accelerate, especially if the dollar burns a hole in the floor. Clive Maund-Read full story with charts at-http://www.321gold.com/editorials/maund/maund030308.html

-Predicting the Silver Top. Silver is rocketing, the silver shorts are sweating profusely and silver continues to outperform gold as the next big silver spike begins to take shape. The main question now is at what price will you exit your silver position? Readers have queried me for my view on the matter but plainly no one knows to the dollar at what price silver will form a major top in the months ahead.

Some will get it right but there will be more luck than judgment about such price prophecies. At times like these, the venerable record of $50 is looked upon as an obvious target, whilst others state the inflation adjusted measure of $135. Other investors perceive a paradigm shift and see higher prices even than these with $200 for some reason being mentioned more than once. Others seeing a hyperinflationary apocalypse suggest that the price of silver will become meaningless as the dollar vaporizes before our eyes. People like to work with solid numbers, especially ones that are rounded off to the nearest tens or hundreds.

In other words, you won't get a consensus which is hardly surprising since the price in question lies in the future. Looking at the current price of $20, some may be getting a bit edgy as they look at their increasing profits and fear the top is in and $9 silver is the next objective decimating their new found wealth in the process. That is a natural fear, as natural as the greed that will make others hang on for ever greater prices. What is the happy rational medium between these two dominating emotions? Read full story at-

http://news.silverseek.com/SilverSeek/1204596000.php

-The Silver commercial signal failure appears to be accelerating in silver. Despite surging prices the silver open interest fell continues to fall showing that this is not a speculative bubble, rather a possible commercial signal failure where the huge and unprecedented concentrated short positions in silver are being forced to cover their shorts and buy back silver in significant volumes.

We could see the commercial shorts forced to panic cover en masse creating a massive surge in the silver (and gold) price. This eventuality is looking increasingly likely, especially in the light of the very significant macroeconomic and systemic risks facing the U.S. and many western economies.

Silver has now surpassed the predicted high of most silver analysts in the world who have failed to realise the massive growing supply/demand imbalance in silver and how the humongous and unprecedented short position in silver would lead to prices being propelled to levels that may shock even silver's more bullish enthusiasts. This happens in most bull markets but will be a sight to behold in silver in the coming years. Gold.ie

-Is this the time for an epic short panic in silver? Perhaps, especially as more people recognize the problem. The combination of severe recent financial stress on the shorts, the fundamentals and index fund buying, combined with the impossibility of buying back the out-sized short position easily makes it a difficult situation for the shorts. A wounded animal is always dangerous, depending on how serious the wounds. They are up against a wall and, if not resolved soon, it is likely to fall on them. Ted Butler-Read full story at-

http://www.investmentrarities.com/03-04-08.html

-Please examine the following two charts-http://www.jsmineset.com/cwsimages/Miscfiles/5841_Silver_Charts_for_3-4-2008.pdf

The first is a silver inflation adjusted chart using the government's CPI numbers. The second is of the gold/silver ratio. When the ratio is increasing, gold is outperforming silver. When the ratio is declining, silver is outperforming gold. You can see that lately silver has been outperforming gold due to a combination of investment fund money pouring into the grey metal which has also generated quite a significant short squeeze.

The reason that so much money is pouring into silver can be seen by referring to the first chart of inflation adjusted silver. Even after it's very impressive move of the last few weeks, silver is six times cheaper than its all time record high on an inflation adjusted basis. It would have to exceed $130 to match the 1980 spike high in real terms. You have already seen the inflation adjusted gold chart which shows gold less than half of its all time high in real terms and platinum which has exceeded its all time inflation adjusted high.

When one considers those two metals and then looks at silver, it is no small wonder that the giant commodity index funds are moving into silver in a big way. Keep this in mind when someone yells that silver is overpriced. Dan Norcini

-Video of Robert Kiyosaki Talking about Silver. Watch more at-http://youtube.com/watch?v=FOKn7tiUMyc&feature=related

PLATINUM-PALLADIUM

-UBS AG, Europe's largest bank by assets, raised its one-month estimate for platinum 25 percent to $2,250 an ounce, citing "scarcity concerns." Prices will climb to $2,400 an ounce in three months, London-based analyst John Reade wrote in an e-mailed note. The previous one-month and three-month forecasts were $1,800. Platinum and related metals, or PGMs, have climbed this year after mines were shut for five days in South Africa, the biggest producer of platinum and second biggest for palladium.

The one-month palladium price forecast was raised to $550 from $380 and for three months to $600 from $350, UBS said. Silver will climb to $21.50 in one month, up from $16 previously forecast, and $23 an ounce in three months, up from $14. "A combination of dollar weakness, broad commodity price strength, risk aversion buying and scarcity concerns (about PGMs specifically) will see precious metals trade higher over the next three months," Reade wrote. Bloomberg

-Platinum deficit will likely widen in '08. The platinum market is expected to continue in a supply deficit in 2008, HSBC metals analyst Victor Flores said on Sunday, with the actual size of the shortfall likely to be determined by whether prices remain at current or higher levels, what the higher prices mean for jewellery demand, the extent to which automakers react to supply concerns in South Africa and demand from exchange-traded funds (ETFs).

Based on various scenarios and price levels, Flores forecasts the platinum market will show a deficit of between 500 000 oz and two-million ounces in 2008, although the latter figure is "at the high end" of predictions. Recent electricity-related supply disruptions in the world's main platinum producer, South Africa, were largely to blame for the expected deficit growth. Read more at-http://www.miningweekly.co.za/print_version.php?a_id=128232

-During a recent CBS broadcast of 60 Minutes, veteran commentator Andy Rooney asked what was all the fuss concerning the recent astronomical rise in platinum prices.

Pricey Platinum affects air pollution control. Read full story at-http://www.processingtalk.com/news/clk/clk109.html

-Platinum, Palladium Are Hot. Both Are Up 50%; Play crucial role in the auto industry. While gold and base metals get most of the attention, platinum and palladium have emerged as a hot topic at this year's PDAC conference as the industry digests massive price increases with the possibility of even more on the horizon. The two precious metals have been on a tear all year, with prices up about 50% for each, including a record high for platinum yesterday of US$2,277.50 an ounce.

Those gains accelerated in the last week amid blackouts and a worsening power crisis in South Africa, which is responsible for nearly 80% of the world's platinum and more than 30% of its palladium. The sudden leap in prices serves as a stark reminder of the tightness of many metal markets and how much the world relies on a small number of sources for many of the secondary metals. Read full story at-http://www.financialpost.com/trading_desk/mining/story.html?id=353621

-Palladium stars as investors focus on future substitution. Standard Bank says in a report that both the palladium price and ETFs has surged as investors have focused on its substitution value. Palladium is set to enter the $650-$685 target zone. Read more at-http://www.mineweb.com/mineweb/view/mineweb/en/page35?oid=48621&sn=Detail

-Investors, Automakers to Drive Platinum Prices in 2008. Read full story at-http://www.resourceinvestor.com/pebble.asp?relid=40935

-PGM Bull Markets. Scott Wright-Read full story at-http://www.321gold.com/editorials/wright/wright022908.html

COMMODITIES

-Metals Outlook Bullish for Investors With Faith in Emerging Markets. Investors looking to cash in on the increasingly bullish outlook for metals and mining should carefully consider what a slowdown in the U.S. economy will mean for the sector. Read more at-http://www.resourceinvestor.com/pebble.asp?relid=40855

-Rice prices have surged to a 20-year high in the latest sign of global food inflation, creating policy headaches in Asia, where more than 2.5bn people depend on cheap and abundant supplies of the grain. Read more at-http://us.ft.com/ftgateway/superpage.ft?news_id=fto030320081932501720&page=2

-Calpers to Boost Commodity Investments Through 2010. The California Public Employees' Retirement System, the largest U.S. pension fund, may increase its commodities investments 16-fold to $7.2 billion through 2010 as raw materials prices surge to records. Calpers, which has about $240 billion in assets, agreed at a Feb. 19 board meeting to hold between 0.5 percent and 3 percent of its assets in commodities, spokesman Clark McKinley said. The Sacramento, California-based fund last year put $450 million into commodities, its first such investment. Read more at-http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aps_cctZFFP0

OIL-GAS

-Crude oil may rise to $120 a barrel within six months due to the dollar weakness and global political tensions, the chief executive officer of Abu Dhabi National Energy Co. said. "I think a trading range between $80 and $120 a barrel this year is about right," Peter Barker-Homek, the head of the United Arab Emirates state-controlled company, which is also known as Taqa, said in an interview in Dubai today. "But with the softness of the dollar, and the occasional interruptions that you have because of politics, I think we could see $120 oil." Read more at-

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=autFGntuNqZY

-Crude Oil Rises as OPEC Agrees to Maintain Production Targets. Read full story at-http://www.bloomberg.com/apps/news?pid=20602099&sid=aXF1Y6DWOQuc&refer=energy

-Matt Simmons peak oil presentation. Is it real? When might it occur. Read more at-http://www.simmonsco-intl.com/files/Kayne%20Anderson%20Energy%20Funds.pdf

-Saudi Arabian Oil Minister Ali al- Naimi, who controls the world's biggest oil exports, said crude prices are unlikely to fall below $60 a barrel because of rising costs to develop tar sands and alternative fuels. Producing oil from the alternatives costs about $60 to $70 a barrel, "and, therefore, a line has been drawn below which the price cannot fall," al-Naimi said in an interview published in Petrostrategies, a Paris-based industry newsletter. Read more at-http://www.bloomberg.com/apps/news?pid=20601087&sid=akoKcVKBjiJc&refer=home

-Exxon Mobil Corp., which recorded the biggest profit ever for a U.S. company last year, plans to raise 2008 capital spending to more than $25 billion to cope with escalating costs for drilling rigs and engineers. Read more at-http://www.bloomberg.com/apps/news?pid=20601087&sid=a2FeQRQN8_3o&refer=home

-Australian oil production is set to drop 8 percent this fiscal year as shutdowns of wells at offshore fields cancel out the effect of project start-ups, the Australian Bureau of Agricultural and Resource Economics said. Read more at-

http://www.bloomberg.com/apps/news?pid=20601081&sid=aNA4w4BcWspQ&refer=australia

-China's Oil Product Demand to Rise 6.5% in 2008. Read more at-http://www.resourceinvestor.com/pebble.asp?relid=40921

-U.S. to permit $5.2B pipeline from Canada. A TransCanada and ConocoPhillips-owned pipeline would transport 590,000 barrels of oil daily through seven U.S. states; State Dept. admits it will cause environmental harm. Read more at-http://money.cnn.com/2008/03/03/news/economy/CanadaUS_oil.ap/index.htm

-Imperial Says Some Fuel Shortages Likely in Western Canada. Imperial Oil Ltd., Canada's largest refiner, expects "sporadic outages" for several weeks at fuel stations in western Canada after equipment problems reduced output at its Edmonton, Alberta, refinery.

Stations in British Columbia, Alberta, Saskatchewan and Manitoba may temporarily run out of gasoline and diesel after the plant last month "experienced a series of operating issues in the fuel processing units," Imperial spokesman Gordon Wong said today in a telephone interview. The Calgary-based company isn't providing details on reduced supplies, he said. Read more at-http://www.bloomberg.com/apps/news?pid=20601082&sid=aUto8V2klzzs&refer=canada

-If you're going to be heading down the Big Sur Coastline anytime soon, you'll probably going to want to have a full tank before you leave with the price of crude oil skyrocketing. With gasoline following the same direction, the Americo gas station in Gorda, just south of Big Sur is selling premium unleaded gas for $5.39 a gallon. If you can do without premium regular's a relative bargain at $5.19.

Prices in many Bay Area cities remain above the statewide average with the price for a gallon of gas in Oakland at $3.51; San Francisco, $3.64; Salinas, $3.56; San Jose, $3.52; and Santa Cruz, $3.51. The average price for a gallon of gas in Santa Rosa sits just under the statewide average at $3.49 and in Vallejo a gallon is averaging $3.47, according to AAA. Read more at-http://www.kion46.com/news/local/story.aspx?content_id=df1239b4-5366-4489-86eb-77e6dc9249bc

INFLATION

-The Return of the 1970s. We've believed for quite some time that the current period bears much resemblance, economically speaking, to the 1970s. Consider the following trends, all of which took place in the 1970s and are doing so again today:

The stock market remains range-bound over the long term as inflation eats away at real stock valuations.
Real bond yields remain very low and sometimes go negative.
Gold, commodities, and other inflation-hedge investments are in a multi-year bull market.
The Federal Reserve is continually behind the curve on fighting inflation.
On weekends I wear plaid Sansabelt slacks and a mint-green polyester jacket with lapels so enormous that I am occasionally borne aloft during strong winds.

We can add another similarity to the list: the term "stagflation" is now showing up all over the news again. Read more at-http://www.pcasd.com/the_return_of_the_1970s

-U.S. Congressman Ron Paul takes Ben Bernanke to school about inflation. Watch video here-http://news.goldseek.com/GoldSeek/1204213214.php

-Inflation tops China 2008 agenda. Tackling record levels of inflation is one of China's major tasks for this year, Premier Wen Jiabao has said. Inflation rose by 7.1% in January the highest level in more than a decade and opinion polls show it is one of Chinese people's top concerns. Speaking at the opening of China's annual parliamentary session, he said economic growth would slow to about 8%.

Chinese politicians are worried higher food prices could lead to discontent and social unrest, correspondents say. Prices, particularly for basic food items such as pork and eggs, rose markedly last year in China, partly because of supply problems. An unusually cold winter in southern China this year also damaged winter crops, pushing up prices further. Read more at-

http://news.bbc.co.uk/2/hi/asia-pacific/7278450.stm

-Iran Inflation Surges on Ahmadinejad Subsidies, Price Controls. On a deserted Tehran street, an ex- geologist named Reza was hawking black-market fuel from the back of a battered van for about four times the legal price. "I'm a free-marketeer," said Reza, 48, who asked that his full name not be used for fear of arrest. "Everything in this country works through fixers," he said as he poured gasoline from a 20-liter jerry can into a car, using a plastic water bottle as a funnel.

"That's because of government mismanagement." Iran, the world's fourth-largest oil producer, is facing gasoline shortages, as well as youth unemployment of 21 percent and U.S. economic sanctions. President Mahmoud Ahmadinejad has responded by imposing gasoline rationing, boosting subsidies and raising government spending, sending inflation to its highest annual pace in eight years. Read more at- http://www.bloomberg.com/apps/news?pid=20601109&sid=aEgZoLZVrMPo&refer=home

INTEREST RATES

-The Bank of Canada cut its benchmark interest rate by half a point and signalled further reductions are needed to offset a slump in exports to the U.S. Mark Carney, in his first decision as governor, lowered the target rate for overnight loans between commercial banks to a two-year low of 3.5 percent, the biggest reduction since 2001. Thirteen of 26 economists surveyed by Bloomberg News predicted the size of today's move.

"Further monetary stimulus is likely to be required in the near term," the central bank said today in a statement from Ottawa. Signs of economic slowdown in Canada are "materializing and, in some respects, intensifying." Tumbling exports to the U.S. will limit 2008 economic growth to a seven-year low of 1.8 percent, the central bank says, and have erased the country's broad trade surplus for the first time since 1999. The bigger rate cut today also helps catch up with moves by the U.S. Federal Reserve, and may slow the Canadian dollar's advance that has battered manufacturers.

"You can cut rates 50 basis points today and 50 at the next meeting and probably not do a lot of damage to the near term inflation outlook," said Andrew Pyle, investment adviser at Scotia McLeod in Peterborough, Ontario, a division of Scotia Capital Inc. "It's a fairly cheap insurance policy." Read more at-

http://www.bloomberg.com/apps/news?pid=20601082&sid=aZcR9N4Mt6J0&refer=canada

-Federal Reserve Bank of New York President Timothy Geithner said the central bank may need to keep interest rates low for a while if financial markets remain under stress and threaten economic growth. "If turbulent financial conditions and the associated downside risks to growth persist, monetary policy may have to remain accommodative for some time," Geithner said in prepared remarks to the Council on Foreign Relations in New York.

The New York Fed chief identified the ongoing strains in the financial markets as the "critical risk" to the economy and said the central bank must be ready to move "proactively" to address it. Fed officials are in the seventh month of a credit crisis that began with rising delinquencies on subprime mortgages, and spread into the worst housing recession in a quarter century. Banks are making it tougher to get loans after financial companies posted more than $181 billion in asset writedowns and credit losses since the beginning of 2007.

Geithner also said that central banks worldwide have more leeway to tackle the financial turmoil than in the past because of their enhanced credibility as inflation-fighters. "The improvements in monetary policy credibility and financial strength developed over the past few decades mean that policy around the world has more room to adjust" to deal with "the challenge in the present environment," he said. Read more at-http://www.bloomberg.com/apps/news?pid=20601087&sid=a_QzTA8h_lcc&refer=home

-The Federal Reserve's 2 1/4 point cut in the federal funds rate since the middle of September may be doing more harm than good if it is doing any good at all. Read more at-http://www.marketwatch.com/news/story/story.aspx?guid=%7BA998669F-3FCF-4A3C-B756-6FA6FC3C39B1%7D&siteid=rss&print=true&dist=printTop

-The Federal Reserve's rescue has failed. Read more at-http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/03/ccview103.xml

-The Bank of England says it is keeping official interest rates unchanged at 5.25%, meeting expectations from most economists. Read more at-http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a6PXu0.BNiHg

-New Zealand's dollar advanced after the central bank said the nation's benchmark interest rate will remain at a record high. Read more at-http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7N7Wu9zS29M

-China's central bank Governor Zhou Xiaochuan said he'll consider raising interest rates to tame the fastest inflation in 11 years. "There is still room for further interest-rate increases," Zhou said today at the annual meeting of China's legislature in Beijing. Any decision is complicated by the U.S. Federal Reserve cuts to borrowing costs and the government's goal of increasing consumer spending, he said. Read more at-http://www.bloomberg.com/apps/news?pid=20601080&sid=a0_RYdn_7hVE&refer=asia

U.S. DOLLAR-EURO-U.S. PENNY

-Japan may move to support tumbling dollar. Pressure is building in Japan for official intervention to cap the surging yen before it triggers a sharp industrial slowdown and tips the country back into slump. Read more at-http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/03/ccjapan104.xml

-Petrodollar tsunami to hit euro and dollar. With crude oil at $100 a barrel, there is going to be a massive transfer of global financial wealth from oil consuming countries to oil exporters. Some of these windfalls will be absorbed by the economies of the oil producers, but a far larger amount will be invested outside them. Indeed, a petrodollar tsunami is coming, with significant consequences for global financial markets. Read more at-http://www.ft.com/cms/s/0/c56c0aa8-e93f-11dc-8365-0000779fd2ac.html

-Buffett's Brazilian windfall. Berkshire Hathaway has made billions betting against the dollar most recently with a $100 million gain from the growth of the Brazilian real. Read more at-

http://money.cnn.com/2008/02/29/news/international/buffett_dollar.fortune/index.htm

-As dollar falls, Israelis see virtues of their own currency. Read full story at-http://www.gata.org/node/6056

-IMF chief says euro is overvalued. The euro is overvalued and the European Central Bank needs a political counterweight to compensate for the fact that is it 'ultra-powerful', the head of International Monetary Fund was quoted as saying on Monday.

IMF director general Dominique Strauss-Kahn praised the ECB for containing inflation, but told Le Monde newspaper that eurozones countries needed to appoint a political supremo to make sure economic growth was promoted. 'The problem with the euro is that the European Central Bank, which does a good job controlling inflation, is ultra-powerful,' Strauss-Kahn was quoted as saying. Read more at-http://www.ft.com/cms/s/0/d0ce1520-e918-11dc-8365-0000779fd2ac.html

-Gulf May Form Common Bourse After 2010 Currency Union. Saudi Arabia, the United Arab Emirates and four other Gulf Arab states may form a common stock exchange after completing a currency union planned for 2010, the head of the Abu DhabiSecuritiesMarket said.

"You will see in this region a common capital market and securities market after the Gulf common currency," Tom Healy, director general at the bourse, said in an interview in Abu Dhabi today. The exchange would start "some years" after regional monetary union, he said, without being more specific. Read full story at-

http://www.bloomberg.com/apps/news?pid=20601013&sid=aMPHQNnep.BA&refer=emergingmarkets

-Russia Quietly Starts to Shift Its Oil Trade Into Rubles. Read more at-http://www.nytimes.com/2008/02/27/business/worldbusiness/27place.html?_r=2&oref=slogin&ref=worldbusiness&pagewanted=print

-Paulson: Penny's not from heaven. Treasury Secretary says he would like to get rid of 1-cent coin, but that other challenges take precedence. Read more at-

http://money.cnn.com/2008/03/01/news/economy/bc.paulson.penny.ap/index.htm

-Don't take a penny or a nickel at face value. It is no longer really a penny for your thoughts. To be precise, a thought is now worth 1.67 cents. And when someone offers you their 2 cents, they are really giving you 3.34 cents' worth of advice. That is because the government shells out 1.67 cents to manufacture one penny, up from 0.93 cents in 2004, according to The United States Mint.

It costs a mint to make pennies. Case in point: The U.S. Mint produced billions of pennies in the last fiscal year, costing taxpayers about $130 million; the coins have a face value of $80 million. Read more at-http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20080303/REG/988309947/1008&fromRSS=true&template=printart

U.S. RECESSION WATCH

-Billionaire Warren Buffett said Monday that the U.S. economy is essentially in a recession even if it hasn't met the technical definition of one yet. Buffett said in an interview with cable network CNBC the reports he gets from the retail businesses his holding company owns show a significant slowdown in purchases. The chairman and CEO of Omaha-based Berkshire Hathaway Inc. said millions of people have also lost equity in their homes because home prices have dropped.

The technical definition of a recession most economists use is two consecutive quarters of negative growth in the nation's gross domestic product. "I would say, by any commonsense definition, we are in a recession," Buffett said on CNBC. But Buffett said it's not clear how far the recession will go because that is difficult to predict. The technical definition of a recession most economists use is two consecutive quarters of negative growth in the nation's gross domestic product. Read more at-http://biz.yahoo.com/ap/080303/buffett_economy.html?.v=1&printer=1

-U.S. recession: A classic 12-act tragedy. Paul B. Farrell-Read full story at-http://www.marketwatch.com/news/story/tragedy-recession-its-bad-ending/story.aspx?guid=%7b5D72D7E3-76BB-4CAB-B4D0-60F87DA734B7%7d&dist=TNMostRead&print=true&dist=printTop

How this 12-act drama plays out will have an enormous impact on your future:

1. Home prices will fall 20% to 30% from the peak. Roughly $4 trillion to $6 trillion of household wealth will vanish. Large home builders may go bankrupt, triggering further declines in home-builder stocks. Even Fed Chairman Ben Bernanke admitted last week that housing prices could fall into 2009.

2. Prime and near-prime mortgages losses. "This is a generalized mortgage crisis and meltdown, not just a subprime one," warns Roubini. "About 60% of all mortgage origination from 2005 through 2007 had these reckless and toxic features. And losses among all sorts of mortgages will sharply increase as home prices fall sharply and the economy." Add another $300 billion in losses.

3. Consumer debt defaults will increase sharply. Nothing's safe: "There are tens of millions in subprime credit cards and subprime auto loans in the United States." Defaults "will not be limited to subprime borrowers," adding "more to bank and financial-company losses, increasing the credit crunch."

4. The credit insurers rescue package is insufficient. Even $10 billion to $15 billion won't do the trick. Ratings downgrades will "add another $150 billion write-downs on asset-backed securities portfolios," triggering more losses to their muni and money-market portfolios, says Roubini.

5. Commercial real estate loan market will deteriorate. Commercial real estate lending practices "were as reckless as those in residential real estate." Demand for new offices, stores and shopping centers will drop.

6. Some large banks with heavy mortgage exposure will fail. Scary, but some big regional and national banks "may join the 200-plus subprime lenders that have gone bankrupt, adding to an already severe credit crunch."

7. Banks' losses grow as asset values drop further. Banks still have "hundreds of billions of dollars of leveraged loans stuck on their balance sheets at values well below par." Now 90 cents on the dollar, soon bigger discounts.

8. Once the recession gains speed, expect corporate defaults. Corporate default rates average about 3.8% long-term. They were a low 0.6% in 2006-2007, thanks to easy credit, liquidity and low spreads. Junk-bond debt will soon have higher refinancing costs. "Corporate default rates will surge during the 2008 recession and peak well above 10%." In turn, they will trigger major losses in the "credit default swaps (CDS) that provided protection against corporate defaults." Loss estimates range from $20 billion to $250 billion, probably at the higher end.

9. Unregulated 'shadow banking system' facing huge problems. Now more than $500 trillion. These institutions "borrow short and in liquid forms and lend or invest long in more illiquid assets." But unlike banks, they can't tap into a "central bank's lender of last resort support as they are not depositary institutions." Bankruptcies will follow: "Large hedge funds, a few money-market funds, the entire SIV system and, possibly, one or two large and systemically important broker-dealers."

10. As recession spirals out-of-control, stock markets drop again. "Investors have begun to realize that the economic downturn is more severe than anticipated, that the [credit insurers] will not be rescued, that financial losses will mount and that earnings will drop sharply in a recession, not just among financial firms but also non-financial ones."

Roubini warns: "Another round of massive equity shorting will take place, leading to a cascading fall in equity markets in the United States and a transmission to global equity markets. U.S. and global equity markets will enter into a persistent bear market, as in a typical U.S. recession the S&P 500 falls about 28%."

11. Credit crunch will dry up liquidity in many financial markets. Roubini says "another round of credit crunch in interbank markets will ensue triggered by counterparty risk, lack of trust, liquidity premiums and credit risk. A variety of interbank rates will massively widen again." Central bank injections of liquidity will offer only temporary relief as interbank spreads widen.

12. Massive global recession spreading, spiraling down. Vicious circle: "Losses will lead to more margin calls and further reduction of risk taking by a variety of financial institutions that will then be forced to mark to market a forced fire sale of assets in illiquid markets will lead to further losses that will further contract credit and trigger further margin calls and disintermediation of credit," with further drops in equity prices, more margin calls, an out-of-control spiral down, even a run on some banks. As "the credit losses and the credit crunch spread around the world, U.S. and global financial markets will experience their most severe crisis in the last quarter-century."

-Ben S. Bernanke, the Federal Reserve chairman, told Congress last week that fighting off a possible recession in the United States was Job 1 for his crew. But a consumer-led recession has already begun, according to a new index that reflects how much money Americans can actually spend right now.

The new indicator comes courtesy of Charles Biderman, the founder and chief executive of TrimTabs Investment Research, a proprietary research firm in Santa Rosa, Calif. “The big picture is: the amount of money people have to spend, which includes money on real estate transactions, is plummeting, and it started to break down in October,” he said.

Consumer spending, don’t forget, accounts for about two-thirds of gross domestic product. Naturally, all eyes are on what consumers are doing with their money. Mr. Biderman said his data, in contrast to the indicators the federal number crunchers produce, are contemporaneous and offer much more insight into what is happening in the economic here and now. Read more at-http://www.nytimes.com/2008/03/02/business/02gret.html?_r=2&ei=5089&en=be4bd10058e17668&ex=1362114000&oref=slogin&partner=rssyahoo&emc=rss&pagewanted=print&oref=slogin

-Unexpected Drop in Private-Sector Jobs Reported. Read more at-http://www.nytimes.com/reuters/business/business-usa-economy-employment-adp.html?_r=2&ei=5088&en=f0c3bf45524c132a&ex=1362459600&oref=slogin&partner=rssnyt&emc=rss&pagewanted=print&oref=slogin

-Fed Beige Book Reports Growth Has Slowed Since Start of Year. The Federal Reserve said economic growth has slowed in eight of 12 U.S. regions since the start of the year, hurt by faltering retail sales and manufacturing and a continued decline in housing. ``Two-thirds of the districts cited softening or weakening in the pace of business activity, while the others referred to subdued, slow or modest growth,'' the central bank said in its regional business survey, known as the Beige Book for the color of its cover.

The report provided anecdotal evidence of a cooling economy that echoed reports this week showing a contraction in manufacturing and services in February. Fed Chairman Ben S. Bernanke indicated to lawmakers last week that the central bank is prepared to lower interest rates further as needed to avert a deeper downturn. ``Retail activity in most districts was reported to be weak or softening,'' the report said. ``Manufacturing was said to be sluggish or to have slowed in about half the districts.''

Traders expect the Federal Open Market Committee to lower the benchmark rate by 0.75 percentage point by the end of the next meeting on March 18, based on futures prices. Policy makers have lowered the rate 2.25 percentage points since September, to 3 percent. The economy expanded 0.6 percent at an annualized pace last quarter. Read more at-

http://www.bloomberg.com/apps/news?pid=20601087&sid=azVx7NViUmo8&refer=home

-Manufacturing in the U.S. shrank at the fastest pace in almost five years and construction spending fell the most since 1994 as the economy moved closer to a recession. The Institute for Supply Management's factory index dropped to 48.3 in February from 50.7 the previous month, the Tempe, Arizona-based group said today. Fifty is the dividing line between contraction and expansion. At the same time, the Commerce Department reported that spending on building projects slumped 1.7 percent in January, more than anticipated. Read more at-

http://www.bloomberg.com/apps/news?pid=20601087&sid=agp_O0RLVx54&refer=home

BANKRUPTCY FILINGS SURGE AMONG U.S. CONSUMERS

-American consumers' bankruptcy filings jumped 15 percent in February from the previous month and a steeper rise is looming because of the subprime mortgage crisis, the American Bankruptcy Institute said. Consumer bankruptcy filings in February totaled 76,120, up from 66,050 recorded in January, the non-partisan bankruptcy research group said.

The February number was 37 percent higher than in the same month a year ago, according to the institute. “February's bankruptcy spike the highest single month since the 2005 (bankruptcy) law changes forecasts the start of more to come for the balance of 2008,” said Samuel Gerdano, ABI executive director. Read full story at-http://www.cnbc.com/id/23454160 or http://www.nytimes.com/2008/03/05/business/05bankruptcy.html?ref=business&pagewanted=print

BANKS LOSSES COULD PUT $900 BILLION SQUEEN ON CONSUMERS

-The retailer Sharper Image offers a stark image of how the credit crisis on Wall Street is becoming a widespread credit crunch for the rest of America: The purveyor of gadgets recently declared bankruptcy, citing a tougher climate for financing among the reasons. That company is not an isolated case. Consumers and businesses now face an economic downturn made more difficult by a contraction among banks and other lenders. In fact, the health of banks has become perhaps the biggest source of uncertainty about the economy.

How bad is the damage? By one new estimate, troubled mortgages alone could knock a full percentage point off economic growth in the year ahead. And mortgages are just part of the problem. With losses also rising on loans for everything from cars to commercial real estate, banks effectively will have less money available to make new loans perhaps $900 billion less.

"The reality is that banks are in trouble," says Ed Yardeni, an economist who until recently has been optimistic about the economy's prospects for avoiding recession. "I don't think they'll go bankrupt. [But] we're in the process of cleaning up the mess that the financial engineers created" by reselling shaky home loans to investors. Read more at-

http://www.csmonitor.com/2008/0305/p02s01-usec.htm

THE $34 TRILLION PROBLEM-U.S. MEDICARE

-The $34 trillion problem. Medicare is poised to wreak havoc on the economy. And our presidential candidates are avoiding the issue. Twice I have asked Alan Greenspan what he considers the greatest threat to the U.S. economy, and both times he has answered immediately with a single word: Medicare.

He isn't so worried about the trade deficit and the housing crash; he figures market forces will sort them out. But Medicare is something else a multitrillion-dollar problem that's about to get dramatically worse, and one that nobody wants to talk about. You'd think that the greatest threat to America's economy would be Topic A for the presidential candidates. But it's actually a topic they hate to touch.

Especially now. An analysis of their speeches shows that last year Senators Hillary Clinton, John McCain, and Barack Obama would occasionally mention the Medicare mess. But recently, with the economy slowing and voters feeling insecure, all three candidates have turned more populist: Their economic talking points are about feel-good reassurances, not about facing hard realities. Read full story at-http://money.cnn.com/2008/03/03/news/economy/104239768.fortune/index.htm

U.S. HOMEOWNER EQUITY IS LOWEST SINCE 1945

-Americans' percentage of equity in their homes fell below 50 percent for the first time on record since 1945, the Federal Reserve said Thursday. Homeowners' portion of equity slipped to downwardly revised 49.6 percent in the second quarter of 2007, the central bank reported in its quarterly U.S. Flow of Funds Accounts, and declined further to 47.9 percent in the fourth quarter the third straight quarter it was under 50 percent.

That marks the first time homeowners' debt on their houses exceeds their equity since the Fed started tracking the data in 1945. The total value of equity also fell for the third straight quarter to $9.65 trillion from a downwardly revised $9.93 trillion in the third quarter.

Home equity, which is equal to the percentage of a home's market value minus mortgage-related debt, has steadily decreased even as home prices jumped earlier this decade due to a surge in cash-out refinances, home equity loans and lines of credit and an increase in 100 percent or more home financing. Economists expect this figure to drop even further as declining home prices eat into the value of most Americans' single largest asset. Read more at-http://apnews.myway.com/article/20080306/D8V82V580.html

REAL ESTATE

-Vacant Homes in U.S. Climb to Most Since 1970s With Ghost Towns. Read more at-http://www.bloomberg.com/apps/news?pid=20601109&sid=au67GKPyS_Dg&refer=home

-Home sales stay weak in Realtors' report. Read more at-

http://money.cnn.com/2008/03/06/news/economy/pending_home_sales/index.htm

-Canadian Home buying intentions at 'lowest level in several years,' RBC finds. Read full story at-http://www.cbc.ca/cp/Home+Family/080304/U030421AU.html

-A Year of Capitulation in Florida. Read more at-http://thehousingbubbleblog.com/?p=4224

-Today’s New Normal. Read more at-http://thehousingbubbleblog.com/?p=4232

FORECLOSURES

-U.S. Mortgage Foreclosures Rise as Owners `Give Up'. Read more at-http://www.bloomberg.com/apps/news?pid=20601087&sid=ayvTOmZMGXhE&refer=home

-In Parts of U.S., Foreclosures Top Sales. Read more at-http://www.nytimes.com/2008/03/01/business/01charts.html?_r=2&ei=5089&en=097caf29e732c0a8&ex=1362114000&oref=slogin&partner=rssyahoo&emc=rss&pagewanted=print

-The Foreclosure Situation Is Affecting Prices In California. Read more at-http://thehousingbubbleblog.com/?p=4209

-Fremont General Corp. said Tuesday it received default notices on about $3.15 billion of loans it sold in March 2007. Read more at-http://money.cnn.com/2008/03/04/news/companies/bc.apfn.fremont.default.ap/index.htm

-Bernanke: More mortgage, home woes ahead. Federal Reserve chairman says delinquencies and foreclosures are likely to rise, and home prices will fall further. Read full story at-

http://money.cnn.com/2008/03/04/news/economy/bernanke/index.htm?postversion=2008030410

-Bernanke Urges Banks to Forgive Portion of Mortgages. Read more at-http://www.bloomberg.com/apps/news?pid=20601087&sid=aPPTlQVJXUro&refer=home

-'Ninja' loans explode on sub-prime frontline. Never in her 20 years in the property market has Heidi Mueller been so much in demand. As one of the leading foreclosure and short sales agents in the San Francisco property market, she is the first person you go to when you can't afford your mortgage payments and need to sell your home, fast. Read more at-http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/03/ccsubprime103.xml&page=1

IRAQ WAR COSTS COULD REACH 5 TRILLION

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