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The World Financial Report – January 13, 2009

January 13, 2009

WORLD FINANCIAL REPORT ON RADIO JAN 9 2009 SHOW

-Gold Climbs Again Eight Years in a Row.

-The Wall Street Journal (December 31, 2008), in the Return on Investment Column, stated that silver is one of the ten investments to watch in 2009.

-Silver is massively oversold probably more oversold than any other commodity or stock market in the world and yet its fundamentals are arguably as sound now as they were before.

GOLD

-Gold Climbs Again Eight Years in a Row. The numbers for 2008 are in. Gold has done it again. Gold is up for the eighth year in a row against the US dollar. Here are gold’s rates of appreciation in terms of several major currencies. To conclude, gold and silver will probably appreciate in 2009. There is no reason to think otherwise, given the path chosen by central banks in general and the Federal Reserve in particular.

After all, who wants to own any national currency when the interest income one can receive is less than the inflation rate? Who wants to own any national currency when counterparty risk makes repayment uncertain? In short, the interest income available today on any national currency does not fully compensate for the risks one takes when holding that currency.

So why lose sleep from worrying about holding national currency and what the Federal Reserve or some other central bank will do to that currency? Own the precious metals instead. But as I repeatedly emphasize own physical gold and physical silver. Own the real thing, and do not accept paper substitutes. Read more here-http://goldmoney.com/en/commentary.php

-Gold May Advance for Eighth Year as ‘Perfect Insurance’ Sought. The following is a table of gold, silver, platinum and palladium forecasts. Read more here- http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=a1C1lhTmTaFo

-Gold market update from Clive Maund. Read more here-http://news.goldseek.com/CliveMaund/1231103190.php

-2009 Gold Outlook. Despite a bit of downside in the immediate future, we expect gold to have a stellar year. Global economic turmoil and deflation will undoubtedly continue to influence gold prices in the near-term. A short-term pullback in gold prices from current levels to $800 maybe even a bit lower is not out of the question. However, we expect gold prices to break new records during 2009.

For our current perspective, we expect gold prices to reach as high as $1,300 during 2009, which would be a profit of over 50% from current levels. Gold prices in 2009 will be supported more heavily by supply/demand fundamentals than in the previous years of this gold bull market.

As we’ve previously discussed, during the third quarter of 2008, world gold demand outstripped supply by 10.5 million ounces. This deficit was worth $8.5 billion and was the largest supply/demand deficit since the gold bull market of the 1970s. Official 4Q 2008 world gold supply/demand figures will be calculated and reported later this month. Gold World will report them to you when the data is released.

In the meantime, though, all estimates suggest that there will be another very large deficit in world gold supplies from the fourth-quarter, with investment demand continuing to drive the market. We expect that a continuing surge in investment demand could push gold prices as high as $1,300 at one point during 2009.

There will likely be a bit more volatility in the gold market in 2009 as more and more speculators come into the market. It is likely that the gold market will experience three or four price peaks (selling points) during 2009. Read more here-http://www.goldworld.com/articles/2009-gold-outlook/356

-Dow/Gold Ratio: Buy Gold. For the past century, the Dow/Gold Ratio has been a leading predictor of the starts and ends of bubbles. The Dow/Gold ratio is calculated by figuring out how many ounces of gold it would take to buy the Dow Jones Industrial Average. On Tuesday, the Dow closed at about 8,600. An ounce of gold was changing hands for about $880 an ounce. Thus, the Dow/Gold ratio was about 9.8 (8,600/880). If you take a look at the chart below courtesy of U.S. Gold it’s easy to see the Dow/Gold Ratio has peaked just before the two major bear markets of the past century.

The Dow/Gold ratio has always peaked near a point of maximum pessimism. Following severe recessions or depressions, the Dow/Gold ratio bottomed out at 1 or 2. During peak periods of fear, gold became such a dear safe haven, one or two ounces of gold could buy the entire Dow.

Are we headed there? There’s certainly an outside chance, but it’s certainly not a sure thing either. If we look at this ratio completely objectively, the Dow/Gold ratio is telling us to sell stocks and buy gold. Either gold is going to $4,300 (half the Dow), the Dow is going down to 1,760, or somewhere in between. Andrew Mickey-Read more here-

http://news.goldseek.com/GoldSeek/1231052640.php

-David Hale: Only one alternative to the dollar gold. Read more here-http://www.gata.org/node/7062

-Jay Taylor is interviewed about gold on BNN. Watch video here-http://watch.bnn.ca/#clip126509

-Gold ETF holdings still rising as Eastern demand falls. Rises in gold ETF holdings are currently helping the gold price maintain some strength despite big falls in Middle East and Indian imports. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=76261&sn;=Detail

SILVER

-The following table presents silver’s annual rates of appreciation for the same nine major currencies. Silver too has appreciated in terms of each of the above currencies, but its annual changes show much greater volatility than gold. These changes range from -38.8% to 49.3%. James Turk

-The silver bulls are back. Silver bullion is trading just above USD 11/oz, 48% lower than its record level seen in March 2008, and far more than the fall in the gold bullion price currently a modest 18% lower than record levels set in the same month. And while the majority of mined gold ranks as primary production, around two-thirds of silver production ranks as a by-product, mainly on base metal and gold mines.

On the fundamentals, the consensus of the analytical community appears to be bullish for silver bullion supply-demand supporting rising dollar prices over the longer term. There is generally bullish sentiment for both gold and silver bullion going forward, as further supported by the growing belief, once again, that the dollar will be pressurised further, after staging a very impressive rally between July and December 2008.

The ratio of the gold to silver bullion price is currently around 77 times, far above its five and ten year averages of between 55 and 60 times. A year ago, the ratio was below 50. For investors believing that silver is historically more volatile than gold, a reversion to the mean longer term ratio – regardless of what gold bullion does – is simply bullish for silver.

The silver price averaged USD 13.38/oz in 2007, some 16% higher than 2006 levels; led by increased investment demand, the price made levels not seen since 1980. Despite the retrenchment of the price from highs set in March 2008, the longer term picture suggests that significant portions of stockpiled silver held by mainly China, Russia, and India, have been drawn down.

Total newly mined global supply is estimated at just over 900m ounces for 2008, and is not seen as rising much above that in the medium term. Production is declining at a number of mines, to be balanced, at least in part, by new silver primary and byproduct mines. Goldcorp’s Peñasquito mine in Mexico could be producing up to 30m ounces of silver a year by 2012, while Barrick’s Pascua/Lama interest in Chile could be producing up to 20m ounces of byproduct silver, also by 2012.

Meanwhile, silver bullion exchange traded funds (ETFs) continue to offer a bullish undertone for the metal. The iShares Silver ETF, available in US markets since May 2006 is no longer alone. The ETF Securities Silver has since emerged in London, with 9.7moz under management, and the ZKB Silver ETF has emerged in Switzerland, with 34.6moz.

These ETFs added 7.3moz and 25.0moz of new demand, respectively, during 2008. The iShares Silver ETF added around 65moz during 2008, taking its total silver holdings to nearly 220moz. The transparency and liquidity of silver ETFs has seen an ongoing fall in the numbers of short-term speculators engaging in silver positions on the New York Commodities Exchange (COMEX), the Tokyo Commodities Exchange (TOCOM), and the Over-the-Counter (OTC) market. Read more here-

http://www.mineweb.com/mineweb/view/mineweb/en/page32?oid=76356&sn;=Detail

-The silver price, per ounce, in 2008 averaged a strong US$14.98, a nearly 12-percent increase over the 2007 average price of US$13.38; the best average annual price since 1980. A key development in silver’s fortune has been renewed investor interest in the white metal, which began in earnest in 2004 and continues today, as illustrated in the chart below.

In fact, the Wall Street Journal (December 31, 2008), in the Return on Investment Column, stated that silver is one of the ten investments to watch in 2009. The Silver Institute-Read more here-http://www.silverinstitute.org/pr08jan09.php

-Silver market update from Clive Maund. Read more here-http://news.silverseek.com/CliveMaund/1231102809.php

-Ted Butler silver commentary. Read more here-http://news.silverseek.com/TedButler/1231259223.php

PLATINUM-PALLADIUM

-Platinum or gold which will be the better performer in 2009? Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=76289&sn;=Detail

-Platinum back around $1,000 but will it stay there? Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page35?oid=76257&sn;=Detail

-Chart from David Chapman. Read more here-http://news.goldseek.com/UnionSecurities/1231139400.php

DEFINITIONS-QUOTES-QUICK HITS

-Kondratiev Wave. What Does Kondratiev Wave Mean? An economic theory created by Soviet economist Nikolai Kondratiev that states that Western capitalist economies are susceptible to high performance volatility. Also known as “Kondratiev cycle”.

Investopedia explains Kondratiev Wave. Kondratiev called these large performance fluctuations “super-cycles,” which last 50-60 years. Kondratiev claimed to have predicted in the 1920s the stock market crash of 1929, also known as Black Thursday. His prediction was based on the market crash of 1870. Investopedia.com-Read more here-

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

-I want to warn people from Nigeria who might be watching our show if you get any emails from Washington asking for money, it’s a scam. Don’t fall for it. Jay Leno

-In January 1980, just before the Federal Reserve avoided an inflationary catastrophe, the gold price peaked at $875. That is $2,430 in today’s dollars. But the pools of speculative capital are much larger now than in 1980. A true gold bubble could well leave this benchmark far behind. Martin Hutchinson, N.Y. Times, January 1, 2009

-I need to confess that I have no idea where the S&P500; will be in a year’s time. But given the catastrophic economic conditions we find ourselves in, I’m convinced that governments around the world will increase the intensity with which they will be attempt to save the world with monetary and fiscal measures. As pointed out in last month’s report, this will increase volatility and should be ‘gold friendly’. Marc Faber

-The bull market in gold has resumed. Let this be a lesson to long-term investors. You do not panic when prices fall in a bull market; you buy on extreme weakness. Bob Chapman

-Silver is massively oversold probably more oversold than any other commodity or stock market in the world and yet its fundamentals are arguably as sound now as they were before.

Industrial demand for silver is set to fall admittedly but that will be more than made up for by significantly increasing investment demand.

Also importantly the supply of silver may fall silver supply coming primarily from the by product in base metal mines many of which are failing due to the collapse in base metal prices. Silver’s average price in Q1 08 was some $18 and this will likely be surpassed in 2009. It is important to remember that silver’s average price in all of 2008 was some $15/oz and thus silver is currently trading at some 36% below its average price in 2008.

Most importantly, there is less refined silver in the world than gold a fact that most people simply cannot get their head around and fully understand due to gold being currently some 77 times more valuable than silver. Silver is likely to return back to its recent highs in 2008 above $20/oz and there is a possibility that silver could reach well over the nominal 1980 high of $50/oz in 2009. Gold.ie

-Potential silver prices based on the gold to silver ratio.

Gold to silver ratio at 80 to 1 with gold at $1200 the silver price would be $15.00
Gold to silver ratio at 70 to 1 with gold at $1200 the silver price would be $17.14
Gold to silver ratio at 60 to 1 with gold at $1200 the silver price would be $20.00
Gold to silver ratio at 50 to 1 with gold at $1200 the silver price would be $24.00
Gold to silver ratio at 16 to 1 with gold at $1200 the silver price would be $75.00

-Merrill Lynch says rich want gold bars, not gold paper. Merrill Lynch has revealed that some of its richest clients are so alarmed by the state of the financial system and signs of political instability around the world that they are now insisting on the purchase of gold bars, shunning derivatives or “paper” proxies.

Gary Dugan, the chief investment officer for the US bank, said there has been a remarkable change in sentiment. “People are genuinely worried about what the world is going to look like in 2009. It is amazing how many clients want physical gold, not ETFs,” he said, referring to exchange trade funds listed in London, New York, and other bourses.

“They are so worried they want a portable asset in their house. I never thought I would be getting calls from clients saying they want a box of krugerrands,” he said. Merrill predicted that gold would soon blast through its all time-high of $1,030 an ounce, and would hit $1,150 by June. Read more here-http://www.gata.org/node/7073

-As long as the markets continue to be volatile and uncertain which unfortunately seems very likely demand for physical gold and silver bullion will likely stay very strong and should result in higher prices. Thus, the confluence of decreasing supply and increasing demand due to strong international geopolitical, systemic and macroeconomic factors is leading to extremely bullish conditions for the gold and silver markets.

Probably even more bullish than in the 1970s when silver rose from $1.39/oz to over $50/oz or 3,600% and gold rose some 2,400% from $35 to over $850 in just 9 years. Taken individually, any one of these factors would be bullish for gold but in unison, these combination of factors will likely lead to gold prices surging in 2009.

The inflation adjusted high of $2,400/oz in 1980 remains a conservative estimate for gold to reach in the next 2 to 5 years. Similarly, the inflation adjusted high for silver in 1980 of some $120/oz remains a conservative price target that will very likely be reached within to 2 to 5 years. Gold.ie

-The price of gold will go above $1,000 per ounce this year, according to Peter Hambro, chairman of Russian gold producer Peter Hambro Mining, writes William MacNamara . “How much over $1,000, I don’t know. But there are perfectly legitimate scenarios for it reaching $1,500, even $2,000,” he told the Financial Times. Read more here-

http://www.ft.com/cms/s/0/dd39ede6-db90-11dd-be53-000077b07658.html?nclick_check=1 or http://www.gata.org/node/7061

-Survivors and those who win buy gold and silver. We think the secret to getting through this is to hunker down, eliminate debts, keep a low profile. Gold topped out near $850 years ago right where our price is today. We forecast 80% of the gold upside is still ahead in these markets. Silver is behind gold for now but will catch-up. They never trade like twins most of the time. We think the worst silver could do is $50; but expect much higher prices. Roger Wiegand-Read more here-http://www.kitco.com/ind/Wiegand/printerfriendly/jan072009.html

-GFMS CEO Paul Walker predicts gold could rise to about $1,100/ounce by the end of 2009 with an “outside chance” of the metal reaching $1,200/oz during the year. The UK-based precious metals analyst has turned more bullish on gold’s prospects following the financial crisis that erupted from September onwards and the steps taken by US and other government authorities to deal with it. Walker said: “Gold is looking a very attractive proposition for those people looking for a safe place to put their cash. Read more here-

http://www.miningmx.com/gold_silver/917818.htm

-Byron Wien, the investment strategist who predicted a recession would drive U.S. stocks lower last year, says gold will rise to $1,200 an ounce and oil will rebound to $80 a barrel. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=ajQbVN8S5Ep4&refer;=home

-I am afraid any rally in stock prices will prove a sucker’s rally and it will not be long before something happens to trigger the inevitable sell-off by the hedge funds for their redemptions, and once that starts it will be quite a big down leg. Will that also be bad for gold and silver?

That was the lesson of 2008 but confidence in the dollar is beginning to wane with the size of bailouts and stimulus packages and the implications for the bond market. It would be unwise to place too much faith in the greenback, and better to at least hedge with precious metals. The rush from the dollar to gold could be very quick if history is any guide. Peter Cooper

-Throughout the ages, gold has stood the test of time as a consistently reliable medium of exchange, and has frequently been referred to as “God’s money,” as only God can make more of it. Seeking superhuman power over money in the way alchemists did in ancient times caused society to shun them as charlatans.

In much the same way, free people today should be sending the message that this power and control over our money is no longer acceptable. The irony is that even had the ancient practice of alchemy been successful, and gold was suddenly, magically made abundant, alchemists still would have failed to create real wealth.

Creating gold from lead would have cheapened its status to that of rhinestones or cubic zirconia. It is unnatural and dangerous for paper to be considered as precious as a precious metal. Our fiat currency system is crumbling and coming to an end, as all fiat currencies eventually do. Ron Paul-U.S. Congressman-Watch Ron on CNN here-

http://news.goldseek.com/RonPaul/1231449691.php

-U.K. Gold Sales Would Be Worth $7 Billion More at Recent Prices. Gold sold by the U.K. in the four years through 2002 would be worth an extra $7 billion at recent prices, the government said. The U.K. sold 395 tons of the metal in the period for about $3.5 billion, Ian Pearson, economic secretary to the Treasury, said in a Dec. 18 written response to

government questions published on a parliamentary Web site.

The sales “reflected a prudent decision to reduce over exposure to a single asset in the net reserves portfolio,” he said. Based on the morning “fixing” in London on Dec. 15, the sold reserves would be worth about $10.5 billion, he said. Bloomberg-Read more here-http://www.telegraph.co.uk/news/newstopics/politics/labour/4162054/Gordon-Browns-decision-to-sell-half-of-the-UKs-gold-reserves-cost-UK-5billion.html

-China may put new curbs on overseas investments. Read more here-http://uk.reuters.com/article/marketsNewsUS/idUKSHA4669620090107

-U.S. debt is losing its appeal in China. China has bought more than $1 trillion in American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home a shift that could pose some challenges to the U.S. government in the near future. Read more here-

http://www.iht.com/bin/printfriendly.php?id=19167239 or http://www.nytimes.com/2009/01/08/business/worldbusiness/08yuan.html?_r=3&ref;=world&pagewanted;=print

-China’s central bank said yesterday that it plans to implement a pilot program that would settle overseas trade with the Chinese currency instead of the US dollar. Read more here-

http://www.gata.org/node/7071

-The S&P; 500 will be lucky to record a $42.00 earnings estimate for 2009. That puts the forward price earnings ratio at 20. The historical average is 14-1/2% to 15% and in depressions 8 to 10 times earnings. The market supposedly has factored $42.00 into its performance, when historically the market has done a terrible job pricing in bad news, especially with all the manipulation going on.

We expect a 70% fall during this depression or the Dow at 4,200. That means on these 2,000-point Dow rallies you sell into the rally or short into it. We believe S&P; earnings will be $35.00. By the way, those S&P; earnings were $24.67 in 2001 and $27.57 in 2002. The bear market that began in March of 2000 is still in force. The move in the Dow from 7,268 to 14,100 was manufactured by our government via low interest rates, large injections of money and credit and non-existent lending practices. Bob Chapman

-The Bank of England cut the benchmark interest rate to the lowest since the central bank was founded in 1694 as policy makers tried to prevent the credit squeeze from deepening Britain’s recession. The Monetary Policy Committee, led by Governor Mervyn King, trimmed the bank rate by a half point to 1.5 percent. Read more here-

http://www.bloomberg.com/apps/news?pid=20601087&sid;=aZLXttq0_pQQ&refer;=home or http://www.gata.org/node/7074

-Surviving the depression from Eric Sprott. Far be it from us to mince words. Make no mistake we are in a Depression. That’s right, it’s the dreaded ‘D’ word. And we are knee deep in it right now. This is not a run-of-the-mill recession.

Does anyone still believe we’re in for just a few quarters of, at worst, low single-digit economic contraction, after which things will return to normal? We find it shocking that most economists still do. This is far worse than a recession. It’s a Depression. To call it anything else is to ignore the obvious. Read more here-http://www.sprott.com/pdf/marketsataglance/MAAG.pdf

-Holiday Sales Were Dismal, Data Shows. Read more here-http://www.nytimes.com/2009/01/09/business/economy/09shop.html?partner=rss&emc;=rss&pagewanted;=print

-Auto sales plunge again in December. Sales of cars, trucks and SUVs all plummeted, capping the worst year for industrywide auto sales since 1992. Read more here-

http://money.cnn.com/2009/01/05/news/companies/autosales/index.htm?postversion=2009010515

-Zimbabwe’s money man plans to keep on printing. Read more here-http://www.latimes.com/news/nationworld/world/la-fg-zimbabwe-bank1-2009jan01,0,2457198.story

-The Ponzi Scheme in Every Hedge Fund. Read more here-http://www.time.com/time/business/article/0,8599,1869196,00.html

-Satyam Founder Sparks India’s Enron With Fake Reports. Ramalinga Raju built Satyam Computer Services Ltd. into India’s fourth-biggest software maker over two decades. He undermined the company’s future with revelations that he overstated profit and falsified assets for years, triggering a scandal that’s being compared to Enron Corp. Read more here-

http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=akJyO8yxmXTY

-Madoff Investigators Claim to Find 100 Checks in Desk. Investigators searching the office desk of Bernard Madoff after his arrest found about 100 signed checks, totaling about $173 million, ready to be sent to family, friends, and employees, prosecutors said. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&refer;=home&sid;=asQxW8FREEPw

-China issues bird flu alert after woman dies. Read more here-http://www.reuters.com/article/healthNews/idUSTRE50641D20090107?feedType=RSS&feedName;=healthNews

-Virtually all the dominant strain of flu in the United States this season is resistant to the leading antiviral drug Tamiflu, and scientists and health officials are trying to figure out why. Read more here-http://www.nytimes.com/2009/01/09/health/09flu.html?partner=rss&emc;=rss&pagewanted;=print

-William Perry, who headed the Pentagon during a 1994 nuclear standoff with North Korea, predicted on Thursday that President-elect Barack Obama will soon face a nuclear crisis with Iran. Iran is “moving inexorably toward becoming a nuclear power,” with ominous implications for the Middle East, Perry said. Read more here-

http://seattletimes.nwsource.com/html/politics/2008604708_apobamanuclearchallenges.html?syndication=rss

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

-5-Carat ‘Kazanjian Red’ Diamond on Display in LA. For a limited time, the famed “Kazanjian Red” diamond will be on display at the Natural History Museum of Los Angeles County.

One of only three vividly blood-hued red diamonds known to exist, the 5-carat “Kazanjian Red” holds a history as brilliant as its color.

It was found in 1927 in a diamond field in South Africa, but was stolen during World War II in Arnhem during the Nazi occupation of the Netherlands, where it was hidden for years in a salt mine among other stolen treasures. Eventually, after first mistaking the rare diamond to be a ruby American soldiers recovered the Kazanjian Red, but could not return it due to its rightful owners not surviving the war.

The gem was sold and over time was passed through several hands, including those of Sir Ernest Oppenheimer. After being hidden away by a private collector for 37 years, it was finally purchased by Los Angeles-based Kazanjian Bros. Inc and is on its very first exhibition in the U.S. The Kazanjian Red will be available for public viewing at the Natural History Museums’s Gem and Mineral Hall through February 1st. KTLA News

-Graff Remains Bullish on Diamond Market for 2009. “If you can add beauty to the world, it’s a wonderful thing to do,” says Laurence Graff, a man who clearly loves beautiful things. He may balk at selling his art, but that is not the case with his diamonds. “If you don’t sell your diamonds, then you become a museum and that’s not what Graff is about.” Graff Diamonds is currently in the process of cutting the staggeringly large 478-carat Light of Letseng diamond, which the company bought for $18.4 million.

The diamond was mined in Lesotho by Gem Diamonds, a company in which Graff has built a 9 percent stake. “The size and quality of the stones produced at the Letseng mine are exceptional; that’s why I decided to buy my stake in the company. I also wanted to buy into production, particularly of quality gems.” It will take 12 months to cut the Light of Letseng stone and it will be incredibly valuable once this is done.

The stone is the twentieth-largest rough diamond ever recovered and it represents the third significant discovery from the same mine in Lesotho in three years, following the 603-carat Lesotho Promise and the 493-carat Lesotho Legacy. All of these stones were purchased by Graff Diamonds. The diamond market has suffered this year along with every other market, with the price of rough diamonds falling 45 percent in the final four months of 2008.

However, Graff remains bullish. “The mass market has been hit, but there will always be a market for quality gems. In the part of the market in which we operate, clients are rare, but so are the diamonds. There are more clients than diamonds.” To the suggestion that the Light of Letseng would make a good Christmas present, he exclaimed: “People who buy these diamonds do not need to buy them for Christmas.”

The purchase of the Light of Letseng proves Graff’s faith in the future of the diamond market. Once the stone has been cut in 12 months’ time, it will make a beautiful present be it for Christmas or not. Read more here-http://www.diamonds.net/news/NewsItem.aspx?ArticleID=24764

-Diamond clues to beasts’ demise. Read more here-http://news.bbc.co.uk/2/hi/science/nature/7808171.stm

OIL

-Oil Traders Seek Another 10 Supertankers for Storage. Oil traders are seeking as many as 10 supertankers to store crude, potentially taking the amount hoarded at sea to almost five days of European Union demand, according to Frontline Ltd., the largest owner of the vessels.

About 25 of the carriers, each able to hold about 2 million barrels of crude, were already hired for storage. There are enquiries for 5 to 10 more, Jens Martin Jensen, Singapore-based interim chief executive officer of the company’s management unit, said by phone today. Traders are storing crude to take advantage of higher prices for supply in the future. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aZkqK5faJBmA&refer;=home

FORMER BANK OF ENGLAND OFFICIAL EXPECTS DOLLAR COLLAPSE

-Americans must prepare themselves for a massive collapse in the dollar as investors around the world dump their US assets, a former Bank of England policymaker has warned. The long-held assumption that US assets particularly government bonds are a safe haven will soon be overturned as investors lose their patience with the world’s biggest economy, according to Willem Buiter.

Professor Buiter, a former Monetary Policy Committee member who is now at the London School of Economics, said this increasing disenchantment would result in an exodus of foreign cash from the US. Writing on his blog, Prof Buiter said: “There will before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many.

But learning takes place.” He said that the dollar had been kept elevated in recent years by what some called “dark matter” or “American alpha” an assumption that the US could earn more on its overseas investments than foreign investors could make on their American assets. However, this notion had been gradually dismantled in recent years, before being dealt a fatal blow by the current financial crisis, he said.

“The past eight years of imperial overstretch, hubris and domestic and international abuse of power on the part of the Bush administration has left the US materially weakened financially, economically, politically and morally,” he said. “Even the most hard-nosed, Guantanamo Bay-indifferent potential foreign investor in the US must recognize that its financial system has collapsed.” He said investors would, rightly, suspect that the US would have to generate major inflation to whittle away its debt and this dollar collapse means that the US has less leeway for major spending plans than politicians realize. Read more here-http://www.gata.org/node/7058

U.S. BUDGET DEFICIT AT MORE THAN 1 TRILLION-DEFICITS FOR YEARS TO COME

-President-elect Barack Obama said he expects to inherit a $1 trillion budget deficit and that similar shortfalls are in store “for years to come” as the government grapples with a recession and other spending demands. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aECC6Y15OhwQ&refer;=home

-The U.S. budget deficit will more than double this year to at least $1.18 trillion, driven up by the federal bailout of the financial industry, Fannie Mae and Freddie Mac, according to the Congressional Budget Office. Read more here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=a3ysWPimmmOA

FINANCIAL CRISIS-RECESSION-DEBT CRISIS

-The $8 trillion bailout. Many details of Obama’s rescue plan remain uncertain. But it’s likely to cost at least $700 billion and that would push Uncle Sam’s bailouts near $8 trillion. Read more here-http://money.cnn.com/2009/01/06/news/economy/where_stimulus_fits_in/index.htm

-President-elect Barack Obama warned that the U.S. risks sinking deeper into an economic crisis without an infusion of government spending and a cut in tax rates and urged Congress to act quickly on a stimulus package that may total $775 billion. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=azAp..che8Xc&refer;=home

-U.S. governors seek $1 trillion federal assistance. Governors of five U.S. states urged the federal government to provide $1 trillion in aid to the country’s 50 states to help pay for education, welfare and infrastructure as states struggle with steep budget deficits amid a deepening recession. Read more here-http://www.reuters.com/article/newsOne/idUSTRE5014F120090102

-U.S. banks need to raise more capital after downgrades of mortgage-backed securities surged in the last quarter, Oppenheimer & Co. Inc. analyst Meredith Whitney said. U.S. banks’ earnings will be hurt in 2009 by as much as $40 billion of further writedowns as asset prices continue to drop, and credit-ratings are cut on home loan-related securities, Whitney said in a note to clients Jan. 6. Downgrades force banks to hold additional capital in reserve, so U.S. lenders will need to raise more cash, according to Whitney.

Ratings cuts accelerated last year, with about $2.3 trillion of securities downgraded in the fourth quarter, she said. “There is an undeniable correlation between downgrades and increased capital demands by the banks,” Whitney wrote. “The banks will once again have to raise fresh capital in 2009.” Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aMGMHfNeGek8

-The U.S. economic outlook through the first half of 2009 is “grim,” and the first signs of a recovery may not emerge until the third quarter, said Thomas Hoenig, president of the Federal Reserve Bank of Kansas City.

“The sharp deterioration of banking and credit conditions, the deepening slump in consumer and business confidence and the ongoing housing correction must work its way through the economy,” Hoenig said in the text of a speech today in Kansas City. Avoiding such a process “may sow the seeds for the next crisis.”

The bank president’s remarks underscore the view of policy makers that “substantial” risks to the economy remained when they cut the benchmark interest rate to a record low last month to stem the yearlong recession. Those views are contained in the minutes of the Dec. 15-16 Federal Open Market Committee meeting released yesterday.

“The picture for the last quarter of 2008 and at least the first half of this year is grim,” said Hoenig, 62. “If we pursue systematic policies with the right balance of monetary and fiscal stimulus, the early signs of economic recovery could show themselves as early as the third quarter of 2009.”

The U.S. economy ended 2008 in a steep decline, with factory orders, home sales and service industries all contracting, according to reports released this week. Hoenig today joined San Francisco Fed President Janet Yellen, Chicago Fed President Charles Evans and many economists in endorsing a fiscal stimulus plan to combat the yearlong recession.

Such a measure will be “a critical element affecting the recovery in 2009,” and “putting our economy back on its feet is the priority,” he said. Read more here-

http://www.bloomberg.com/apps/news?pid=20601110&sid;=aMwYhDqEud6w or http://money.cnn.com/2009/01/06/news/economy/fed_minutes/index.htm

-The number of Americans collecting unemployment benefits surged to a 26-year high as the labor market worsened in a yearlong recession. Initial jobless claims unexpectedly fell by 24,000 to 467,000 in the week that ended Jan. 3, the lowest level in almost three months, the Labor Department said today in Washington. The total number of people getting benefits rose a week earlier to 4.6 million, the most since 1982. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aS_tiZQqsv.I&refer;=home

-U.S. Economy: Companies Cut Payrolls at Faster Pace. Reports issued two days before the release of U.S. jobless data showed private employers cut payrolls at a faster pace in December, threatening to send the unemployment rate to levels unseen in a quarter century.

“The level of unemployment is going to be higher” and may exceed 10 percent, Martin Feldstein, the former National Bureau of Economic Research president and Harvard University professor said in a Bloomberg Television interview. “It’s really bad and it needs a fix,” he said before a hearing on the fiscal-stimulus plan with House lawmakers in Washington.

Companies cut an estimated 693,000 jobs in December, the most since ADP Employer Services began its gauge based on payroll data in 2001. Chicago-based Challenger, Gray & Christmas Inc. said firings announced by U.S. employers rose 275 percent last month from December 2007, to 166,348. Read more here-

http://www.bloomberg.com/apps/news?pid=20601068&sid;=a1AcrBP3.r.I&refer;=home

-U.S. Debt Expected To Soar This Year. $2 Trillion Increase May Test Federal Ability to Borrow. Read more here-http://www.washingtonpost.com/wp-dyn/content/article/2009/01/02/AR2009010202322_pf.html

STOCK MARKET

-Stocks to Struggle as Earnings Fall, Citigroup Says. “To be able to call a meaningful turn in global equities we need to be closer to the bottom in the corporate earnings cycle,” the strategists wrote. “On our forecasts that is more likely to happen in 2010. We suspect 2009 may be a trading range year. Read more here-http://www.bloomberg.com/apps/news?pid=20601213&sid;=ajJe1_bsfYAg&refer;=home

-Let’s look at their estimates for earnings in 2008. They started at $92 in early 2007 and are now down to $48. This chart is not something to inspire confidence in stock analysts.

On a trailing one-year basis, that puts the Price to Earnings Ratio (P/E) at over 19 as of today’s close at 925, which does not make the market cheap. But last year’s earnings are history. What about 2009? Again, the analysts are in a race to find the bottom.

The current projections are for $42.26 for 2009. That makes the forward P/E 22. That doesn’t look like value at all, when the historical average is closer to 15.But how bad can it get? Analysts must surely by now have lowered their estimates to more realistic numbers.

Shouldn’t we start to price in the recovery from here? Well, no, not if you look at the last recession. In 2001, as-reported earnings were $24.67. Operating earnings in 2002 were $27.57. Does anyone think the current recession will be milder than the last one? Or shorter? John Mauldin-Read more here-http://news.goldseek.com/MillenniumWaveAdvisors/1231052820.php

REAL ESTATE

-Radical cheap: $1,000 homes. In places like Detroit and Cleveland, banks are unloading rundown homes for next to nothing. And they’re tremendous bargains, even after factoring in renovation costs. Read more here-http://money.cnn.com/2009/01/08/real_estate/thousand_dollar_homes/index.htm or watch video here-http://money.cnn.com/video/#/video/news/2009/01/06/news.harlow.1000home.cnnmoney

-As the U.S. housing recession enters its fourth year, there’s no sign of a recovery because speculators account for most of the rise in sales. While the purchases are trimming the inventory of unsold properties, most of those bought by speculators will likely return to the market when prices rise again, hampering any recovery, said Nobel laureate economist Joseph Stiglitz and Yale University Professor Robert Shiller in interviews.

“We’re creating a shadow inventory of homes that will be right back on the market as soon as the economy and the housing market begin to improve,” said Stiglitz, a Columbia University professor of economics. “We could see a double-dip in the housing recession if that happens.”

Banks owned a record $11.5 billion of repossessed homes in the U.S. at the end of the third quarter, according to the Federal Deposit Insurance Corp. Foreclosures accounted for almost half of all U.S. purchases in November and homes in default helped increase sales 83 percent in California.

There were an average 3,100 foreclosures per day in the U.S. in November, according to RealtyTrac Inc., an Irvine, California real estate data company. That’s triple the 1,000 per day average in 1933, the worst year of the Great Depression, according to the Federal Reserve Bank of St. Louis. The repossessed properties offer opportunities for investors, who typically buy homes at auction and rent them out until prices increase and they can sell. Read more here-

http://www.bloomberg.com/apps/news?pid=20601213&sid;=apFMheiIZtPo&refer;=home

-Pending Sales of Existing Homes Fell 4% in November. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=ajuRLTKaEKm4

-Home buyers advised to look before they leap. Building analyst warns 2009 is a ‘bad time to buy a home’ as jobs vanish. Read more here-http://www.marketwatch.com/news/story/year-bad-time-buy-home/story.aspx?guid={7FDA1504-8F8D-4795-B8F0-B4EA17FDDFF4}&dist;=TNMostRead

-Manhattan Apartment Sales Drop. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aRyM8YacoYEA or http://www.bloomberg.com/apps/news?pid=20601213&refer;=home&sid;=aturS6ZBEvX0

-Manhattan Office Rents Fall Most in Two Decades. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aZZvAeQPTd_Q&refer;=home

The World Financial Report – January 13, 2009
Posted by Worldwide Precious Metals on Tuesday, January 13, 2009

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