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The GoldBugg Report – December 23, 2008

December 23, 2008

WORLD FINANCIAL REPORT ON RADIO DEC 18 2008 SHOW

-PRESERVING YOUR PERSONAL WEALTH

-Gold is money; therefore a hedge against inflation and deflation.

-Silver investigation: CFTC does U-turn.

PRESERVING YOUR PERSONAL WEALTH

-Driven by low interest rates and easy credit, businesses and consumers have been taking on excessive leverage and ignoring downside risk. That same leverage is now being unwound and financial asset prices are falling dramatically. In this extraordinary environment, preserving your personal wealth becomes priority one. Or, in other words, return of capital and not return on capital is priority one.

There are three key courses of action available to those who wish to safeguard their portfolios from further damage. The first is to bolster portfolio diversification beyond stocks, bonds and cash (the three traditional asset classes). The second is to understand the true size and cost of inflation and fully hedge against it. The third is to recognize where we are in the investment cycle so as to take advantage of a generational opportunity. Let’s examine these three keys in more detail.

Conclusion-Deleveraging is devastating the financial markets right now, and unfortunately it is likely to get much worse.  For example, a financial institution with a net worth of $30 billion and assets of $600 billion can become insolvent if the value of its assets fall by only 5%.  Without doubt, these are extraordinary times.  You can take prudent action to preserve your portfolio’s value during this turbulent period by including an asset that has a long history of preserving value during structural monetary problems such as the US is currently experiencing. Today, preserving wealth should be priority one to accomplish this you should:

1) Bolster your portfolio by adding other asset classes, especially precious metals

2) Understand and hedge against true inflation

3) Recognize where we are in the investment cycle

Bullion preserves your wealth in both deflationary and inflationary cycles and is the only asset class that protects wealth from a systemic financial crisis. A modest allocation of 10% to 15% into precious metals bullion not only diversifies, but adds assets that keep their value because they are unaffected by the explosive growth of continually depreciating printed money from the world’s central banks.

Finally, the investment cycle, as indicated by the Dow-Gold ratio, is telling us to be overweight precious metals because true inflation is not only rising, but is substantially higher than officially reported numbers suggest. Nick Barisheff

GOLD

-”We are very reluctant to buy stocks of junior gold-mining companies that sit on a deposit that has not been turned into a mine yet,” Mr. Eveillard said. “In the extreme, if a deposit cannot be turned into a mine, then the price of gold could go to $3,000 an ounce but the stock would be worth zero.” Meanwhile, Mr. Eveillard said, First Eagle is one of the few gold funds to hold a large percentage in bullion, not relying upon exchange-traded funds.

As of this past week, 35% of the fund’s holdings were in bullion. “If you look at gold as insurance, then gold bullion is preferable to gold-mining shares,” he said, since it avoids the risks facing mining companies themselves. Mr. Eveillard said he is “extremely positive” about the longer-term prospects for gold. “What passes for the monetary system world-wide is fraying at the edges,” he said.

President-elect Barack Obama has signaled that his administration will use fiscal policy to stimulate the economy at the same time the Federal Reserve is doing the same with monetary policy. But ultimately, all of these plans are likely to prove to be inflationary, Mr. Eveillard said. And investors often buy gold as a hedge against inflation. Read more here-http://online.wsj.com/article/SB122929697856605179.html

-Interviewed Monday this week on the “Trading Day” program of Business News Network in Canada, former Federal Reserve Governor Lyle Gramley hinted that a big upward revaluation of gold may figure heavily in the Fed’s attempt to rescue the U.S. economy. The program’s guest host, Niall Ferguson, an author and history professor at Harvard, asked Gramley, now senior adviser at Stanford Group in Houston, about the seemingly grotesque expansion of the Fed’s balance sheet in recent months.

Ferguson asked: “I’ve heard it said that the Fed has turned into a government-owned hedge fund, leveraged at 50 to 1. Do you feel nervous about what this might actually do to the Fed’s reputation?” Gramley replied: “I think you have to reckon with the fact that one of the Fed’s assets is gold certificates, which are priced, as I remember, at $42 an ounce, and if we were to price them at market prices, the Fed’s leverage would look a lot less than it is now.”

While valuing the U.S. government’s claimed gold reserves at today’s Comex closing price of around $822 per ounce instead of the government antique bookkeeping entry of $42.22 per ounce would indeed vastly expand the government’s monetary assets, it might not be enough to offset the liabilities and guarantees the government lately has taken on. But the job might be done by revaluing the gold to $5,000 or $10,000 per ounce, as the British economist Peter Millar speculated two years ago might be necessary to prevent debt deflation. Story and video here-http://watch.bnn.ca/trading-day/december-2008/trading-day-december-8-2008/#clip119798 or http://www.gata.org/node/6989

-’Gold is serving its purpose as a hedge of wealth in uncertain times’ PwC. The 2008 Global gold price survey by PricewaterhouseCoopers has found, despite the global financial crisis, gold is holding its own. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=75025&sn;=Detail

-Gold is money; therefore a hedge against inflation and deflation. Gold is money. Real money maintains its purchasing power. Real money is a hedge against inflation (increase in credit and paper money supply) and its effects as well as deflation (decrease in credit and paper money supply) and its effects. Gold is a hedge against inflation and deflation otherwise it would not be real money. Hubert Moolman-Read more here-http://www.321gold.com/editorials/moolman/moolman121508.html

-Gold has rallied nicely off dollar weakness and continuing strong physical buying. The “Talking Heads” on TOUT-TV (CNBC) can knock gold all they want (and they do) but it has held its value through 2008. I bet these salespeople/anchor personnel wish their 401k did as good. Let’s see how well gold does when the dollar consolidates its losses. U.S. Dollar-The top I called for appears to have been put in. We can see some consolidation this week but make no mistake about it Uncle Sam’s paper is only going to get cheaper in 2009. Peter Grandich

-The U.S. Treasury bill bubble is soon to lose its luster, tarnished by chronic near 0% offered yields. Its supply requirements will lead to exhaustion. The investment community will seek an alternative in gold, especially when all cylinders will be fired up to produce inflation.

The policy makers are inching toward the inevitable decision to nationalize mortgages. By summertime, a panic will enter the picture, which will motivate a movement into gold for safe haven. The COMEX gold fireworks should light up the skies long before July Fourth. Jim Willie CB-Read more here-http://www.321gold.com/editorials/willie/willie121608.html

-Goldman raises gold and silver forecasts on anticipated dollar weakening. Goldman Sachs is raising its gold and silver price forecasts in line with its economists’ expectations on weaker dollar outlook and as havens from risk. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=75048&sn;=Detail

-Got Gold Report By Gene Arensberg. Read more here-http://www.resourceinvestor.com/pebble.asp?relid=48705

-David Chapman, Gold Looking Up Again. Read more here-http://news.goldseek.com/UnionSecurities/1229533536.php

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

-Sprott Resource Corp. announced today that it has acquired during this quarter 40,475 ounces of gold bullion and 852,478 ounces of silver bullion. The balance of SRC’s working capital is in short-term government of Canada treasury bills. “We intend to continue to look for attractive investment opportunities to allocate our capital while working on building accretive businesses,” said Kevin Bambrough, President and CEO of SRC.

“In the interim, we feel it is prudent to allocate a portion of our working capital into gold and silver bullion. We may allocate a larger portion into gold and silver, or other physical commodities, in the future depending on market conditions.” Kevin Bambrough continued: “Current yields on short-term government debt are approaching, and in certain cases have reached, zero percent. This is occurring while governments are assuming liabilities and issuing debt at an unprecedented rate.

We believe this situation is not sustainable over the longer-term and that global creditors will begin to hoard hard assets, in particular gold and silver, rather than purchase government debt that offers little nominal yield and is subject to a loss in real value as currencies are debased.” Read more here-

http://finance.yahoo.com/news/Sprott-Resource-Corp-cnw-13832038.html

-Richard Russell, the last man standing is gold. Read more here-http://www.321gold.com/editorials/russell/russell121708.html

-Adrian Douglas: The gold rush is on. My unique analysis methods at www.mareketforceanalysis.com indicate that gold and silver are at very good buy points. Gold and silver are selling for almost their cost of production, so the downside is severely limited because no commodity can trade below its cost of production for very long because producers go out of business, thereby reducing supply, which increases the price. Read more here-http://www.gata.org/node/6997

-Nervy investors spur rush at Swiss gold refiners. “I have been in the gold business for 30 years and I have never experienced anything like this,” said Bernhard Schnellmann, director for precious metal services at the refiner Argor-Heraeus, one of the world’s three largest.

“Production has dramatically increased since the middle of the year. We cannot cope with demand,” said Schnellman, wearing a gold watch on his wrist. Spot gold hit a record $1,030.80 an ounce on March 17. It fell below $700 in late October, partly because investors sold their holdings to cover losses in equity and bond markets hit by the credit crisis, and is now around $870 an ounce.

The trigger for the price to rise again could come from a much weaker dollar, making gold cheaper for holders of other currencies, and a renewed aversion to paper assets as governments and central banks pump large amounts of cash into the economy, stoking inflation. Read more here-http://www.reuters.com/article/marketsNews/idINLI46181820081217?rpc=44 or http://www.gata.org/node/6995 or http://www.swissinfo.ch/eng/front/Financial_crisis_boosts_Swiss_gold_production.html?siteSect=105&sid;=10089914

-Doug Pollitt on the possibly imminent end of paper gold. Read more here-http://www.kitco.com/reports/PositiveCarry-Dec09-08.pdf

-Antal Fekete: Backwardation that shook the world. Read more here-http://www.24hgold.com/news-gold-silver-Backwardation-That-Shook-The-World.aspx?langue=en&articleid;=353789_Antal_E__Fekete

-James Turk: More on gold backwardation. Read more here-http://www.kitco.com/ind/Turk/turk_dec122008.html

-In his “Midas” commentary at LeMetropoleCafe.com, GATA Chairman Bill Murphy announced his plans to meet in Washington shortly with Commodity Futures Trading Commission member Bart Chilton and U.S. Rep. Ron Paul to discuss the manipulation of gold and silver prices. Read more here-http://news.goldseek.com/LemetropoleCafe/1229325360.php

SILVER

-I’m actually now in a situation where I like silver, platinum, palladium and the other platinum group metals as well as gold. I like silver for a couple of reasons. One is it’s a financial asset like gold, it is benefiting from the move of investors into silver and gold, and it will continue to benefit from that. But you’ll also see several other things. First off, there is not a lot of metal in the silver market, half a billion ounces in bullion and maybe a half a billion ounces in bullion coins.

In gold you have a billion-plus ounces that investors own and another 980 million ounces that central banks own. There aren’t those large enormous stockpiles of silver if you’re looking at it on a dollar value basis. In addition, silver is an industrial metal with some very interesting new uses coming up. It’s losing some of its traditional uses such as photography; but in other uses, such as batteries and electronics, it’s actually growing very sharply and could grow more sharply over the next few years.

So I think silver’s got a lot of good things going for it. It’s an alternative financial asset like gold. It’s a smaller, less liquid, more volatile market than gold. And it has the industrial base that gold doesn’t have. So I like silver for those three reasons. Jeffrey Christian-Read more here-http://news.goldseek.com/GoldSeek/1229452680.php

-Trace Mayer: A problem with GLD and SLV ETFs. Read more here-http://seekingalpha.com/article/110609-the-problem-with-gld-and-slv-etfs or

http://www.runtogold.com/2008/12/a-problem-with-gld-and-slv-etfs/

-Ted Butler silver commentary. Read more here-http://news.silverseek.com/TedButler/1229450490.php

-David Morgan Junk Silver or Junk Bonds? Read more here-http://news.silverseek.com/SilverInvestor/1229091883.php

-Silver investigation: CFTC does U-turn. Read more here-http://www.investegate.co.uk/invarticle.aspx?id=68374

DEFINITIONS-QUOTES-QUICK HITS

-Ponzi Scheme. A fraudulent investing scam that promises high rates of return at little risk to investors. The scheme generates returns for older investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors.

The Ponzi scam is named after Charles Ponzi, a clerk in Boston who first orchestrated such a scheme in 1919. A Ponzi scheme is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers. One difference between the two schemes is that the Ponzi mastermind gathers all relevant funds from new investors and then distributes them.

Pyramid schemes, on the other hand, allow each investor to directly benefit depending on how many new investors are recruited. In this case, the person on the top of the pyramid does not at any point have access to all the money in the system. For both schemes, however, eventually there isn’t enough money to go around and the schemes unravel. Investopedia.com-Read more here-http://en.wikipedia.org/wiki/Charles_Ponzi

-Pyramid Scheme. An illegal investment scam based on a hierarchical setup. New recruits make up the base of the pyramid and provide the funding, or so-called returns, given to the earlier investors/recruits above them.

A pyramid scheme is initiated by an individual or a company that starts recruiting investors with an offer of guaranteed high returns. As the scheme begins, the earliest investors do receive a high rate of return, but these gains are paid for by new recruits and are not a return on any real investment.

From the day the scam is initiated, a pyramid scheme’s liabilities exceed its assets. The only way it can generate wealth is by promising extraordinary returns to new recruits; the only way these returns can be paid is by getting additional investors. Invariably these schemes lose steam and the pyramid collapses. Investopedia.com-Read more here-

http://en.wikipedia.org/wiki/Pyramid_scheme

-”Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” Charles Mackay-

http://en.wikipedia.org/wiki/Charles_Mackay

-The Fed is sending a message that it will print money to an unlimited extent until it starts to see the economy expanding. William Poole, former president of the St. Louis Fed, Bloomberg, 16 December 2008

-Gold’s gains “match the fall in the dollar all the way,” said Julian Phillips, editor at GoldForecaster.com. Frank McGhee, of Integrated Brokerage Services in Chicago, threw tact to the wind, saying that, “The dollar is going to the sewer, and this is highly bullish for gold.” And he added that, “The Fed is going to put as much liquidity into the system as it takes, but at the end of the day, what’s their exit strategy? It’s a huge inflationary bubble.” Casey Daily Resource

-Brian Hicks, co-manager of the $500 million Global Resources Fund at U.S. Global Investors, said he expected gold to revisit $1,000 some time next year, driven by negative real interest rates and the massive amount of money to be injected into the system by central banks.

“At some point, the market is going to transition from an environment of concerns over deflation to an environment of concerns over inflation, and that’s the real inflection point for gold,” said Hicks. “As we get out of this period of deleveraging and risk aversion, we think that the clear winner of commodities to investors will be gold,” said Hicks of U.S. Global Investors. Reuters

-Caesar Bryan, portfolio manager of GAMCO Gold Fund, said bullion could rally against most currencies as major industrial countries fight recession using policies that should depreciate their currencies. “When confidence falters in paper currencies and other investment assets, then interest rises in gold. I think that is where we are,” said Bryan, who manages $360 fund assets. Bryan said that a U.S. rate cut to zero would lower the opportunity cost of buying gold compared to fixed income investments and that should also discouraged central banks to sell gold. Reuters

-”The U.S. will have a debt crisis next year alongside a currency crisis. The dollar is on the verge of taking a complete dive,” said David Murrin, chief investment officer at Emergent Asset Management. Murrin added the repatriation trade, in which U.S. investors bring their money home and which has lifted the dollar in recent months, was mostly done. “Gold will rally because it’s a surrogate currency, I can see it reaching its highs within 16 months,” he said.

“The monetary expansion that took place in October and November was absolutely unprecedented,” said Markus Bachmann, fund manager at Craton Capital. “You can’t go wrong by holding physical gold. You don’t need to be a gold bug or a grave dancer. If you don’t know what the world is going to look like in the future then buy gold.”

“It would be prudent to have some exposure to gold given the fiscal and monetary stimuli taking place,” said Edward Hands, a portfolio manager at Commerzbank Corporates & Markets.

“Certainly over the course of three, four, five years, you could see the gold price double quite easily,” Hands said.

“Many are afraid of leaving their money in banks,” said Sandra Conway, managing director at ATS Bullion, which sells bullion and gold coins to institutions and the retail market. “It’s difficult to quantify, but I would say our turnover over the last three months has certainly doubled compared to the previous three months,” she said. “There are people buying gold from us, who have never bought gold before. It’s tangible, something they can tuck away.” Read more here-http://uk.reuters.com/article/stocksNews/idUKLNE4BF03U20081216?rpc=401&&pageNumber;=1&virtualBrandChannel;=0

-”It makes sense to me that we would go through a period of deflation and then all this liquidity out there will cause an inflation ,” says John Carter, president of Tradethemarkets.com. Inflation will rear its ugly head in late 2009,” pushing gold to $1,250 by midyear, he says. The wild card would be an Eastern European country going into default, as Iceland and Hungary have. ResourceInvestor.com

-The manoeuvring of the high-profile and well-informed Dennis Gartman of the Gartman Letter. Short gold at the beginning of the week, and projecting a $620 price objective in some TV interviews, Gartman abruptly cut the entire position early on Wednesday morning a day which saw gold up some $34. Read more here-http://www.marketwatch.com/news/story/dollars-decline-drive-gold/story.aspx?guid={24A3EC6F-D960-4EEF-908A-0F87A41A4924}&dist;=msr_1

-Almost a third of hedge funds will shut or merge after the $1.5 trillion industry posted its worst ever performance this year, according to IGS Group, which advises hedge funds on raising money. “The failure rate is going to go up, the closure rate is going up, and the merger rate is going up,” IGS Chief Executive Officer John Godden said in an interview in London. “It’s going to be a 30 percent wipe out.”

The number of hedge funds more than tripled in the last decade to a record 10,233 at the end of June, according to Chicago-based Hedge Fund Research Inc. That number will likely tumble after funds dropped 18 percent in the year through November, the worst year since HFR started its Fund Weighted Composite Index in 1990. Read more here-

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

-BP Capital LLC, the money manager founded by billionaire T. Boone Pickens, said the redemption rate at its equity fund was 65 percent as the company waived the normal requirements for investors to withdraw cash. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=adtevJ0UltfM

-Heat is more likely to kill an American than an earthquake, and thunderstorms kill more people than hurricanes do, according to a U.S. “death map” published on Tuesday. Researchers who compiled the county-by-county look at what natural disasters kill Americans said they hope their study will help emergency preparedness officials plan better.

Heat and drought caused 19.6 percent of total deaths from natural hazards, with summer thunderstorms causing 18.8 percent and winter weather causing 18.1 percent, the team at the University of South Carolina found. Earthquakes, wildfires and hurricanes combined were responsible for fewer than 5 percent of all hazard deaths. Read more here-

http://www.alertnet.org/thenews/newsdesk/N16172535.htm

-Israeli Defense Minister Ehud Barak is warning that if Iran acquires a nuclear weapon, it could try to attack the United States. Barak said the world should press Iran to stop it from building nuclear weapons. He spoke at a conference of the Institute for National Security Studies at Tel Aviv University. He said, “If it built even a primitive nuclear weapon like the type

that destroyed Hiroshima, Iran would not hesitate to load it on a ship, arm it with a detonator operated by GPS and sail it into a vital port on the east coast of North America.” Indicating the possibility of a military strike, Barak said, “We recommend to the world not to take any option off the table, and we mean what we say.” Read more here-

http://www.breitbart.com/article.php?id=D954L6K83&show;_article=1

RARE COLORED DIAMONDS

-The Rare Colored Diamonds Historical Value Tracker is the perfect tool for investors to view the potential future value of a rare colored diamond based on the current market trend of a particular type of diamond. Track the potential future value of colored diamonds here-http://www.rarecoloreddiamonds.com/HistoricalValueTracker.html

-”I think diamonds could end up being thought of like they once were an emergency escape mechanism. The Jews sewed them into their hems and used them for safe passage. We’re all worried about the Banks and how we would ‘get out of Dodge’ if we had to.” Trend expert Faith Popcorn

-Bear Stearns and Lehman Brothers have disappeared and the Big Three and Citigroup hover on the edge of vanishing a diamond is forever. From Adam Hanft article De Beers: Diamonds Are a Recession’s Best Friend

-If more people bought diamonds instead of credit-default swaps, we’d be just fine now. From Adam Hanft article De Beers: Diamonds Are a Recession’s Best Friend

OIL-BASE METALS-COMMODITIES

-OPEC Agrees to Cut Output by 4.2 Million Barrels. OPEC agreed to cut oil output by 4.2 million barrels a day from September production levels, Secretary-General Abdalla El-Badri said. The Organization of Petroleum Exporting Countries will cut output from a daily level of 29.045 million barrels three months ago, indicating a new quota target of 24.845 barrels a day.

The reduction will take place from the start of next year. OPEC, which produces more than 40 percent of the world’s oil, will next meet in March. Chakib Khelil, the group’s president, said OPEC has no oil-price target.

Oil’s $100-a-barrel collapse from July’s record prices has curbed revenue for producers, threatening government budget shortfalls. Saudi Arabia’s King Abdullah said last month that his country needs crude at $75 to spur investment. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=a7Iwnj3_QVjc or http://www.bloomberg.com/apps/news?pid=20601087&sid;=ah2rPCVsI1zY&refer;=home

-Global oil supply will peak in 2020, says energy agency. Read more here-http://www.guardian.co.uk/business/2008/dec/15/global-oil-supply-peak-2020-prediction

-Merrill Oil Guru Shifts From Bull to Bear and Back. Francisco Blanch, the Merrill Lynch & Co. analyst who called the $147.27 record crude-oil price almost on the nose, sent markets into a tailspin with his forecast that the next move may be back to $25 a barrel in 2009. Such relief for consumers may be short-lived once the global recession ends, he said.

“If we reignite economic growth to a very fast level, we will have a shortage of energy again,” said the 35-year-old head of global commodity research at Merrill Lynch in London. Oil may rise to $150 in two or three years, said Blanch. World growth will reach 2.2 percent next year and rise to 4.8 percent by 2011, according to the International Monetary Fund. Read more here-http://www.bloomberg.com/apps/news?pid=20601109&sid;=ahymsSFHUJVM&refer;=home

-Long term/short term investment conflict builds certainty of metals price surge. It seems inevitable that we are in for a surge in metal prices as current financial strictures will lead to severe supply shortages medium to long term but the question is when. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=75185&sn;=Detail

INTEREST RATES-U.S. DOLLAR

-Fed Cuts Rate to Zero-0.25%, Will Use All Tools. The Federal Reserve cut the main U.S. interest rate to “a target range” of between zero and 0.25 percent and said it will do whatever is needed to end the longest recession in a quarter-century and revive credit.

The Fed “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the Federal Open Market Committee said today in a statement in Washington. “Weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.”

Treasury notes rallied in anticipation the Fed will buy the securities to force borrowing costs for consumers and companies lower. Nine rate cuts in the prior 14 months and $1.4 trillion in emergency lending have failed to reverse the economic downturn.

“The focus of the committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level,” the FOMC said.

The statement noted that the Fed has already announced it will purchase agency debt and mortgage-backed securities, and said the Fed is ready to expand the program. The central bank said it continues to weigh the potential benefits of buying longer-term Treasury securities. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aHtjzkdBhlrI&refer;=home

-Dollar May Reach $1.65 per Euro, Citigroup Says. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aJ4e6Or8EJ2I

-Clive Maund, bye bye dollar, bye bye Treasuries. Read more here-http://www.321gold.com/editorials/maund/maund121708.html

-Axel Merk, Fed Fights to Weaken Dollar. Read more here-http://www.321gold.com/editorials/merk/merk121708.html

-A majority of the world’s biggest currency-trading firms say the dollar’s appeal as a haven amid the financial crisis all but evaporated. The U.S. currency slid to a 13-year low against the yen today and the weakest versus the euro in 11 weeks after the Federal Reserve reduced its target interest rate Tuesday to a range of zero to 0.25 percent, the lowest among the world’s biggest economies.

CMC Markets said today the currency’s prospects appear “ominous.” State Street Global markets said the dollar’s outlook has been “undermined.” “The dollar has been under heavy downward pressure,” said Robert Minikin, a senior currency strategist in London at Standard Chartered Bank Plc. “This move is very well-justified and has a long way to run.” Standard Chartered is preparing to cut its dollar forecasts, Minikin said.

This weeks rate cut brings the Fed’s target to below the Bank of Japan’s for the first time since January 1993. U.S. policy makers repeated plans to buy agency debt and mortgage- backed securities and said they will study buying Treasuries, a policy known as quantitative easing. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aSmEfH_9_GxE

-The Federal Reserve today made clear its intention to continue flooding the system with newly created dollars. It says in effect that it will do whatever it takes. Its Federal Open Market Committee (FOMC) lowered the federal funds interest rate target to a range of 0%-to-0.25%, which is an historic low, but it didn’t stop there. The FOMC also announced that it would “employ all available tools” in an attempt to jumpstart the moribund economy. That means it will monetize assets of all sorts. It will turn debt into more US dollar currency.

What’s needed today is the same medicine that has over time inevitably cured every other bust. It is capital and savings, and unfortunately, they are in short supply in today’s America. But the Federal Reserve will not be deterred from pursuing the reckless path it is on. They seem to think that they can avoid the bust, and further, that the economy can emerge unscathed from years of imprudent and reckless credit extension by the banks.

History says the Fed is mistaken, but history also tells us something else. The consequences of the Fed’s actions will debase the dollar, perhaps irreparably so. It is the same message being given by the market, as indicated by the following chart of the US Dollar Index. James Turk-Read more here-http://www.goldmoney.com/en/commentary.php

CREDIT CRISIS LOSSES AT 1 TRILLION AND COUNTING

-Credit Crisis Cost Tops $1 Trillion With Morgan Stanley’s Loss. Losses and writedowns from the credit crisis surpassed $1 trillion this week, and show little sign of ending, as Morgan Stanley marked down the value of mortgages and leveraged loans.

Morgan Stanley and Goldman Sachs Group Inc.’s markdowns this week bring losses by financial firms in the U.S. to $678 billion since last year, while European banks and insurers have written down a further $300 billion, according to data compiled by Bloomberg. Firms have raised about $928 billion to replenish capital, and cut about 239,000 jobs across the industry.

The losses have caused bank failures from the U.S. and the U.K. to Germany and Iceland, forcing governments to increase borrowing and buy stakes in financial companies. The U.S. alone is spending $700 billion, almost half of which will go directly into banks and insurers, in what has become the worst financial crisis since the Great Depression.

“You’re up to $1 trillion now and this is still going to run for some time,” said Charles R. Morris, a former banker and software company executive whose book “The Trillion Dollar Meltdown” was published in March. In Sept. 2007 “the first back-of-the-envelope calculation I did came up with $1.1 trillion and this was using really low-default estimates.”

Morgan Stanley today reported fourth-quarter mortgage related losses of $1.2 billion, which were more than offset by net revenue of $2.7 billion from the widening of Morgan Stanley’s credit spreads. The firm had mark-to-market losses of $1.7 billion on leveraged loans and leveraged-loan commitments, and writedowns of $800 million on securities in the firm’s subsidiary banks. Those losses were offset by gains of $1.1 billion related to debt hedges. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=asAJjiHQgPEw

American International Group Inc., which already has suffered more than $60 billion in writedowns and losses, may have to absorb almost $30 billion more because of flaws in the way its holdings are valued.

An examination of AIG’s credit-default swaps guaranteeing more than $300 billion of corporate loans, mortgages and other assets not covered by a $152.5 billion federal rescue shows the New York-based insurer may value some of its positions at levels that don’t reflect distress in the markets, according to an analyst at Gradient Analytics Inc. and a tax consultant who teaches at Columbia University Business School in New York. Executives at two firms that have similar investments say they account for the securities differently than AIG does.

“Every time I look at their statements I find something new,” said Donn Vickrey, executive vice president of Gradient Analytics in Scottsdale, Arizona. He estimated that AIG may need to take at least $28 billion in additional writedowns on swaps covering European corporate loans and prime residential mortgages, as well as collateralized loan and debt obligations. Read more here-http://www.bloomberg.com/apps/news?pid=20601109&sid;=aNSpiZqzDc6A&refer;=home

U.S. DEFICITS TO STAY HIGH FOR SOME TIME

-The Treasury said U.S. federal budget deficits are “likely to remain elevated for some time” after costs for financial bailouts and economic stimulus exceeded $1 trillion for the first time.

An annual report showed government spending exceeded revenue by $1.01 trillion in the 12 months to Sept. 30, compared with $276 billion a year earlier, under stricter accounting methods used to calculate the shortfall.

The outlook threatens the future solvency of entitlement programs such as Social Security and Medicare, the report released in Washington said. “Net operating costs and budget deficits are likely to remain elevated for some time as the government works to restore market stability,” the Financial Report of the U.S. Government said. “If budget deficits continue, the government will have to borrow more from the public in order to make benefit payments and pay for other programs.”

Almost $340 billion of the difference between today’s report and the budget deficit came from estimate benefits yet to be paid out to veterans, the report said. Public pending soared as Congress and the Bush administration committed taxpayer funds to a $168 billion economic aid package and bailed out financial firms such as mortgage companies Fannie Mae and Freddie Mac. The $700 billion financial rescue plan was passed Oct. 3, in the 2009 fiscal year.

“Throughout this unprecedented year, the Treasury Department has worked to achieve and maintain the stability of the financial system with short-term actions, but we must not forget the long-term needs that pose a significant threat to our fiscal sustainability,” Treasury Secretary Henry Paulson said in a statement accompanying the report. “The projected costs for Medicare, Medicaid and other social programs are much greater than the resources that will be available to pay for them,” he said. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aKO_aHqzLDj8

TWO MORE U.S. BANKS SHUT DOWN

-Georgia, Texas Banks Shut as Foreclosures Rise; Toll Reaches 25. Georgia and Texas banks with $544 million in deposits were shut by state regulators, raising the failure toll to 25 for this year, as mortgage delinquencies and home foreclosures climb in a deepening U.S. recession.

Haven Trust Bank of Duluth, Georgia, was seized yesterday and sold by the Federal Deposit Insurance Corp. to BB&T; Corp. of Winston-Salem, North Carolina, which will reopen four offices northeast of Atlanta as branches on Dec. 15, the FDIC said. Sanderson State Bank was shut by Texas regulators and its assets were sold to Pecos County State Bank of Fort Stockton, which will open a single southwest Texas office Dec. 15 as a branch.

The acquisitions by BB&T;, the fifth-best performing stock in the KBW Bank Index this year, and Pecos County Bank were “the ‘least costly’ resolution for the FDIC’s deposit insurance fund,” the Washington-based FDIC said in a statement.

Regulators have closed the most banks in 15 years, and the annual total now exceeds the combined toll for the previous six years, with the collapses of Washington Mutual Inc. and IndyMac Bancorp Inc. among the biggest in history. The U.S. entered a recession a year ago and President-elect Barack Obama on Dec. 7 said the slump will worsen before a recovery begins. Read more here-http://www.bloomberg.com/apps/news?pid=20601103&sid;=a13sez1VxkgU&refer;=us or http://finance.yahoo.com/news/Fed-regulators-shut-2-banks-apf-13823673.html

SECOND MORTGAGE DISASTER COMING?

-A Second Mortgage Disaster On The Horizon? New Wave Of Mortgage Rate Adjustments Could Force More Homeowners To Default. The trouble now is that the insanity didn’t end with sub-primes. There were two other kinds of exotic mortgages that became popular, called “Alt-A” and “option ARM.”

The option ARMs, in particular, lured borrowers in with low initial interest rates so-called teaser rates sometimes as low as one percent. But after two, three or five years those rates “reset.” They went up. And so did the monthly payment. A mortgage of $800 dollars a month could easily jump to $1,500. Now the Alt-A and option ARM loans made back in the heyday are starting to reset, causing the mortgage payments to go up and homeowners to default.

“The defaults right now are incredibly high. At unprecedented levels. And there’s no evidence that the default rate is tapering off. Those defaults almost inevitably are leading to foreclosures, and homes being auctioned, and home prices continuing to fall,” investment fund manager Whitney Tilson explains. Read and watch more here-

http://www.cbsnews.com/stories/2008/12/12/60minutes/main4666112.shtml

REAL ESTATE

-U.S. homeowners may lose more than $2 trillion in the value of their properties this year, leaving about 11.7 million households owing more on their mortgages than their homes are worth, according to Zillow.com. U.S. home values dropped by $1.9 trillion this year through Sept. 30, and are likely to fall further this quarter, Zillow, a Seattle-based provider of real estate data, said in a study released today. That exceeds the $1.24 trillion lost in all of 2007, according to Zillow.

By the end of the third quarter, 14.3 percent of single- family homeowners owed more than their properties were worth, known as being under water, Zillow.com said. “Nationwide, we haven’t had a drop like this probably since the Great Depression, in terms of how much value has been taken out of the housing market,” Stan Humphries, Zillow’s vice president of data and analytics, said in an interview. “The amount of negative equity that you’re seeing out there right now is so great that it now has its own dynamic of causing people to walk away from their homes.”

The drop in home values comes amid soaring foreclosures, record job losses, and a national recession. One in 10 homeowners in the U.S. fell behind on mortgage payments or was in foreclosure during the third quarter, the Mortgage Bankers Association said this month. The number of Americans filing initial jobless claims rose to 573,000 the week ended Dec. 6, the highest level since 1982, the Labor Department said last week. Read more here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=a1UuoXwn3Azo

-U.S. builders broke ground in November on the fewest new homes since record-keeping began, signaling the housing slump will extend into a fourth year. Construction starts on housing fell 18.9 percent last month to an annual rate of 625,000 that was the lowest since the government started compiling statistics in 1959, the Commerce Department said today in Washington. Read more here-http://www.bloomberg.com/apps/news?pid=20601068&sid;=azP8gnGVza2U&refer;=economy

-Median home price in Southern California falls below $300,000. Read more here-http://www.mercurynews.com/businessheadlines/ci_11248874?nclick_check=1

-Confidence among U.S. homebuilders in December stayed at a record low and their outlook for six months ahead worsened, signs the housing recession will extend into a fourth year.

The National Association of Home Builders/Wells Fargo index of builder confidence held at 9 this month, the Washington-based association said today. A reading below 50 means most respondents view conditions as poor.

Builders’ profits are shrinking as sales slide and mounting foreclosures add to a glut of unsold properties that’s driving prices lower. Many prospective home buyers are getting turned away by mortgage lenders that are resisting government efforts to unclog credit.

“The home-buying environment is still very difficult,” Ryan Sweet, an economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “Prices will continue to decline in coming months. Foreclosures are a major problem, as they’re adding more inventory to a housing market that is already saturated.” Read more here-

http://www.bloomberg.com/apps/news?pid=20601110&sid;=aYN2fTt1vsoM

MADOFF FRAUD

-Bernard Madoff bio. Read more here-http://en.wikipedia.org/wiki/Bernard_L._Madoff

-Bernard Madoff, accused mastermind of a $50 billion investment fraud, was placed under house arrest as pressure mounted on the Securities and Exchange Commission to explain its failure to detect his financial wrongdoing for almost a decade.

Madoff, 70, will be subject to electronic monitoring and a 7 p.m. curfew while his wife, Ruth, today agreed to give up homes in Montauk, New York, and Palm Beach, Florida, if her husband flees. Madoff was arrested Dec. 11 after telling his sons that his firm was “one big lie,” the SEC said. Read more here-

http://www.bloomberg.com/apps/news?pid=20601087&sid;=a0qGtFYw_.uo&refer;=home

-Investors had at least $34 billion in funds overseen by Bernard Madoff, the money manager arrested last week in an alleged fraud, according to data compiled by Bloomberg and media reports.

Madoff, 70, told employees before his arrest last week that his firm was “a giant Ponzi scheme” that may have cost clients as much as $50 billion. The following is an alphabetical list of Madoff’s investors. Read the list here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=ahokl6pCzvOc

-Bernard Madoff’s scam that allegedly cost investors $50 billion ensnared firms from London and Paris to Tokyo. HSBC Holdings Plc, Europe’s biggest bank, has $1 billion at risk after providing financing to funds that invested with Madoff, the London-based bank said today.

Nomura Holdings Inc., Japan’s largest brokerage, has 27.5 billion yen ($302 million) of exposure to Madoff’s funds, while France’s BNP Paribas SA has as much as 350 million euros at risk, the banks said. Read more here-http://www.bloomberg.com/apps/news?pid=20601109&sid;=aVTJBQRWrvlI&refer;=exclusive

-Bernard Madoff’s alleged Ponzi scheme, which might have cost investors $50 billion, couldn’t have been carried out alone, said Arpad ‘Arki’ Busson, chairman and founder of Swiss investment firm EIM SA. “For the amount of money and number of accounts, it’s practically impossible that he was doing this alone,” said Busson, whose $11.5 billion fund of hedge funds had about $230 million invested with Madoff. “What’s mind-boggling is the amount of assets and the amount of time he was doing it.”

EIM, which manages accounts for mostly institutional clients, invested with funds that had managed accounts overseen by Madoff. EIM will likely write down its stake to zero, Busson said. Madoff was arrested Dec. 11 after he told his sons that Bernard L. Madoff Investment Securities LLC was a fraud, according to the U.S. Securities and Exchange Commission. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aodwWsCGHTFQ&refer;=home

-Bernard Madoff’s financial records were “utterly unreliable” and will take six months to sort out, said Stephen Harbeck, president of the Securities Investor Protection Corp. “There are some assets, but I have no idea what the relationships of the assets available are to the claims against them,” Harbeck said on Bloomberg Television. “The records are utterly unreliable on this case.” Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aSuXv.c07vO4&refer;=home

-Madoff ‘Tragedy’ Said to Have Escaped Scrutiny by SEC. Read more here-http://www.bloomberg.com/apps/news?pid=20601213&sid;=a63Or.fV7Oyo&refer;=home

-Kind to employees, generous to charities, devoted to regulation of the financial services industry, Bernard Madoff was a much-admired man whose oldest, dearest friends are among his biggest victims. Now it seems those fine attributes cultivated over a lifetime were nothing more than a con, a cover for one of the more blatant ways to steal money without gun or mask.

He told his sons last week he had been running a “giant Ponzi scheme,” precipitating his arrest. Read more here-http://www.bloomberg.com/apps/news?pid=20601039&refer;=columnist_woolner&sid;=aRkt3IRpzH0c

-On June 18, 1991, a balmy late spring day on the North Shore of New York’s Long Island, stockbroker Pamela Martens sat on the patio of an exclusive local country club, meeting with a client for the first time. Martens would be taking over management of the customer’s municipal-bond portfolio, but was alarmed when she heard how the man had invested the rest of his nest egg. “He told me that the bulk of his money was with Bernie Madoff, and that Madoff guarantees a 13 percent a year return,” Martens recalls.

“I said, ‘First of all, that’s impossible, and second of all, that’s illegal.” Not to worry, the investor assured her. He and many other members of the country club had happily stashed money away with Madoff for years, pocketing regular monthly checks. Martens got copies of the man’s brokerage statements and phoned Madoff. “I said, ‘I’m looking at Mr. X’s statements, and it’s clear you’re not doing anything here that generated 13 percent a year,’” she recalls. “He said, ‘No one has ever dared question what I’m doing.”

And, happily for Madoff, any time someone did question him, the probes were all but ignored. It took a first-person confession by Madoff to his employees before law enforcement officials swept in with an arrest and charges of a scam. Madoff’s arrest last week for an alleged $50 billion Ponzi scheme is but the latest example of how financial players in high places can go for years fudging the rules and getting by without paying the price. Read more here-http://www.bloomberg.com/apps/news?pid=20601039&refer;=columnist_antilla&sid;=ajTlcTh7XnYA

-Madoff Enjoyed $50 Pedicures, 9.8 Handicap, Boat Called ‘Bull’. Read more here-http://www.bloomberg.com/apps/news?pid=20601109&sid;=aQv4Kmx.cs78&refer;=home

-Madoff Case Creates Worst Loss for Jewish Charities Since 1930s. Read more here-http://www.bloomberg.com/apps/news?pid=20601088&sid;=ay38_dO238P8&refer;=home

-Madoff investors race to the courthouse. New York school sues Ascot Partners for entrusting investor money to Bernard Madoff. The case may be hard to prove. Read more here-

http://money.cnn.com/2008/12/17/news/parloff_madoff.fortune/index.htm?postversion=2008121716

-70 years before Madoff, there was Whitney. Former New York Stock Exchange president Richard Whitney boasted a sterling reputation during the Depression, then became a symbol of Wall Street’s betrayal of investors. Read more here-http://money.cnn.com/2008/12/16/news/madoff.whitney.fortune/index.htm or http://en.wikipedia.org/wiki/Richard_Whitney_(financier)

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

The GoldBugg Report – December 23, 2008
Posted by Worldwide Precious Metals on Tuesday, December 23, 2008

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