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The GoldBugg Report – September 16, 2008

September 16, 2008

In our Memo of September 10^th, 2008, we addressed several issues which led to the downward spiral of all commodities.

Over this past weekend we have witnessed the Bankruptcy of Lehman Brothers and seen Bank of America cut a deal to purchase Merrill Lynch. As we write this Memo the whole world is watching with Fear and High Anxiety that AIG may declare Chapter 11 Bankruptcy tomorrow if they are unsuccessful in securing a 70 Billion to 75 Billion Bridge loan.

AIG is the Largest Insurance Company in the World with 74 Million Customers in 130 Countries.

The failure of AIG, should this happen, and it looks like it will, will have a TIDAL WAVE Effect on the financial markets worldwide. The unfortunate part about this is that no one can predict how many companies and Banks will suffer the consequences and become insolvent overnight.

One thing is certain – Paper Assets are deteriorating and doing so with unprecedented speed.

We are still seeing liquidations in Commodities and as it relates to Gold & Silver, this is due to liquidations for cash, by all those affected by the Paper Armageddon.

These prices levels should not hold and a sharp reversal to the upside should reveal itself in the very near future as those with cash should be expected to seek out the only “Safe Harbour”.

Gold & Silver

Just remember, be pro-actively conservative and don’t overextend – This is a time to be patient, eliminate the emotions of Greed & Fear.

Trading Department – Precious Metals International, Ltd

GOLD

-Goldcorp’s chief executive said on Wednesday gold prices should rebound soon, and could nearly double to $1,500 an ounce over the next two years. “We’re going to see gold over $1000, I like to say $1500 gold over the next 18-24 month period,” Kevin McArthur, CEO of the Canadian gold senior, said at the Denver Gold Forum. McArthur said tight global supply will push gold higher soon again.

He said he was surprised at the depth of the metal’s 22 percent retreat over the past two months. “We believe we’re in a correction. We just are surprised by the quickness and amplitude of this correction,” he said. “We’re going to see gold over $1,000, I like to say $1,500 gold over the next 18-24 month period.” Read more here-

http://www.reuters.com/article/mergersNews/idUSN1044387820080910?rpc=401

-Kinross CEO Burt fires up gold investors in Denver. Tye Burt: “This is the gold business. It is cyclical. The demand fundamentals are strong. The supply fundamentals have never been better for our metal.” In a good news/bad news pep talk, Burt exhorted analysts, institutional investors, and his mining peers to “do not lose hope.” “This is the gold business. It is cyclical. The demand fundamentals are strong.

The supply fundamentals have never been better for our metal.” “Not only are major mines in Peru, South Africa and the United States slowing. Not only are new mines not coming into production whether they’re in Argentina, in Alaska, in Romania and in Venezuela. But it’s never been tougher to permit, build and finance a new gold mine.” “Global mine production in gold has been in decline for the last nine or 10 years,” Burt said. “We don’t see that stopping any time soon.”

“To me that’s symptomatic of an industry that is going to be in severe supply constraint in the not too distant future,” Burt declared. While it may be hard “to explain the difference between Comex and physical demand today,” Burt asserted that “it isn’t hard to look into the future and see a world of dramatically constrained gold production and gold supply.” Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=62207&sn;=Detail

-London’s Standard Chartered Bank says it expects most precious metals “to recover some ground in the weeks ahead,” maintaining their view that “gold prices will trend higher over the medium term.” Nevertheless, Standard Metals Analyst Dan Smith has revised down his gold forecast from $925/oz in the fourth quarter to $850/oz, and reduced his 2009 forecast from $944/oz to $875/oz.

As the gold market is being buffeted by oil and a stronger dollar, Standard expects gold prices “to trend broadly sideways through late 2008 and early 2009. Further upside is expected in late 2009.” Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=61862&sn;=Detail

-Investec: favourable long-term outlook for gold. Despite the gold price slipping to around $750 and gold shares appearing increasingly vulnerable, the long-term outlook for gold is favourable, according to Daniel Sacks, portfolio manager at Investec Asset Management.

In the short term, Sacks sees gold finding a floor at around $750 – a level below which mine closures could be expected. Longer term, he is bullish, reasoning that the factors that have propelled gold for the past 5 years remain firmly in place, while policy prescriptions for the credit crisis appear to be reflationary.

He concluded: “We believe gold will be well positioned into the final quarter of the year, when fabrication tightens the market. This does not map directly to gold prices, but prepares the ground for macro catalysts to enter. While these are impossible to forecast, with systemic financial stresses intensifying in the US and spreading to Europe and emerging markets, the probabilities favour gold.” Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=62015&sn;=Detail

-Deutsche Bank fund unit favours gold, metals, energy, agriculture. The Singapore based DWS Investments fund unit of Deutsche Bank reckons gold “incredibly important” and agribusiness a “no-brainer” for an inflation busting investment portfolio. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=62279&sn;=Detail

-Panicking out of Gold is not the answer. We have been told for the longest time that gold is a horrible investment since it pays no interest. I don’t know about you, but I will take no interest over negative interest rates any day of the week and twice on Sunday.

We therefore continue to believe that gold and silver, as well as oil and natural gas, offer the best protection against the current economic climate. When the markets finally come to their senses, those brave enough to have stuck it through should be richly rewarded. Christopher G Galakoutis-Read more here-http://news.goldseek.com/GoldSeek/1220975228.php

-Arabian investors snap up bargain gold and silver. No central bank can print gold or silver. The supply is fixed against annual production levels. And it is not hard to see that as paper currencies are destroyed by unavoidable and necessary new government borrowing then gold and silver will rise in value.

Of course, when people really understand what is going on there will be a rush into precious metals, and gold and silver will hit the roof. This last happened in the late 1970s and followed a similar cycle of a tripling of the oil price, money supply growth, inflation, a housing bust and financial collapse. History does not always repeat itself but it looks like Arabian investors have got the message right this time. Read more here-http://news.goldseek.com/GoldSeek/1220621640.php

-It is important to remember that gold’s fall in recent months is primarily a fall in terms of the recently strengthening US dollar. Gold has remained quite firm in euros and sterling as seen in the charts below. Indeed since the start of the credit crisis gold remains up some 10% in euro terms and by nearly 26% in sterling terms.

The sharp selloff in gold continues and there is increasing informed speculation that leveraged hedge funds are dumping positions in equity and commodity markets after incurring significant losses in recent weeks.

The short term trend in gold remains down but as the carnage in the financial system deepens, gold’s safe haven qualities will again come to the fore. While gold has fallen in recent weeks it is important to remember that it has fallen by far less than equity markets and property markets and has vastly outperformed those markets over the medium to long term. Gold.ie

-James Turk: Thinking like ‘Fat Tony’. Read more here-http://www.dollarcollapse.com/iNP/view.asp?ID=75

-John Embry Sept gold commentary. Read more here-http://www.sprott.com/pdf/investorsdigest/digest.pdf

-Hang Tough from Howard Katz. I am a strange bird and hard to classify. I was a gold bug starting in 1965 and held on, calling the top nicely in January 1980. Then I became a stock bug in 1982 and remained grand cycle bullish on stocks until 2007.

Meanwhile I became a gold bug again in 2002. That is what I expect to be for the foreseeable future, but when we do come to the ultimate top in gold, I think I can claim to have the best chance to call it in the market of the future as I did in the market of the past. Read more here-

http://www.kitco.com/ind/katz/printerfriendly/sep082008.html

-It’s no conspiracy: Gold is just priced right. Read more here-http://www.reportonbusiness.com/servlet/story/RTGAM.20080905.wtakingstock0906/BNStory/SpecialEvents2/home

-CFTC acknowledges possible off-market commodity price manipulation. Read more here-http://www.gata.org/node/6581

-The gold price suppression scheme made it on to worldwide television today thanks to CNBC and Martin Hennecke, senior manager of private clients at Tyche Group in Hong Kong. At about the seven-minute mark of an 8 1/2-minute interview, Hennecke began to talk about precious metals, remarking that their recent decline resulted in part from the general

deleveraging of commodity and dollar-short positions and in part from central bank efforts to suppress the gold price. Hennecke specifically cited the report published a year ago this month by Citigroup market analysts John H. Hill and Graham Wark, who wrote that central banks were “clearly” capping the gold price.

You can find that Citigroup gold report here-http://www.gata.org/files/CitigroupGoldReport092107.pdf

You can watch Hennecke’s interview with CNBC here-http://www.cnbc.com/id/26656750/site/14081545/

CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc.

SILVER

-Gold and silver remain very oversold, especially after last week’s fall in prices. Both are now screaming buys on value terms. Silver particularly so – however it has suffered significant damage technically and may fall further in the short term. The gold to silver ratio has risen sharply and is now at extremely high levels ($750-$10.50=71). Thus investors can now buy 65 ounces of silver with every one ounce of gold which is leading to a continuation in very robust and unprecedented investment demand for silver. Gold.ie

-What’s the Price of Silver? By Jason Hommel. Read more here-http://silverstockreport.com/2008/price.html

-Silver commentary from Theodore Butler & Israel Friedman. Read more here-http://news.silverseek.com/TedButler/1220986679.php

-The Rebirth of Gold and Silver from Roland Watson. Right now, the US Dollar index is pushing former support at 80. Plenty of traders and investors are selling gold and silver in anticipation that the mighty dollar gets back above 80 and back to its old ways. They may be right, but don’t bet on another dollar bull ruling the herd again.

Wave one of the 30 year silver bull is over and the wave two correction is now in force. Expect wave three to set a new all time record for silver prices. Read more here-http://news.silverseek.com/SilverSeek/1221053420.php

-One Last Decline, then the Rebound for silver and gold. Read more here-http://www.321gold.com/editorials/nichols/nichols091008.html

DEFINITIONS-QUOTES-QUICK HITS

-U.S. Treasury. Created in 1798, the United States Department of the Treasury is the government (Cabinet) department responsible for issuing all Treasury bonds, notes and bills. Some of the government branches operating under the U.S. Treasury umbrella include the IRS, U.S. Mint, Bureau of the Public Debt, and the Alcohol and Tobacco Tax Bureau.

Generally speaking, the U.S. Treasury is responsible for the revenue of the U.S. government, but here are some other key functions:

- Printing of bills, postage, Federal Reserve notes, and minting of coins
- Collection of taxes and enforcement of tax laws (through the IRS)
- Management of all government accounts and debt issues
- Overseeing U.S. banks-Investopedia.com

-Federal Reserve System FRS. The central bank of the United States. The Fed, as it is commonly called, regulates the U.S. monetary and financial system. The Federal Reserve System is composed of a central governmental agency in Washington, D.C. (the Board of Governors) and twelve regional Federal Reserve Banks in major cities throughout the United States.

You can divide the Federal Reserve’s duties into four general areas:

1. Conducting monetary policy
2. Regulating banking institutions and protecting the credit rights of consumers
3. Maintaining the stability of the financial system
4. Providing financial services to the U.S. government-Investopedia.com

-Freddie-Fannie Bailout like a pillow in front of a bulldozer. John Heinzl-Globe and Mail

-Staying the course isn’t easy in “very challenging markets,” although the rewards can be substantial. Eric Sprott

-”We are experiencing a massive hedge fund panic into the dollar, and that hurts gold,” said Ned Schmidt, editor of the Value View Gold Report. “This situation today is the capitulation of hedge funds on commodities.” Marketwatch.com

-We believe the bizarre action in the markets during July and August does not portend of a new trend. In our opinion, oil, gold, and other real assets shall remain in a bull market and the faux-rally in financials will die the death of a thousand cuts. We believe the visible hand (and not so visible hand) are everywhere trying to phony up the markets.

Apparently there is too much at stake to let the free markets decide. But logic, and history, dictates that decide they ultimately will. Eric Sprott-Read more here-http://www.sprott.com/pdf/marketsataglance/MAAG.pdf

-Gold bar shortage in Singapore and Hong Kong. Physical dealers reported a shortage in gold bars in Singapore and Hong Kong as jewellers stepped up purchases ahead of religious festivals in India, the Middle East and Southeast Asia.

Many weddings take place during the festive season in India which peaks in October with Diwali, the Hindu festival of lights. Gold jewellery forms an important part of dowry as parents prefer to give gold to their daughters for financial security. Read more here-http://www.gata.org/node/6578

-”Our upside gold targets are still valid, as soon as the currency/metal/oil corrections exhaust themselves, as all storms do.” My upside target is $1,600 in fairly short order. Harry Schultz

-Historically the only safe haven for assets during these times of economic trouble has been gold and silver. In the last 40 years silver has been considered more to be an industrial rather than a monetary metal. Thus, gold has been considered more the asset of safety.

When we broke over $850 gold we pierced the old 1980 high of $850 an ounce, we began stage 2 of a 3 or perhaps 4 stage bull market. Gold attained $1,033 in March and due to government intervention we have tested the $775-$800 range three times putting in what we see as a trading bottom. At these levels it is probably the best time to invest because you should be able to buy cheaper than in this current zone.

This could be the last inexpensive train out of the station. The current debt-based, fiat-money global economy is in the process of collapse. This monetary abomination and its accompanying manipulation will soon come to an end. No fiat currency has ever survived and when it does collapse it will be catastrophic. Bob Chapman

-”U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.

By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.” Ben Bernanke

-The real oddity is that at the same time the futures markets have been taking down gold, and especially silver, demand for the physical metals at the retail level has blown through the roof. Shops are unable to keep one-ounce coins on their shelves and no one is selling back to them, both the U.S. and Canadian mints have either suspended or severely rationed output,

India is reporting massive shortages as it heads into prime buying season, and long delivery delays for buyers of coins and small bars are universal. This is a major disconnect. So what’s going on? For the most part the mainstream pundits are ignoring this story. Casey Daily Resource

-”We are experiencing a massive hedge fund panic into the dollar, and that hurts gold,” said Ned Schmidt, editor of the Value View Gold Report. “This situation today is the capitulation of hedge funds on commodities.” That seems to be true pretty much across the board. The Reuters/Jefferies CRB Index of 19 raw materials dropped for a ninth straight session Wednesday, and is down 24% from its record high reached only a few weeks ago in July.

“Surprisingly, people have not flocked to gold as a flight to quality,” said said Matt Zeman, of LaSalle Futures Group in Chicago. “Gold is not acting like it normally would. People’s risk appetite is very low. No one is willing to step in and buy at this moment.” Actually, as we pointed out above, investors in physical metal are piling into the market, but it remains to be seen when that high level of demand begins to counter funds’ paper liquidations. Casey Daily Resource

-Michael Kosares: Six situations to monitor for the rest of 2008. Read more here-http://www.usagold.com/amk/usagoldmarketupdate090908.html

-The 65 mpg Ford the U.S. Can’t Have. Ford’s Fiesta ECOnetic gets an astonishing 65 mpg, but the carmaker can’t afford to sell it in the U.S. Read more here-

http://www.businessweek.com/magazine/content/08_37/b4099060491065.htm?chan=rss_topStories_ssi_5

RARE COLORED DIAMONDS

-Diamond professionals consider the shortage of rough supply as the most important challenge facing the diamond industry during the next five years, according to a survey conducted by Rio Tinto Diamonds. Diamonds.net

-Investment Fund Looks for Top End Diamonds. David Linsley wants Nelson Mandela to make money for him. His purchase of a 24-carat black stone named after the former South African president and Nobel laureate was the first for a specialized diamond fund his investment company will start next year, writes Michael Bleby in the Financial Times.

The “Madiba diamond,” named after Mr. Mandela’s title as a clan elder, is a rare and hard stone. Mr. Linsley fails to reveal how much he paid for it, but says it will be part of the fund his company, Sirius Investment Management, will start next year, comprising top-end diamonds each worth more than $1 million.

The fund, which he expects to give an annual return of 15-20%, will benefit from the growing pockets of very wealthy individuals in countries such as China, Russia and India. “It’s got to be the top end. That market is growing,” Mr. Linsley says. Whether Guernsey-based Sirius can make money out of an investment that has a history of disappointing has yet to be seen.

A push to invest in diamonds in the late 1970s and early 1980s drove prices to great highs and then collapsed. Even though pricing is more transparent than it was then, investors remain wary. In June, Isle of Man-based Diamond Circle Capital set out to raise $400 million in a publicly listed fund of diamonds above $1m. In July it postponed the sale without giving a reason and subsequently listed in London with a market capitalization of about $75m.

Concerns remain about liquidity of the small range. “If you target at too narrow a range of rough or polished, it inevitably creates a bubble,” says Charles Wyndham, a diamond consultant. “If you base a fund on much more bread-and-butter type articles, for example 1-carat or 50-pointer diamonds, then what you’re doing is investing in the commodity.

“If you start investing in (top quality and color diamonds), you’re investing in the halo of the commodity and not the commodity itself. You’re burnishing the halo, but with this huge potential for downside,” Mr Wyndham says. Mr. Linsley says his fund will start small, with about $20 million, and build up gradually to avoid creating a bubble. But he says a crash like that seen two decades ago is unlikely.

“You can never say it won’t happen again. But I would have thought that the demand you see out of Russia, India, China and those economies is a fundamental global shift. This is huge. These are not listed equities. You’re not going to have a whole bunch of global distressed sellers of 5-carat and 10-carat diamonds, are you?” Israelidiamond.co.il

COMMODITIES-OIL

-Leverage Hedge Funds are Major Drag on Commodities. Leveraged hedge funds are selling billions of dollars worth of commodities investments to meet their redemption demands, and this is another severe short- term factor driving down prices. Our funds own similar stocks, and thus we are caught up in this powerful force that some have described as a “mechanical sell-off” by hedge funds and banks that need liquidity.

Adding to the downward pressure are other rumors that “rogue” hedge funds are attacking like sharks when blood is in the water. These predators are allegedly aggressively short-selling the stocks that are in the portfolios of their vulnerable peers, which sends prices even lower. These hedge fund sharks don’t care about fundamentals or portfolio turnover; they’re just short-term traders hungry for a quick profit. Read more here-http://news.goldseek.com/GoldSeek/1221074991.php

-Study blames speculation for oil’s rise. Investors put $60B into oil futures during the first five months of the year as prices jumped as high as $145 by July, since then withdrew $39B. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=a2iltjOtTeaw

-Index Traders Cut Oil Positions This Year, CFTC Says. Commodity index traders accounted for 13 percent of Nymex oil trading, with their positions declining by 45,000 contracts in the first six months of the year, U.S. regulators said.

The data, the first on swap dealers published by the Commodity Futures Trading Commission, may call into question claims that index investors have pushed prices to records this summer. In response to the report, the agency is calling for new classification of certain speculators, new reporting from over the-counter markets and greater transparency in the markets. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aIA.U.WwSJsY&refer;=home

-OPEC agrees to curb oil overproduction. Ministers of oil producing nations announce that they will cut back 520,000 barrels a day in overproduction of crude to avoid more energy turmoil. Read more here-http://money.cnn.com/2008/09/10/news/economy/bc.opecmeetingtops.ap/index.htm

-Oil analyst sticks with $200 target Growing world demand backs prediction. Read more here-http://www.canada.com/edmontonjournal/news/business/story.html?id=d97bdc53-706f-4574-a2d7-30529bfc7868

-Global oil demand to fall lowest in 6 years, IEA predicts. Read more here-http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid;=&xml;=/money/2008/06/10/bcniea110.xml

DON COXE-COMMODITY SELL OFF NO ACCIDENT

-To hear Donald Coxe tell it, the commodity selloff ripping through Canada’s stock market is no accident. It is the result of a deliberate, brilliantly executed plan hatched at the highest levels of the U.S. Federal Reserve and Treasury. To understand why commodities are plunging now you have to go back to mid-July, when the U.S. Federal Reserve and Treasury announced steps to support mortgage giants Fannie Mae and Freddie Mac.

The move, which led to the Treasury taking control of Fannie and Freddie this week, touched off a chain-reaction of market events that culminated with the wrenching decline in commodities. According to Mr. Coxe, the Fed’s goal was to trigger a rally in financial stocks, which would, in theory, help banks hammered by the credit crisis raise fresh capital and repair their balance sheets.

To accomplish this, the decision to support Fannie and Freddie was deliberately announced on a Sunday, which had the effect of maximizing the reaction from thinly traded financial stocks on overseas markets. Because many hedge funds were using massive leverage to short financials and go long on commodities, when North American markets opened and banks initially rallied, the funds were forced to cover their short positions. At the same time, the U.S. dollar was rallying because the risk of holding Fannie and Freddie paper had diminished.

The rising dollar, in turn, made commodities less attractive, giving funds that were already scrambling to cover their financial shorts another reason to dump oil, grains, and other commodities. The losses were swift and dramatic. On the Friday before the July 11 announcement, crude oil closed at $145.18 a barrel. Over the following five days, it plunged 11 per cent. “Leverage was being unwound dramatically,” Mr. Coxe said on a conference call last week.

“We had a true panic.” As oil and other commodities were tumbling, fears about the slowing global economy were mounting, giving resources another push downhill. This was also in keeping with the Fed’s wishes, because lower commodity prices would help quell fears about inflation. Mr. Coxe has no proof that the Fed and Treasury acted in concert to boost financials and sink commodities.

He is basing his assertions on conversations with hedge fund managers and on years of watching financial markets. “There’s no doubt whatever in my mind” about what happened, he says. The future is less certain, however. Now that Freddie and Fannie have been nationalized, the credit crisis is still very much alive and financial stocks are looking as shaky as ever. As for commodities, once the current storm passes, Mr. Coxe is confident they will recover. Read more here-http://www.gata.org/node/6574

FANNIE-FREDDIE RESCUE

-U.S. Takeover of Fannie, Freddie Offers `Stopgap’. The U.S. Treasury’s takeover of Fannie Mae and Freddie Mac is aimed at keeping the companies going into 2009, while leaving the next president and Congress to decide their long-term structure. Read more here-http://www.bloomberg.com/apps/news?pid=20601068&sid;=aWg_UqhhCrYU&refer;=home

-Hank Paulson’s effort to prop up Fannie Mae and Freddie Mac has various beneficiaries but few gain more than foreign investors. Read more here-http://www.gata.org/node/6568

-China frets at US risk after Fannie/Freddie bailout. The U.S. Treasury’s takeover of Fannie Mae and Freddie Mac is good news in the short term for China, the biggest holder of the giant mortgage lenders’ debt, but Beijing’s huge U.S. exposure still poses a serious risk, a prominent government researcher said on Monday. Read more here-

http://www.guardian.co.uk/business/feedarticle/7781955

-Taxpayers take on trillions in risk in Fannie, Freddie takeover. Read more here-http://www.usatoday.com/money/economy/housing/2008-09-07-fannie-freddie-plan_N.htm

-Fannie Raises $7 Billion in Largest Single Debt Sale. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aF1ppB.rPlMo

-The Bill Gross-managed Pimco Total Return fund reaped a $1.7 billion payday following the US government takeover of home loan giants Fannie Mae and Freddie Mac. Read more here-http://www.gata.org/node/6571

U.S. POISED TO GRAB MORE FINANCIAL REINS

-While the government takeover of Fannie Mae and Freddie Mac represents the most powerful federal intervention in financial markets in decades, there are likely to be further government moves ahead. Federal officials are looking at how to tighten regulation of the credit-card industry and whether to double loans to bail out the auto industry to $50 billion.

In the coming years, they will examine how to regulate greenhouse-gas emissions from industries across the economy and how to remake the mortgage giants so they no longer can run up enough debt to threaten the economy.

The latter could involve creating yet another government entity to carve up Freddie’s and Fannie’s assets and sell them to investors. “Freddie and Fannie have been de-facto nationalized, at least for a while,” said former Federal Reserve official Ted Truman. “But we don’t know what will replace them.” Read more here-http://www.gata.org/node/6561

LEHMAN BROTHERS-WASINGTON MUTUAL

-Lehman suffers nearly $4 billion loss. Wall Street firm reveals major restructuring: spin-off of commercial real estate assets and plan to sell stake in investment management division. Read more here-http://money.cnn.com/2008/09/10/news/companies/lehman/index.htm

-Lehman Shares Plummet After Analysts Cite Rating Risk. Lehman Brothers Holdings Inc., this year’s worst-performer on the Standard & Poor’s 500 Index, fell as much as 46 percent after four analysts said they cut their recommendations because the firm’s credit rating may be lowered. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=alIffXk3Sb2I

-Lehman Said to Be in Discussions About Potential Sale. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=a5UcJOBnEwT0&refer;=home

-Soros Loses at Least $120 Million From Lehman Stake. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aZr03EdAhuqg

-Washington Mutual tumbles 30 percent to 17-year low. Read more here-http://news.yahoo.com/s/nm/20080910/bs_nm/washingtonmutual_dc

-Ladenburg Thalmann banking analyst Richard Bove expects Washington Mutual will lose $40 billion on its loan portfolio over the next three years and continues to include WaMu on his list of top 12 banks and thrifts at greatest risk of failing. “The future of the company is questionable” if the economy continues to weaken, Bove told The Wall Street Journal. Read more here-http://moneynews.newsmax.com/streettalk/washington_mutual/2008/09/09/129155.html

-WaMu Sees $4.5 Billion Loan-Loss Provision in Quarter. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=ab7A9dOdzUGY&refer;=home

VOLCKER SAYS FINANCIAL SYSTEM IS BROKEN

-Volcker Says Finance System `Broken,’ Losses May Rise. Former Federal Reserve Chairman Paul Volcker said the U.S. financial system, dependent upon securitization rather than traditional bank loans, is broken, and may contribute to the weakest expansion since the 1930s.

“This bright new system, this practice in the United States, this practice in the United Kingdom and elsewhere, has broken down,” Volcker said today at a banking conference in Calgary. “Growth in the economy in this decade will be the slowest of any decade since the Great Depression, right in the middle of all this financial innovation.”

The former Fed chief projected “a lot” more losses from the collapse in the mortgage-backed debt market, after the more than $500 billion tallied so far, should the U.S., European and Japanese economies fail to pick up. He urged changes in financial regulations, echoing calls among sitting officials and legislators.

“It is the most complicated financial crisis I have ever experienced, and I have experienced a few,” said Volcker, who has endorsed Democratic presidential candidate Barack Obama. Volcker ran the Fed from 1979 to 1987, and engineered an increase in interest rates to 20 percent to quell inflation that exceeded 10 percent. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=auKCKTSSU7yE&refer;=home

U.S. SENATOR SAYS PAULSON SHOULD RESIGN-JIM ROGERS SAYS BAILOUT MAKES U.S. COMMUNIST COUNTRY

-Senator Bunning Says Paulson Acts Like Socialist, Should Resign. Senator Jim Bunning said Treasury Secretary Henry Paulson, by rescuing Fannie Mae and Freddie Mac, is acting like China’s finance minister and both Paulson and Federal Reserve Chairman Ben S. Bernanke should step down. “I sincerely believe that Henry Paulson and Ben Bernanke should resign,” said Bunning, a Republican from Kentucky on the Senate Banking Committee. “They have taken the free market out of the free market.”

Paulson and the federal regulator for Fannie and Freddie placed the two largest U.S. mortgage-finance companies in a government-operated conservatorship on Sept. 7, ousting their chief executives and eliminating their dividends. Treasury also may purchase up to $200 billion of stock in the firms to keep them solvent.

“We no longer have a free market in the United States, we have a government controlled free market,” Bunning said in an interview. Paulson, a former chief executive officer of Goldman Sachs Group Inc., “is acting like the minister of finance in China.” Bunning, 76, criticized Paulson’s successful effort in July to obtain congressional authority to pump unlimited amounts of money into Fannie and Freddie to keep them afloat.

“When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turned out it was socialism here in the United States,” he told Paulson at a July 15 Senate Banking Committee hearing. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=alpUsTv3.upI&refer;=home

CEO: Fannie/Freddie Bailout Makes America ‘More Communist than China’ Rogers Holdings chief tells CNBC Europe U.S. brand of socialism is meant only for the rich. Read more here-http://businessandmedia.org/articles/2008/20080908171808.aspx

U.S. BANKS THAT HAVE GONE BUST

-Banks That Went Bust. The credit turmoil and other factors have led to an increase in bank failures this year. Below, a table of banks that have been shut down by federal regulators. Read more here-http://online.wsj.com/public/resources/documents/info-Failed_Banks-sort.html

-FDIC chief says banks face more hard days. Read more here-http://www.heraldtribune.com/article/20080905/ARTICLE/809050330/-1/newssitemap

-Regulators last Friday shut down Silver State Bank, saying the Nevada bank failed because of losses on soured loans, mainly in commercial real estate and land development. It was the 11th failure this year of a federally insured bank.

Nevada regulators closed Silver State and the Federal Deposit Insurance Corp. was appointed receiver of the bank, based in Henderson, Nev. It had $2 billion in assets and $1.7 billion in deposits as of June 30. Read more here-http://news.yahoo.com/s/ap/20080906/ap_on_bi_ge/bank_closure_silver_state_6&printer;=1;_ylt=AiU8jjSAYBMDzbtAhgwDIC9v24cA

-More `Chaos’ Ahead for U.S. Banks, Investor Jim Rogers Predicts. U.S. financials face more “chaos” as the credit market worsens, investor Jim Rogers predicted. “Balance sheets of many of these financial institutions are still terribly impaired and there are more problems to come,” he said during a Bloomberg Television interview.

“We had the worst credit bubble in the history of the world. You don’t clean that out in a year or two or three.” The chairman of Singapore-based Rogers Holdings said he’s still betting against U.S. investment banks, even after ending his short sale of Citigroup Inc. a few weeks ago because the bank’s stock fell too low.

Citigroup shares closed at $14.56 on July 15, the lowest since 1997. The world’s largest bank by assets has rallied 25 percent since then. Rogers also called the government takeover of Fannie Mae and Freddie Mac “outrageous” and said the largest U.S. mortgage finance companies should have declared bankruptcy. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=avO28IC.6pa4&refer;=home

-Fed auctions $25B to banks. The sale of the 84-day loans is the Fed’s latest attempt to help squeezed banks recover from credit stresses. Read more here-

http://money.cnn.com/2008/09/10/news/economy/fed.ap/index.htm

U.S. FISCAL-TRADE DEBT

-America’s out of control, drowning in debt, gorging: $75 trillion and getting worse. Now we’re dumping Fannie and Freddie on America’s balance sheet. Every year we pile trillions more on future generations. Read more here-http://www.marketwatch.com/news/story/75-trillion-fright-fest-8/story.aspx?guid={1E95D857-7CB8-46AD-B26C-D3732D93FD06}&dist;=TNMostRead&print;=true&dist;=printMidSection

-Uncle Sam: $407 billion in the hole. Deficit up by $246 billion in a year. Federal agency cites ’substantial increase in spending’ and ‘halt’ in tax revenue growth. Also says it will add Fannie and Freddie to future estimates. Read more here-http://money.cnn.com/2008/09/09/news/economy/cbo_budget_update/index.htm

-Federal budget deficit rises in August. Treasury Department says deficit at all-time high through first 11 months of the budget year. The federal budget fell further into the red in August, pushing the deficit with one month left in the budget year to an all-time high.

The Treasury Department reported Thursday that the deficit through the first 11 months of this budget year totaled $483.4 billion, up 76.2% from the same period a year ago. While that set an all-time high for a budget deficit through the first 11 months of a budget year, analysts say a surplus in September will push the deficit slightly below the current record-holder for an entire year, a $413 billion deficit set in 2004. Cnnmoney.com

-U.S. Considers Bringing Fannie, Freddie on to Budget. The Bush administration is considering whether to fold Fannie Mae and Freddie Mac’s $5.2 trillion in debt into the federal budget, the White House budget office and the U.S. Treasury Department said. Read more here-http://www.bloomberg.com/apps/news?pid=20601109&sid;=adr.czwVm3ws&refer;=home

-U.S. government spending explosion. Read more here-http://online.wsj.com/article/SB122100742173517529.html?mod=rss_opinion_main

-U.S. Highway Fund Needs $8 Billion Bailout This Month. A U.S. trust fund that finances highway construction needs $8 billion from Congress by the end of next week to cover a shortfall as a drop in driving shrinks fuel-tax receipts, Transportation Secretary Mary Peters said.

The federal government will have no money in the fund by month’s end and may need to cut payments to states should Congress fail to act, Peters told reporters today on a conference call. “The cash-flow problem we face is serious,” Peters said in Washington. A “significant, precipitous drop-off” in highway travel boosted the shortfall beyond expectations, she said. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=akBu3zFzAN9g

-U.S. Trade Deficit of $62.2 Billion Exceeds Forecast. The U.S. trade deficit widened more than forecast in July as oil imports soared to a record, overshadowing gains in exports. The gap grew 5.7 percent to $62.2 billion, the largest in 16 months, from a revised $58.8 billion in June that was bigger than previously estimated, the Commerce Department said today in Washington. Total imports and exports were the highest ever. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=a0_DSyFjdC_M&refer;=home

U.S. DOLLAR

-Investor Jim Rogers Says Dollar Recovery Has ‘Ways to Go.” Read more here-http://www.bloomberg.com/avp/avp.htm?N=av&T;=Investor%20Rogers%20Says%20Dollar%20Recovery%20Has%20%60Ways%20to%20Go%27&clipSRC;=mms://media2.bloomberg.com/cache/vaaN1oL6QNro.asf

-Brazil, Argentina drop dollar for bilateral trade. Read more here-http://www.iht.com/articles/ap/2008/09/07/business/LA-Brazil-Argentina.php

INTEREST RATES

-Bank of Korea Leaves Rate at Eight-Year High of 5.25%. The Bank of Korea kept interest rates unchanged at an eight-year high today, saying inflation is likely to remain high for a “significant period.” Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aG6ZDunLsgwg&refer;=home

-New Zealand’s central bank cut its benchmark interest rate by a half point to 7.5 percent, more than expected by most economists, saying the economy is in a recession and inflation will slow. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aYEb3kBSAB4k&refer;=home

-Fed’s next move could be to lower rates. The central bank is likely to keep its key interest rate at 2% at its September 16 meeting but expectations are growing for a rate cut before year’s end. Read more here-http://money.cnn.com/2008/09/10/news/economy/fed_outlook/index.htm?postversion=2008091014

U.S. UNEMPLOYMENT

-U.S. Economy: Payrolls Drop, Unemployment at 6.1%. The U.S. lost more jobs than forecast in August and the unemployment rate climbed to a five- year high of 6.1 percent, a sign that the economic slowdown is worsening two months before Americans elect their next president.

Payrolls fell by 84,000 in August, and revisions added another 58,000 to job losses for the prior two months, the Labor Department said today in Washington. The increase in the jobless rate sent the misery index, which adds unemployment to inflation, to 11.7 percent, the highest level since 1991. Read more here-

http://www.bloomberg.com/apps/news?pid=20601087&sid;=a974fas33tuI&refer;=home

REAL ESTATE-FORECLOSURES-MORTGAGES

-Fannie, Freddie rescue won’t end housing woes. Bailout of Fannie and Freddie might lower mortgage rates but it’s unlikely to lead to a quick turnaround for the troubled housing market. Read more here-http://money.cnn.com/2008/09/08/news/economy/fannie_freddie_housing/index.htm

-U.S. Economy: Pending Home Resales Decline More Than Forecast. Fewer Americans signed contracts to purchase previously owned homes in July as harder-to-get financing kept would-be buyers from taking advantage of lower prices.

The index of pending home resales fell 3.2 percent after rising 5.8 percent in June, the National Association of Realtors said today in Washington. A separate report showed inventories at U.S. wholesalers piled up twice as fast as forecast in July as their sales slid. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aZFgAxUK63y8

-Home sales at lowest for 30 years. The slump in the UK property market continued in August, with some estate agents selling fewer than one home per week in the past three months.

The Royal Institution of Chartered Surveyors (Rics) said sales were at their lowest level since its monthly survey started in 1978.

It said the fall in prices slowed, for the fourth month in a row, but they were still much lower than a year ago. Rics said the continued shortage of mortgage funds was “stifling” buyers. Read more here-http://newsvote.bbc.co.uk/mpapps/pagetools/print/news.bbc.co.uk/1/hi/business/7604592.stm

-Ex-BOE’s Julius Opposes U.K. Home Market Intervention. Former Bank of England policy maker DeAnne Julius said Prime Minister Gordon Brown shouldn’t try to shore up Britain’s housing market even though property prices are likely to fall further.

“It would be counterproductive at this point for the government to step in and try to prevent that correction from continuing,” said Julius in an interview with BBC Radio 4’s Today program today. Home values “will probably have to fall further.”

Brown’s government is considering proposals on how to revive the country’s mortgage market as falling house prices erode support for the ruling Labour Party. A Treasury-commissioned report said in July that the Bank of England could extend its Special Liquidity Scheme helping banks hurt by the credit crisis, or Brown could guarantee mortgage-backed securities. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=amK71YKZ3bmU

-U.S. Mortgage Foreclosures, Delinquencies Reach Highs. Foreclosures accelerated to the fastest pace in almost three decades during the second quarter as interest rates increased and home values fell, prompting more Americans to walk away from homes they couldn’t refinance or sell. Read more here-

http://www.bloomberg.com/apps/news?pid=20601087&sid;=aMA9irftpUpI&refer;=home

-Senators Ask Fannie Mae, Freddie Mac to Freeze Foreclosures. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=afVQ3hywqvhE&refer;=home

GEOPOLITICAL NEWS

-Israel asks U.S. for arms, air corridor to attack Iran. Read more here-http://haaretz.com/hasen/spages/1019989.html

-Russia threatens to target US missile shield sites: reports. Read more here-http://www.breitbart.com/article.php?id=080910093546.ixowy7j5&show;_article=1

-Dubai plans $200bn canal to bypass Strait of Hormuz. Read more here-http://business.timesonline.co.uk/tol/business/markets/the_gulf/article4710599.ece

-North Korea ‘uses doubles to hide death of Kim’. Read more here-http://www.timesonline.co.uk/tol/news/world/asia/article4692472.ece

-Report: N. Korea officials deny leader Kim is ill. Read more here-http://apnews.myway.com/article/20080910/D933PLHO0.html

© 2012, Worldwide Precious Metals Canada Ltd.
www.wwpmc.com

The GoldBugg Report – September 16, 2008
Posted by Worldwide Precious Metals on Tuesday, September 16, 2008

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