Newsroom
The GoldBugg Report – September 23, 2008
September 23, 2008
-U.S. IN “ONCE IN A CENTURY FINANCIAL CRISIS”
-Why Wall Street Hates Gold and Silver?
-”Gold is acting like it is supposed to on a flight-to-safety move.
GOLD
-Update, Gold fundamentals still pointing towards $2000+. Read more here-http://news.goldseek.com/EricHommelberg/1221231600.php
-Gold Coins, Bullion Sales Go ‘Gangbusters’ as AIG, Lehman Fall. While TV camera crews staked out American International Group Inc.’s Wall Street headquarters following its takeover by the U.S. government, Jules Karp was quietly trading gold coins in “unbelievable” numbers from his basement dealership across the street. Karp, 61, has traded physical gold, including one-ounce Canadian Maple Leafs, American Eagles and South African Krugerrands, since 1974. Demand has “hit a crescendo,” he said this week while an assistant prepared
the special packages used to send gold coins to a growing list of mail-order customers. “People are panicking right now,” said Karp, who also sources coins for the clients of Wall Street’s largest banks. “They’re afraid for their money.” The interest in bullion appears widespread. Gold sales to new clients at Blanchard & Co., the largest U.S. precious-metal retailer have jumped more than sixfold in the past three days as investors responded to the financial turmoil. “People are looking for answers,” said David Beahm, a vice president at New Orleans-based Blanchard.
“People want to protect their wealth and their assets, and gold is the best way for them to do that.” Suppliers of coins and bullion have been struggling to keep pace with the surge in demand from investors. “We’re having a hard time” making enough coins, Michael White, a spokesman for the U.S. Mint in Washington, said yesterday in an interview. “There’s very high demand across the market for gold.” Read more here-http://www.bloomberg.com/apps/news?pid=20601213&sid;=awFy4i6wSdmg&refer;=home
-John Embry: “When the gold’s all gone, the market will go nuts.” Read more here-http://www.theaureport.com/cs/user/print/na/1624
-Gold the innocent bystander to the hurricane. A leading US precious metals analyst predicts gold will jump back as fast as it has come down and reach $1,000 again this year or early next and perhaps $2,000 in the next few years. Jeffrey Nichols of American Precious Metals Advisors said, “Long-term price prospects remain as bright as ever and nothing in the recent market performance has changed our forecast of record high prices in the next few years.
We still expect to see gold back over $1,000, if not late this year, then almost certainly in the first quarter of 2009. With the right confluence of economic and geopolitical developments we could see gold as high as $1,500 or even $2,000 an ounce in the next few years and a buying frenzy, such as is often seen late in the price cycles of financial and commodity markets, could briefly take the metal much higher.” Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=62705&sn;=Detail
-Gold Will Recover from David Chapman. So with almost a crisis de jour more drastic action will be taken. Maybe another rate drop and more liquidity adding games. All of it does threaten the potential for hyper inflation. And all of that of course is positive for gold. Gold is currency. It has been for 3000 years.
The US Dollar has only been a reserve currency for 63 years and the past 37 years it hasn’t even had gold backing it. It is just paper. Would you rather own US$ a possibly bankrupt piece of paper or Gold. Protect your assets and this sell off gives you the opportunity to pick it up cheaply. Of course many will deride this. The US debt is still not a problem.
One wag said it has lots of assets so you have to net it and once you net it the debt/GDP ratio is only around 40%. Reasonable. But without the netting it is now 115%. With Britain at the level in the early 1990’s they pounded the British Pound almost into oblivion. So again would you rather own US$ or Gold. Over the past month they have been trying to tell us to own US$. Well we are not buying that dance. Read more here-http://news.goldseek.com/UnionSecurities/1221256555.php
-Gold, Sticking to a longer-term perspective buying and holding and, if resources allow, buying more on the dips is the way to go. David Galland-Read more here-
http://news.goldseek.com/GoldSeek/1221241539.php
-Gold May Rise to $950 an Ounce as Miners Lower Output. Gold may rise to $950 an ounce by the end of year as central banks and miners hold back sales and investors buy the metal as a haven against falling stock prices, London-based researcher GFMS Ltd. said.
Central bank sales will drop 46 percent in 2008, while mine supply will decline for a third year, a GFMS report showed today. Demand from investors worldwide will soar 38 percent to 778 metric tons, with purchases in east Asia more than doubling.
“We’re expecting gold to stage a powerful rally in the fourth quarter,” GFMS Chairman Philip Klapwijk said at a conference in London today. There will be ‘’significant declines in stocks, which compete with gold.” Read more here-http://www.bloomberg.com/apps/news?pid=20601012&sid;=abv6J3EnBf7s&refer;=commodities or http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=62744&sn;=Detail
-Don’t buy gold and silver ETF’s. ETF Securities products plummet up to 50% on AIG fear. Shares in ETF Securities products, which are backed by AIG, were down as much as 50% this week after US insurer was downgraded by credit agencies S&P; and Moody’s. ETFS Precious Metals dropped 50.68%, ETFS All Commodities dropped 54.7%.
On its website ETF Securities says it has assets of $7.65bn under management in exchange traded commodities. These products track commodity prices using financial instruments mainly provided by AIG-FP which are backed by AIG. Read more here-http://www.investegate.co.uk/invarticle.aspx?id=58393
-India August ETF gold collections up at 5.712 tonnes. Read more here-http://in.reuters.com/article/domesticNews/idINBOM7216720080916?rpc=401
-Contrite Sprott blames U.S. actions. But country’s best-known hedge fund manager isn’t giving up on his belief that oil and gold are headed inexorably higher.
-In emirates, people are buying gold ‘as if it’s free.’ Read more here-http://www.gata.org/node/6605
-Venezuela’s central bank may buy 15 metric tons of gold a year to develop gold investment products including coins, said Eli Sanchez, head of the gold department at Venezuela’s central bank. “Part of our function is to increase participation in the gold market,” Sanchez said in an interview in London today. “The point is, in Venezuela you don’t have the opportunity to invest in gold at this moment.”
The coins would be similar to Krugerrands in South Africa and Eagle coins in the U.S., he said, adding that Venezuela also has about 10 tons of the metal that may be used. Gold is a “very important part” of Venezuela’s monetary reserves and there are no plans to sell the metal, Sanchez said. “Gold is very correlated to the price of oil.” Venezuela holds 356 tons of gold, or about 30 percent of reserves, he said. Bloomberg
-Dr. Martin Murenbeeld of Dundee Wealth Economics in Toronto supports a bright future for gold. Read more here-http://www.jsmineset.com/cwsimages/Miscfiles/6583_DrMartinMurenbeeld.pdf
-Listen to Las Vegas conference debate on gold price manipulation. Al Korelin of the Korelin Economics Report moderated the debate on gold price manipulation between GATA Chairman Bill Murphy and Resource Investor’s Tim Wood at the Hard Assets Investment Conference in Las Vegas last Wednesday, and now audio of the debate has been posted at the GATA site here-http://www.gata.org/node/6607
SILVER
-Why Wall Street Hates Gold and Silver? There is no best-case or worst-case scenario in which I can conceive of gold and silver being losers. You can mortgage the kids and bet the farm!
Howard Ruff-Read more here-http://www.kitco.com/ind/Ruff/ruff_sep162008.html
-India’s silver imports seen surging on lower prices. Read more here-http://in.reuters.com/article/businessNews/idINIndia-35478020080915
-Jeff Christian, managing director of metals research firm CPM Group, has produced a video, posted today at Kitco, to dispute complaints that the silver market is manipulated. These complaints, Christian says, are all just unsubstantiated conspiracy stuff, and what appear on the commodities exchange as incredibly concentrated short positions are just hedges of long positions taken in other markets. Read and watch more here-http://www.gata.org/node/6617
DEFINITIONS-QUOTES-QUICK HITS
-Derivative. In finance, a security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.
Futures contracts, forward contracts, options and swaps are the most common types of derivatives. Because derivatives are just contracts, just about anything can be used as an underlying asset. There are even derivatives based on weather data, such as the amount of rain or the number of sunny days in a particular region.
Derivatives are generally used to hedge risk, but can also be used for speculative purposes. For example, a European investor purchasing shares of an American company off of an American exchange (using American dollars to do so) would be exposed to exchange-rate risk while holding that stock. To hedge this risk, the investor could purchase currency futures to lock in a specified exchange rate for the future stock sale and currency conversion back into euros. Investopedia.com
-Credit Default Swap (CDS). A swap designed to transfer the credit exposure of fixed income products between parties. The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the product.
By doing this, the risk of default is transferred from the holder of the fixed income security to the seller of the swap. For example, the buyer of a credit swap will be entitled to the par value of the bond by the seller of the swap, should the bond default in its coupon payments. Investopedia.com
-Ted Spread. The price difference between three-month futures contracts for U.S. Treasuries and three-month contracts for Eurodollars having identical expiration months. The Ted spread can be used as an indicator of credit risk. This is because U.S. T-bills are considered risk free while the rate associated with the Eurodollar futures is thought to reflect the credit ratings of corporate borrowers.
As the Ted spread increases, default risk is considered to be increasing, and investors will have a preference for safe investments. As the spread decreases, the default risk is considered to be decreasing. Investopedia.com-Money-Market Rate Jumps, TED Spread Soars on Credit Squeeze-Read more here-
http://www.bloomberg.com/apps/news?pid=20601110&sid;=aO1crPsEJ9MA
-”The government solution to a problem is usually as bad as the problem. In the case of nationalization, the government solution will only prolong the problem.” Milton Friedman
-About $2.8 trillion of market value was erased from global stocks this week. Casey Daily Resource
-”Gold is acting like it is supposed to on a flight-to-safety move. We have a global financial crisis and nobody has a clear answer. Therefore stocks, currencies and debt are being questioned and nobody wants to own a ‘paper’ asset.” Amaury Conti, of investment adviser Austin Calvert-Flavin
-”Physical demand is breaking records, mining supply continues to fall, and the economic environment is, of course, promoting safe-haven demand. The shorts are covering, the funds are buying back in, and everyone wants the safety of gold.” Brien Lundin, editor of Gold Newsletter
-”I continue to believe gold is the real money for the 21st century and think by spring 2009 we can be back above $1,000 if not sooner.” Peter Grandich
-”At this time more than any other,” John Reade, of UBS in London points out, “investors should have a proportion of their assets in gold as an insurance policy against systemic risk or governments inflating their way out of trouble. This does not mean that the gold price will necessarily go up. Gold could fall and still be a good hedge if everything else falls by more.” Casey Daily Resource
-”When you see financial contagion creeping through the system people are not confident and are going to gold,” said Jonathan Barratt, managing director of Commodity Broking Services Ltd. in Sydney. Bloomberg
-”When you’re perhaps facing a catastrophe in the U.S. financial market, investors are thinking: ‘Screw it. I’m jumping back into the old faithful’,” said Joel Crane, a metals strategist at Deutsche Bank in New York. And, “Gold’s relative value is cheap compared with the dollar,” he added. Casey Daily Resource
-”Gold after the fall may be tarnished but fundamentally nothing has changed about the metals increasingly supportive supply-demand situation,” says Jeffrey Nichols, managing director of American Precious Metals Advisors. Suggesting shaken confidence in financials should benefit gold once the selling of financial assets and commodities has run its course. “Don’t be surprised if gold’s upward ascent is just as fast and furious as has been its recent decline.” Nationalpost.com
-”There are going to be more banks that will fail,” said Matt Zeman, a metals trader at LaSalle Futures Group Inc. in Chicago. “This is the time when people want to buy gold.” London-based researcher GFMS Ltd. said gold may rise to $950 by the end of the year as central banks and mining companies hold back sales and investors buy the metal as a haven against falling equities.
Since the second quarter of 2007, banks worldwide have posted $515.5 billion in losses and writedowns related to investments in subprime mortgages. The Fed has also engineered $200 billion in takeovers for Fannie Mae and Freddie Mac, the biggest providers of financing for U.S. homes. Bloomberg
-Fund manager Charles Oliver is still bullish on gold. “I continue to think that if you go out a year from now, you’ll see gold at a much higher price than where it is today,” said the manager of the Sprott Gold & Precious Metals Fund. “I wouldn’t be surprised to see it go through $1,000 an ounce within the next 12 months. My call still stands that, in four years, it will be at $2,000 an ounce,” he said at a media briefing. Read more here-http://www.reportonbusiness.com/servlet/story/RTGAM.20080916.wrsprott16/BNStory/SpecialEvents2/home
-Several months ago, economist David Hale had a private meeting with Federal Reserve Chairman Ben Bernanke, who was trying to ward off a recession by lowering interest rates and increasing the money supply in the economy.
Hale, a Chicago-based economist for investment managers, hedge funds and multinational companies, paraphrased the Fed chairman’s response. “We have lost control,” said Hale, quoting Bernanke. “We cannot stabilize the dollar. We cannot control commodity prices.” Read more here-http://www.chicagotribune.com/business/chi-wed_oilsep17,0,4833605.story
-The bailout of AIG has exposed more than just the collapse of Casino Capitalism. It exposes the governmental system to be as much a sham as our economy has been! How is it that $85 billion can just materialize to bail out this one insurance company (insuring for the most part, opaque, enormously complicated and risky investments) without so much as a session of Congress? Where is the appropriations committee in this matter? Where were they when the Bear, Stearns/JP Morgan deal went down on a Sunday? Read more here-
http://www.smirkingchimp.com/thread/17202
RARE COLORED DIAMONDS
-Christie’s Jewels the New York Sale will offer diamonds, colored diamonds and gemstones, and together with a collection of signed jewels (Superb 20th Century Jewels from an American Collection) will include 273 lots and an expected sale of more than $35 million.
Colored diamonds rings in the sale are highlighted by a cut-cornered modified rectangular-cut fancy intense blue diamond, weighing approximately 7.02 carats, and set with a pavé-set pink diamond two-tiered surround (estimate: $3.5 million to $5 million) and a pear-shaped fancy intense purplish pink diamond, weighing approximately 5.60 carats, flanked on either side by a pear-shaped diamond (estimate: $2.6 million to $3 million.)
Jewelry from the Collection of Giselle Bündchen includes a diamond ring by Sabbadini set with a cut-cornered modified square-cut yellow diamond weighing approximately 3.35 carats, flanked on either side by a trillion-cut diamond (estimate: $15,000 to $20,000,) and a circular-cut diamond pendant weighing approximately 6.01 carats (estimate: $120,000 to $150,000.) Diamonds.net
-Add to Wedding Bill: Diamond Prices Up 9% in ‘08. Procrastinating on popping the question may turn into a more expensive proposition. The price of diamonds continues to rise as demand outpaces supply. Top-quality half-carat diamonds that’s about the average size of a nice engagement-ring stone are up 9% year-to-date, according to a study by diamond-market specialist Martin Rapaport, founder and chief executive of Rapaport Group.
In dollar terms, that top rock will now have an asking price of about $2,500. But that’s just the wholesale price. A would-be fiancé needs to head to a jewelry retailer to get it set in a ring. At the high end of the high end, the price increase is even sharper. Prices for five-carat diamonds are ahead more than 40% over the same period and have more than doubled since the beginning of last year.
Such a boulder can cost about $400,000. Again, that’s without the ring. Mr. Rapaport has been studying the economics of the diamond market for three decades. What he sees coming is what can only be described as a surge in demand while the supply response will be weak.
Global demand for polished diamonds is expected to almost double by 2016 to more than $40 billion, vastly outstripping growth in mine production, which is forecast to grow about 50% to around 20 million carats, according to Mr. Rapaport’s projections. “We have seen a historic shift in wealth oil wealth,” says Mr. Rapaport. “We have more wealthy people than ever before.” And they want diamonds, he says. Read more here-http://online.wsj.com/article/SB122126459968330631.html?mod=DMN
-Damien Hirst Bucks Financial Slump in Record Art Sale. Damien Hirst’s ”The Golden Calf” kept alive a 10-year bull run in the art market last night as collectors vied for the British artist’s works at Sotheby’s, even as global stock markets collapsed.
Hirst’s “Beautiful Inside My Head For Ever” auction in London took 70.5 million pounds ($126.6 million) with fees, led by the 10.3 million-pound preserved Charolais calf with 18-carat gold horns. The total was a record for a sale of works by one artist, said Sotheby’s, which had estimated the evening would fetch as much as 62.4 million pounds. All but two of the 56 lots sold. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=a.RlnxYprUKQ
COMMODITIES-OIL-GASOLINE
-As commodities unwind, BMO says ’sustained commodity bust is unlikely’. Despite the current financial crisis, bulk commodity pricing continues to remain strong. In fact, BMO suggests that the correction of some metals commodities may be overdone. BMO Capital Market’s Global Commodity Strategist Bart Melek said, “For many metals and bulk commodities, global
demand is expected to grow as much as 40-50% over the next decade. Since supply is constrained, the sector is projected to operate at very high utilization rates and in an elevated cost environment. As such, metals and bulk commodity prices are very well supported over the long term. In fact, BMO sees the risk to be tilted to the upside.” Read more here-
http://www.mineweb.com/mineweb/view/mineweb/en/page36?oid=62701&sn;=Detail
-Commodity stocks will become “even greater out-performers” after economic downturn BMO’s Coxe. When financials roll over, “gold and gold mining stocks should move swiftly back into favor. Inflation remains above central bank target levels in the U.S. and in many other countries across the world. Any return to pronounced weakness among the bank stocks will be strongly bullish for gold.” Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=62319&sn;=Detail
-IEA warns high oil prices could trigger global recession. Read more here-http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid;=&xml;=/money/2008/09/17/bcnoil117.xml
-Commodities and Oil from Adam Hamilton. Read more here-http://www.321energy.com/editorials/hamilton/hamilton091208.html?print=on
-Skills shortages could force up oil prices. Runaway costs and an acute shortage of skilled workers are putting future oil developments at risk and could keep upward pressure on the oil price, the chief executive of Total said yesterday.
Christophe de Margerie said that key projects planned by the French oil multinational could fall below acceptable rates of return if oil prices continued their sharp decline. The soaring cost of offshore contracting and materials and a desperate lack of engineers have forced up sharply the price per barrel at which an investment in deep-water oil and gas production becomes profitable.
In only four years the cost per barrel of big installations has tripled, according to the French company’s figures, raising questions about the viability of future large investments in the event of a continuing decline in the oil price.
According to Total, the price at which oil achieves a return of 12.5 per cent has risen from less than $20 a barrel in 2004 to $70 a barrel today. “We need a price of $70 per barrel to make it work in Angola,” Mr de Margerie said. “For heavy oil, it is not far off $90 per barrel.” Read more here-
http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article4735902.ece
-Gas prices, voters’ No. 1 concern. The high price of gasoline tops the list of economic concerns held by U.S. consumers, according to a CNN poll. Read more here-
http://money.cnn.com/2008/09/12/news/economy/econ_poll/index.htm
U.S. IN “ONCE IN A CENTURY FINANCIAL CRISIS”
-The United States is mired in a “once-in-a century” financial crisis which is now more than likely to spark a recession, former Federal Reserve chief Alan Greenspan said Sunday. The talismanic ex-central banker said that the crisis was the worst he had seen in his career, still had a long way to go and would continue to effect home prices in the United States.
“First of all, let’s recognize that this is a once-in-a-half-century, probably once-in-a-century type of event,” Greenspan said on ABC’s “This Week.” Asked whether the crisis, which has seen the US government step in to bail out mortgage giants Freddie Mac and Fannie Mae, was the worst of his career, Greenspan replied “Oh, by far.” “There’s no question that this is in the process of outstripping anything I’ve seen, and it still is not resolved and it still has a way to go,” Greenspan said. Read more here-
http://www.breitbart.com/print.php?id=080914181841.fsmkqu8s&show;_article=1 or http://www.bloomberg.com/apps/news?pid=20601110&sid;=amVkrOCQNBQs
CENTRAL BANKERS SAW CRISIS COMING
-In his first interview since retiring from Bank of Canada, David Dodge says many central bankers recognized that trouble was afoot as early as 2003, but Wall Street and other regulators didn’t listen. Read more here-http://www.theglobeandmail.com/servlet/story/RTGAM.20080912.wrdodge12/BNStory/Business/
WHO BAILS OUT THE U.S.A-FED PUMPS MORE MONEY INTO SYSTEM
-Who’ll Bail Out Uncle Sam? The U.S. National Debt, And Who Picks Up the Tab. The federal government may seem like a financial knight on a white steed riding to the rescue of big companies in trouble. The irony is that Uncle Sam’s got enormous money problems of his own.
The government is far deeper in debt than any of the companies it’s bailing out. As of this morning, the national debt stands at over $9.634 trillion. That’s trillion with a “T.” And that’s nearly $4 trillion more than it was on the day President Bush took office. This year alone, it’s costing taxpayers more than $230 billion just to pay the interest on the national debt. Read more here-http://www.cbsnews.com/stories/2008/09/17/notebook/main4455247.shtml
-New York Mayor Michael Bloomberg warned Wednesday a “next wave” of financial pain may come from overseas if foreign entities stop buying U.S. debt. Read more here-
http://news.yahoo.com/s/ap/20080917/ap_on_bi_ge/economy_bloomberg
-The Federal Reserve almost quadrupled the amount of dollars central banks can auction around the world to $247 billion in a coordinated bid to ease the worst crisis facing financial markets since the aftermath of the 1929 Wall Street crash. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=asIS6b3aIbDo&refer;=home
U.S. HEADED FOR DEPRESSION
-US Heading for a Depression? The economic slowdown in the US could lead to national bankruptcy as the government can not afford all the bailouts, and the stock markets will not bail out the US government as they are already facing a funding crisis, Martin Hennecke from Tyche said last week. Watch video here-http://www.cnbc.com/id/15840232?video=851879191&play;=1
AIG RESCUE
-Fed Takes Control of AIG With $85 Billion Bailout. The U.S. government took control of American International Group Inc. in an $85 billion bailout to prevent the bankruptcy of the nation’s biggest insurer and the worst financial collapse in history.
The Federal Reserve will provide a two-year loan, take 79.9 percent of the New York-based company’s stock and replace its management because “a disorderly failure of AIG could add to already significant levels of financial market fragility,” according to a statement by the central bank late Tuesday. Read more here-
http://www.bloomberg.com/apps/news?pid=20601087&sid;=aAkvusf5Ld7M&refer;=home
-Cerberus’ Snow Says Markets Almost ‘Frozen,’ AIG ‘Huge Blowup’. Former U.S. Treasury Secretary John Snow said credit markets are almost ”frozen” and called the government takeover of American International Group Inc. a ”huge” failure of risk management and regulation.
Snow, chairman of private-equity firm Cerberus Capital Management LP, said today in a telephone interview that capital markets are on the verge of seizing up. “Our debt markets are close to frozen” he said. ”Unless we get this fixed pretty soon, we’re in for a big, big, deep slowdown.” The economy faces a ”a tough year” in 2009 followed by a “good upward swing” in 2010, he said.
Snow said insurance companies such as AIG are so complicated and their businesses so expansive that state-by- state regulation is inadequate to oversee them. “This is a huge blowup of the risk management system,” he said. ”How could a New York regulator possibly have a vision of all the systemic risk of that company?” Read more here-
http://www.bloomberg.com/apps/news?pid=20601087&sid;=axkBHAtF70vQ&refer;=home
-Greenberg, His Firms Lost $5.8 Billion in AIG Shares This Month. American International Group Inc. former Chief Executive Officer Maurice “Hank” Greenberg saw the value of the AIG stake he controls plunge by about $5.8 billion this month as the insurer struggled to survive. Read more here-
http://www.bloomberg.com/apps/news?pid=20601087&sid;=abhhuiP.7wW4&refer;=home
-Kraft replaces AIG in Dow. Read more here-http://www.reportonbusiness.com/servlet/story/RTGAM.20080918.wkraft/BNStory/SpecialEvents2/home?cid=al_gam_mostview
LEHMAN GOES BANKRUPT
-Lehman Creditors, Shareholders May Lose Billions. Lehman Brothers Holdings Inc.’s bankruptcy filing this week is as much as 15 times larger than any other Chapter 11 case in history and may leave creditors with tens of billions in losses, lawyers said. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aX7xlKcjqYmM
-Lehman Employees Worldwide Clear Desks, Weep After Bankruptcy. Lehman Brothers Holdings Inc.’s employees worldwide are clearing their desks, waiting to hear if they’ll be paid, and starting to look for work after the investment bank filed for the biggest bankruptcy in history.
“Everyone’s talking on their cell phones, talking to headhunters,” said Duo Ai, a bespectacled 26-year-old employee in fixed income quantitative research, as he stepped outside Lehman’s Canary Wharf offices in London today. ”It’s kind of chaotic. The only question remaining is whether we will get this month’s pay check.” Read more here-
http://www.bloomberg.com/apps/news?pid=20601110&sid;=aZFrkhKYGuzQ
BANK OF AMERICA TO BUY MERRILL
-Bank of America to Acquire Merrill as Crisis Deepens. Bank of America Corp., the biggest U.S. consumer bank, agreed to acquire Merrill Lynch & Co. for about $50 billion as the credit crisis claimed another of America’s oldest financial companies.
Bank of America will pay $29 a share for New York-based Merrill in stock, 70 percent more than the Sept. 12 closing price, the company said in a statement this week. Merrill, battered by $52.2 billion in losses and writedowns from subprime-mortgage- contaminated securities, has plunged more than 80 percent from its peak of $97.53 at the start of last year.
The takeover ends 94 years of independence for Merrill and gives Charlotte, North Carolina-based Bank of America a sales force with 16,690 brokers who manage $1.6 trillion for customers. Merrill, led by Chief Executive Officer John Thain, was in danger of becoming the next subprime casualty after Lehman Brothers Holdings Inc. filed for bankruptcy court protection earlier this week. Read more here-http://www.bloomberg.com/apps/news?pid=20601082&sid;=a9O9JGOLdI_U&refer;=canada
MONEY MARKET FUND STUNNER
-Reserve Primary Money Fund Falls Below $1. Reserve Primary Fund became the first money-market fund in 14 years to expose investors to losses after writing off $785 million of debt issued by bankrupt Lehman Brothers Holdings Inc. The fund, whose assets plunged more 60 percent to $23 billion in the past two days, said the Lehman losses forced the net value of its assets below $1 a share, known as breaking the buck.
Primary Reserve, the oldest money fund in the nation, fell to 97 cents a share and redemptions were suspended for as long as seven days. Money-market funds are considered the safest investments after cash and bank deposits, and Reserve Primary’s losses come as confidence in financial markets has been shaken by the collapse of subprime mortgages, the failure of 11 U.S. commercial banks and Lehman’s bankruptcy yesterday.
The only other money-market fund to break the buck was the $82.2 million Community Bankers Mutual Fund in Denver, which liquidated in 1994 because of investments in interest-rate derivatives. “This is uncharted territory,” said Peter Crane, president of Crane Data LLC in Westborough, Massachusetts, which tracks money-market funds. “That’s certainly a stunner.” Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aycQDd9pEdCA
-Putnam Investments LLC closed its $12.3 billion institutional Putnam Prime Money Market Fund yesterday and plans to return all cash to investors. The fund, which was valued yesterday at $1 a share, experienced “significant redemption pressure,” the Boston based company said in a statement.
A drop below $1 a share, known as breaking the buck, would have exposed investors to losses. The fund had no exposure to securities issued by Lehman Brothers Holdings Inc., Washington Mutual Inc. or American International Group Inc., the company said. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=ayP4a6epihhU
-A money manager advises that the ultimate flight to quality is under way, and he cannot find Treasury bills to buy. He told me that he had to go out to December to find a T-bill that he could purchase with any yield at all, and that was well under one-tenth of a percentage point. The others, if they could be purchased at all, were available only for the amount they will be worth when they mature.
What is going on here? I suspect there is a run on money market funds, or at least the ones that do not own only super-safe assets. With the money going into Treasury funds, they must find very-short-term Treasuries to buy. Read more here-http://www.gata.org/node/6629
FED BANK INSURANCE FUND DWINDLING
-Banks are not the only ones struggling in the growing financial crisis. The fund established to insure their deposits is also feeling the pinch, and the taxpayer may be the lender of last resort. The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation’s largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday.
Treasury has already come to the rescue of several corporate victims of the housing and credit crunches. The government took over mortgage finance companies Fannie Mae and Freddie Mac, and helped finance the sale of investment bank Bear Stearns to J.P. Morgan Chase & Co. Eleven federally insured banks and thrifts have failed this year, including Pasadena, Calif.-based IndyMac Bank, by far the largest shut down by regulators.
Additional failures of large banks or savings and loans companies seem likely, and that could overwhelm the FDIC’s insurance fund, said Brian Bethune, U.S. economist at consulting firm Global Insight. “We’ve got a retail bank run forming in this country,” said Christopher Whalen, senior vice president and managing director of Institutional Risk Analytics. Read more here-http://www.gata.org/node/6618
1,000 BANKS WILL CLOSE IN U.S.
-In an exclusive interview with CNBC.com, Wilbur Ross, chairman and CEO of WL Ross & Co., says he sees possibly as many as a thousand bank closures in the coming months. And this will create opportunities for investors. “I do think a lot of the regional ones will (close), just as they did in the last savings and loan crisis in the 1990s,” Ross said. Read more here-
http://www.cnbc.com/id/26710362
IN 1932 THESE BIG BANKS DIDN’T GO BANKRUPT
-Economists and market players react to the crisis sweeping Wall Street, citing compensation for top bankers and the measures taken by policymakers.
I called this one, but I didn’t think that all these banks, and the biggest insurance company and the largest mortgage companies would go bankrupt. Even in 1932, these big banks didn’t go bankrupt. When you have about 15 years without a recession, thanks to Alan Greenspan, there’s no brake on greed. Normally, if you have a four-year cycle, the fear reduces the amount of greed.
But if you don’t have that, greed goes to an absolute excess, because everybody starts feeling there won’t be any more recessions. I certainly don’t see it getting much better unless there is inflation, because the only thing that can reinforce the values of real estate is inflation. But how do you get inflation into something everybody is selling and nobody wants to buy? The only way to do it is to print so much money that you just swamp the world with money. Stephen Jarislowsky, founder and chairman of money manager Jarislowsky Fraser Ltd., Montreal-Read more here-http://www.globeinvestor.com/servlet/story/RTGAM.20080915.wquotes0915/GIStory/
PRIVATE EQUITY NEXT TO GO?
-Private-equity boom from 2006 and 2007 is the real time bomb silently ticking away in the mind of every executive of a major bank. In those two years, inexperienced thirtysomethings with inflated egos and overblown salaries scoured the globe buying businesses about which they knew nothing, with borrowed money, at grossly inflated prices.
It was an unprecedented debt binge that drove global stock markets in those years, and the fallout has yet to impact on the banking system. Figures compiled by Thomson Financial show that in the year to June 30 last year, private equity firms spent $US1.06 trillion snapping up businesses. The idea was to gut them, load them up with debt and sell them into a booming stock market in 2009 and 2010 and repay the loans. That’s never going to happen now. Read more here-
http://business.smh.com.au/business/the-next-big-bang-is-private-equity-20080915-4h1g.html#
CHINA WANTS NEW WORLD FINANCIAL ORDER
-Threatened by a “financial tsunami,” the world must consider building a financial order no longer dependent on the United States, a leading Chinese state newspaper said on Wednesday.
The commentary in the overseas edition of the People’s Daily said the collapse of Lehman Brothers Holdings Inc. “may augur an even larger impending global ‘financial tsunami.’”
The People’s Daily is the official newspaper of China’s ruling Communist Party, and the overseas edition is a smaller circulation offshoot of the main paper. Its pronouncements do not necessarily directly reflect leadership views, but this commentary by a professor at Shanghai’s Tongji University suggested considerable official alarm at the strains buckling world financial markets. Read more here-http://www.gata.org/node/6620
-Crisis Exposes Flaws in U.S. Economy, Tarnishes Image. The rapid-fire rescues of financial firms may end up tarnishing America’s free-market reputation as the moves expose defects in the U.S. economy, undermining its standing with foreign buyers of the dollar and U.S. Treasury securities.
The government’s actions might add hundreds of billions to a budget deficit already expected to hit a record next year. The salvage operations, which include Tuesday’s takeover of American International Group Inc., also raise questions about the U.S. commitment to a free-market economy that, until recently, was the envy of the world. Read more here-
http://www.bloomberg.com/apps/news?pid=20601110&sid;=aXRPsaQU9ybY
INTEREST RATES
-Fed Keeps Rate at 2%, Rebuffing Call for Reduction. The Federal Reserve left its main interest rate at 2 percent, rebuffing calls by some investors for a cut after Lehman Brothers Holdings Inc.’s bankruptcy shook markets worldwide.
“Downside risks to growth and the upside risk to inflation are both of significant concern,” the Federal Open Market Committee said in a statement in Washington. ”The committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.” Read more here-
http://www.bloomberg.com/apps/news?pid=20601087&sid;=anYN2nKRb5G4&refer;=home
-China Cuts Rates as U.S. Turmoil Adds to Global Risks. China cut interest rates for the first time in six years and allowed most banks to set aside smaller reserves as worsening credit-market turmoil and weakening export demand dimmed the outlook for economic growth.
The People’s Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective Tuesday, and lowered the reserve ratio at the nation’s smaller banks by 1 percentage point. The changes were in a statement on the central bank’s Web site Monday. Read more here-
http://www.bloomberg.com/apps/news?pid=20601068&sid;=aPOjpkRwklGQ&refer;=home
U.S DOLLAR
-China may cut its dollar holdings-CICC. China, which holds a fifth of its currency reserves in Fannie Mae and Freddie Mac debt, may cut the portion held in US dollars, according to China International Capital Corp (CICC), one of the nation’s biggest investment banks. Read more here-
http://www.chinadaily.com.cn/china/2008-09/12/content_7020656.htm
-Last Gasp of a Doomed Currency from Peter Schiff. Read more here-http://www.321gold.com/editorials/schiff/schiff091508.html
S&P; 500 PLUNGE ERASES 50% OF GAINS DURING STOCK BULL MARKET
-S&P; 500 Plunge Erases 50% of Gains From Bull Market. The Standard & Poor’s 500 Index’s 26 percent drop since its October peak erased half of the gains from the five-year bull market and may signal more declines. The benchmark index for American equities, which doubled to 1,565.15 on Oct. 9, 2007, from 776.76 five years earlier, plunged 4.7 percent yesterday after the collapse of Lehman Brothers Holdings Inc. and the government takeover of American International Group Inc. pushed credit costs higher.
The drop to yesterday’s close of 1,156.39 may point to more losses, because so-called retracements of 50 percent typically precede further declines, according to some traders who look at historical prices and charts to make decisions. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=azMWSh4H1nuY&refer;=home
RUSSIAN STOCK MARKET ROUT
-Russian Emergency Funding Fails to Halt Stock Rout. Russia poured $44 billion into its three largest banks and halted stock trading for a second day in a bid to stem the most severe financial crisis since its devaluation and debt default a decade ago.
The Finance Ministry extended the repayment period on loans available to OAO Sberbank, VTB Group and OAO Gazprombank to three months from one week. The benchmark Micex stock index plunged as much as 10 percent, taking its three-day decline to 25 percent, and brokerage KIT Finance said it’s in talks with investors to sell a stake after failing to meet some obligations.
Russia’s markets are facing the biggest test since the government defaulted in 1998. The decade-long economic boom is fading, foreign investors have pulled at least $35 billion from the nation’s stocks and bonds since the five-day war in Georgia last month, and the collapse this week of Lehman Brothers Holdings Inc. and American International Group Inc. prompted a flight from emerging markets.
“I will tell my clients today to continue to abstain from buying Russian assets” until economic problems are solved, said Zina Psiola, who manages a $1 billion Russian equities fund at Clariden Leu AG in Zurich. The cost of lending has soared to a record, with the MosPrime overnight rate reaching 11.1 percent Wednesday, deterring speculative bets in equities. Russian stocks have lost more than $425 billion in value since reaching an all-time high May 17. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=ahdY8lggMSbE&refer;=home
THE DEATH OF DERIVATIVES
-Wall Street crisis: Is this the death knell for derivatives? On page 62 of last year’s accounts, under the heading “off balance sheet arrangements” Lehman had derivative contracts with a face value of $738bn. If this is the death of Wall Street as we know it, the tombstone will read: killed by complexity.
Derivatives in their baffling modern forms collateralized debt obligations, credit default swaps and so on lie at the heart of the failure of Lehman, Bear Stearns, Fannie and Freddie, and even our own Northern Rock.
The philosophy that underpins the growth of derivatives is the idea that risk can be transferred to institutions more able to take the strain. In theory, it’s a terrific scheme – the weak can get rid of risks they can’t handle, and the financial system should be stronger as a result. Read more here-http://www.guardian.co.uk/business/2008/sep/15/lehmanbrothers.wallstreet
SUBPRIME CRISIS TIMELINE
-Subprime crisis: A timeline. Hints of turmoil in the subprime mortgage market began to surface less than 2 years ago. Read more here-
http://money.cnn.com/2008/09/15/news/economy/subprime_timeline/index.htm
FED CAN BUY ALL BAD MORTGAGES
-Senate Banking Committee Chairman Christopher Dodd said the Federal Reserve can act as an “effective Resolution Trust Fund” to buy and dispose of bad debt stemming from the subprime mortgage crisis. “The Fed has the authority to move in this area,” Dodd told reporters in Washington today.
Creating a separate agency to take on bad debt, akin to the Resolution Trust Corp. set up in 1989 to absorb losses from savings and loan associations, would take about a year, he said. Instead, the Fed should use its own authority to act. “Debating whether or not you’re going to set up some new agency or bureaucracy in government is a nice point, but I don’t think we have the luxury of waiting another year,” Dodd said.
Establishing a new government bureaucracy might distract officials from addressing housing as the underlying cause of the financial crisis, Dodd said. Congress in July enacted legislation creating a Federal Housing Administration program to insure as much as $300 billion in refinanced mortgages for 400,000 borrowers at risk of losing their homes. Read more here-
HUGE OUTFLOW OF FOREIGN CAPITAL FROM U.S. IN JULY
-The Treasury international capital flows data was released yesterday detailing the numbers for July. While I was expecting some lousy data, I was stunned by just how bad it was. As you may know, they now have two ways of measuring the flows one includes long-term securities and the other includes shorter-dated instruments.
The number for the long-term securities was $6.09 billion. The number if one includes the short-term securities was a negative $74.79 billion! What makes this significant is that the trade deficit for July was -$62.198 billion.
No matter which way one measures the flows, long-term only or short-term inclusive, flows were insufficient to fund the deficit. We will have to watch this to see if a pattern develops, especially because the weak numbers were a result of widespread selling of U.S. agency debt, corporate debt, and equities. Read more here-
REAL ESTATE-FORECLOSURES
-U.S. Builders Began Work on Fewer Homes Than Forecast. Builders in the U.S. broke ground on fewer houses than forecast in August, signaling the worst housing recession in a generation will continue to weigh on growth in coming months.
Housing starts fell 6.2 percent in August to an annual rate of 895,000, the fewest since January 1991, from a revised 954,000 pace in July, the Commerce Department said in Washington. Building permits, a sign of future construction, dropped 8.9 percent to an 854,000 pace.
Builders are scaling back as stricter lending and record foreclosures swell the number of properties on the market. The housing and credit meltdowns that led to the collapse of Lehman Brothers Holdings Inc. may continue to subtract from economic growth for the rest of the year and into next.
“The home-construction industry is still in a deep recession and will remain there probably for the rest of the year,” said Patrick Newport, an economist at Global Insight Inc. in Lexington, Massachusetts, who forecast a decline to 893,000. “There are just too many houses on the market.” Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aOzf3j.mw1V0&refer;=home
-U.S. Foreclosures Hit Record in August as Housing Prices Fell. U.S. foreclosure filings rose to a record in August as falling home prices made it harder to sell or refinance homes to pay off the mortgage, RealtyTrac Inc. said. Owners of 303,879 properties, or one in 416 U.S. households, got a default notice, were warned of a pending auction or foreclosed on last month. That was the most since reporting began in January 2005.
Filings increased 27 percent from a year earlier, about half the annual pace of previous months, because of high default totals in August 2007, the Irvine, California- based seller of foreclosure data said in a statement today. “The chickens have come home to roost,” Jim Croft, founder of the Mortgage Asset Research Institute in Reston, Virginia, said in an interview.
“Real estate inflation bailed out an awful lot of bad loans.” The worst housing slump since the 1930s shows little sign of abating. Home prices in 20 U.S. metropolitan areas declined 15.9 percent in June from a year earlier, according to the S&P;/Case- Shiller index. Prices may fall another 10 percent through the end of 2009, according to analysts at Lehman Brothers Holdings Inc. Read more here-http://www.bloomberg.com/apps/news?pid=20601213&sid;=aWKdjgdwQZQI&refer;=home
-Alt-A Mortgages Next Risk for Housing Market as Defaults Surge. For Dean Nessen, the choice of a mortgage was easy. By agreeing to pay only interest for three years, the self-employed salesman didn’t have to show proof of income and landed a rate of 6.25 percent.
Now, four years later, Nessen’s industrial coatings business has gone belly up and his rate has jumped to 10.6 percent. He can’t afford the payments and may have to move his family out of their home in Commerce Township, Michigan. Read more here-http://www.bloomberg.com/apps/news?pid=20601109&sid;=arb3xM3SHBVk&refer;=home
-Gunnar Hjalmarsson, a 43-year-old journalist from Iceland’s capital Reykjavik, can’t bear to look at his mortgage statements any more. He borrowed 14.3 million kronur ($173,334) to buy a house in an inflation-linked loan four years ago and now owes 18 million kronur after consumer prices soared. “It’s like having the Mafia cut off a finger,” he says. ”Maybe it’ll be an arm when they adjust my interest rate next year.”
Hjalmarsson is typical of many consumers on the Atlantic island, where the third-highest interest rates in Europe and soaring inflation are forcing Icelanders to slash spending. That’s pushed the economy close to recession after a four-year boom. Read more here-http://www.bloomberg.com/apps/news?pid=20601109&sid;=aQRrb_mC18pw&refer;=exclusive
GEOPOLITICAL NEWS
-US a step closer to Iran blockade. The United States government has imposed new sanctions on Iran, this time targeting its shipping industry, by blacklisting the main shipping line and 18 subsidiaries, accusing the maritime carrier of being engaged in contraband nuclear material, a charge vehemently denied by Iran. Read more here-
http://www.atimes.com/atimes/Middle_East/JI13Ak01.html
-Iran boasts its forces can control the Gulf. Read more here-http://www.breitbart.com/article.php?id=080916143106.poyzy127&show;_article=1
-Iran Refuses to Cooperate on Atomic-Weapons Probe. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aSRLCHJmQyvA&refer;=home
-Ahmadinejad Says U.S. in Decline, Israel Near its End. Iranian President Mahmoud Ahmadinejad said the power of the U.S. is waning and the state of Israel will fail. “The oppressive power of the U.S. is on the decline,” Ahmadinejad said today at a news conference in Tehran, broadcast live on state television.
Ahmadinejad, who has repeatedly denied Israel’s right to exist, added, “The regime of Israel, which is the core of aggression, is nearing the end.” Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aE9.5X8DKjBE&refer;=home
-Ahmadinejad Says Iran Will Press on With Atomic Work. President Mahmoud Ahmadinejad said Iran will pursue its nuclear program, defying demands to curb the work three days after the United Nations said the country isn’t cooperating with a probe into possible weapons development. Read more here-
http://www.bloomberg.com/apps/news?pid=20601110&sid;=aK_RFK5p_hLQ
-Ahmadinejad: Israel perpetrating holocaust on the Palestinians. Read more here-http://www.jpost.com/servlet/Satellite?cid=1221489072087&pagename;=JPost%2FJPArticle%2FShowFull
-Ahmadinejad: Iran will support Hamas until collapse of Israel. Read more here-http://www.haaretz.com/hasen/spages/1020630.html
-Russia threatens to seize swathe of Arctic. Read more here-http://www.telegraph.co.uk/news/worldnews/europe/russia/2976009/Russia-threatens-to-seize-swathe-of-Arctic.html
-Russia ratchets up US tensions with arms sales to Iran and Venezuela. Read more here-http://www.timesonline.co.uk/tol/news/world/europe/article4781027.ece
© 2012, Worldwide Precious Metals Canada Ltd.
www.wwpmc.com
The GoldBugg Report – September 23, 2008
Posted by Worldwide Precious Metals on Tuesday, September 23, 2008
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