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The GoldBugg Report - July 29, 2008

July 29, 2008

-Gold Nearing Summer Lows Prior to Rallying Strongly into Autumn.

-Why gold and silver are table-thumping buys.

-"Gold and silver are headed much higher, and will now regroup for the final assault on $1,000 for gold and $21 for silver that will take us to new heights and more unexplored territory." Bob Chapman

GOLD

-Gold Nearing Summer Lows Prior to Rallying Strongly into Autumn. Gold seasonal patterns often result in lows in July or August prior to strong rallies into year end. Previous years may be instructive in this regard. Last summer, gold fell some 7% from $687 on July 16th to $641 on August 13th. The $641 reached on August 13th marked the seasonal low and subsequently gold rallied strongly in August, September, October and early November. It reached $845 less than 3 months later for a return of nearly 32%.

Gold subsequently had a shallow and brief correction in November and early December prior to rallying from mid December low of $787 to its highs in March of $1003 or a return of 27%. A similar performance can be seen in previous years in this current secular gold bull market as seen in the excellent charts which featured yesterday at the James Joyce Table in Lemetropolecafe.com. Read more and see charts here-http://news.goldseek.com/GoldSeek/1216905228.php

-Gold's safe haven attributes are coming into their own due to significant macroeconomic and systemic risk. While demand destruction may lead to falls in the demand for commodities, gold's finite currency credentials will lead to it continuing to outperform other assets in the coming months.

With conditions quite similar to those of the stagflation of the 1970s, this is particularly the case. Although it is difficult to see how oil, energy and food prices could be subject to significant demand destruction given the massive demographic, social and economic ramifications of the emergence of huge middle classes and western consumerism in Asia and the BRIC economies.

Also the increasingly accepted theory of ‘peak oil' should give pause for thought to those who have been and continue to always bang the drum that the commodities ‘bubble' is bursting (stock market permabulls are particularly prone to this deluded form of wishful thinking). This mantra has been sung for some years now and its proponents remain in denial about these huge social and economic changes in the global economy. Gold.ie

-Putting the Gold Price in Perspective. While the future is unknowable and unpredictable, the probability of gold falling to $500 in 2010 is "slim to none". The only way for gold to fall to that level would be for the purchasing power of the dollar to be significantly enhanced.

In other words, instead of inflating the dollar, the US government would need to embark on a new monetary policy aimed at deflating the dollar, the result of which would be to enhance the dollar's purchasing power, repeating the experience of the Great Depression. Monetary policy is aimed specifically at avoiding another deflationary Great Depression, so it is reasonable to expect that the dollar will continue to be inflated, meaning the price of gold will continue to rise. James Turk-Read more here-http://www.kitco.com/ind/Turk/turk_jul222008.html

-Gold's strength is the U.S. dollar's weakness. Authorities say they support a strong dollar but refuse to take the action required to strengthen it. John Embry commentary-Read more here-http://www.sprott.com/pdf/investorsdigest/digest.pdf

-How well (or poorly) has the stock market been performing? It all depends on how you measure. When measured in US dollars, the Dow currently trades 19.2% off its all-time record highs of October 2007. However, when measured with that other world currency (gold), the picture is more dismal. To help illustrate the point, today's chart presents the Dow divided by the price of one ounce of gold.

This results in what is referred to as the Dow / gold ratio or the cost of the Dow in ounces of gold. For example, it currently takes 12 ounces of gold to "buy the Dow." This is considerably less that the 44.8 ounces back in the year 1999. When priced in gold, the US stock market has been in a bear market for the entire 21st century. Chart of the day

-Oil is a commodity, gold is money decoupling will happen. With the global oil price suffering a significant correction in the past few days, gold too is showing signs of weakness, but the oil price and gold price should decouple as the one is a commodity and the other ‘money'. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=57077&sn=Detail

-Has Petrodollar Conversion into Gold Reached its Peak? Read more here-http://www.resourceinvestor.com/pebble.asp?relid=44538

-Gold's Performance as a Safe Haven Asset. An example of gold's historic role as a safe haven asset is seen in the following data. The industry performance of Physical Gold Versus the S&P 500 during eleven stock market declines of 15% or more in the Post-War period (since 1946). Gold.ie

-The rush for Gold: Sales of bars double. Investors opt for bullion rather than shares or property. Britons who still have any wealth to invest are turning their backs on the property portfolios, stocks and shares, and sports cars that have long constituted conventional investments, and pumping their savings into old-fashioned gold bullion and coins. Read more here-

http://www.independent.co.uk/news/uk/this-britain/the-rush-for-gold-sales-of-bars-double-872392.html

-Why the Mania Phase in Gold May Be Upon Us. There is other hot-off-the-press evidence that the golden pot is starting to boil.

It is possible the central banks of Russia and Argentina are buying gold. There is also unconfirmed talk that the central bank of China and other sovereign wealth funds may be buyers. Since these countries have trillions more cash than Western central banks have gold, it is easy to envision a scenario where central banks as a whole become net buyers, even if some countries continue selling.

Over 50 countries are now experiencing double-digit price rises. Ukraine is now at 29%, and in the Gulf states inflation is out of control. Russia is at 15%, and India is close behind at 11%. China is on the cusp, at 7%. Interest rates are still below inflation rates in much of the emerging world.

The supply/demand picture for gold is getting tighter every month... Older mines are playing out, rising costs threaten the marginal operations, and large new deposits are simply not being discovered. Yet demand in all categories is up - industrial, jewelry and investment. And the potential for investment dollars to flee to gold is tremendous; consider that the sum total of the world's paper financial assets (including equities, bonds and bank deposits) equals US$74.5 trillion. Yet the value of all physical gold held by private investors and central banks is just US$1.1 trillion. A mere 5% of that going into gold would be $3.725 trillion. What do you suppose that would do to the gold price?

The Gold Mania is here. In fact, our research shows this is the last summer you will be able to buy gold for 3 figures. Do you have enough? Perhaps the most transparent way to find the answer is to ask: will you feel like you bought enough gold when it's selling for $2,000 an ounce? Jeff Clark-Read more here-http://news.goldseek.com/GoldSeek/1216407036.php

-Reuters poll says average gold prices to be 30% higher this year and silver to track. A Reuters poll says that average gold prices could rise by over 30% in 2008 compared with 2007 as investors buy gold for its safe haven status. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=57610&sn=Detail

-Gold and silver ETFs top the pack. Amid a general ongoing slide in just about anything to do with commodity valuations, gold and silver exchange traded funds/commodities rise to the top of the pack. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=57387&sn=Detail

-ETF Securities gold ETC holdings rise 12 pct to record. Read more here-http://www.reuters.com/article/goldMktRpt/idUSL2112463520080721?rpc=401

-Biggest gold ETF loses 4.6 percent of gold holding in two days. The SPDR Gold Trust ETF which had been holding over 700 tonnes of gold has seen nearly 5 percent of the gold it holds on behalf of investors liquidated in two days in line with the sharp gold price falls this week. Read more here-

http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=57631&sn=Detail

SILVER

-Why gold and silver are table-thumping buys. In addition to macroeconomic, systemic and geopolitical risk; geological constraints, terrorism, climate change and natural disasters such as Hurricane Katrina; there are other risks that mean that the old Wall Street advice to invest 10% of one's portfolio in gold bullion and hope it does not work is more important now than at any time in living memory. Given silver's even more favourable fundamentals, an allocation to silver would also be extremely prudent as it is likely to outperform even gold in the coming years. Mark O'Byrne-Read more here-http://www.moneyweek.com/file/50927/why-gold-and-silver-are-table-thumping-buys.html

-Panic on Wall Street Is Building-Gold and Silver's Role. David Morgan-Read more here-http://www.kitco.com/ind/morgan/printerfriendly/jul182008.html

-Benchmark Asset plans India's first silver ETF. Read more here-http://in.reuters.com/article/domesticNews/idINBOM5566820080722

-Local coin shop runs out of silver bullion coins. Yesterday I visited the local coin shop in my home town, Salisbury in England and while full of interesting medals and collectables something was missing this year. The coin counter had shrunken to a small selection in the corner. I asked the owner of The Castle Galleries, John Lodge what had happened and he explained that it was proving hard to buy sufficient supplies to keep up with demand.

Indeed he apologised for only having two silver bullion coins on display: a 1924 Silver Eagle and a 1780 Marie Theresa. So I bought both for $40 and emptied his shop! However, Mr. Lodge has been in business for a long time, and as a very small boy I used to go to a youth club he ran called the Happy Hour Club. He recalled that in the late 1970s people used to queue down the road to buy gold and silver coins, and nothing like that had happened yet.

Mr. Lodge felt it was remarkable just how long ago the last gold boom seemed. It certainly appeared unreasonable to me that I should pay $20 for an ounce of silver as a coin, exactly the same price as I would have paid in 1979. In that year I worked as a labourer for my father's building company and we sold one house for $36,000. Today it would be twenty times that amount. Nothing else I have bought on my short visit is close to the 1979 price.

In just the past year gas prices are up 27 per cent and the average supermarket basket by 21 per cent, according to the Daily Mail. So why should bullion coins be unchanged over 29 years? Mr. Lodge says it is extraordinary how long the bear market lasted and reminded me that the coins bottomed at $5 each. Yet you look at one ounce of silver and it looks like it ought to be worth $100 or more. But there is a shortage emerging, clearly and that ought to be driving prices higher if nothing else.

Mr. Lodge also thinks the industrial consumption of silver is forgotten, and that means the silver of 1979 has gone, unlike gold which piles up in vaults. Apparently bullion dealers report a doubling of sales in the UK over the past year with increasing interest among the public in buying silver and gold coins and bars of metal. But if inflation does what it did in the 1970s then the queues down the road to buy from Mr. Lodge will be there again. I just hope he finds some stock. Peter J. Cooper

PLATINUM-PALLADIUM

-Platinum outlook comfortably above $2000/ounce despite macro concerns. The Fortis/VM Group gives a platinum outlook that jostles with supply constraints and demand concerns.

The Fortis metals monthly says the outlook for platinum is comfortably above $2,000/ounce on new investment demand, higher capital costs stemming from power generators and a looming Cosatu strike in South Africa. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page35?oid=57040&sn=Detail

-Higher diesel prices adverse for platinum demand. Although EU demand for diesel vehicles is unlikely to be affected dramatically by higher diesel prices, the diesel revolution is yet to start in the US. The diesel revolution in the European Union that drives demand for platinum and palladium is unlikely to reverse itself, but EU drivers will progressively divert from diesel vehicles if the diesel price remains significantly higher than the price of gasoline.

The Fortis/VM Group says in its latest metals report the ratio of sales between diesel and gasoline engine cars naturally has implications for the relative prices of the two metals. One of the great advantages platinum has enjoyed over the last decade compared with palladium is the trend away from gasoline-powered cars to those using diesel.

This trend has been most evident in Europe. The report said that until recently diesel engine vehicles could only use platinum-based catalysts, but the price gap between platinum and palladium has encouraged autocatalyst producers to use less platinum and increase the volume of palladium in autocatalysts. Read more here-

http://www.mineweb.com/mineweb/view/mineweb/en/page35?oid=57013&sn=Detail

-Precious metals poll puts average platinum price up 50% this year on last. Another Reuters poll, this time on platinum and palladium, shows big increase in anticipated platinum price this year compared with last and palladium up too. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page35?oid=57624&sn=Detail

-Platinum used in new biofuel reaction 22nd July 2008. Scientists claim to have developed a new reaction that uses platinum in turning sawdust into biofuels. Read more here-

http://www.platinum.matthey.com/media_room/platinum_used_in_new_biofuel_reaction_18694869.html

DEFINITIONS-QUOTES-QUICK HITS

-Bailout. A situation in which a business, individual or government offers money to a failing business in order to prevent the consequences that arise from a business's downfall. Bailouts can take the form of loans, bonds, stocks or cash. They may or may not require reimbursement.

Bailouts have traditionally occurred in industries or businesses that may be perceived no longer being viable, or are just sustaining huge losses. Typically, these companies employ a large number of people, leading some people to believe that the economy would be unable sustain such a huge jump in unemployment if the business folded.

For example, Chrysler, a large U.S. automaker was in need of a bailout in the early 1980s. The U.S. government stepped in and offered roughly $1.2 billion to the failing company. Chrysler was able to pay the entire bailout back, and is currently a profitable firm. Investopedia.com

-"If the U.S. Fed, U.K. central bank, and other central banks continue to protect all of the institutions, all of the shareholders, and all the depositors, the crisis will actually be more prolonged and more difficult to come out of than if they let a lot of the smaller institutions go broke.

Thus far, it is obvious that the Fed and the U.S. and U.K. administrations want to make the government the lender of last resort and make it a world where mistakes are not punished. We go on record saying that this is a mistake the example of Japan comes to mind." Monty Guild and Tony Danaher

-"At present, the best the government can do for housing and the economy is to leave both alone, cease interference in the free market, restore sound money, and allow capitalism to work." Peter Schiff-Read more here-http://www.321gold.com/editorials/schiff/schiff071808.html

-I get such a kick out of how the price of gold can run up over $100 in 14 days and no one in the media makes a comment. We then have a $22 drop and they start playing the funeral music. Whenever the "financial experts" are trashing gold it makes me that much more committed. CIGA Buz-Comment on Jsmineset.com

-Nothing whatsoever has changed. Gold is headed to $1200 this year and $1650 on or before January 14th, 2011. The euro will trade above $1.60 on its way to $2 plus. Jim Sinclair-Jsmineset.com

-"Nothing beats a little cash in a bear market, of course, and the oldest form of cash is gold." James Grant

-Credit Suisse believes that a renewed test of $1,000 an ounce is "increasingly likely during the third quarter." Kitco Daily Resource

-Full Steam Ahead for Gold Train-The gold train has left the station and this year the price will reach at least $1,200 and next year $2,500, Thomas Bachheimer, CEO of Meridian Commodity Advisor, told CNBC. Watch video here-http://www.cnbc.com/id/15840232?video=796268335&play=1

-"Gold and silver are headed much higher, and will now regroup for the final assault on $1,000 for gold and $21 for silver that will take us to new heights and more unexplored territory." Bob Chapman

-In 1974 I concluded gold would rise to $900. That number represented the price gold would have to be at times the amount of gold published as held for the US Treasury to balance the value, at par, of US Treasury debt held internationally. This would be balancing the international balance sheet of the USA.

The trick is analyzing what the international debt of the US is both directly and implied. The number in 1974 was $900. I will not tell you the number today. It is absolutely scary. I will stay with $1650 as I know for a fact gold will trade there. Jim Sinclair

-Looking ahead, "In the near term, gold will be driven by risk-aversion fears," wrote John Reade of UBS. "If gold moves from being a minority-held asset class to a popular safe haven, then our short-term forecast of $1,000 in one month and $1,050 in three months will look very conservative." Kitco Daily Resource

-Gold was due a correction after its recent surge in price and remains up some 6% in the last month (from $882 to $935) unlike oil and the majority of stock markets (which are down by similar amounts). Gold's recent outperformance may have led to a bout of profit taking and further consolidation is likely prior to challenging the March highs of $1030 per ounce in the coming weeks. Gold.ie

-"While oil remains an important factor in influencing the gold market, we remain confident that there will be a gradual decoupling between oil and gold in the coming months." Gold will outperform oil, Mark O'Byrne, executive director at Gold and Silver Investments Ltd maintains, since oil is a commodity that is "far more subject to demand destruction in the face of a sharply deteriorating global economy than gold." Kitco Daily Resource

-Citigroup Mining and metals analyst John Hill said the mix of macro and supply/demand factors, along with the same forces that have pushed gold higher for the last five years, give him good reason to remain bullish on gold. He sees prices climbing through 2009 and 2010. "Longer term, we would not be surprised to see gold double or triple from current levels as the global policy prescriptions for the credit crunch remain powerfully and uniformly re-flationary," the analyst told clients. Gold.ie

-At no time more than now, investments in gold and silver will give investors a protection for their wealth as never before. We do not expect to see gold in three figures for much longer and thereafter it will be a simple piece of history. Silver below $20 will likewise be something of the past! Julian D. W. Phillips-Read more here-http://news.goldseek.com/GoldForecaster/1216732147.php

-"Unless the United States moves quickly to fundamentally change and restrain its fiscal behavior, its bankruptcy will become a foregone conclusion." Federal Reserve Bank of St. Louis report in July/August 2006.

The Federal Reserve Bank Report continues "Given the reluctance of our politicians to raise taxes, cut benefits, or even limit the growth in benefits, the most likely scenario is that the government will start printing money to pay its bills. This could arise in the context of the Federal Reserve "being forced" to buy Treasury bills and bonds to reduce interest rates.

Specifically, once the financial markets begin to understand the depth and extent of the country's financial insolvency, they will start worrying about inflation and about being paid back in watered-down dollars. This concern will lead them to start dumping their holdings of U.S. Treasuries.

In so doing, they'll drive up interest rates, which will lead the Fed to print money to buy up those bonds. The consequence will be more money creation exactly what the bond traders will have come to fear. This could lead to spiraling expectations of higher inflation, with the process eventuating in hyperinflation." Gold.ie

-Truth about Wall Street briefly escapes president's lips. President George W. Bush said Wall Street had "got drunk" and was experiencing a hangover at a recent closed-door fundraiser in Houston in which he also made light of the US housing crisis. In a video recording that emerged on Tuesday, Mr. Bush questioned how long Wall Street banks would remain sober and "not try to do all these fancy financial instruments." Read and watch video here-http://www.gata.org/node/6443

-Paulson braces public for months of tough times. Treasury secretary says problems in the banking system are a "manageable situation" but that it will take time to work through them. Read more here-http://money.cnn.com/2008/07/20/news/economy/paulson_economy.ap/index.htm

-Why No Outrage? Through history, outrageous financial behaviour has been met with outrage. But today Wall Street's damaging recklessness has been met with near-silence, from a too-tolerant populace, argues James Grant. Read more here-http://online.wsj.com/article_print/SB121642367125066615.html

-Ten most overpaid jobs in the U.S. Number 1-Mutual-fund managers. Everyone on Wall Street makes far too much for the backbreaking work of moving money around, but mutual fund managers are emerging as among the most reprehensible. This isn't kicking 'em when they're down, given the growing fund-industry scandal.

They've been long overpaid. Stock-fund managers can easily earn $500,000 to $1 million a year including bonuses even though only 3 in 10 beat the market in the last 10 years. Now we discover an untold number enriched themselves and favored clients with illegally timed trades of fund shares. That's a worse betrayal of trust than the corporate scandals of recent years, since they're supposed to be on the little person's side. Put aside what fund managers earn and consider their bosses.

Putnam's ex-CEO Lawrence J. Lasser's income rivals the bloated pay package that sparked New York Stock Exchange President Dick Grasso's ouster. Lasser's take: An estimated total of $163 million over the last five years. Read more here-http://www.marketwatch.com/news/story/10-most-overpaid-jobs-us/story.aspx?guid=954AA053-F953-43F3-BBC8-63D351A3BF2A&dist=SecMostRead&print=true&dist=printMidSection

RARE COLORED DIAMONDS

-Diamonds Attract Funds as Largest Gem Prices Surge 76% in Year. Diamonds, like art, are a commodity that is gaining attention as an alternative investment. Increases in the price of the rarest colorless and colored diamonds are attracting wealthy investors and structured funds as stock markets and real-estate values decline. The price of 5-carat gems with the potential to be sold at $1 million or more has risen 76.5 percent in the year to May 2008, according to Idexonline.com, the Web site of the International Diamond and Jewelry Exchange.

"There's a group of very savvy, tremendously wealthy people who have put a small portion of their fortunes aside to invest in diamonds,'' said Francois Graff, managing director of London- based Graff Diamonds International, in a telephone interview. ``They've made incredible returns.'' Five years ago, dealers were paying $70,000 per carat for colorless diamonds of 10 carats and more, said Graff. "Now we're paying over $200,000 per carat,'' he said. There are only about 200 highest-grade, D-flawless colorless diamonds of more than 5 carats discovered per year, according to Raymond Sancroft-Baker, Christie's International's European director of jewelry.

The annual yield of large-scale blue and pink stones is considerably smaller. "Diamonds are getting rarer. The earth just isn't giving them up,'' said Sancroft-Baker in a telephone interview. The commodity asset-management firm Diapason Commodities Management SA listed a specialist investment fund, Diamond Circle Capital Plc, on the London Stock Exchange on June 25. Full story here-http://www.bloomberg.com/apps/news?pid=20601093&sid=aKVjxYejpss0&refer=home

-Super-rich still pay dear for rare diamonds. The rapid rate of increase in wholesale prices of rare polished diamonds is unsustainable, but for now the growing number of super-rich are paying rising prices for top-tier diamond jewelry. Charles Wyndham, founder of PolishedPrices, a leading index of wholesale diamond prices, said on Friday prices of larger, rare, near-flawless gemstones had shot up by roughly 200 percent over the past 18 months. Read more here-http://www.reuters.com/article/newsOne/idUSL0416926920080705

-Demand for rarest diamonds outstrips supply. Read more here-http://www.reuters.com/article/reutersEdge/idUSL0646558820080606

-De Beers Sales Climb 10% on Higher Diamond Prices. While demand for high-end diamonds is "very, very strong,'' sales of smaller lower-quality gems in the U.S. market is likely to be "pretty flat'' in the second half, De Beers Chief Executive Officer Gareth Penny told reporters in a conference call this week. Read more here-

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

COMMODITIES-FOOD

-U.S. food companies plan more hefty price increases. Kraft Foods, which has said it will push up its prices by 12-13 per cent this year, said some of its cheese categories could rise 25 per cent. Read more here-http://www.gata.org/node/6434

-Mideast Facing Choice Between Crops and Water. Global food shortages have placed the Middle East and North Africa in a quandary, as they are forced to choose between growing more crops to feed an expanding population or preserving their already scant supply of water. Read more here-

http://www.nytimes.com/2008/07/21/business/worldbusiness/21arabfood.html?_r=1&oref=slogin&partner=rssyahoo&emc=rss&pagewanted=print

OIL-WIND-BIOFUEL-GAS

-Fundamentals led to $130 oil report. Federal task force finds that supply and demand for oil are largely responsible for the commodity's record rise. Read more here-

http://money.cnn.com/2008/07/22/news/economy/oil_speculation.ap/index.htm

-Faber Says Oil May Decline as Global Growth Weakens. Marc Faber, who told investors to bail out of U.S. stocks before 1987's so-called Black Monday crash, said oil prices may fall to $100 a barrel as demand slows in a global economy at the "tail end'' of its expansion. Read more here-

http://www.bloomberg.com/apps/news?pid=20601082&sid=ajVyQXiLi1Ks&refer=canada

-Pickens sees $300 oil unless U.S. cuts crude imports. Oil prices will hit $300 a barrel in 10 years if the United States fails to reduce its dependence on foreign imports, billionaire oil investor T. Boone Pickens told U.S. lawmakers on Tuesday. Read more here-http://www.reuters.com/article/businessNews/idUSN2228084120080722?feedType=RSS&feedName=businessNews&rpc=23&sp=true

-Pickens urges action on energy crisis. Oilman turned wind guru tells Congress that his plan would reduce the nation's dependency on foreign oil by 38%. Read more here-

http://money.cnn.com/2008/07/22/news/economy/senate_energy_security/index.htm?postversion=2008072212

-Wind power: A reality check. Plans are afoot to prod the nation into using much more renewable energy. Can it be done, and what's the cost? Read more here-

http://money.cnn.com/2008/07/22/news/economy/pickens_wind/index.htm?postversion=2008072214

-Arctic May Hold 90 Billion Barrels of Oil, U.S. Says. The Arctic may hold 90 billion barrels of oil, more than all the known reserves of Nigeria, Kazakhstan and Mexico combined, and enough to supply U.S. demand for 12 years, the U.S. Geological Survey said. Read more here-http://www.bloomberg.com/apps/news?pid=20601072&sid=aiyouP1_l.kg&refer=energy

-Arctic's oil could meet world demand for 3 years. Read more here-http://news.yahoo.com/s/nm/20080723/ts_nm/arctic_oil_dc

-Why the oil crunch may grow worse. The fear is that all the easy-to-reach crude has been found. These may be 'the good old days,' one expert says. Read more here-

http://www.latimes.com/business/la-fi-peakoil22-2008jul22,0,4040165.story

-Pemex Oil Production Falls 11% in June on Aging Field. Petroleos Mexicanos, the state-owned energy company, said oil output fell 11 percent in June from a year earlier as new wells failed to keep pace with a four-year decline in the aging Cantarell field, the nation's largest. Production dropped to 2.839 million barrels a day in June from 3.206 million a year earlier, the Mexico City-based company, known as Pemex, said today on its Web site.

At Cantarell, where a drop in pressure is making it more difficult and costly to extract oil, the company pumped 1.017 million barrels a day, down 35 percent from a year earlier and the fastest rate of decline in 12 years, Pemex said. The company is pumping 33 percent more from the Ku-Maloob-Zaap field to make up for the decline at Cantarell. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid=aLLrhZOGOD_M&refer=home

-N.H. will accept free oil from Chavez after all. Two years ago, New Hampshire refused to accept heating oil from Venezuelan President Hugo Chavez, the pro-Castro U.S. critic who once called President Bush "the devil." But with fuel prices rising, well, free oil is free oil. With the state's blessing, New Hampshire residents will be receiving some of the fuel this winter. New Hampshire becomes the last state in the Northeast to embrace the offer. Read more here-http://www.breitbart.com/print.php?id=D920E39G9&show_article=1

-Texas Governor Fights U.S. Ethanol Rule That Raises Food Costs. Rising U.S. gasoline prices and the growing world food crisis will clash this week when the Bush administration decides whether to relax rules requiring greater use of ethanol in auto fuels.

Texas Governor Rick Perry, backed by at least 26 senators and 51 representatives, is seeking to halve a requirement that the U.S. produce 9 billion gallons of ethanol this year. The Environmental Protection Agency must rule by July 24 on their request for a waiver of the rule, favored by oil and food retailers and opposed by farm groups and environmentalists. Read more here-http://www.bloomberg.com/apps/news?pid=20601072&sid=asKoGIcOXRjA&refer=energy

-U.S. schools eye four-day week to cut fuel costs. Read more here-http://www.reuters.com/article/lifestyleMolt/idUSN2439039120080724?feedType=RSS&feedName=lifestyleMolt&rpc=22&sp=true

U.S. FISCAL-PERSONAL DEBT

-Given a Shovel, Americans Dig Deeper Into Debt. The collection agencies call at least 20 times a day. For a little quiet, Diane McLeod stashes her phone in the dishwasher. But right up until she hit the wall financially, Ms. McLeod was a dream customer for lenders.

She juggled not one but two mortgages, both with interest rates that rose over time, and a car loan and high-cost credit card debt. Separated and living with her 20-year-old son, she worked two jobs so she could afford her small, two-bedroom ranch house in suburban Philadelphia, the Kia she drove to work, and the handbags and knickknacks she liked.

Then last year, back-to-back medical emergencies helped push her over the edge. She could no longer afford either her home payments or her credit card bills. Then she lost her job. Now her home is in foreclosure and her credit profile in ruins. Read more here-http://www.nytimes.com/2008/07/20/business/20debt.html?_r=1&oref=slogin

-The U.S. debt trap. A series about the surge in consumer debt and the lenders who made it possible. Read and watch more here-

http://www.nytimes.com/interactive/2008/07/20/business/20debt-trap.html

-America's Money: Debt crush. Americans deep in debt are struggling more than ever amid the credit crisis and economic downturn. See how people got in the hole and what they're doing to get out. Read more here-http://money.cnn.com/galleries/2008/news/0805/gallery.real_people_debt/

-The $53 trillion asteroid by Glenn Beck. Read full story here-http://www.cnn.com/2008/US/03/26/beck.deficit/index.html

Story Highlights

Medicare trust fund will become insolvent in the year 2019, report says

Paulson: "Rising costs will ... threaten America's future prosperity"

Expert: Unfunded debt is "an IOU of around $455,000 per American household"

Beck: Our financial deficit is only dwarfed by "deficit of trust" we have in our leaders

Let's say a giant asteroid was headed toward Earth right now and experts say it has a good chance of ending civilization as we know it. Let's also say that we've known about this asteroid for years but even as it gets closer and closer our leaders do nothing. "Don't worry," they tell us, "The next administration will figure something out."

With the future of our country at stake, would Americans really sit back and tolerate that kind of inaction? Of course not we'd be sharpening our pitchforks and demanding answers. Well there may not be a space asteroid heading toward us, but there is an economic one and the threat to our future is just as severe.

You might think that I'm talking about the recession (sorry: potential recession) or credit crisis, but I'm thinking bigger. Much, much bigger. Let me give you three numbers that will put this economic asteroid into perspective: $200 billion, $14.1 trillion, and $53 trillion.

$200 billion is the approximate total amount of write-downs announced so far as a result of the current credit crisis.

$14.1 trillion is the size of the entire U.S. economy

And $53 trillion is (drum roll please) the approximate size of this country's bill for the Social Security and Medicare promises we've made.

U.K. BUDGET DEFICIT BIGGEST SINCE 1946

-U.K. Budget Deficit Balloons to Widest Since 1946. The U.K. budget deficit ballooned to the widest since records started in 1946, putting pressure on Prime Minister Gordon Brown to ease decade-old borrowing rules. The shortfall rose to 24.4 billion pounds ($49 billion) in the three months through June, the Office for National Statistics said today. Last month, the deficit widened to 9.2 billion pounds, more than the median forecast of 7.4 billion pounds in a Bloomberg News survey of 17 economists.

Brown's rules are buckling as the economy edges towards its first recession since the early 1990s, forcing borrowing higher. The government, which has already cut taxes this year, may find it hard to meet its March forecast of a 43 billion-pound deficit this year as revenues wane. Government bond yields rose today. "The credibility of the policy framework is going to take a major knock,'' said Nick Kounis, chief European economist at Fortis Bank in Amsterdam and a former U.K. Treasury official.

"Whatever move is made to the goalposts now is reducing credibility, which is why you see sterling easing this morning.'' Chancellor of the Exchequer Alistair Darling may change Britain's rules for government spending later this year, a Treasury spokesman said this week. Read more here-http://www.bloomberg.com/apps/news?pid=20601068&sid=abCtj2s5v_3Y&refer=home

FANNIE-FREDDIE-SALLIE

-Fannie Mae and Freddie Mac-End of illusions. In the end, the turtle at the bottom of the pile is the American taxpayer. But that suggests that, if Americans are losing money on their houses, pensions or bank accounts, the right answer is to tax them to pay for it. Perhaps it is no surprise that traders in the credit-default swaps market have recently made bets on the unthinkable: that America may default on its debt. Read more here-http://www.economist.com/finance/displaystory.cfm?story_id=11751139

-Fannie, Freddie Rescue Plan May Cost $1 Trillion, Bunning Says. A government rescue of Fannie Mae and Freddie Mac would require taxpayers to pay ``way'' more than the $25 billion estimated by the Congressional Budget Office, potentially as much as $1 trillion, Senator Jim Bunning said. Read more here-

http://www.bloomberg.com/apps/news?pid=20601087&sid=aJ_PxvWbq4z0&refer=home

-Fannie, Freddie Rescue May Cost Taxpayers $25 Billion, CBO Says. Treasury Secretary Henry Paulson's rescue package for Fannie Mae and Freddie Mac will probably cost $25 billion, the Congressional Budget Office said. "There is a significant chance probably better than 50 percent that the proposed new Treasury authority would not be used before it expired at the end of December 2009,'' the nonpartisan agency, which provides economic and budget analysis for lawmakers, said in a report today. Read more here-

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

-Fannie Mae Unsold $5 Billion Homes Bring Peril to Shareholders. Fannie Mae, the largest U.S. mortgage finance company, couldn't find a buyer who would pay $6,900 for the three-bedroom house at 1916 Prospect St. in Flint, Michigan. So broker Raymond Megie, who is handling the foreclosure sale, advised cutting the price to $5,000. Megie still couldn't sell it. "There's oversupply,'' he said. The home sold in 2005 for $110,000.

Fannie Mae acquired twice as many homes through foreclosure in the first quarter as it sold, regulatory filings show. Unsold properties may weigh on the company's stock, which lost almost half its value since June 5, said Moshe Orenbuch, managing director of equity research at Credit Suisse Group AG in New York. Late payments on the company's home loans, a harbinger of foreclosures, almost doubled in the past year.

Together, Fannie Mae and Freddie Mac, the two biggest U.S. mortgage finance companies, owned a record $6.9 billion of foreclosed homes on March 31, compared with $8.56 billion held by all 8,500 U.S. commercial banks and savings and loans. Foreclosed houses sell at an average discount of about 20 percent, according to economists Ethan Harris and Michelle Meyer at New York-based Lehman Brothers Holdings Inc.

At that rate, the two mortgage companies stand to lose $1.39 billion on the foreclosed houses they currently own. "Progress on this is probably one of, if not the single most important economic process right now,'' Orenbuch said. "With prices decreasing, it's better to get rid of houses quickly.'' Read more here-http://www.bloomberg.com/apps/news?pid=20601109&sid=aMz0dl3IdwjU&refer=home

-Sallie Mae Profit Falls as Buyers Shun Securities. SLM Corp., the largest U.S. student lender, said its second-quarter profit fell 72 percent as investors purchased fewer securities backed by its loans. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid=aK6_UYWyw0ow&refer=home

FDIC-INDYMAC BAILOUT

-FDIC Faces Mortgage Mess After Running Failed Bank. Federal officials heap much of the blame for the subprime mortgage mess on lenders, claiming they recklessly made too many high-cost home loans to borrowers who couldn't afford them. It turns out that the U.S. government itself was one of the lenders giving out high-interest, subprime mortgages, some of them predatory, according to government documents filed in federal court. Read more here-http://online.wsj.com/public/article/SB121641296022866029.html?mod=2_1569_leftbox

-FDIC Seeking Sale for IndyMac "As Soon as Possible," Bair Says. IndyMac Bancorp Inc., the third-largest bank to be taken over by U.S. regulators, will be sold "as soon as possible,'' Federal Deposit Insurance Corp. Chairwoman Sheila Bair said. Bair, whose agency began running the Pasadena, California- based lender last week, said today the FDIC will try to sell all of its assets to a single buyer.

She said the government may offer to share losses to entice buyers to pay a higher price for IndyMac's assets, which include mortgages. "Our target is three months,'' Bair said in an interview in San Francisco. "That may be a little ambitious, but we would really like to get this bank back into the private sector as soon as possible.'' IndyMac, which specialized in mortgages that didn't require borrowers to document income, racked up almost $900 million in losses as home prices tumbled and foreclosures climbed to a record.

California has the second-highest U.S. foreclosure rate after Nevada, according to RealtyTrac Inc., which sells information on repossessed properties. "One of the things we're looking at is perhaps marketing the assets with some kind of loss share so we don't create a real distressed asset price,'' Bair said. "That, perhaps, would take some of the uncertainty and risk out of the asset and give us a little better initial price for it.'' Bloomberg

WASHINGTON MUTUAL 3.3. BILLION LOSS

-WaMu Reports $3.3 Billion Loss as Housing Market Deteriorates. Washington Mutual Inc., the biggest U.S. savings and loan, said mortgage-related losses through 2011 will be at the high end of its forecast as the housing crisis reaches borrowers with stronger credit.

Rising delinquencies on option adjustable-rate mortgages will contribute to mortgage losses in the next two and a half years near the top of the $12 billion to $19 billion range predicted in April, the Seattle-based bank said yesterday. Washington Mutual increased provisions for loan losses 69 percent to $5.9 billion.

``Option-ARMs were particularly popular in many of the housing markets that are today experiencing some of the fastest rates of house-price declines,'' Chief Enterprise Risk Officer John McMurray said on the second-quarter conference call yesterday. ``In 2008, option-ARMs are the product type experiencing the fastest rate of delinquencies.''

What started as a subprime issue for Washington Mutual became a broader mortgage crisis as tumbling home prices in California left an increasing number of customers unable to make payments. Chief Executive Officer Kerry Killinger, 59, faces increased pressure after reporting a $3.3 billion second-quarter loss, cutting jobs, raising capital and presiding over an 86 percent drop in the stock in the past year. Read more here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid=af3qEdZ71Mik

-WaMu wary of IndyMac cashier's checks. More strange doings tonight surrounding the failure and federal takeover of IndyMac: some rival banks are refusing to honor cashier's checks written by IndyMac even though those checks are backed by the federal government. John Bovenzi, the FDIC official now running IndyMac, tells the Los Angeles Times today he is "deeply troubled by reports that there are financial institutions that are refusing to honor or are placing excessive holds on IndyMac Federal checks."

On latimes.com tonight: "Sheryl MacPhee, 46, said she liquidated a certificate of deposit at IndyMac's San Marino branch Tuesday morning after a two-hour wait. She then took the cashier's check to a Washington Mutual branch in South Pasadena to deposit. "MacPhee said a WaMu manager told her that under a new corporate policy, the bank was not accepting IndyMac checks. If a customer insisted on depositing the check, it could be eight weeks or more before the full amount would be accessible, she said she was told." More: "WaMu spokeswoman Olivia Riley declined to discuss details of the bank's check policies.

'We have a check hold policy that takes into consideration a variety of factors,' she said. 'WaMu is accepting checks from IndyMac customers; however, depending on the specifics, funds will be subject to an extended hold period.' Wells Fargo said it too was placing extended holds on many IndyMac checks as a precaution. "Officials at the Office of Thrift Supervision, WaMu's chief regulator, are investigating the complaints about the checks, OTS spokesman William Ruberry said." LA Times or http://ktla.trb.com/news/ktla-mortgages,0,4731206,print.story

WACHOVIA 8.9 BILLION LOSS-CUTS DIVIDEND

-Wachovia Has Record $8.9 Billion Loss, Cuts Dividend. Wachovia Corp., the U.S. bank that hired Treasury Undersecretary Robert Steel as chief executive officer two weeks ago, reported a record quarterly loss of $8.9 billion, slashed the dividend and announced 6,350 job cuts. The stock slumped as much as 10 percent in New York trading.

The second-quarter loss of $4.20 a share compared with net income of $2.3 billion, or $1.23, a year earlier, the Charlotte, North Carolina-based company said today in a statement. The loss included a $6.1 billion charge tied to declining asset values. The writedown, job cuts and second dividend reduction in three months reflect Steel's response to the worst housing market since the Great Depression, which cost former CEO Kennedy Thompson his job after eight years. Wachovia has dropped more than 75 percent since it spent $24 billion two years ago to buy Golden West Financial Corp. just as home prices were peaking.

"Steel is clearly trying to get his arms around this,'' said Joseph Gordon, president of Gordon Asset Management in Durham, North Carolina, which owns Wachovia shares and manages more than $200 million. Even so, ``We aren't advising any clients to buy until they fess up and go full transparency on Golden West and their commercial lending problems.'' Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid=a3ioTFV38p78&refer=home

GLOBAL RECESSION

-IMF warns global economy "fragile." Read more here-http://uk.news.yahoo.com/rtrs/20080717/tts-uk-imf-global-outlook-d1d4700.html

-The global economy is at the point of maximum danger. Read more here-http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/21/ccview121.xml

-A recession has clearly arrived in the UK, U.S. and many other economies internationally - the question is how deep the recession becomes and whether a recession leads to a 1990s style Japanese deflationary recession, a 1930s style deflationary crash and depression or a 1920s style German hyperinflation. Most likely is a severe 1970s style stagflation with a combination of sharply falling asset prices and economic growth with competitive currency devaluations and very severe inflation in the price of essential goods such as food and energy.

Today, due to our modern non Gold Standard monetary system deflationary recessions or depressions are highly unlikely. The U.S. experienced a deflationary Depression in the early 1930s as it was the world's largest creditor nation and it was on the Gold Standard meaning that every dollar was backed by gold. Therefore all assets and the price of goods fell in value vis-à-vis money and vis-à-vis gold, gold was money.

The last time the U.S. experienced a serious recession since the advent of the fiat paper currency system was in the 1970s and it was a period of stagflation. Since the ending of the Gold Standard and our modern experiment with paper currencies there have been few experiences of deflationary depressions Japan's ‘Lost Decade' being the one of the very few. Japan experienced deflation at it too was a massive creditor nation with large exports, huge national trade and credit account surpluses, huge savings rates (savings rate of 15pc versus a negative savings rate in the U.S. today) and thus a sound currency.

Thus prices of assets and goods fell in terms of their sound currency the Japanese yen. The U.S. is today the largest debtor nation that the world has ever seen with a massive and exponentially increasing national debt, massive trade deficits and significant and growing current account and budget deficits. Thus, it is highly unlikely that there will be deflation against this fundamentally flawed economy and currency.

This could only happen if Ben Bernanke and the Federal Reserve became determined to tackle inflation (a la Volcker in the late 1970s) and increased interest rates to well above 10%. This is highly unlikely given the extent of household and national debt in the U.S. Thus a period of stagflation and even hyperinflation seems increasingly likely and investors and savers should prepare themselves accordingly. Gold.ie

-Britain Is in No Shape to Cope With a Recession. There is no longer much dispute that the U.K. is heading for a recession later this year. The economic news gets gloomier by the day, and with prices still rising fast, there is little prospect of the Bank of England heading off the coming storm with reductions in interest rates.

Already the job losses are starting to mount. Homebuilders Redrow Plc and Bovis Homes Group Plc have announced they will cut 40 percent of their staff. Wolseley Plc, the world's biggest distributor of plumbing and heating equipment, has a hiring freeze in place after firing 400 employees in the U.K. during the second half of last year. Plenty more workers will lose their jobs before a recovery takes place.

The real problem isn't the economic decline, which is part of a normal business cycle. Britain is in no shape to face a recession. Consumers and government are up to their eyes in debt, the economy is becoming less competitive, and the country has placed itself in the wrong industries. The underlying weakness of the U.K. economy is about to be cruelly exposed.

"The U.K. is a classic case of financial over-stretch,'' says Stuart Thomson, who manages 23 billion pounds ($46 billion) in bonds at Resolution Investment Management Ltd. in Glasgow, Scotland. ``We have been living on the edge with very little for a rainy day. We expect to see the economy come crashing back down to Earth.''

In the past 50 years, according to UBS AG research, the U.K. has had only three recessions. In 1991, output declined 2.5 percent from the peak to the trough. In 1980, it dropped 6.1 percent. And in 1975, it slipped 3.3 percent. Read more here-http://www.bloomberg.com/apps/news?pid=20601039&sid=aywsH.3Yxklg&refer=home

-British economic 'horror movie' to continue: think-tank. Read more here-http://news.lycos.co.uk/uk/080720231517.i7j5iisd.xml.html

-Uncomfortable Answers to Questions on the U.S. Economy. Read more here-http://www.nytimes.com/2008/07/19/business/economy/19econ.html?_r=1&oref=slogin&partner=rssyahoo&emc=rss&pagewanted=print

-Gloomy Days Ahead for U.S. Retailers. If sales weaken further after the stimulus checks are spent, a wave of bankruptcies may be forthcoming. Read more here-

http://www.businessweek.com/bwdaily/dnflash/content/jul2008/db20080718_996200.htm?campaign_id=yhoo

-Economy hobbles Calif. Town. Read more here-http://www.usatoday.com/money/economy/2008-07-21-vallejo-city-bankruptcy_N.htm

-U.S. Commercial bankruptcies soar, reflecting widening economic woes. Read more here-http://www.mcclatchydc.com/227/story/44717.html

THEY TOLD US SO...

-A few who predicted this mess tell us what they see coming next. Full story here-http://nymag.com/news/intelligencer/48695/

-"We are now the largest debtor nation in the history of the world. We owe $13 trillion, and we get $1 trillion further into debt every fifteen months. That's the world giving up on America."

Jim Rogers, investor, who has predicted a stock-market fall and commodities boom

-"The house next to mine in Florida sold for $105,000 in 1998, $765,000 seven years later. My guess is that it may more properly be worth around $275,000. Getting from $765,000 to $275,000, if it happens, is going to involve a lot of pain." Andrew Tobias, investment guru, who has warned of a real-estate bubble since 2002

-"The American consumer is toast. We're talking a multiyear adjustment, at least two or three years, maybe more. Does that mean America is over? Does that mean we have a whole new world order? The jury's out on that." Stephen Roach, former chief economist at Morgan Stanley, who in 2004 warned of impending economic "Armageddon"

-"I think we are maybe 10 percent into this crisis. The economic distortions have been building for longer than we've seen in the history of the world. Never have we had such confidence falsely placed in a reserve currency." Ron Paul, former presidential candidate, who advocates a return to the gold standard

NOURIEL ROUBINI-THE COMING SYSTEMIC BUST OF THE U.S. BANKING SYSTEM

-Roubini: The Coming Systemic Bust of the U.S. Banking System. Read more here-http://www.rgemonitor.com/roubini-monitor/253053/the_coming_systemic_bust_of_the_us_banking_system_dead_stocks_rallying

-Roubini: Bear Market Only Half Over, But It's Not Armageddon. Watch video here-http://finance.yahoo.com/tech-ticker/article/41229/Roubini-Bear-Market-Only-Half-Over-But-It

-Roubini: More Than $1 Trillion Needed to Solve Housing Crisis. Watch video here-http://finance.yahoo.com/tech-ticker/article/41423/Roubini-Nationalize-Housing-or-Worsening-Slump-Leads-to-Massive-Bank-Failures?tickers=FNM,FRE,XLF,WM,WB,WFC,BAC

-'They're All Toast': Roubini Says Brokers, Even Goldman, Can't Stay Independent. Watch video here-http://finance.yahoo.com/tech-ticker/article/41330/%27They%27re-All-Toast%27-Roubini-Says-Brokers-Even-Goldman-Can%27t-Stay-Independent?tickers=GS,LEH,MS,MER,JPM,BAC,C

U.S. DOLLAR-FOREIGN CURRENCY

-Dollar Advances as Paulson Voices Support for U.S. Currency. The dollar rose the most against the euro in more than two weeks as Treasury Secretary Henry Paulson voiced support for the currency and the Federal Reserve Bank of Philadelphia president said interest rates should be raised. Read more here-

http://www.bloomberg.com/apps/news?pid=20601101&sid=afqDa4y_1yXE&refer=japan

-Don't Buy the Dollar Head Fake. This week, we were treated to strong statements by both Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke about the desirability of a "strong dollar", and the intention of policy makers to pursue strategies that will enhance its value.

To the relief of many, the dollar responded to the moral support and managed a mild rally. The move is inconsequential. The harsh realities have not changed in the slightest, and the dollar is set to continue its overall decline. Read more here-http://www.321gold.com/editorials/browne/browne071708.html

-Eleven years after the Asian financial meltdown, economists warn of another possible currency crisis. Read more here-

http://www.reportonbusiness.com/servlet/story/RTGAM.20080723.wrcurrency0723/BNStory/Business/home

INTEREST RATES

-Two Fed myths that need debunking. Bernanke & Co. do not set interest rates, and they're not about to run out of money for bailouts. Read more here-

http://money.cnn.com/2008/07/22/news/economy/sloan_fed.fortune/index.htm?postversion=2008072213

-Plosser Says Fed Should Raise Rates Sooner, Not Later. Federal Reserve Bank of Philadelphia Charles Plosser said the central bank should raise interest rates ``sooner rather than later'' to lower inflation and prevent price expectations from getting out of control. "We will need to reverse course the exact timing depends on how the economy evolves, but I anticipate the reversal will need to be started sooner rather than later,'' Plosser, who argued against cutting interest rates in two Fed decisions this year, said in a speech today in King of Prussia, Pennsylvania.

"It will likely need to begin before either the labor market or the financial markets have completely turned around.'' Plosser joins Minneapolis Fed President Gary Stern, who also votes on rate decisions this year, in making the case for raising borrowing costs, a move Fed Chairman Ben S. Bernanke avoided discussing in congressional testimony last week. Record oil prices and rising food costs this year have increased investor expectations for the Fed to raise the benchmark interest rate.

"Monetary policy cannot control changes in the relative price of a key commodity, like oil or food,'' Plosser said in prepared remarks to a breakfast hosted by the Philadelphia Business Journal. "But it can help ensure that a relative price increase doesn't turn into a rise in overall inflation.'' Stern, the longest-serving Fed policy maker, said in a July 18 interview that "we can't wait until we clearly observe the financial markets at normal, the economy growing robustly, and so on and so forth, before we reverse course.'' Read more here-http://www.bloomberg.com/apps/news?pid=20601068&sid=aXzLcq31PuJ8&refer=home

-Pimco's Paul McCulley Says Plosser Wrong on Rate Hikes. Watch video here-http://www.bloomberg.com/avp/avp.htm?N=av&T=Pimco%27s%20Paul%20McCulley%20Says%20Plosser%20Wrong%20on%20Rate%20Hikes&clipSRC=mms://media2.bloomberg.com/cache/vg95BaZ6AkMo.asf

-N.Z. Cuts Key Rate a Quarter Point as Economy Slows. New Zealand's central bank cut its benchmark interest rate by a quarter point to 8 percent, the first reduction in five years, saying slowing economic growth will curb inflation. The nation's currency fell.

"Economic activity is likely to remain weak over the remainder of 2008,'' Reserve Bank Governor Alan Bollard said in a statement in Wellington today. "The weaker economy is expected to reduce pressure on resources, making it more difficult for firms to pass on costs and for higher wage claims to be agreed.''

New Zealand's economy contracted in the first quarter, putting the nation on the brink of its first recession since 1998, as drought, a slumping housing market and rising credit costs stall spending. Bollard says inflation will return below the 3 percent limit of his target range within two years, which will allow him to cut borrowing costs further. Read more here-

http://www.bloomberg.com/apps/news?pid=20601087&sid=aWE7OoUzjoVg&refer=home

INFLATION-STAGFLATION

-Alberta inflation jumps 4.4%. Costly fuel means many are driving less, but rising food prices worry analysts. Read more here-

http://www.canada.com/edmontonjournal/news/business/story.html?id=609939aa-61a2-4a97-8d07-eba7ff64a443

-Canada Inflation Quickens to 3.1%, Fastest Since `05. Canada's inflation rate in June was the highest since September 2005 as energy costs surged, forcing companies such as Air Canada to raise prices. Read more here-http://www.bloomberg.com/apps/news?pid=20601082&sid=aUVt8KS0rOBg&refer=canada

-Inflation May Offset U.S. Pay Increases in '09. Read more here-http://online.wsj.com/article/SB121678057371476163.html?mod=googlenews_wsj

-Australia's Quarterly Inflation Accelerates to 1.5%. Australian inflation accelerated in the second quarter to the fastest pace in two years, adding to pressure on the central bank to leave borrowing costs at a 12- year high. The consumer price index rose 1.5 percent from the first quarter, when it gained 1.3 percent, the Bureau of Statistics said in Sydney today.

The median estimate in a Bloomberg News survey of 22 economists was for 1.3 percent. Prices gained 4.5 percent from a year earlier, the most since 2001. Read more here-

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYLcjEFnbwj4&refer=home

-Inflation shows why Australian households are hurting. Read more here-http://www.smh.com.au/news/national/inflation-shows-why-households-are-hurting/2008/07/23/1216492541106.html

-German June Producer Prices Increase Most in 26 Years. German producer prices rose at the fastest pace in 26 years in June, adding to pressure on the European Central Bank to keep interest rates high even as economic growth slows.

Prices for goods from newsprint to plastics increased 6.7 percent from a year earlier, the most since March 1982, after rising an annual 6 percent in May, the Federal Statistics Office in Wiesbaden said today. Read more here-http://www.bloomberg.com/apps/news?pid=20601068&sid=aYqXWIX2j4u8&refer=home

-Zimbabweans play the zero game. Quadrillion, quintillion, sextillion crazy numbers with lots of zeros, that independent Zimbabwean economist John Robertson found himself chewing over with colleagues in the capital Harare this week. Read more here-http://news.bbc.co.uk/2/hi/africa/7516874.stm

-The spectre of stagflation Things can only get worse. Read more here-http://www.economist.com/world/britain/displayStory.cfm?source=hptextfeature&story_id=11750900

STOCK MARKET SHORT SELLERS BETTING BIG

-Never Have So Many Short Sellers Made So Much Money. Investors worldwide are betting more than $1 trillion on a collapse in stock prices. Managers from William Ackman to Jim Rogers made a total of at least $1.4 billion in July with wagers against U.S. mortgage financiers Fannie Mae and Freddie Mac, according to data compiled by Bloomberg.

Harbinger Capital Partners staked $665 million that U.K. mortgage lender HBOS Plc would drop and Sao Paulo-based hedge-fund manager Francisco Meirelles de Andrade's short selling of Cia. Vale do Rio Doce is also paying off. More than $1.4 trillion of equities worldwide are now on loan, about a third higher than at the start of 2007, data compiled by Spitalfields Advisors, the London-based firm specializing in securities lending, show.

Almost all of that is being used to speculate that shares will fall, according to James Angel, a finance professor at Georgetown University who studies short selling. The global economic slowdown, $447 billion in bank losses and an explosion of funds that can profit from stock declines spurred the increase in short selling, helping send 22 of 23 countries in the MSCI World Index into bear markets.

"It's a huge amount of money,'' said Peter Hahn, a London- based research fellow for Cass Business School and a former managing director at Citigroup Inc. ``Shorts have come a long way. They are getting into the mainstream, and long holders need to understand the shorts are not evil.'' Read more here-http://www.bloomberg.com/apps/news?pid=20601213&sid=aNDnqybULZdo&refer=home

GM-FORD BANKRUPT? FORD 8.7 BILLION LOSS

-GM, Ford `On the Verge of Bankruptcy,' Altman Says. General Motors Corp. and Ford Motor Co., the two biggest U.S. automakers, have about a 46 percent chance of default within five years, according to Edward Altman, a finance professor at New York University's Stern School of Business.

"Both are in very serious shape and the markets reflect that,'' Altman, the creator of the Z-score mathematical formula that measures bankruptcy risk, said in an interview with Bloomberg Television. The model shows that these companies are ``on the verge of bankruptcy,'' he said. Read more here-

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=at7uOKMDbgnA

-Ford Has $8.7 Billion Loss, Shifts Away From Trucks. Ford Motor Co., the world's third- biggest automaker, posted a record quarterly loss of $8.7 billion and accelerated a shift to fuel-efficient vehicles to wean itself from money-losing large trucks.

The second-quarter deficit of $3.88 share compared with a profit of $750 million, or 31 cents, a year earlier. The figure included $8 billion in pretax writedowns for plant closings and the declining value of truck leases at Ford Motor Credit Co.

Ford said it will convert three North American truck factories to make small cars, sell more European autos in the U.S. and double production of hybrid vehicles. The revamping is a response to record gasoline prices that have ravaged sales of large pickups and sport-utility vehicles and derailed Chief Executive Officer Alan Mulally's turnaround plan. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid=akwgsY7fdLoY&refer=home

REAL ESTATE

-Sales of U.S. Existing Homes Fell to 10-Year Low. Sales of previously owned U.S. homes fell in June to the lowest level in a decade, signaling tumbling real-estate prices and consumer confidence are hurting demand.

Resales dropped 2.6 percent to a lower than forecast 4.86 million annual rate from a 4.99 million pace the prior month, the National Association of Realtors said today in Washington. The median home price dropped 6.1 percent from June last year.

The biggest housing recession in a generation, now being exacerbated by a tightening in credit and rising borrowing costs as financial losses spread, threatens to stall economic growth. Mounting foreclosures are depressing home prices even more, prompting some buyers to hold out for bigger bargains.

"People are waiting until prices hit bottom, and credit is still difficult to obtain,'' Gus Faucher, director of macroeconomics at Moody's Economy.com in West Chester, Pennsylvania, said before the report. ``We expect to see home sales fall further.'' Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid=aQZucM.VdAMA&refer=home

-U.S. home prices drop 4.8% in May. Government report also notes prices fell 0.3% April to May, seasonally adjusted; price index down nearly 5% from 2007 peak. Read more here-

http://money.cnn.com/2008/07/22/real_estate/homes_prices.ap/index.htm?postversion=2008072211

-U.K. Home Prices Drop Most Since 2002, Rightmove Says. U.K. house prices dropped in July from a year earlier for the first time since Rightmove Plc started measuring them in 2002, as the squeeze on lending pushed up the number of unsold properties to a record.

The average asking price for a home fell an annual 2 percent to 235,219 pounds ($469,544), Britain's most-used property Web site said in a statement today. On the month, prices declined 1.8 percent, the biggest drop since December. Prices increased in London by 0.3 percent from June.

House prices will fall about 10 percent this year and 6 percent in 2009, the Ernst & Young Item Club, a forecasting group which uses the same model as the Treasury, said today. Britons, laden with a record 1.4 trillion pounds of debt, are struggling to afford homes as banks curb lending and credit costs increase.

"Banks need to be careful they do not get blamed for a second crash in 20 years'' by limiting loans, Miles Shipside, commercial director of Rightmove, said in the statement. ``The `doom and gloom' attitude should be about the drastically low levels of sales which affect the wider economy.''

House prices may fall further by as much as 30 percent and unemployment will increase as the U.K. slips into a recession, Bank of England policy maker David Blanchflower said in an interview published in the Guardian today. The economy may already be contracting, the newspaper cited him as saying. Read more here-

http://www.bloomberg.com/apps/news?pid=20601068&sid=aIY_Nok2Xfrc&refer=home

-Los Angeles condo sells for $2,848 (per square foot). Candy Spelling's penthouse in Century City will have a $47-million view. Read more here-

http://www.latimes.com/news/local/la-fi-condoprice22-2008jul22,0,2752571.story

FORECLOSURE-MORTGAGE

-California foreclosures up 261% from '07 levels. Read more here-http://latimesblogs.latimes.com/laland/2008/07/cal-foreclosure.html

-California foreclosures hit 20-year high. Research firm says 63,061 homes were lost to foreclosure between April and June. Read more here-

http://money.cnn.com/2008/07/22/real_estate/calif_foreclosures.ap/index.htm

-Calif. To Be Hit Hard Among Nation's 1 Million Foreclosures. A forecast released Friday has predicted that 1 million homes will be in foreclosure nationwide by the end of the year. Read more here-http://www.knbc.com/money/16926514/detail.html

-U.S. Home Vacancies Rise to a Record on Foreclosures. The number of vacant houses hit an all-time high in the second quarter as the U.S. real estate recession pushed homeowners into foreclosure. A total of 18.6 million U.S. homes stood empty, more than at any time in history, as lenders seized a record number of properties. The figure was 6.9 percent higher than a year earlier, the U.S. Census Bureau said in a report today. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid=a_D15g491b9w

-Mortgage Writedowns to Total $1 Trillion, Gross Says. Falling U.S. home prices will force financial firms to write down $1 trillion from their balance sheets, crimping bank lending and sparking sales of assets, said Bill Gross, who manages the world's biggest bond fund. A total of $5 trillion of mortgage loans, or almost half of the nation's home loans, belong to "risky asset categories'' such as subprime and Alt-A, Gross of Pacific Investment Management Co. said in commentary posted on the firm's Web site today.

About 25 million U.S. homes are at risk of negative equity, which could lead to more foreclosures and a further drop in prices, he said. A home has negative equity when it's worth less than the mortgage with which it was bought. Read more here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a.0jQ66fMGPQ

-'Take cash and leave' says U.K. lender. A former sub-prime mortgage lender is offering an 8% discount to its borrowers if they redeem their loans. Edeus, which started up in 2006, is making the cash-back offer to 400 customers and may extend it to thousands more if it proves popular. The lender wants to get the loans off its books but can no longer find professional investors willing to buy. A spokesman admitted the idea sounded "bizarre" but it was cheaper than selling the loans in any other fashion. Read more here-

http://news.bbc.co.uk/2/hi/business/7516830.stm

-Commercial mortgage delinquencies up. Missed payments on office and retail mortgages rise in June, but remain below average. Read more here-

http://money.cnn.com/2008/07/21/real_estate/mortgage_delinquencies.ap/index.htm?postversion=2008072111

GEOPOLITICAL

-Iran to get new Russian air defences by '09. Iran is set to receive an advanced Russian-made anti-aircraft system by year-end that could help fend off any preemptive strikes against its nuclear facilities, senior Israeli defence sources said on Wednesday. Read more here-http://www.alertnet.org/thenews/newsdesk/L21512727.htm

-Ahmadinejad vows no Iran concessions in nuclear crisis. President Mahmoud Ahmadinejad on Wednesday vowed that Iran would not yield in the crisis over its nuclear drive as world powers awaited a response from Tehran to a proposal aiming to end the standoff. "The Iranian people are steadfast and will not step back an inch against the oppressive powers," Ahmadinejad told a rally in the southwestern province of Kohgelouyeh-Boyerahmad. Read more here-http://www.breitbart.com/print.php?id=080723105224.tisqv4n4&show_article=1

-Obama Says a Nuclear-Armed Iran Poses Grave Threat. Democratic presidential candidate Barack Obama said that as president he would protect Israel's security and would ``take no options off the table'' to prevent Iran from obtaining a nuclear weapon. "A nuclear Iran would pose a grave threat,'' Obama told reporters today in Sderot, Israel. ``The world must prevent Iran from obtaining a nuclear weapon.'' Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid=awbx1sfQC.cU&refer=home

-Iran May Face Further Sanctions, Brown Tells Knesset. Iran may face new sanctions unless it freezes nuclear enrichment, U.K. Prime Minister Gordon Brown said, after talks failed to resolve the stalemate between world powers and the Persian Gulf country over its atomic program. "Iran now has a clear choice to make,'' Brown said in a speech to the Knesset in Jerusalem today.

It must "suspend its nuclear program and accept our offer of negotiations or face growing isolation and the collective response not of one nation but of many nations.'' The comments added to the pressure on Iran to suspend enrichment efforts that the U.S. and European allies say are a cover for weapons development.

Secretary of State Condoleezza Rice said today that Iran cannot continue to "stall'' and has two weeks to respond to incentives to freeze enrichment or face more sanctions, Agence France-Presse reported. On July 19, European Union foreign policy chief Javier Solana said after meeting in Geneva with Iran's top nuclear official, Saeed Jalili, that Iran needs to give a clear answer within weeks to an offer of economic and diplomatic incentives.

The package was proposed by the five permanent members of the United Nations Security Council China, France, Russia, the U.K. and the U.S. plus Germany, and Solana said the world powers "did not get'' what they were looking for at Geneva. Read more here-

http://www.bloomberg.com/apps/news?pid=20601110&sid=axUFbrJlw7KE

-Israel makes arrests in alleged plot against Bush. Israel accused six Arabs on Friday of trying to set up an al Qaeda cell in Israel and said one of them had proposed attacking helicopters used during a visit by President George W. Bush. Israel's Shin Bet counter-intelligence agency said one of the suspects had used his mobile phone to film helicopters at a sports stadium in Jerusalem that was used as a landing site for Bush's delegation.

The suspect then posted queries on Web sites frequented by al Qaeda operatives, asking for guidance on how to shoot down the helicopters, the agency said in a statement. Bush visited Israel in January and again in May. Read more here-http://www.reuters.com/article/topNews/idUSN9173242220080718?feedType=RSS&feedName=topNews&rpc=22&sp=true

-Obama Calls for Greater Afghan Commitment From Europe. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid=a2z_b5Vnmjyc&refer=home

-Chertoff: European terrorists trying to enter US. European terrorists are trying to enter the United States with European Union passports, and there is no guarantee officials will catch them every time, Homeland Security Secretary Michael Chertoff said Thursday. Read more here-http://apnews.myway.com/article/20080718/D920562O1.html

-Chavez Goes Weapons Shopping in Russia Amid Arms Race. Venezuelan President Hugo Chavez heads to Moscow today to shop for air defense systems, submarines and other weaponry as Latin America's arms race quickens amid signs that his regional influence is waning. Past Venezuelan arms purchases from Russia have strengthened ties with Moscow as its rivalry with the U.S. intensifies over President George W. Bush's plans for an Eastern Europe missile defense system and other issues. Read more here-

http://www.bloomberg.com/apps/news?pid=20601109&sid=aLF7tPXrBVYE&refer=home

-Venezuela's Chavez calls for alliance with Russia. Venezuelan President Hugo Chavez, visiting Moscow to pursue weapons and energy deals, on Tuesday called for a strategic alliance with Russia to protect his country from the United States. Chavez has repeatedly accused Washington of plotting an invasion to destabilize his government, despite U.S. denials.

The alliance would mean "we can guarantee Venezuela's sovereignty, which is now threatened by the United States," Chavez told reporters shortly after his arrival in Moscow. Read more here-http://www.breitbart.com/print.php?id=D9230QC80&show_article=1

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

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