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The GoldBugg Report – January 27, 2009

January 27, 2009

WORLD FINANCIAL REPORT ON RADIO JAN 23 2009 SHOW

-RBC says upside in gold and silver

-Gold to Gain through 2012, Morgan Stanley Forecasts

-A Rough Projection of Gold and Silver Prices

-BUFFETT-THE U.S. IS IN MIDST OF AN ECONOMIC PEARL HARBOR

-ROUBINI-BANKING SYSTEM IS EFFECTIVELY INSOLVENT

GOLD

-Gold to Gain through 2012, Morgan Stanley Forecasts. Gold may average higher for each of the next three years and climb to a record driven by increased demand and a declining dollar as governments ramp up spending to battle the global recession, according to Morgan Stanley. Read more here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=aZhKY54ePh18

-Morgan Stanley and UBS raise gold price forecasts. Morgan Stanley and UBS raised their gold price forecasts, citing safe-haven demand for bullion amid turmoil in the banking sector and a gloomy outlook for the economy. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=77110&sn;=Detail

-Gold to the rescue as financial forces overwhelm challenging fundamentals GFMS. GFMS Ltd expects gold to help safeguard investors against government profligacy in 2009; prices to remain volatile and dips are possible, but followed by a strong bull run. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=76793&sn;=Detail

-RBC says upside in gold and silver, but PGMs to underperform. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=77122&sn;=Detail

-97% Indian investors put money in Gold. During these days of economic meltdown and volatile movements on stocks and commodities markets, what is the best avenue of investment? For the Indian investors, the biggest investment route is indeed gold, says a new survey. Most Indians prefer to put their money in the yellow metal. Read more here-

http://www.commodityonline.com/news/97-Indian-investors-put-money-in-Gold!-14362-3-1.html

-A Rough Projection of Gold and Silver Prices. Read more here-http://libertyvalley.com/rough_projection_gold_and_silver_prices

-Gold, silver ETFs see strong buying pressure: Got Gold Report. Read more here-http://www.stockhouse.com/Columnists/2009/Jan-1/19/Gold,-silver-ETFs-see-strong-buying-pressure–Got- or http://www.gata.org/node/7102

-Gold held by exchange-traded funds reached a record level in 2008, as investors bought the metal as a safe haven against economic troubles, the World Gold Council said in a report. At 1,190 tons, ETF gold holdings are now higher than central bank holdings in Switzerland, the fifth last official gold holder in the world. Investors bought ETFs representing 96 tons of gold in the fourth quarter, following the purchase of an unprecedented 145 tons in the previous quarter, the WGC said. Marketwatch.com

-Michael Zielinski: U.S. Mint discouraging gold ownership. Read more here-http://www.gata.org/node/7112

-Michael Zielinski: Mint’s new pricing policy raises premiums. Read more here-http://www.gata.org/node/7105

-Dominic Frisby: Gold is shifting from West to East. Read more here-http://www.gata.org/node/7111

-James Turk: The Fed’s blueprint for market intervention. Read more here-http://www.gata.org/node/7097

-GATA’s 10th anniversary gold manipulation evidence mounts. Read more here-http://www.gata.org/node/7101

-Peter Brimelow: Gold bounces back as manipulation plan is exposed. Read more here-http://www.gata.org/node/7116

-Peter Degraaf: Does manipulation render technical analysis obsolete? Read more here-http://www.gata.org/node/7113

SILVER

-Ted Butler on Real Silver Availability. Much has been written about the actual amount of physical silver that exists in world above ground inventories. Due to decades of industrial consumption depleting world inventories, there is remarkably little silver remaining. I have estimated perhaps one billion ounces of silver bullion equivalent exists at anywhere near current prices, and my estimates are much higher than most published estimates.

Considering that the cumulative world mine production through the ages has been roughly 40 billion ounces that means only 2.5% of that total production remains in bullion equivalent form. That’s shocking. This is one of the key reasons for buying silver, namely, there isn’t much left. I’ve written countless articles over the years, trying to put this shockingly small amount of silver remaining into different perspectives.

I’ve compared it to the total amount of money and credit in the world, namely, $11 billion of silver remaining compared to the many tens of trillions of dollars of money and credit sloshing around. Each ten trillion is a thousand times more than all the silver in the world is currently worth. I’ve compared the amount of silver, in ounces and dollar terms, in per capita terms, namely, how much there is if evenly divided among the earth’s 6.5 billion inhabitants.

For each man, woman and child, there exists 0.15 of an ounce. At current prices that’s around $1.65 a person. Not much of a surplus or overhang. I’ve compared the amount of silver remaining above-ground to other commodities, and particularly to gold it’s constant compatriot through millennia. I have explained that because gold was always highly valued as an investment and for jewelry, its high price prevented it from being industrially consumed, in stark contrast with what occurred in silver.

Due to this plainly-observed historical reality, the world cumulative gold mine production of 5 billion ounces still exists in a relatively easy to recover form. So even though 8 times more silver than gold was produced throughout history, 5 times more gold than silver exists above ground today, due to silver’s industrial consumption profile over the past 100 years. Further, when you assign a dollar value to gold and silver above ground inventories, given the current price disparity between the two, the comparisons are even more startling.

Because gold is currently running at almost 80 times the price of silver, that means there is 400 times more gold than silver in the world in dollar terms. On a per capita basis, that comes to $660 per inhabitant, compared to $1.65 for silver. In the past, I’ve estimated that maybe one in a million knew these facts. My conclusion was the growing awareness of this situation alone would impact the price of silver for many years to come. Read more here-http://news.silverseek.com/TedButler/1232473167.php

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

Gold to silver ratio at 80 to 1 with gold at $2000 the silver price would be $25.00
Gold to silver ratio at 70 to 1 with gold at $2000 the silver price would be $28.57
Gold to silver ratio at 60 to 1 with gold at $2000 the silver price would be $33.33
Gold to silver ratio at 50 to 1 with gold at $2000 the silver price would be $40.00
Gold to silver ratio at 16 to 1 with gold at $2000 the silver price would be $125.00

DEFINITIONS-QUOTES-QUICK HITS

-Great Depression. An economic recession that began on October 29, 1929, following the crash of the U.S. stock market. The Great Depression originated in the United States, but quickly spread to Europe and the rest of the world. Lasting nearly a decade, the Depression caused massive levels of poverty, hunger, unemployment and political unrest.

The NYSE crashed on October 24, 1929, a day known as Black Thursday. Thousands of people lost nearly the entire value of their investments, leaving them with next to nothing. The trend continued and the following Tuesday, Black Tuesday, the DJIA dropped 12%, marking the start of the great depression. International trade declined, along with personal income, tax revenues and product prices.

Many economists believed the Great Depression was evidence that capitalism, when left unchecked, is a dangerous ideology. This caused some nations to change their political structures, such as Germany, who adopted fascism. Investopedia.com-Read more here-http://en.wikipedia.org/wiki/Great_depression

-Contango. When the futures price is above the expected future spot price. Consequently, the price will decline to the spot price before the delivery date. Investopedia.com-Read more here-http://en.wikipedia.org/wiki/Contango

-If stupidity got us into this mess, why can’t it get us out? Will Rogers

-Historically, the way you make money in times like these is that you find things where the fundamentals are unimpaired. Jim Rogers-2009 will be the year of Total decline for U.S. Jim Rogers-Watch video here-http://www.youtube.com/watch?v=w84EiCt0Lqk&eurl;=http://goldismoney.info/forums/showthread.php?t=340856

-To be a reasonable investor over the long term, it doesn’t take a high IQ, said Jean-Marie Eveillard. Instead, it’s a willingness to move away from the herd to follow your own path, at the risk of lagging, if you think the herd is about to run over the cliff. Bloomberg

-Gold is likely to have another good year as the world increasingly wakes up to today’s realities. As they do, they will also come to understand that gold is money, which is a good thing to hold any time, but particularly during economic and monetary turmoil. James Turk-Another Great Depression-Read more here-http://www.kitco.com/ind/Turk/turk_jan152009.html

-The country stands on the precipice. We are at risk of utter humiliation, of London becoming a Reykjavik on Thames, and Britain going under. Thanks to the arrogance, hubristic strutting and serial incompetence of the Government and a group of bankers, the possibility of national bankruptcy is not unrealistic. Iain Martin, The Telegraph, January 21, 2009-Read more here-http://www.telegraph.co.uk/comment/columnists/iainmartin/4295219/Gordon-Brown-brings-Britain-to-the-edge-of-bankruptcy.html or http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4299883/UK-cannot-take-Icelands-soft-option.html

-The markets have more power than all the tin-horn politicians on the planet earth. The markets have more power than the Fed and all the central banks of the world taken together. Remember, the Fed’s inflation and interest rate manipulations will work only as long as the markets go along with the Fed. The minute the markets see that the Fed’s machinations aren’t working, then we’ll get our first taste of true deflation, and the Fed’s power will have evaporated. Richard Russell

-Our contemporary brand of socialism has one fatal flaw. It’s too expensive. When you try to shower benefits on so many recipients, you eventually must resort to subterfuge. Foremost among those tricks is money and credit expansion. Inevitably, you debase your currency. James Cook

-There are many “experts” and “analysts” predicting much higher prices for Gold (as high as $5,000.00) Silver (as high as $150.00). These seem astronomical, and wouldn’t we all love to see these prices actually take place. We are not so bold. However we do agree that Long Term prices should move substantially higher. Should we see similar price appreciation throughout 2009 as that experienced in the last three months we could be looking at $2,100.00 Gold and $37.00 Silver by year end 2009.

Even these numbers seem aggressive, and of course there are never any guarantees. However comparing these projections to current prices, current prices certainly look like an exceptional bargain. Given everything happening in today’s worldwide economy, there have never been more compelling reasons to substantiate the ownership of Precious Metals. Precious Metals International

-President Obama his cabinet and financial advisors are inheriting what can only be described as an “international economic disaster.” His challenge will be to create a domestic economic stimulus program that will hopefully bring about a stop to the deepening of the current recession before it escalates into a depression, restore international confidence in the United States Government and the US Financial Markets.

With interest rates at all time lows and credit remaining a severe problem, there is one thing you can absolutely count on The US Government has to print more dollars and in plain and simple language “that’s going to create Inflation.” Precious Metals International

-”Gold is gaining on systemic fear,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “These governments are going to have to infuse more money into the financial system, and that will eventually lead to inflation.” Bloomberg

-What percentage of my portfolio should be in precious metals bullion? Ibbotson Associates recommends between 7-16 percent just for proper diversification, while Wainwright Economics recommends between 18-47 percent to protect portfolios against inflation. To make money in 2009, you will likely need an even higher allocation than those recommended by Ibbotson and Wainwright. Furthermore, given our experience in 2008, it is critical that investors hold actual bullion and not a paper proxy or derivative.

Physical bullion is the only asset that is not someone else’s liability. The single point to remember from these comments is that, no matter what your allocation to bullion turns out to be, it should certainly not be zero. In order to adapt to current global changes, investors need to rethink their investment strategy and their portfolio allocations, because the next 20 years are going to be completely unlike the past 20. Read more here-http://news.goldseek.com/GoldSeek/1231783824.php

-In case you haven’t got the message the current world financial and monetary system is done for. That’s why the U.S. government is sitting on the precious metals prices at the moment. But it’s still the only game in town as far as wealth preservation is concerned and you can’t own too much gold or silver bullion. They will be just about the only things left standing when the current system finally passes into history however long that takes. And it won’t be much longer at the rate it’s going now. Ed Steer

-Weighed down by enormous debt levels, no domestic savings from which to draw, angry foreign creditors and a collapsing tax base, the Fed has no choice but to inflate in a big way; while it may be a race to inflate worldwide, the US has more baggage than others.

With all countries daring the inflation monster while trying to stay one step ahead of its jaws, the one that is weighed down the most, much like the slowest antelope in tiger country, will naturally be the first to be caught. The carnage won’t be pretty, but gold will shine. Chris Galakoutis-Read more here-http://www.321gold.com/editorials/galakoutis/galakoutis011909.html

-In simplest of terms, a lot of U.S. dollars are being created. Demand for dollars in this world is limited. It has an upper limit. That supply of U.S. dollars may be starting to over power the demand for dollars. In the chart above is a second line that represents our dollar index, a better measure than the improperly designed popular index.

This vast quantity of money being created seems to becoming dominant. That supply of money may be capping the value of the dollar, and will likely over come it. Money supply growth this excessive can only push down the value of the currency, in this case the U.S. dollar. The dollar index seems already to be topping out. Investors must answer an important question. Has any currency created in such abundance ever appreciated?

Two U.S. Presidents have been very good to Gold investors. Obama is likely to continue that run of Gold prosperity. $2.5 trillion of debt, largely to be financed by Federal Reserve monetization, is indeed change. No economic hegemon has ever been so financially irresponsible. While such debt monetization has been practiced in “banana republics” for over a century, it is new to the market for U.S. dollars. As a consequence, the clearest investment theme for the Obama era is Gold, bought on any and all price weakness. Ned W. Schmidt-Read more here-http://news.goldseek.com/NedSchmidt/1232487328.php

-Goldman Sachs Group Inc. commodity analyst Jeffrey Currie said he expects a “swift and violent rebound” in energy prices in the second half of the year. Oil prices may have reached their lowest point already, after falling to $32.40 in mid-December, and are expected to rise to $65 by the end of this year, the analyst said. There is scope for a “new bull market” in oil, Currie said. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=al1yxPTKDu4Q

-Is Oil’s Future Sustainable? If Not, What Are The Consequences? View PDF file here-http://www.simmonsco-intl.com/files/Dallas%20Committee%20On%20Foreign%20Relations.pdf

-The Dow Jones Industrial Average fell 14 percent between Barack Obama’s election and Inauguration Day, the biggest decline ever. Bloomberg

-Wilbur L. Ross, the investor who made billions turning around distressed steel and textile companies, expects “horrific” first-quarter results from U.S. businesses and said the unemployment rate may reach the highest in 26 years.

“Just look at the announcements that have been made about job cuts since the first of the year,” Ross said today in a Bloomberg Radio interview. “You’re going to see unemployment get up toward the 10 percent region.” Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aO_R23ZME6uc

-”As a general observation, the broad market historically has not been able to move higher in any sustainable way while financials have lost ground in absolute terms.” Banks and insurers have been leading the market downward, and RBC’s team concluded: “The intermediate rally now in progress is just a recovery within an ongoing bear market, and that the next 4-year cycle low is not due until somewhere close to mid-2010.” RBC Dominion Securities

-California’s controller says he will begin a 30-day delay on tax refunds and other payments starting Feb. 1 because the state is running out of money. Controller John Chiang said Friday he must delay $3.7 billion in payments next month because lawmakers have failed to address California’s growing deficit.

With a $41.6 billion shortfall over the next year-and-a-half, the state is on the brink of issuing IOUs. Chiang says his office must continue education and debt payments but will defer money for tax refunds, student aid, social services and mental health programs.

A severe drop in revenue has left the state’s main bank account depleted. The state had been relying on borrowing from special funds and Wall Street investors; those options are no longer available. AP

-Retail: The quiet crisis. The industry shed more than a half-million jobs in 2008. But that doesn’t get a lot of attention in Washington. Read more here-

http://money.cnn.com/2009/01/21/news/economy/retail_challenge/index.htm?postversion=2009012113

-Madoff Investors May Recover More From IRS Than From His Firm. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=accxxaYa.NRI

-Madoff Trustee Picard May Take Five Years to Pay Back Investors. Read more here-http://www.bloomberg.com/apps/news?pid=20601213&sid;=a6JDlygKnj8k&refer;=home

-Hedge Fund Run by Ex-Bondsman Is Ponzi Scam, SEC Says. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=a19JJSLP2A5M

-Brad Lerner was pleased when a November statement showed his $500,000 investment in a fund run by Arthur Nadel had gained 8.5 percent for the year as the Standard & Poor’s 500 Index fell 39 percent. Lerner, an internist from Sarasota, Florida, never got a December statement.

Instead, one of Nadel’s partners came to him last week with the news that the fund manager couldn’t be found. Lerner, 55, and others whose money was invested by Nadel’s Scoop Management Inc. in Sarasota may have lost as much as $350 million, law enforcement officials say. “Hindsight is 20-20,” Lerner, who had most of his life savings in the Viking IRA fund, said in a Jan. 17 interview. “But I guess it was too good to be true.” Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aXihyqNVeRBM&refer;=home

-Zimbabwe introduces $100 trillion banknote. Zimbabwe’s central bank will introduce a $100 trillion Zimbabwean banknote, worth about US $33 on the black market, to try to ease desperate cash shortages, state-run media said this week. Read more here-http://www.telegraph.co.uk/news/worldnews/africaandindianocean/zimbabwe/4269695/Zimbabwe-introduces-100-trillion-banknote.html

-U.S. Presidents and their popularity over the years. Read and view more-http://online.wsj.com/public/resources/documents/info-presapp0605-31.html

-Growing stocks of unsold cars around the world. View pictures here-http://www.guardian.co.uk/business/gallery/2009/jan/16/unsold-cars?picture=341883529

-China warns of “grim” fight against deadly bird flu. Read more here-http://www.alertnet.org/thenews/newsdesk/PEK277826.htm

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

-Diamonds are rare and getting rarer. With approximately only 20 years of known diamond reserves left in the ground (at 2007 production rates) and with future demand growth in emerging markets, demand is likely to significantly outpace what is forecast to be lower levels of diamond supply for many years to come. Gareth Penny

-Research shows that in uncertain times consumers gravitate towards quality, they buy fewer, but better things, things that last, which are not disposable and that hold their value over time. Clearly diamonds, which history tells us tend to hold their value both financial and emotional over time. Gareth Penny

-The mass market has been hit, but there will always be a market for quality diamonds. In the part of the market in which we operate, clients are rare, but so are the diamonds. There are more clients than diamonds. Laurence Graff

-”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

-Angola’s Endiama is advocating for diamonds, maintaining that they have become a good investment. Manuel Calado, chief executive officer (CEO) of Endiama, said that buying diamonds can be a means of investment and that the government-controlled company is planning to motivate the world’s financial institutions and consumers to invest in diamonds.

Calado recently said that “at this time of crisis, people need to trust something,” and he used diamonds as the perfect example for investment.

In the past few days, Endiama has been contacting jewelers, banks, and exploration and sales companies to draw their attention to diamonds as an investment. The Angola Press agency, reported that the nation was leading the effort to spark investment in diamonds during the global recession. Diamonds.net

-Rio Tinto Claims Record Price for Argyle Diamond. Rio Tinto Diamonds said in December it received a record price for a pink diamond mined at its Argyle mine in Western Australia. The company did not disclose who bought the diamond or the price the stone fetched saying only that it sold above the reserve price.

The stone, named “Aphrodite” after the Greek Goddess of Love and Passion, is a 1.01 carat round, purplish red diamond, Rio Tinto explained. It was sold as part of this year’s Argyle Pink Diamond Tender which ran from August to November.

“In spite of the difficult economic outlook, this truly top end of the luxury market continues to defy gravity,” said Josephine Archer, sales and marketing manager of Argyle Pink Diamonds. “In the rarified world of Argyle Pink Diamonds we have seen and continue to see, sustained demand and very strong prices.”

The Argyle mine is the only known source of rare pink diamonds. Rio Tinto reported demand for its stones has increased due to the growing scarcity of the product. Production at Argyle is expected to decline as the mine transitions to an underground operation before it eventually closes within the next 10 years. Diamonds.net

-Rio Tinto Diamond Production Declines 20% in 2008. Read more here-http://www.idexonline.com/portal_FullNews.asp?id=31763

-Rio Tinto’s total diamond production for the fourth quarter of 2008 was down 12 percent from the same quarter in 2007. Read more here-

http://www.diamondintelligence.com/magazine/magazine.aspx?id=7542

-Argyle Stops Underground Project, Reduces Diamond Production until March. Read more here-http://www.idexonline.com/portal_FullNews.asp?id=31755

-Rio Tinto Group, the world’s third largest mining company, will cut production and slow spending on the A$1.86 billion ($1.3 billion) underground expansion at the Argyle diamond mine in Western Australia to reduce debt. Development of the mine will be slowed, Gervase Greene, spokesman for London-based Rio Tinto, said in an interview. “It will mean some job losses,” he said without specifying a number.

There may be about 200 contract positions cut, said Kavneet Elvin, a spokeswoman for Macmahon Holdings Ltd., which is contracted by Rio Tinto to work at Argyle. Rio is slashing spending by $5 billion and eliminating 14,000 jobs worldwide as it seeks to reduce costs and debt. The worst global economic crisis since the Great Depression of the 1930s is reducing demand for commodities from diamonds to copper, causing mine closures and halting expansion projects.

Diamond processing facilities at the mine will be closed for as long as three months, starting in March, Rio said in an e-mailed statement. Argyle is the world’s largest diamond supplier. “We remain convinced that the diamond business has excellent long-term prospects,” said Kevin McLeish, chief operating officer of Argyle Diamonds. Macmahon said the decision will reduce its revenue from the contract to about A$20 million a year, from A$80 million a year.

The Argyle mine in Western Australian supplies 90 percent of the world’s pink diamonds, with those gems accounting for just 1 percent of total production at the mine. Diamonds and industrial minerals accounted for 13 percent of Rio’s sales in 2007. Read more here-http://www.bloomberg.com/apps/news?pid=20601081&sid;=aK_Df4kGFWr0&refer;=australia or http://www.mineweb.co.za/mineweb/view/mineweb/en/page37?oid=76668&sn;=Detail

ROUBINI-BANKING SYSTEM IS EFFECTIVELY INSOLVENT

-U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent,” said New York University Professor Nouriel Roubini, who predicted last year’s economic crisis. “I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”

Losses and writedowns at financial companies worldwide have risen to more than $1 trillion since the U.S. subprime mortgage market collapsed in 2007, according to data compiled by Bloomberg. President Barack Obama will have to use as much as $1 trillion of public funds to shore up the capitalization of the banking sector, following the $350 billion injection by the Bush administration, Roubini told Bloomberg News.

Congress last year approved a $700 billion rescue fund, of which half remains to be disbursed. Bank of America Corp., the largest U.S. bank by assets, posted a quarterly loss of $1.79 billion last week, its first since 1991, and received $138 billion in emergency government funds.

Citigroup Inc. posted an $8.29 billion fourth-quarter loss, completing its worst year, and plans to split in two under Chief Executive Officer Vikram Pandit’s plan to rebuild a capital base eroded by the credit crisis. “The problems of Citi, Bank of America and others suggest the system is bankrupt,” Roubini said. “In Europe, it’s the same thing.” Read more here-

http://www.bloomberg.com/apps/news?pid=20601110&sid;=aS0yBnMR3USk

BUFFETT-THE U.S. IS IN MIDST OF AN ECONOMIC PEARL HARBOR

-The U.S. is facing an “economic Pearl Harbor” that has spread fear throughout the country, billionaire investor Warren Buffett told Tom Brokaw in an interview broadcast on Dateline NBC. “We have a negative feedback cycle going on right now,” Buffett said, according to a transcript of the interview on CNBC’s Web site. “We have fear which leads to people not wanting to spend, and not wanting to make investments. And that leads to more fear.”

Buffett, the chairman of Berkshire Hathaway Inc., said Barack Obama is “the absolute right commander in chief” to guide the country through the financial crisis. He can “convey to the American people what needs to be done, not to expect miracles, that it’s going to take time,” Buffett, 78, said in the interview. Buffett declined to predict how long the economy will remain under duress, except to say that he doesn’t expect a recovery to take five years.

He contrasted the current economic crisis with the period “three or four years ago,” when “everybody lent you more and more on a house that kept going up, and you could keep spending money you didn’t have.” Buffett said the economic slump is the worst since World War II, though not as severe as the Great Depression. He said “it’s never paid to bet against America,” and that the country would come through the crisis. “But it’s not always a smooth ride.” Bloomberg

FINANCIAL BAILOUT-CREDIT CRISIS

-U.K. unveils second bank rescue plan. British government launches wide scale insurance plan to protect banks against further losses and boost lending. Read more here-

http://money.cnn.com/2009/01/19/news/international/britain_bank_bailout/index.htm or http://www.bloomberg.com/apps/news?pid=20601068&sid;=aeuHkvDTKczc&refer;=economy

-The new bank bailouts are not likely to work because they are run by the same people who prolonged the economic agony by throwing money at weak companies rather than allowing them to fail and encouraging the strong ones, Marc Faber, the publisher of the Gloom, Doom and Boom Report, told CNBC Monday. Read and watch video here-

http://www.cnbc.com/id/28730368

-Treasury lists 39 ‘bailed’ banks – $1.5B. The government’s Capital Repurchase Program swells to $193.8 billion, and the department offers details on payouts. Read more here-

http://money.cnn.com/2009/01/22/news/economy/bank_bailout_details.reut/index.htm

-One-Quarter of Stimulus Money Won’t Be Spent by 2011, CBO Says. The government wouldn’t be able to spend at least one-fourth of a proposed $825 billion economic stimulus plan until after 2010, according to a new report that suggests it may take longer than expected to boost the economy. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aJAoR5GECKWo

-The red line shows that, since August, banks have built their cash position in the form of Treasuries, agencies and deposits at the Fed by $865 billion, while their loans and leases have increased by only $325 billion.

In other words, rather than lending the billions of dollars received from the Treasury’s Troubled Asset Relief Program (TARP), as was originally intended, the recipient banks have squirreled away the bailout funds in order to shore up their balance sheets. Read more here-http://caseyresearch.com/displayCcs.php?e=true

-Arabs lost 2.5 trillion dollars from credit crunch: Kuwait. Read more here-http://www.breitbart.com/article.php?id=CNG.21a790b26de73c80e4048954b0b52ce9.9d1&show;_article=1

ACAMPORA-DOW MAY FALL TO 6,000 SHOULD LOW BREAK

A decline in U.S. stock indexes below the 2008 lows from November may trigger a rout that pushes benchmark averages to levels not seen since the mid-1990s, according to two leading technical analysts.

“Hopefully we don’t make new lows, because if we do, all bets are off,” said Ralph Acampora, who retired from Knight Capital Group Inc. in October 2007 after four decades on Wall Street. Should the Dow Jones Industrial Average fall below the 7,552.29 it touched on Nov. 20, it might tumble to 6,000, Acampora said. That’s 27 percent below the Jan 15 close of 8,212.49 and a level last reached in October 1996.

The lows reached by the Dow average and the Standard & Poor’s 500 Index in November are “a very, very significant area” because they are roughly where the last bear market ended in 2003, said John Murphy, chief technical analyst at StockCharts.com and the author of three books on market analysis. “If that’s broken, it becomes very negative.” Read more here-

http://www.bloomberg.com/apps/news?pid=20601213&sid;=a70_dt3j1Nk4&refer;=home

STOCK MARKET

-The Standard & Poor’s 500 Index is off to its second-worst start as analysts cut profit estimates by a record 83 percentage points and companies signal worse to come. The benchmark index for U.S. equities fell 5.9 percent in the first 11 trading days of 2009, second only to last year’s 6.5 percent drop, according to data compiled by Bloomberg going back to 1928.

The decline erased about half of a 24 percent rally since Nov. 20 as optimism that government spending would revive the economy evaporated. “Analysts’ expectations have to come down, and they have to come way down,” said Roland Lescure, who oversees $128 billion as chief investment officer of Groupama Asset Management in Paris. “The fourth quarter has been dreadful.” Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=adGy_VIX8UPo

-Merrill Lynch & Co. clients withdrew $10 billion in the fourth quarter, more than triple the pace of the previous three months, as stock markets sank and Bank of America Corp. moved to complete its acquisition of the New York- based firm.

The outflows increased from $3 billion in the third quarter, according to a Merrill filing with the U.S. Securities and Exchange Commission. Total clients assets, a figure that includes the declining value of investments, fell to $1.25 trillion from $1.48 trillion as the Dow Jones Industrial Average slid almost 20 percent. Read more here-

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

-Hedge-fund investors withdrew a record $152 billion in the fourth quarter as the industry posted its worst returns in almost two decades, according to Hedge Fund Research Inc. Global assets dropped to $1.4 trillion at the end of the year, the same level as 2006 and $525 billion less than a peak of $1.93 trillion in June, the Chicago-based firm said in a statement. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aL3fOSkanqs8&refer;=home

-Kingdom Holding Co., the investment company controlled by Prince Alwaleed bin Talal, reported a fourth-quarter loss of almost 31 billion riyals ($8.26 billion) after Citigroup Inc. shares plunged in the credit crisis. “The loss is phenomenal,” John Sfakianakis, chief economist at Saudi British Bank, said in an interview today by telephone from Riyadh. “This is the biggest corporate story for Saudi Arabia in many years.”

Citigroup lost more than 75 percent of its market value last year as its capital base was eroded by the credit crisis. The global bank recorded more than $85 billion in writedowns and losses tied to mortgage-related securities and was forced to accept $45 billion in U.S. government rescue funds. Alwaleed, 53, is the largest individual investor in New York-based Citigroup. Kingdom Holding said Nov. 20 that Alwaleed planned to boost his Citigroup stake to 5 percent.

The Saudi billionaire is increasing his holding in the struggling bank after a year in which his investments failed to keep pace with regional benchmarks. Riyadh-based Kingdom Holding dropped 62 percent, more than Saudi Arabia’s Tadawul All-Share Index. Read more here- http://www.bloomberg.com/apps/news?pid=20601110&sid;=aZylaijsw91E

BOND BUBBLE?

-”The biggest investment bubble today may involve one of the safest asset classes: U.S. Treasuries.” Barron’s January 5, 2009

“Risk-free return” is the standard tag attached to the government’s solemn obligations. An investor I know, repulsed by prevailing government yields, has a timelier description “return-free risk”. James Grant December 4, 2008

-”If the dollar holds steady, Treasury bond prices are likely to plunge; if Treasury prices hold steady, the value of the dollar is likely to plunge. Either way, foreign holders of Treasury securities are facing probable losses, and they know it” Hussman December 22, 2008

-”What bond investors know as “break even inflation rates” are currently signaling a future where the U.S. CPI averages -1% for the next 10 years. Possible but not likely. Realistically, quantitative easing, a two-trillion-dollar expansion of the Fed’s balance sheet, and the near certainty of future budget deficits approaching 6-7% of GDP should alert bond investors to once again become vigilant as was the case in the 1980s and 90s.” Bill Gross January 2009-Read more quotes here-http://www.fallstreet.com/jan1509.php

U.S. DOLLAR-TREASURIES

-Dollar is “Absolutely Doomed.” With promises of more U.S. government intervention, we are going to be in a situation of hyperinflation and a dollar that is absolutely doomed, warns Kirby Daley, senior strategist at the Newedge Group. Watch video here-http://www.cnbc.com/id/15840232?video=1005419227&play;=1

-Ron Paul: I Think It’s Gonna Take The Collapses Of The Dollar! To Get A New Mentality. Watch video here-http://www.youtube.com/watch?v=XBKB-EX3TC0

-Jim Rogers Says Worried About Dollar, Favors China. “If I were you, I would be worried about the U.S. dollar,” said Rogers in a speech at the Asia Financial Forum in Hong Kong. “The Americans are printing U.S. dollars. The Americans are going to do whatever they can to revive their economy, even if it means destroying the U.S. dollar.” Read more here-http://www.bloomberg.com/apps/news?pid=20601213&sid;=a7lAsPVUwcu0&refer;=home

-Jim Rogers sees Renminbi replacing US Dollar as world reserve currency. Read more here-http://www.midasletter.com/news/09012002_Jim-Rogers-says-Renmibi-to-replace-us-dollar.php

-A rally that sent U.S. Treasuries to their best year since 1995 is coming to an end, South Korea’s National Pension Service, the country’s biggest investor, said. U.S. government efforts to combat the recession will prompt the Federal Reserve to raise interest rates this year, said Kim Heeseok, who oversees $160 billion as head of global investments for the service in Seoul.

The decline would snap a surge that sent the securities up 14 percent last year, according to Merrill Lynch & Co.’s U.S. Treasury Master index, as investors sought the relative safety of debt. “It’s time to sell U.S. Treasuries,” said Kim, who took over as head of investments at the start of the year. “The stimulus plan may cause inflation. The U.S. will raise the benchmark interest rate.” Read more here-http://www.bloomberg.com/apps/news?pid=20601213&sid;=aPxxVXsVreKQ&refer;=home

CANADIAN INTEREST RATES-DEBT

-The Bank of Canada slashed its key interest rate to the lowest since the institution was founded in 1934 and signaled that more cuts may be needed to jolt the economy out of recession and stabilize credit markets.

Governor Mark Carney cut the target rate on overnight loans between commercial banks by half a point to 1 percent, lower than the previous record of 1.12 percent in 1958, when the rate was based on treasury-bill yields. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=azoE7jwNsTGs&refer;=home

-Canada Will Post Two-Year Deficit of C$64 Billion. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=auZdf4lSgzNk

REAL ESTATE-FORECLOSURE

-U.S. home prices fell 8.7 percent in November from a year earlier, led by declines in California and Florida, as foreclosures increased and companies shed jobs. The house price index is down 10.5 percent from its peak in April 2007, the Federal Housing Finance Agency said today in Washington. Measured monthly, the index fell 1.8 percent from October, greater than the 1.2 percent average estimate in a Bloomberg poll of 11 economists.

U.S. foreclosure filings jumped 81 percent last year as falling house prices, tighter mortgage lending and the longest recession in a quarter century battered property owners, RealtyTrac Inc. said last week. The nation lost more than 2.6 million jobs in 2008, the most since 1945, and U.S. stocks had their worst performance since the Great Depression. President Barack Obama has said the country needs to prevent foreclosures to revive the housing market and economy.

The Pacific region that includes California led the annualized declines in the house price index, with a drop of 22 percent. The South Atlantic area, including Florida, was next with a decrease of 12 percent, followed by the Mountain region, including Arizona and Nevada, which fell 9.1 percent. Read more here-

http://www.bloomberg.com/apps/news?pid=20601087&sid;=aXCzP5TjQYQs&refer;=home

-Home prices in the San Francisco Bay Area fell 44 percent last month from a year earlier as discounted, foreclosed properties lured buyers, MDA DataQuick said. The median price in the Bay Area fell to $330,000 from $587,500. A total of 6,889 new and existing houses and condominiums were sold in the nine-county region in December, up 36 percent from 5,065 a year earlier, the San Diego-based real estate research company said today in a statement. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aBFeGA16iN2U

-U.S. Homebuilder Confidence Dropped to Record Low. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=atbRtohsT710&refer;=home

-U.S. builders broke ground in December on the fewest houses since record-keeping began as sales and credit dried up, signaling the real-estate slump will keep hurting economic growth.

Housing starts fell 16 percent last month to an annual rate of 550,000 that was less than forecast and the lowest since the government started compiling statistics in 1959, the Commerce Department said today in Washington.

Building permits, an indicator of future projects, were also at a record low. Builders, whose shares have lost 76 percent of their value over the last three years, are slashing prices to compete with a record number of foreclosed homes coming onto the market. Barack Obama’s advisers say the president will use up to $100 billion in financial-rescue funds to ease the mortgage crisis.

“Homebuilders have no choice,” said Ryan Sweet, an economist at Moody’s Economy.com Inc. in West Chester, Pennsylvania. “The market is bloated with excess supply and demand is weak. The pace of housing starts will remain depressed until 2011.” Economy.com projected starts would drop to a 580,000 pace. Read more here-

http://www.bloomberg.com/apps/news?pid=20601110&sid;=aDKiShZMG5Q0

-A proposed change to bankruptcy laws that would allow judges to reduce consumers’ mortgages may not succeed in reducing the foreclosures that have been dragging down property prices, according to a Barclays Capital strategist.

Some borrowers would later default on their reworked loans while others, who wouldn’t benefit by filing because their incomes are high enough to handle their debts, would face “a greater temptation” to abandon their obligations if their neighbors get bailed out, Glenn Boyd, head of U.S. asset-backed securities strategy at Barclays in New York, said yesterday.

“Bankruptcy cramdowns essentially tells them that everyone else has been given leeway to abrogate those contracts,” he said in an interview. “The concern is more people will walk away from their homes.” Read more here-http://www.bloomberg.com/apps/news?pid=20601214&sid;=aQLJjTAxCE4Q&refer;=invest

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

The GoldBugg Report – January 27, 2009
Posted by Worldwide Precious Metals on Tuesday, January 27, 2009

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