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The GoldBugg Report - April 29, 2008

April 29, 2008

RUFF SAYS FINANCIAL WORLD COULD COLLAPSE

-Veteran gold bug Howard Ruff's Ruff Times is having a relatively rough time this year, but that's nothing compared to what he sees ahead for the U.S. economy. Ruff is one of a number of veteran gold bugs who have been boosted by the apparent post-2000 return of the conditions that first brought them to fame in the late 1970s. He frankly says that his new book, "How to Prosper During the Coming Bad Years in the 21st Century," is simply an updated version of his 1978 best-seller, "How to Prosper During the Coming Bad Years" because "it's déjà vu all over again."

Ruff says that he has recently decided that this time around the U.S will experience hyperinflation ("400 percent inflation or more") rather than "a rush of brains to the head, like Paul Volcker and Ronald Reagan did in 1980" and a halt to monetary expansion, "ending inflation and the gold and silver bull market, for at least a few years." He writes: "I spent the '70s fending off the media label of "Prophet of Doom," arguing that I expected much less than doom.

It turned out to be so. "With my new book in circulation, I'll face the same accusations, and this time they are right. The financial world we know and love is facing genuine doom. You could lose the value of all your assets in the stock market. You could find yourself unable to buy essential commodities, when you want them, and gold and silver will be valued, not in the tens or hundreds of dollars per ounce, but in the thousands!"

Reason: like many of my emailers, Ruff appears convinced by, and in his latest issue quotes very extensively from, John Williams' Shadow Government Statistics, which argues Washington has been systematically underreporting inflation and monetary growth. Ruff writes: "Ruff Times subscribers who accept John's scenario have no downside! At the worst they will make tons of money in gold and silver, then we will eventually put out a sell order and the world will return to relatively normal.

If I and John Williams are right, it will literally save your current lifestyle, and perhaps even your lives." Not surprisingly, Ruff's current "investment menu" is almost exclusively into precious metals and energy.  Read more at-http://www.marketwatch.com/news/story/ruff-sees-more-rough-times/story.aspx?guid=%7b0354D5FB-2AE2-48CB-A7F0-4B06FBE5EE61%7d&dist=msr_5&print=true&dist=printTop

GOLD

-"Inflation adjusted, going back to 1980 prices, gold today should be over $2,300 an ounce, so making the statement that gold could go to $2,000 is not irrational," Frank Holmes, CEO of U.S. Global Investors told CNBC.  Watch video here-http://www.cnbc.com/id/15840232?video=715663149

-Mitsui Mining and Smelting Co Ltd said on Wednesday it has developed a new catalyst for diesel engine cars that replaces the use of platinum with silver, a less conventional but much cheaper metal. "Silver will totally replace platinum in this new autocatalyst that we've developed," a company spokesman said. By substituting platinum with silver, the cost of precious metals in the production of autocatalysts, which clean car exhaust fumes, would be cut by more than 90 percent, the company said.  Read more at-http://www.reuters.com/articlePrint?articleId=UST26231020080423

-Newly rich Chinese consumers take a shine to gold.  Read more at-http://www.chinapost.com.tw/print/152951.htm

-For the first time, the Bank of Russia purchased gold for its international reserves from gold producers, a source in banking circles told Interfax. Previously the central bank had always purchased gold on the interbank market.  GATA.org

-Gold broke down from its range bound channel yesterday and quickly fell to support at $895-$900 as anticipated. Should gold fall below $900 we could again retest the support of the early April lows of $880. We expect strong support at these levels but there is a possibility that should gold close below $880 we could retest previous resistance at the 1980 nominal high of $850 per ounce.

Gold should be supported by the economic data in the U.S. this week which is again expected to be weak. The deeply distressed housing sector will again come under the spotlight with the release of new home sales data. Durable goods orders and the weekly jobless numbers also feature and weak numbers could put the dollar under pressure and put a floor under gold.

The dollar's strong rally (from record highs just above 1.60 to the euro to below 1.575) has led to nervous selling by traders and speculators in the gold futures markets with short term horizons.  Gold.ie

-Physical Buyers in Asia and Internationally to Lead to Higher Gold Prices in Coming Months and Years. Physical buyers in Asia with longer term aims have emerged as buyers at these levels and Reuters reports strong physical buying throughout Asia. Main consumer India, was abuzz with activity during the wedding season and ahead of a religious festival, dealers said on Thursday" as were other parts of Asia; the bullion trading cities of Hong Kong and Singapore noted steady buying from jewellers in Indonesia, Thailand and Vietnam.

Ultimately, supply and demand in the physical market will dictate the price of gold but the paper futures traders can create and exacerbate sell offs in the short term prior to the fundamental primary bull market reasserting itself. It is worth remembering that the population of the world in 1980 was some 3.5 billion and today it is some 6 billion. Much of that growth in population has been in Asia and now there is a huge growth in the wealth of these societies.

Meanwhile the supply of gold and gold production may have peaked in 2001 and has fallen since despite the rising prices. Thus, increasing demand in Asia and safe haven demand in the western world is being met with a falling supply of gold. Production in South Africa continues to fall with gold output in January falling 16.5% year on year. South Africa's gold production has plummeted by some 75% since 1970 (from over 1,000 tonnes in 1970 to only 272 tonnes in 2007). Giving further credence to the theory that the world has reached the peak in gold production.

Investors should continue to focus on these ‘big picture' fundamentals rather than the noise of hour to hour and day to day price movements. Physical supply and demand and not speculative short term movements should remain paramount in investors' minds. Investors who focus on these fundamentals will be handsomely rewarded.  Gold.ie

-Chinese Gold Demand Increasing Significantly. Figures from the World Gold Council showed sales of gold jewellery in China hit a record high of 302.2 tonnes in 2007, up 34 percent on the previous year. China has now overtaken the United States to become the world's second largest buyer of gold jewellery after India. But behind the remarkable growth lies a deep Chinese traditional appreciation of the precious metal as a hedge against social and economic risks.

"I'm more confident in gold we've been buying it for so many years in the past anyway," said 78-year-old Wu Peifen, who was selecting a wedding gift for her grandson at Beijing's Wangfujing Department Store. High inflation and a 41-percent slump in the domestic stock market this year have added further momentum to China's drive to buy gold.

Importantly, Chinese consumers are not deterred by rising prices, experts said. Rather, they increasingly view gold as not only a means to protect wealth but also as an efficient part of their investment portfolio. "In fact, higher gold prices helped to stimulate investment purchases of the metal as consumers were attracted by the strong returns generated by the metal," the World Gold Council said in a recent report about the China market. It said investment demand for gold at the retail level amounted to 23.9 tonnes in 2007, a rise of 60 percent compared with 2006.  Gold.ie

-How much gold do Vietnamese keep under their pillows?  Read more at-http://www.gata.org/node/6238

-Bill Murphy: The 'strong dollar' policy was gold price suppression. GATA has been working for nine years to expose the manipulation of the gold market by a very cunning Gold Cartel, but one who is now on the ropes. Nonetheless, over a short period of time, they can make life very miserable for our gold/silver camp, as they did a few weeks ago with their orchestrated raid on both markets.

Yet, what is so stunning, is that after all these years, the gold and investment world still doesn't get it, or "won't go there." The fact is the now heralded President's Working Group on Financial Markets met on a Monday in March and then gold was bombed for more than $100 an ounce.  Read full speech at-http://www.gata.org/node/6251

-Wistar Holt: GATA gives vital confidence to precious metals investors.  Read more at-http://www.gata.org/node/6252

-Edwin Vieira Jr.: Silver and gold guarantee freedom.  Read more at-http://www.gata.org/node/6244

-Chris Powell: There are no markets anymore, just interventions.  Read more at-http://www.gata.org/node/6241

-What does a recession mean for the gold price.  Read full story at-http://premium.thebulliondesk.com/content/reports/tbd/temp/GoldRecession.pdf

-Gold producer hedge book is at its lowest since 1992. Major gold miners have continued to reduce their hedge positions during 2007 with the total book now at its lowest for 16 years.  Read more at-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=51465&sn=Detail

-Regardless of extreme volatility, gold is headed to $1650 and the US dollar to .5200.  Jim Sinclair

-A while back, we alerted readers of a gambling nature that Jim Sinclair of jsmineset.com was willing to wager a million bucks that gold will trade at $1650 on or before the close of the COMEX open outcry session at the end of the 2nd week of January 2011. Now it appears that Sinclair has found a taker.

He announced that it "appears an agreement will be concluded shortly between myself and a Canadian hedge fund as counsel for both parties." Sinclair has not as yet named the other bettor, but he promises to release all details once the deal is finalized. For our part, we're inclined to believe that Jim will make himself a cool million.  Kitco Daily Resource

SILVER

-Like gold, silver is in better position than it was at its May 2006 peak. Silver has major support at $15. It was an important peak and it took silver four tries to best it. Also the 200-day moving average is at $15.17 and rising. I should also note that the corrections that followed silver's big moves in 2004 and 2006, corrected more than 62% of the advance. The 62% retracement of silver's recent move is $15 exactly. So silver is going to hold up much better than it did following the previous two spikes. Any dip below $16.50 and silver is a great buy.

Looking ahead, $25 is the next magnet for silver. $25 was the peak prior to the spike to $50. Also, if you look at a very long term chart of silver you will notice an obvious cup and handle originating from $15 in 1983 down to $4 in the early 1990s and 2000s and back up to $15 in 2006-2007. The recent breakout gives us a target of $26 (15-4 = 11. 11 +15 = 26). Okay, so it isn't $25 but you get the point. $25/$26 is the next target.  Jordan Roy-Byrne-Read full story at-http://news.goldseek.com/GoldSeek/1208969406.php

-Gold and silver trading figures at high volumes. Volume data for trading in gold and silver on the London markets in March showed an interesting trend in that volumes were particularly high indicating greater institutional activity.  Read more at-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=51517&sn=Detail

-Popular demand for silver is on the rise strongly in the U.S. How can we tell? An interesting divergence has been developing where the paper silver market in New York is not really reflecting popular demand for the white metal on the street. Why would the paper silver market not reflect the popular silver demand? Well, the COMEX paper silver market is related to, but different from the popular physical silver market.

The paper silver market deals almost exclusively with very large, average 1,000-ounce so-called "good delivery bars" and each futures contract covers the delivery of five such bars at a date in the future. The popular silver bullion market, which is every coin and bullion shop everywhere, covers a whole host of other products for silver investors large and small, including small one-ounce rounds (such as U.S. silver eagles and Canadian silver maples), one, ten and 100-ounce silver bars, and investment bags of 90% silver U.S. coins in $500 and $1,000 face value lots.

A bona fide scarcity of silver inventory for just about all popular small-sized fabricated silver products is evident because even dealers are willing to pay higher than normal premiums in order to get the metal when silver is trading near current cash market prices. When dealers are paying higher premiums they are only doing so because they have immediate need for it, because they have customers willing to pay even more, if they can get it.

When customers are willing to pay much higher than normal premiums, it means that current inventories of silver are insufficient to meet the demand at the prevailing spot price, which is largely influenced by the paper silver markets. Tight supplies in the popular silver markets and positive money flow into silver exchange traded funds suggest that demand for the second most popular precious metal in strongly on the rise in the U.S.  Read more at-http://www.resourceinvestor.com/pebble.asp?relid=42084

-The purpose of this article is to help you decide for yourself if silver is still the great investment opportunity I believe it to be. I see some major fundamental differences between silver in 1980 and today. I think it is those differences which should make you want to buy and hold silver more than ever before. In no particular order of importance, let's consider those differences.  Read more at-http://news.silverseek.com/TedButler/1208878782.php

I have been a staunch advocate of silver for years as it languished below $5 an ounce. The price has gone up almost four times and yet the bullish factors haven't changed very much. It strikes me as odd that the broad array of facts and comparisons still suggest that silver is extremely undervalued and capable of a price jolt to the upside that will shock many. There may come a day when that can no longer be said, but that's not the case today. Please think carefully about the case I've made. I hope you also can see the enormous opportunity that has become clear to me.  Ted Butler

-David Morgan interviewed by Theaureport.com

TGR: Typically there are three legs, to a bull market. Correct?

DM: Good question. There are really four different attitudes for the market and three cycles. I will try to explain them in general terms. Looking at the big picture, you've got pessimism, skepticism, optimism, and euphoria. Those are the four major attitudes toward the market. I divide them into three cycles: stealth, major participation, and the mania. In the stealth phase you go from the very bottom up to the end of the first leg. Until it's over, you don't know how high that is. During that time you can make a great deal of money, but no one is paying attention.

Then, just about the time that some of the public finally wakes up to the sector, it corrects, and you get a long consolidation. To describe this, I have kind of coined the expression, "The market will wear you out or it will scare you out." So, if you got into gold at $550 near the top of the stealth phase when it was starting to consolidate and it took several months before the next leg up began, it wore out a lot of people.

It was like it was going nowhere, back and forth, back and forth. People thought, "David Morgan and these guys don't know what the heck they're talking about, and I am getting back into tech stocks or whatever." They gave up, in other words!

Then, just about at the end of the consolidation period, or correction, it starts up on the next leg. That's where I think we are. I don't want to be too specific here, because until we look backwards, we won't know if this move up to $21 silver and $1000 gold is really part of the second leg or a part of the first leg. We really don't know yet. I believe it's probably a part of the second leg up.

It is definitely not the euphoria phase, since the general sentiment is skeptical. There are people who were watching silver at $17 who probably wanted to get in but were scared. They didn't get in, and watched it go to $21, and now it's back to $17, and they're saying, "I'm so glad I didn't get in." And if it goes down to $15, they will probably never get in this market.

A bull market gets its name for a reason. It will shake as many people off its back as possible all the way up. We're witnessing one of those shakeouts right now. Those who follow me closely and listen to my radio shows are well aware of that fact. If you're mentally prepared for it, it's not a big deal.  Read full interview at-http://www.theaureport.com/pub/na/1301

-Silver could be low-cost substitute for platinum in autocatalysts. If Mitsui Mining & Smelting new technology is proven effective, silver, not palladium, may prove to be the most cost-effective substitute for platinum in autocatalysts. Tokyo-based Mitsui Mining & Smelting announced Wednesday that it has developed a new catalyst to clean exhaust gases from diesel engines using silver, rather than the much more pricey platinum.

In a news release, Mitsui claimed that the new catalyst, which has particle matter purification efficiency that currently equals that of platinum now used in autocatalysts, can reduce precious metal costs by 90 percent or more. A company spokesman told Reuters that Japan, Europe and the United States are all planning to impose tighter regulations on exhaust emissions for heavy equipment, such as that used in construction and farming, beginning in 2012. "We hope this catalyst will be used in these vehicles, and this is the market we are targeting." Platinum demand from automakers for catalytic converters is increasing due to strong sales of light-duty diesel vehicles in Europe.

Platinum and increasingly palladium are used in autocatalysts to reduce carbon monoxide and particulate emissions. Previously, silver has not been used in autocatalysts because of its poor heat resistance. But Mitsui Mining said it has succeeded in making silver withstand heat of up to 800 degree centigrade by adding metal composite oxide. The company said the catalyst is now undergoing performance evaluation tests.  Mineweb.com

PLATINUM-PALLADIUM-BASE METALS

-Investec predicts platinum price north of $2400 by December. Investec talks about the inelasticity of platinum supply and demand. Investec Asset Management believes the platinum price will exceed $2,400/ounce by the end of this year as both supply and demand are inelastic. Portfolio manager Gail Daniel said South Africa's current power problems would severely constrain growth in the production of platinum as the country accounted for 80% of the world's platinum resources and Zimbabwe for much of the balance.

This implied that supply was very inelastic. Demand for the metal was also inelastic as the use of autocatalysts in motor vehicles was legislated in various parts of the world. Diesel vehicles could only be fitted with platinum autocatalysts, while palladium autocatalysts could be applied to petrol vehicles as well. Growing vehicle demand in China supported platinum demand, while the fact that many consumers bought platinum jewellery as an investment, implied that jewellery demand would not fall off with higher prices either.

Daniel forecast a 400,000 ounce deficit in the platinum market for this year, but said if Anglo Platinum, which still has not appointed a new CEO, could manage to increase its production it could affect the outcome. Investec believed that 25 years was a "quite normal" period for commodity cycles of which the latest cycle kicked off around 1996. The current cycle could still see higher growth in demand until 2020, but short term cycles could still occur within the long-term trend.

The company is of the view that a strong commodity price environment will sustain strong earnings if higher costs are managed. It said the market would award companies attaining exploration success as all the "easy finds" of resources had been made already. The successful companies will strongly outperform or be acquired.  Mineweb.com-Read more at-http://www.marketwatch.com/news/story/platinum-may-hit-2400-ounce/story.aspx?guid=%7b8C01ECF1-EEC3-47D9-A718-42260C466C80%7d&dist=msr_2&print=true&dist=printTop

-Bullish outlook for precious and base metals and bulk mined commodities. Macquarie Capital Securities has forecast that the physical tightness of many commodities is expected to persist into the next decade, keeping prices well above normal for the long term.  Read more at-http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=51514&sn=Detail

COMMODITIES

-Soros Says Commodity 'Bubble' Still in 'Growth Phase'. Billionaire George Soros said the boom in commodities is still in a ''growth phase'' after prices for oil, wheat and gold rose to records. ''You have a generalized commodity bubble due to commodities having become an asset class that institutions use to an increasing extent,'' Soros said today at an event sponsored by the Centre for European Policy Studies in Brussels. ''On top of that you have specific factors that create the relative shortage of oil and, now, also food.''

Soros's comments echo those of Jim Rogers, a fellow founder of the Quantum Hedge Fund in the 1970s. Rogers is best known for being a commodities bull since the late 1990s, before the market started to rally in 2001. His Rogers International Commodity Index has more than quadrupled since its start in 1998.  Read more at-http://www.bloomberg.com/apps/news?pid=20601072&sid=aLSge4iZvG3g&refer=energy

-Speculation not behind surging commodities.  Read more at-http://www.chinapost.com.tw/print/153269.htm

OIL-GASOLINE

-National average gasoline prices will top $1.40 a litre this summer and $2.25 by 2012, according to a forecast from CIBC World Markets which says tightening supplies will drive crude oil over US$150 a barrel by 2010 and to US$225 a barrel in four years. Read more at-http://canadianpress.google.com/article/ALeqM5jaHZm_hy5H473JftYcuGif6jA35A or http://www.marketwatch.com/news/story/gasoline-could-hit-7-oil/story.aspx?guid=%7B824E895C-F649-4526-89F1-50C198A8A0D5%7D&dist=hplatest

-Canadian gas prices approach all-time high. Read more at-http://www.cbc.ca/money/story/2008/04/22/gasprices.html

-Gasoline price seen heading to $1.40 a litre this spring and summer.  Read more at-http://www.globeinvestor.com/servlet/story/GAM.20080419.RENERGY19/GIStory/

-Emerging Market Oil Use Exceeds U.S. as Prices Rise. Read more at-http://www.bloomberg.com/apps/news?pid=20601109&sid=a_YCEx7do3LQ&refer=home

-Report: Iran's president says oil prices too low. Report: Iran's president says oil at $115 a barrel is too low, calls for higher prices.  Read more at- http://biz.yahoo.com/ap/080419/iran_oil.html?printer=1

-Are We Nearing The Peak Of Fossil Fuel Energy? Has Twilight In The Desert Begun?  Watch slide show here-http://www.321energy.com/editorials/simmons/simmons042308/simmons042308.html

-Oil running out as prime energy source: world poll.  Read more at-http://www.reuters.com/article/environmentNews/idUSN1835277320080420?feedType=RSS&feedName=environmentNews&rpc=22&sp=true

-Saudis put off longer-term oil capacity rise.  Read more at-http://www.ft.com/cms/s/0/36b36e2a-0efe-11dd-9646-0000779fd2ac.html?nclick_check=1

-High oil prices here to stay, energy forum hears.  Read more at-http://afp.google.com/article/ALeqM5gcoqYf3Q4NeQeZDsLDZjp-rj69dA

-Mexican oil production falls 7.8 percent in first quarter.  Read more at-http://www.iht.com/articles/ap/2008/04/21/business/LA-FIN-Mexico-Oil-Production.php

-Nippon Yusen's Oil Tanker Hit by 'Rocket' Off Yemen.  Read more at-http://www.bloomberg.com/apps/news?pid=20601101&sid=a8sd5blxNtGE&refer=japan

-Brazil's discoveries of what may be two of the world's three biggest oil finds in the past 30 years could help end the Western Hemisphere's reliance on Middle East crude, Strategic Forecasting Inc. said. Saudi Arabia's influence as the biggest oil exporter would wane if the fields are as big as advertised, and China and India would become dominant buyers of Persian Gulf oil, said Peter Zeihan, vice president of analysis at Strategic Forecasting in Austin, Texas. Zeihan's firm, which consults for companies and governments around the world, was described in a 2001 Barron's article as ''the shadow CIA.''  Read more at-http://www.bloomberg.com/apps/news?pid=20601109&sid=aBUoYKhu7PWk&refer=home

GLOBAL FOOD CRISIS

-IMF in Talks to Boost Funds to Nations Hit by High Food Prices.  The International Monetary Fund is in talks to provide extra financing to 10 developing countries struggling to cope with the soaring cost of food, a spokesman for the Washington-based lender said.  Read more at-http://www.bloomberg.com/apps/news?pid=20601110&sid=a219hKdi7V.s

-UN chief warns world must urgently increase food production.  Read more at-http://www.breitbart.com/print.php?id=D905T9KG0&show_article=1

-Stephen King: Food protectionism could provoke a crisis on a par with 1970s oil shocks.  Read more at-http://www.independent.co.uk/news/business/comment/stephen-king/stephen-king-food-protectionism-could-provoke-a-crisis-on-a-par-with-1970s-oil-shocks-812753.html?service=Print\

-World Bank Says Thai Curb on Rice Exports Would Deepen Crisis.  Read more at-http://www.bloomberg.com/apps/news?pid=20601087&sid=aTqWEKplxUsE&refer=home

-Run on rice makes its way to U.S.  Read more at-http://www.latimes.com/business/la-fi-rice24apr24,0,3320375.story

-Two major US retailers ration rice amid global food crisis.  Read more at-http://www.breitbart.com/article.php?id=080424190924.hb977n7e&show_article=1

-Wal-Mart's Sam's Club limiting sales of rice.  Read more at-http://www.reuters.com/article/marketsNews/idUSN2323679120080423

-Rice Shortage in Philippines May Mean More Trouble for Arroyo.  Read more at-http://www.bloomberg.com/apps/news?pid=20601109&sid=aTA4EeJaGgZY&refer=home

-Americans hoard food as industry seeks regs. Read more at-http://www.washingtontimes.com/apps/pbcs.dll/article?AID=/20080423/BUSINESS/868303815/1001&template=printart

-Bay Area Shoppers Asked To Limit Rice Purchases.  Read more at-http://www.nbc11.com/news/15953044/detail.html

-Load Up the Pantry. I don't want to alarm anybody, but maybe it's time for Americans to start stockpiling food.  Read more at-http://online.wsj.com/article/SB120881517227532621.html

-A ''silent famine'' risks emerging in some Asian countries where food prices including rice are escalating beyond the reach of the poorest people, the World Food Program warned. ''There is food on the counters and on the shelves in stores but there is a certain population that cannot afford that food,'' Paul Risley, a spokesman for the United Nations agency, said today. ''There's a risk of a silent famine.''  Read more at-http://www.bloomberg.com/apps/news?pid=20601012&sid=axuenSYeMBJU&refer=commodities

-Japan's hunger becomes a dire warning for other nations. Read more at-http://business.theage.com.au/japans-hunger-becomes-a-dire-warning-for-other-nations/20080420-27ey.html

-Many parts of America, long considered the breadbasket of the world, are now confronting a once unthinkable phenomenon: food rationing.  Read more at- http://nysun.com/news/food-rationing-confronts-breadbasket-world

-Food Crisis Shows How Bad Policies Can Be Deadly. Read more at-http://www.bloomberg.com/apps/news?pid=20601039&sid=arSRWU0yDL7M&refer=home

-Era of cheap food ends as prices surge.  Read more at-http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article3799327.ece

-Amid U.S farm boom, fears grow of a collapse. Read more at-http://www.iht.com/articles/2008/04/21/business/farmdebt.php?WT.mc_id=newsalert

INFLATION-STAGFLATION

-Hyperinflationary Depression, commentary by Howard Ruff.  Read more at-http://www.kitco.com/ind/Ruff/ruff_apr212008.html

-Canadians face higher food prices. Read more at-http://www.reportonbusiness.com/servlet/story/RTGAM.20080424.wfood0424/BNStory/Business/home?cid=al_gam_mostview

-Stagflation is clearly a real threat as inflation appears to be accelerating and growth is clearly slowing. While gold has yet to respond to oil's recent surge and the dollar's record low against the euro, it would be prudent to focus on the medium and long term. We believe gold's historic correlation with the oil price will be reasserted in the coming days as gold plays catch up with oil. The historic ratio of gold to oil is 15 barrels of oil to 1 ounce of gold.

Thus, if the ratio is reasserted as we strongly believe it will then we should see gold trade at some 15 times a barrel of oil or at today's prices (15 X 115) some $1,725 per ounce. Importantly gold tends to vastly outperform oil towards the end of their respective bull markets as oil is more subject to demand destruction than gold. Unlike gold, oil is not a finite currency used as a safe haven asset and store of wealth.

The financial crisis is continuing to spread to the wider economy as the woes of Wall Street are now clearly being felt on Main Street. The slump in the U.S. housing market could cause prices to fall substantially more than they did in the Great Depression. Yale University economist Robert Shiller has said there's a good chance housing prices will fall further than the 30 percent drop in the historic depression of the 1930s. The U.S. in the 1930s was the largest creditor nation in the world, unlike today.

Home prices in the U.S. already have dropped 15 percent since their peak in 2006. It is worth remembering that house prices in Japan fell by nearly 90% between 1990 and 2006. This was a low painful decline and there was no banking and credit crisis as there is today. Also, Japan's largest trading partner, the U.S. was in a far sounder fiscal and financial position then it is today with the U.S. being the world's largest debtor nation and suffering from massive financial imbalances in the budget, trade and current account deficits.  Gold.ie

-Inflation is here and it is likely to continue for some time. But investors must watch for signs of the political winds shifting. The question to keep in mind over the coming months is whether it is more politically feasible to have severe inflation or severe deflation. We still believe rampant inflation and U.S. Dollar debasement is the most likely outcome in the short term. But, if riots and upheaval continue to spread, all out deflation may be the only antidote.  Todd Stein & Steven McIntyre-The Texas Hedge Report-Read more at-http://www.321gold.com/editorials/texashedge/texashedge042308.html

-Moms' new battle: The food price bulge. Beyond clipping coupons, families are embracing generic grocery brands, and making their own baby food and detergent.  Read more at-http://money.cnn.com/2008/04/21/news/economy/moms_foodshopping/index.htm

INTEREST RATES

-Canada Cuts Rate by 50 Basis Points as Economy Slows. The Bank of Canada lowered its benchmark rate by half a point to revive an economy that's growing at its slowest pace in 16 years, and signaled more easing may be needed ''in the medium term.'' The rate on overnight loans between commercial banks dropped to 3 percent, the lowest since December 2005, as forecast by 28 of 32 economists in a Bloomberg survey.

The Canadian dollar fell as some investors bet that the statement signals borrowing costs will be lowered again in the next few months. Policy makers reduced their 2008 economic growth forecast to 1.4 percent, the lowest since 1992, from a January forecast of 1.8 percent, and said inflation will stay below their 2 percent target until 2010. ''Obviously the risks are the Bank of Canada will cut more going forward,'' said Karen Cordes, an economist at Scotia Capital Inc. in Toronto.

Cordes, who predicts a quarter point reduction at the next meeting, scheduled for June 10, said the central bank's statement ''leaves the door open for more than we were previously expecting.'' Canada sends about three-quarters of its exports to the U.S., and the economic crisis in that country has sapped demand for Canadian lumber and cars.  Read more at-http://www.bloomberg.com/apps/news?pid=20601068&sid=aZU_v_TyfniM&refer=home

-Fed Officials May Be Nearing Rate Pause as Inflation Quickens. Federal Reserve policy makers, sensing both renewed inflation dangers and a possible economic boost from government rebate checks, may be nearing a pause in interest-rate cuts after the fastest reductions in two decades.

In remarks this week, Fed Governor Kevin Warsh, San Francisco Fed President Janet Yellen and three other district bank presidents voiced concerns about rising prices. Harvard University economist Martin Feldstein, who for almost 30 years has headed the group that decides the dates of recessions, called for an end to Fed rate cuts.  Read more at-http://www.bloomberg.com/apps/news?pid=20601087&sid=adJIM71hYaxo&refer=home

-ECB's Noyer, Mersch Signal Higher Rates May Be Needed. European Central Bank council members Christian Noyer and Yves Mersch signaled the bank may have to raise interest rates to contain inflation. The ECB will ''move rates'' if needed to push inflation below 2 percent in 2009, Noyer, who heads France's central bank, told RTL radio today. Luxembourg central banker Mersch said the question of whether the ECB should raise rates is a valid one, the Financial Times Deutschland reported, citing an interview.  Read more at-http://www.bloomberg.com/apps/news?pid=20601068&sid=a5ZCU1MpPm7I&refer=economy

U.S.-GLOBAL RECESSION

-The odds the country will fall into its first recession since 2001 are rising sharply. Thirty percent of economists now believe the economy will shrink in the first half of this year, up from 10 percent who thought this in January, according to a survey being released Monday by the National Association for Business Economics, known by its acronym NABE.  Read more at-http://www.breitbart.com/print.php?id=D9068VH80&show_article=1

-Turmoil in credit and housing markets will be the most significant threat to growth this year, according to a survey of top financial company executives released Friday. These executives believe there is a high probability 88 per cent that the country will suffer a recession in the next 12 months.

The responses came from executives whose firms are members of the Financial Services Forum, which represents 20 of the largest financial companies in the country includingBank of America, JP Morgan Chase, Goldman Sachs, Merrill Lynch, Allstate Insurance and Fidelity Investments.

After credit market tumult and troubles in the housing market, the executives listed the next biggest threats to the economy now as the possibility the government will impose higher taxes or raise protectionist barriers to foreign competition.  Read more at-http://www.globeinvestor.com/servlet/story/RTGAM.20080418.wuseconsurvey0418/GIStory/

-Wealth fund warns of worst slump for 30 years. The world economy will suffer its most serious recession since the oil crisis of the mid-1970s with little sign of success for policymakers' attempts to end the credit crunch, one of the globe's largest sovereign wealth funds predicted yesterday.

"We could be facing a recession which is longer, deeper and wider than any recession we have encountered in the last 30 years," said Tony Tan, deputy chairman of the Government of Singapore Investment Corporation (GIC). "The financial contagion has spread beyond US shores, increasing the likelihood of a global financial crisis and recession."  Read more at-http://www.independent.co.uk/news/business/news/wealth-fund-warns-of-worst-slump-for-30-years-813403.html?service=Print

-Canada Says Credit Shortages to Persist Until 2010. The Bank of Canada predicted tightness in credit markets until 2010, and said the shortages will combine with a slump in exports to the U.S. to cause the slowest economic growth in 16 years.  Read more at-http://www.bloomberg.com/apps/news?pid=20601082&sid=aP8W5guzLEQ8&refer=canada

-The market's worst is yet to come. Now that a few Wall Street folks have finally dared to utter the word 'recession' aloud, most of the rest are assuming this downturn is practically over. Expect the bulls to stumble.  Read more at-http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/TheMarketsWorstIsYetToCome.aspx?page=all

-US regulator fears wave of bank failures.  Read more at-http://us.ft.com/ftgateway/superpage.ft?news_id=fto042220081906290241

-UPS, FedEx Decline Points to Continuing Recession. Falling shipments at United Parcel Service Inc. and FedEx Corp., which together deliver 80 percent of packages in the U.S., show the economy is in a recession and unlikely to rebound this year.  Read more at-http://www.bloomberg.com/apps/news?pid=20601109&sid=aFS4NPtPEFhw&refer=home

-Merrill Lynch & Co., the third- biggest U.S. securities firm, is raising $9.55 billion by selling bonds and preferred shares after writing down the value of $6.5 billion of assets.  Read more at-http://www.bloomberg.com/apps/news?pid=20601087&sid=ag2dUOFaPjWQ&refer=home

-Bondholders Lucky to Get 10 Cents in Looming Defaults. The looming wave of bankruptcies is unlikely to be kind to bondholders. And they have only themselves to blame. Rather than receiving the historical average recovery of 42 cents on the dollar in a default, owners of a third of high- yield, high-risk bonds rated B+ or lower may get no more than 10 cents, according to New York-based Fitch Ratings. About 22 percent are likely to get 11 cents to 30 cents.  Read more at-http://www.bloomberg.com/apps/news?pid=20601109&sid=ah5Lg9TW9B_M&refer=home

8 STEPS TO A TRILLION DOLLAR MELTDOWN

-How did the U.S. financial crisis happen? A review of the road to ruin reveals a course littered with more villains than heroes. No, it's not the Great Depression, but the United States is facing a nasty economy-wide retrenchment following the excesses of the 2000s, with no easy way to dance through it.

Think 1979 to 1982, when then U.S. Federal Reserve Chairman Paul Volcker exorcised consumer price inflation from the economy. The difference today is that the inflationary explosion has been absorbed by prices of assets houses, stocks and bonds, office buildings rather than by the prices of things you buy at the store. Here's how it happened.

1. The Fed spikes the punch bowl. In the wake of the dot-com bust and 9/11, the Fed lowers interest rates to 1 percent, the lowest since 1958. For more than 2½ years, long after the economy has resumed growing, the Fed funds rate remains lower than the rate of inflation. For banks, in effect, money is free.

2. Leverage soars. Financial sector debt, household debt, and home prices all double. Big banks shift their business models away from executing transactions for customers to "principal trading"-or gambling from their own accounts with borrowed money. In 2007, the principal-trading accounts at Citigroup, JPMorgan Chase, Goldman Sachs, and Merrill Lynch balloon to $1.3 trillion.

3. Consumers throw a toga party. Soaring home prices convert houses into ATMs. In the 2000s, consumers extract more than $4 trillion from their homes in net free cash (excluding financing costs and housing investment). From 2004 through 2006, such extractions exceed 7 percent of disposable personal income. Personal consumption surges from its traditional 66 to 67 percent of GDP to 72 percent by 2007, the highest rate on record.

4. A dollar tsunami. The United States' current-account deficits exceed $4.9 trillion from 2000 through 2007, almost all for oil or consumer goods. (The current account is the most complete measure of U.S. trade, as it encompasses goods, services, and capital and financial flows.) Economists, including one Ben S. Bernanke, argue that a "global savings glut" will force the world to absorb dollars for another 10 or 20 years. They're wrong.

5. Yields plummet. The cash flood sweeps across all risky assets. With so many people taking advantage of cheap loans, the most risky mortgage-backed securities carry only slightly higher interest rates than ultra-safe government bonds. The leverage, or level of borrowing, on private-equity company buyout deals jumps by 50 percent. Takeover funds load even more debt onto their portfolio companies to finance big cash dividends for themselves.

6. Hedge funds peddle crystal meth. Aggressive investors pour money into hedge funds generating artificially high returns by betting with borrowed money. To maximize yields, hedge funds also gravitate to the riskiest mortgages, like subprime, and to the riskiest bonds, which absorb losses on complex pools of lower-quality mortgages known as collateralized debt obligations or CDOs. The profits from selling bonds based on very risky underlying securities override bankers' traditional risk aversion. By 2006, high-risk lending becomes the norm in the home-mortgage industry.

7. A ratings antigravity machine. Pension funds cannot generally invest in very risky paper as a mainstream asset class. So, banks and investment banks, with the acquiescence of the ratings agencies, create "structured" bonds with an illusion of safety. Eighty million dollars of "senior" CDO bonds backed by a $100 million pool of subprime mortgages will not incur losses until the defaults in the pool exceed 20 percent. The ratings agencies confer triple-A ratings on such bonds; investors assume they are equivalent to default-proof U.S. Treasury bonds or blue-chip corporates. To their shock, investors around the world discover that as pool defaults start rising, their senior CDO bonds rapidly lose trading value long before they suffer actual defaults.

8. The Wile E. Coyote moment arrives. Suddenly last summer, all the pretenses start to come undone, and the market is caught frantically spinning its legs in vacant space. The federal government responds with more than $1 trillion in new mortgage lending and lending authorizations in multiple guises from Fannie Mae, Freddie Mac, the Federal Housing Finance Board, and the Federal Reserve. Home prices still drop relentlessly; signs of recession proliferate; risky assets plummet.  What now?  Read full story at-http://www.foreignpolicy.com/story/cms.php?story_id=4240&print=1

REAL ESTATE

-U.S. Existing Home Sales Fell in March; Prices Lower. Read more at-http://www.bloomberg.com/apps/news?pid=20601087&sid=a3CdecFaWGiw&refer=home

-New-Home Sales in the U.S. Plunge More Than Forecast. Read more at-http://www.bloomberg.com/apps/news?pid=20601087&sid=aDyYp9o4DMGI&refer=home

-Palm Beach mansion fetches $81.5 million.  Read more at-http://www.palmbeachpost.com/localnews/content/local_news/epaper/2008/04/18/m1a_mansion_0418.html

-Let Britain's housing bubble burst.  Read more at-http://us.ft.com/ftgateway/superpage.ft?news_id=fto041720081507199382

FORECLOSURE-MORTGAGES

-1 in 33 Homeowners Predicted To Be In Foreclosure.  Read more at-http://www.pewcenteronthestates.org/uploadedFiles/PCS_DefaultingOnTheDream_Report_FINAL041508_01.pdf

-California home prices fall 26 percent amid foreclosures.  Read more at-http://www.businessweek.com/ap/financialnews/D903SMT80.htm

-California's Home-Mortgage Defaults More Than Double. Read more at http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aAHn_aopwRWs

-Rate of home foreclosures expected to get worse.  Read more at-http://www.usatoday.com/money/economy/housing/2008-04-15-foreclosure-filings-march_N.htm?loc=interstitialskip

-Renters can't escape housing foreclosure crisis. Read more at-http://www.usatoday.com/money/economy/housing/2008-04-21-rent-rising-eviction_N.htm

-Foreclosure bus' magical misery tour. Two Las Vegas realtors have found a way to profit amid the downtown: foreclosure tours.  Read more at- http://money.cnn.com/2008/04/17/smbusiness/magical_misery_tour.fsb/index.htm

-The trillion-dollar mortgage time bomb. Risks are rising that Fannie Mae and Freddie Mac may need a government bailout that could cost far more than previous rescues.  Read more at-http://money.cnn.com/2008/04/21/news/economy/fannie_freddie/?postversion=2008042103

© 2008, Worldwide Precious Metals.
www.wwpmc.com

The GoldBugg Report - April 29, 2008
Posted by Worldwide Precious Metals on Tuesday, April 29, 2008