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The Goldbugg Report - June 16, 2009

June 16, 2009

WORLD FINANCIAL REPORT ON RADIO JUNE 12 2009 SHOW

-Clive Maund gold market update.

-China to consume 40% of global gold production.

-Silver's scarcity premium should have it outperform gold.

GOLD

-Gold has overcome Warren Buffett's disparagement. Read more here-http://www.gata.org/node/7481

-Clive Maund gold market update. Read and view charts here-http://news.goldseek.com/CliveMaund/1244406591.php

-Gene Arensberg: Commercial short position in gold resembles 2005. Read more here-http://www.gata.org/node/7483

-Ned Schmidt's Gold Thoughts commentary, read more here-http://news.goldseek.com/NedSchmidt/1244527380.php

-China gold reserves hit 33.89 million ounces in April. Read more here-http://www.commodityonline.com/news/China-gold-reserves-hit-3389-million-ounces-in-April-18458-3-1.html

-China to consume 40% of global gold production. Read more here-http://www.commodityonline.com/news/China-to-consume-40-of-global-gold-production-18368-3-1.html

-Kremlin aide sees gold gaining importance in reserves. Read more here-http://www.gata.org/node/7473

-Cenbanks could justify sharp rise in gold holdings-WGC. Read more here-http://www.forbes.com/feeds/afx/2009/06/11/afx6534033.html

-Czech to mint gold, platinum, silver coins for Pope. Read more here-http://www.commodityonline.com/news/Czech-to-mint-gold-platinum-silver-coins-for-Pope-18443-3-1.html

-Bill Murphy of GATA interviewed on the gold market. Read more here-http://www.hardassetsinvestor.com/features-and-interviews/1/1604-bill-murphy-manipulation-of-the-gold-market.html

-The federal government has asked the RCMP to launch an investigation into the tens of millions worth of precious metals that have gone missing from the Royal Canadian Mint. The announcement comes after an external audit was launched to reconcile the mint's records with the physical stock of metals. And it comes after the Star revealed today that the value of the missing metal was worth more than $10 million. Read more here-http://www.thestar.com/printArticle/647671

SILVER

Gold to silver ratio at 80 to 1 with gold at $1,000 the silver price would be $12.50

Gold to silver ratio at 70 to 1 with gold at $1,000 the silver price would be $14.29
Gold to silver ratio at 60 to 1 with gold at $1,000 the silver price would be $16.67

Gold to silver ratio at 50 to 1 with gold at $1,000 the silver price would be $20.00
Gold to silver ratio at 15 to 1 with gold at $1,000 the silver price would be $66.67

-Silver's scarcity premium should have it outperform gold. In terms of the distribution of silver and gold in the earth's crust, there's about 15 times more silver than gold. If you look at the market price for the last 100 years, the ratio has trended a lot higher than that. You usually have about a 50-to-1 ratio of gold price to silver price. And so I think you're going to find that there's going to be a narrowing of that gap.

Part of the reason that silver has been at such a discount to gold is the impression that it's plentiful, which is just not the case. In fact, we know in the United States, for example, there was a 5-billion ounce inventory of above-ground silver, and that's been almost entirely depleted in the last 30 or 40 years. Now there's perhaps about 300 or 400 million ounces of documented silver inventories and I do not think new mine production will be able to keep up with demand in the years ahead. There is going to be a shortage.

Most of the gold that has been mined since the beginning of history is still sitting in bullion form some place in the world. Whereas, most of the silver that has been mined has been consumed in various industrial applications and is effectively gone forever. It's in such small quantities that it's not easily recycled and restored back to the market.

So, I think as you see silver decline in availability, you're going to see it close that gap in pricing compared to gold. I think gold is going to be rising rapidly, as I mentioned earlier, from monetary pressures-inflation and the economy. Silver should rise more rapidly just on the scarcity premium as less and less silver is available to meet worldwide demand.

These are the kind of things that will be driving factors to make silver outperform gold, and both are going to be excellent investments in the future. But I really believe that silver is going to be a much stronger performer. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page32?oid=84641&sn=Detail or http://news.silverseek.com/SilverSeek/1244583240.php

-Investors see more sheen left in silver. Investors who put money on silver, are not sulking for having missed out on the recent stock rally. Shooting silver prices have generated

handsome gains and there could be some upside left. The ratio of gold to silver price, which indicates the amount of silver needed to buy an ounce of gold, has narrowed, and is now at 62, near “the normal average” of 50-55.

Since gold is unlikely to soften, experts think that the ratio’s movement toward the normal average may be driven by a rise in the silver price. In early 2009, the ratio touched 85 following a surge in gold price. A wide gold to silver ratio indicates that silver is undervalued.

According to Debjyoti Chatterjee, an analyst with brokerage Admisi Commodities, the financial crisis has triggered a safe-haven interest in gold, but silver’s gain has been comparatively less. “Silver is still undervalued and has the potential to gain in the near-term,” he said. Read more here-http://economictimes.indiatimes.com/Investors-see-more-sheen-left-in-silver/articleshow/4637511.cms

-Clive Maund silver market update. Read more here-http://news.silverseek.com/CliveMaund/1244406467.php

-Ted Butler silver commentary. Read more here-http://news.silverseek.com/TedButler/1244574104.php

-Silver Slips Out Of Backwardation. Read more here-http://news.silverseek.com/SilverSeek/1244407285.php

-Now silver is nearing a new high. It went as low as a little over $9, and is now almost $16. It’s a long ways from being too late to buy in. Some of you are asking me about storing metals with the seller or buying ETFs. No! No! No! That’s paper metal, and there is no way to ensure they are actually putting aside the metal. Howard Ruff-Read more here-

http://www.kitco.com/ind/Ruff/ruff_jun082009.html

-Silver Flirts With $16 Mark. What it Means and Where Silver Trades From Here. Looking ahead, I think we are just seeing the beginning of the price move. Silver has the potential to double or even triple the percentage move in gold because of its dual role. (Remember, it’s a precious metal and an industrial metal.) There’s no reason we couldn’t be talking about the $20 level in the next month, and by the end of the year that move could be exponentially higher.

Some experts believe we could see the price reach triple-digits or even break $1,000 over the course of several months. While I’m not sure that we’ll see $1,000, I have confidence that silver will be an important investment theme in the coming weeks and months. And that makes silver a hot sector for your portfolio. Don’t let silver’s move occur without claiming your profits and protecting your investments. Zachary Scheidt-Read more here-http://www.kitco.com/ind/Scheidt/jun022009.html

QUOTES-QUICK HITS

-Trying to get government to be as efficient as business, is as hopeless as trying to teach cats to bark and dogs to meow. Walter Williams-Bio here-

http://en.wikipedia.org/wiki/Walter_E._Williams

-The proud American will go down into his slavery without a fight, beating his chest and proclaiming to the world how free he really is. The world will only snicker. Stanislav Mishin pravda.ru June 1 2009

-In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard." Alan Greenspan in a 1967 speech

-Upon further review, April Factory Orders were revised lower, to -1.9% from -0.9%. Oops! Ben Bernanke better spread more fertilizer because his 'green shoots' are wilting. Bill King the King Report 04 June 2009

-Goldman Sachs CEO Lloyd Blankfein said on Wednesday he believed a current upturn in world markets was probably not a full recovery from crisis and said he expected a further long recession.

"I think it's going to be a long protracted recession," he told an international regulators conference in Tel Aviv. Addressing a current upturn in markets, he said: "There is no reason to think this is it. So many things have to be sorted out. Why would this be the recovery? Read more here-http://www.reuters.com/article/usDollarRpt/idUSLA103954120090610

-Citigroup’s $1.6 billion in first-quarter profit would vanish if accounting were more stringent, says Martin Weiss of Weiss Research Inc. in Jupiter, Florida. “The big banks’ profits were totally bogus,” says Weiss, whose 38-year-old firm rates financial companies. “The new accounting rules, the stress tests: They’re all part of a major effort to put lipstick on a pig.” Read more here-http://www.bloomberg.com/apps/news?pid=20601109&sid=alC3LxSjomZ8

-Bank of Israel Governor Stanley Fischer said the U.S. Federal Reserve will “want to be careful” not to raise interest rates prematurely because people are “yelling” about inflation. Bloomberg

-“Gold will likely be increasingly used as a safe-haven monetary asset to protect and bolster national currencies as it has been throughout history.” Mark O'Byrne, executive director at Gold and Silver Investments Ltd

-"As the common currency to the world [the dollar] devalues, then gold by extension has to gain in value.” Marcus Hudson, president at Hudson & Associates

-U.S. Rep. Kirk says China is investing away from dollar and has purchased enough gold to fill up Ft. Knox twice. Read more here-

http://www.youtube.com/watch?v=PUl9DedlQJw&eurl=http%3A%2F%2Fwww.usagold.com%2Fcpmforum%2F%3Fp%3D172351&feature=player_embedded

-The Federal Reserve's balance sheet is so out of whack that the central bank would be shut down if subjected to a conventional audit, Jim Grant, editor of Grant's Interest Rate Observer, told CNBC. With $45 billion in capital and $2.1 trillion in assets, the central bank would not withstand the scrutiny normally afforded other institutions, Grant said in a live interview.

"If the Fed examiners were set upon the Fed's own documents unlabeled documents to pass judgment on the Fed's capacity to survive the difficulties it faces in credit, it would shut this institution down," he said. "The Fed is undercapitalized in a way that Citicorp is undercapitalized." Read more and watch video here-http://www.cnbc.com/id/31204170

-For the majority of his career, Jim Rogers has had both long and short positions. As of this interview, this is one of the few times Jim Rogers does not have a short position. Among the reasons for Jim not having any shorts is a possible currency crisis and thus should avoid shorting the market. The last time Jim had no shorts was the market crash of 1987.

Among other things Jim Rogers continues to be “wildly” bullish on China, “wildly” bullish on commodities. Specifically, Jim likes Silver over Gold, Natural Gas and Cotton. “I’m afraid they’re printing so much money that stocks could go to 20,000 or 30,000” Jim Rogers-Read more and watch video here-http://www.allthingsjimrogers.com/2009/06/05/jim-rogers-on-cnbc-i-have-no-short/

-One manager looking long term is Jean-Marie Eveillard, the senior investment adviser for the $7 billion First Eagle Global Fund, who says the fund is 10-12% invested in gold and gold-mining securities. “It’s insurance to protect against the fact that current policies by the American government and the Fed are potentially wildly inflationary.” Read more here-

http://www.bloomberg.com/apps/news?pid=20601110&sid=aEU0bZH.sWhc

-James Moore, an analyst at TheBullionDesk.com, had some mixed messages of his own, writing that “for the moment the traditionally inverse relationship [gold/dollar] appears to be back in place.” While, “Short-term we still view the market as overbought. Dips continue to be limited by strong buying interest as inflation fears overshadow economic ‘green shoots’ sentiment,” Moore said. Casey Daily Resource

-Italy’s financial police (Guardia italiana di Finanza) has seized US bonds worth US 134.5 billion from two Japanese nationals at Chiasso (40 km from Milan) on the border between Italy and Switzerland. They include 249 US Federal Reserve bonds worth US$ 500 million each, plus ten Kennedy bonds and other US government securities worth a billion dollar each.

Italian authorities have not yet determined whether they are real or fake, but if they are real the attempt to take them into Switzerland would be the largest financial smuggling operation in history; if they are fake, the matter would be even more mind-boggling because the quality of the counterfeit work is such that the fake bonds are undistinguishable from the real ones.

What caught the policemen’s attention were the billion dollar securities. Such a large denomination is not available in regular financial and banking markets. Only states handle such amounts of money. The question now is who could or would counterfeit or smuggle these non-negotiable bonds. Read more here-http://www.asianews.it/index.php?l=en&art=15456&size=A

-Airline losses worldwide may total $9 billion in 2009, nearly double a previous forecast, as an outbreak of swine flu compounds the effects of the recession, the industry’s main trade group said. Sales may fall 15 percent to $448 billion this year from $528 billion in 2008, the International Air Transport Association said in a statement distributed at its annual meeting in Kuala Lumpur today.

“This is the most difficult situation that the industry has faced,” IATA Chief Executive Officer Giovanni Bisignani said. “Our future depends on a drastic reshaping by partners, governments and industry.” Read more here-http://www.bloomberg.com/apps/news?pid=20601082&sid=aQSs9CGd9Auc&refer=canada

-American common equity is increasing for the first time in five years, threatening to dilute corporate profits as companies sell a record amount of stock and cut dividends the most since 1938. Read more here-http://www.bloomberg.com/apps/news?pid=20601213&sid=aCYuw3iBBUmM

-Credit card delinquency on the rise. Reporting agency says 11% increase could be an indication that tax refund checks are being used to cover daily living expenses. Read more here-

http://money.cnn.com/2009/06/08/pf/credit_card_delinquency/index.htm

-Temp work covers up depth of unemployment. Adding in discouraged, part-time employees almost doubles national rate. Read more here-http://www.msnbc.msn.com/id/31127909

-Rupert Murdoch: Unemployment Will Reach 10 Or 11 Percent. Watch video here-http://www.youtube.com/watch?v=Ax1OCiGe28A

-One in nine Americans on food stamps, USDA says. Read more here-http://news.yahoo.com/s/nm/20090603/us_nm/us_food_usa_stamps

-Benefit spending in U.S. soars to new high. Read more here-http://www.usatoday.com/news/washington/2009-06-03-benefits_N.htm

-The U.S. Economy Is Still at the Brink. Read more here-http://www.nytimes.com/2009/06/07/opinion/07cohanWEB.html?_r=1&ref=opinion&pagewanted=print

-ECB fears bank crisis in 2010 as recession drags on. The European Central Bank is paying close attention to mounting difficulties at 25 banks deemed crucial to the health of the eurozone financial system, fearing another wave of bank turmoil next year if the recession drags on. Read more here-

http://www.telegraph.co.uk/finance/economics/5498989/ECB-fears-bank-crisis-in-2010-as-recession-drags-on.html

-The depression quietly deepens. Read more here-http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5461562/Merkels-inflationary-fretting-may-wake-the-bears-from-hibernation.html

-Americans $1.7 trillion poorer. Americans' net worth falls for the second straight quarter as home and stock prices decline. Read more here-

http://money.cnn.com/2008/06/05/news/economy/fundflows/index.htm or http://www.bloomberg.com/apps/news?pid=20601087&sid=aHrP.PRcaWVU

Smart Money magazine has published a profile of John Williams, proprietor of the Shadow Government Statistics Internet site, who long has documented how the U.S. government has been falsifying economic statistics. The profile is headlined "True or False: U.S. Government Statistics Lie," and you can find it at the Smart Money site here-

http://www.smartmoney.com/investing/stocks/True-or-False-U-S-Economic-Stats-Lie/

-CNN's Fareed Zakaria talks to 'Liar's Poker' author Michael Lewis about the economic crisis and future of Wall Street. Read more here-

http://us.cnn.com/video/#/video/us/2009/06/07/gps.michael.lewis.int.cnn

-North Korea would use nuclear weapons in a 'merciless offensive'. Read more here-http://www.independent.co.uk/news/world/asia/north-korea-would-use-nuclear-weapons-in-a-merciless-offensive-1700590.html

-CIA chief says bin Laden in Pakistan. Read more here-http://www.reuters.com/article/latestCrisis/idUSN11512545

-WHO declares first 21st century flu pandemic. The World Health Organization declared the first flu pandemic of the 21st century on Thursday, Sweden's health ministry said. The health ministry said the United Nations agency was raising its pandemic flu alert to the top phase 6 on a six-point scale, indicating the first influenza pandemic since 1968 is under way. Read more here-http://www.reuters.com/article/topNews/idUSTRE55A1U720090611?feedType=RSS&feedName=topNews or http://www.bloomberg.com/apps/news?pid=20601087&sid=aQFT.hrAp_5s

-Tel Aviv search for mattress containing $1M life savings. Read more here-http://www.cnn.com/2009/WORLD/meast/06/10/israel.mattress.money/index.html

WWW.RARECOLOREDDIAMONDS.COM

-The Rare Colored Diamonds Historical Value Tracker system 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

-Watch BTV interview of Harold Seigel on colored diamonds and his website http://www.rarecoloreddiamonds.com/. Watch video here-http://www.youtube.com/watch?v=BWYMJnEz-n4

and http://www.rarecoloreddiamonds.com/articles/index.html

-Christie's Jewels: The London Sale was 84 percent sold by lot and garnered a total of $6.1 million (GBP 3.7 million). The top lot was a 44.14-carat circular-cut, fancy yellow, SI1 diamond set in an art deco mount, which fetched $865,324, or $19,600 per carat. A 10.09-carat, cushion-shaped, F, VS2 diamond sold to an Asian private for $414,064, and a 4.99-carat brilliant-cut, F,VS2 diamond sold to a member of the U.S. trade for $135,460.

Keith Penton, Christie’s head of London Jewels, said, “The appetite for fine quality period jewelry with provenance was reflected in the 10 June sale. The Barberini sapphire and diamond jewels sold for $248,600 (GPB 152,000). A stunning antique brooch set with six historic diamond drops from the reign of Louis XV, fetched $374,415 (GBP 229,000). Important diamonds continue to generate fierce demand." Read more here-http://www.diamonds.net/news/NewsItem.aspx?ArticleID=26653 or http://www.idexonline.com/portal_FullNews.asp?id=32479

-Christie's London Jewels Sale diamond info here-http://www.christies.com/LotFinder/searchresults.aspx?intSaleID=22215#action=removecoa&intSaleID=22215&sid=f09fa168-e3e6-44d8-b9f9-dc390ba36f96&selectedids=55215 and http://www.christies.com/LotFinder/searchresults.aspx?intSaleID=22215#action=refine&intSaleID=22215&sid=f09fa168-e3e6-44d8-b9f9-dc390ba36f96&selectedids=2241

INFLATION STORM COMING

-At the height of the stock panic in late November, the flagship S&P 500 stock index had plunged 49% year-to-date. Fully 2/3rds of this decline happened in the 9 weeks leading into the panic lows! Naturally the psychological impact of such an epic selloff was utterly massive. Fear exploded to unprecedented extremes.

A stock panic is a bubble in fear, and succumbing to this overwhelming fear leads to irrational selling near lows. But interestingly at the time, investors failed to recognize this truth. They sold aggressively, and they wrongly assumed their selling was rational. Of course the only thing that would warrant a 38% loss in the stock markets in just over 2 months was a new depression. So depression fears mushroomed.

With a depression comes deflation, so deflationary theories became widely accepted in December and January. Yet there was one big problem. Deflation is purely a monetary phenomenon. If prices of anything are falling simply for their own intrinsic supply-and-demand reasons, and not as a consequence of monetary contraction, then it is not deflation. In reality, the money supply was skyrocketing in the panic.

Nothing like this has ever happened before, not even in the 1970s during the last inflation scare. So the inflationary impact of a doubling of narrow money in 4 months will certainly be serious. Exacerbating this effect, as consumer spending recovers and bids on now-depleted inventories of consumer goods, prices will also be rising for pure supply-and-demand reasons. This will be perceived as inflation by most people, so we’re probably facing a perfect storm of inflation. Adam Hamilton-Read more here-http://www.321gold.com/editorials/hamilton/hamilton060509.html

-Get Ready for Inflation and Higher Interest Rates. The unprecedented expansion of the money supply could make the '70s look benign. Read more here-

http://online.wsj.com/article/SB124458888993599879.html

37^th U.S. BANK FAILS

-Bank of Lincolnwood in Illinois was closed by a state regulator, pushing the toll of failed U.S. lenders to 37 this year as unemployment and home foreclosures continue climbing amid the worst recession since the 1930s. Read more here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid=adl5eDHfDbYw

-FDIC Closes Seized Silverton Bank After Failing to Sell Assets. Read more here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSbNovPANHOE

CALIFORNIA NEARS FINANCIAL MELTDOWN

-California's government risks a financial "meltdown" within 50 days in light of its weakening May revenues unless Governor Arnold Schwarzenegger and lawmakers quickly plug a $24.3 billion budget gap, the state's controller said on Wednesday.

Underscoring the severity of California's cash crisis, Controller John Chiang, who has previously warned the state's government risks running out of cash without a budget deal, said revenues in May fell by $1.14 billon, or 17.7 percent, from a year earlier.

Additionally, the revenues of the government of the most populous U.S. state fell short of estimates in Schwarzenegger's budget plan by $827 million, Chiang said. He warned California's state government is speeding toward a financial disaster unless officials act urgently to balance its books.

"Without immediate solutions from the governor and legislature, we are less than 50 days away from a meltdown of state government," Chiang said in a statement. California's revenues have been on a dramatic slide as a result of recession, rising unemployment and its lengthy housing downturn. Read more here-

http://www.reuters.com/article/topNews/idUSTRE55974820090610

-State Revenues Buffeted by Downturn. The carnage in state budgets is getting worse, a report said Thursday, with places like Arizona being hurt by falling revenue on multiple fronts, like personal income and sales taxes. Other states are having mixed experiences, with some tax categories stable, or even rising, even as others fall off the map. Read more here-

http://www.nytimes.com/2009/06/05/us/politics/05states.html

-Schwarzenegger threatens to shut down state government. The governor says that if a budget deal isn't reached, he won't approve emergency borrowing to tide California over. Read more here-http://www.latimes.com/news/local/la-me-arnold-budget11-2009jun11,0,1278719,print.story

U.S. DEBT-DEFICIT-TRADE GAP-BANKRUPTCIES

-The next great crisis: America's debt. At this rate, your share of the load will be $155,000 in a decade. How chronic deficits are putting the country on a path to fiscal collapse. Read more here-http://money.cnn.com/2009/06/05/retirement/next_crisis_americas_debt.fortune/index.htm

-U.S. Posts Record May Budget Gap of $189.7 Billion. The U.S. budget deficit, already approaching $1 trillion so far this fiscal year, widened in May from a year earlier as the recession subtracted from revenue and the government spent more to rejuvenate the economy.

The excess of spending over revenue climbed to $189.7 billion, a record for the month and compared with a gap of $165.9 billion a year earlier, the Treasury said today in Washington. Spending rose 5.8 percent to $306.9 billion and revenue fell 5.7 percent to $117.2 billion. For the fiscal year to date, the shortfall totalled a record $991.9 billion.

While the worst recession in five decades has shown signs of easing, the jobless rate is the highest in almost 26 years and companies haven’t yet seen a sustained increase in demand, cutting individual and corporate tax receipts. The Obama administration raised its borrowing estimate by $196 billion for this quarter to help the Federal Reserve keep programs aimed at reviving the financial system.

“The alternative would have been worse if we didn’t see the government step in and stop the economy from sliding,” said Gary Thayer, senior economist at Wells Fargo Advisors in St. Louis, before today’s report. “The problems would have been much deeper than the problem we have with the deficit.” Read more here-

http://www.bloomberg.com/apps/news?pid=20601110&sid=ajwwFxVHdBBs or http://money.cnn.com/2009/06/10/news/economy/treasury_budget_may/index.htm?postversion=2009061015

-How Trillion-Dollar Deficits Were Created. Read more here-http://www.nytimes.com/interactive/2009/06/09/business/economy/20090610-leonhardt-graphic.html

-The U.S. trade deficit widened in April for a second month as exports dropped to the lowest level in almost three years and some of the largest economies continued to contract. The gap between imports and exports grew 2.2 percent to $29.2 billion, in line with forecasts, from a revised $28.5 billion in March that was larger than previously estimated, the Commerce Department said today in Washington. Foreign demand for U.S. goods dropped 2.3 percent, exceeding a decrease in imports. Read more here-

http://www.bloomberg.com/apps/news?pid=20601087&sid=aafmOqYK2v6Q

-U.S. bankruptcies highest since 2005. Read more here-http://www.reuters.com/article/smallBusinessNews/idUSTRE5583H120090609

-Bankruptcy filings rise to 6,000 a day as job losses take toll. Read more here-http://www.usatoday.com/money/economy/2009-06-03-bankruptcy-filings-unemployment_N.htm

ROUBINI-9 REASONS THE RECOVERY WILL BE A BUST

-The still-pessimistic Nouriel Roubini offers nine reasons for pessimism.

First, employment is still falling sharply in the U.S. and other economies. This will be bad news for consumption and the size of bank losses.

Second, this is a crisis of solvency, not just liquidity, but true deleveraging has not really started, because private losses and debts of households, financial institutions, and even corporations are not being reduced, but rather socialized and put on government balance sheets. Lack of deleveraging will limit the ability of banks to lend, households to spend, and firms to invest.

Third, in countries running current-account deficits, consumers need to cut spending and save much more for many years. Shopped out, savings-less, and debt-burdened consumers have been hit by a wealth shock (falling home prices and stock markets), rising debt-service ratios, and falling incomes and employment.

Fourth, the financial system — despite the policy backstop — is severely damaged. So the credit crunch will not ease quickly.

Fifth, weak profitability, owing to high debts and default risk, low economic — and thus revenue — growth, and persistent deflationary pressure on companies’ margins, will continue to constrain firms’ willingness to produce, hire workers, and invest.

Sixth, rising government debt ratios will eventually lead to increases in real interest rates that may crowd out private spending and even lead to sovereign refinancing risk.

Seventh, monetization of fiscal deficits is not inflationary in the short run… slack product and labor markets imply massive deflationary forces. But if central banks don’t find a clear exit strategy from policies that double or triple the monetary base, eventually either goods-price inflation or another dangerous asset and credit bubble (or both) will ensue.

Eighth, some emerging-market economies with weaker economic fundamentals may not be able to avoid a severe financial crisis, despite massive IMF support.

Finally, the reduction of global imbalances implies that the current-account deficits of profligate economies (the U.S. and other Anglo-Saxon countries) will narrow the current-account surpluses of over-saving countries (China and other emerging markets, Germany, and Japan). But if domestic demand does not grow fast enough in surplus countries, the resulting lack of global demand relative to supply — or, equivalently, the excess of global savings relative to investment spending — will lead to a weaker recovery in global growth, with most economies growing far more slowly than their potential.

So, green shoots of stabilization may be replaced by yellow weeds of stagnation if several medium-term factors constrain the global economy’s ability to return to sustained growth. Unless these structural weaknesses are resolved, the global economy may grow in 2010-2011, but at an anemic rate. Read more here-http://blogs.wsj.com/economics/2009/06/09/roubini-those-are-yellow-weeds-not-green-shoots/ or http://www.businessinsider.com/henry-blodget-roubini-9-reasons-the-recovery-will-be-a-bust-2009-6

STUDY-U.S. DOLLAR SERIOUSLY OVERVALUED-FOREIGN CURRENCY

-The U.S. dollar is "seriously overvalued," mostly against the Chinese renminbi and some other Asian currencies, according to a new study published on Wednesday. The Peterson Institute for International Economics, a Washington-based think tank, said the majority of the 29 currencies it studied need to appreciate against the dollar, with a large rise especially needed by the Chinese currency.

"The principal counterpart to the overvalued dollar is the undervaluation of the Chinese renminbi, which would have needed to appreciate about 21 percent on a weighted average basis and about 40 percent against the dollar to achieve equilibrium," said the study by economists William Cline and John Williamson.

Investor flight to the dollar safe haven since last year has pushed the U.S. currency up by about 10 percent, which on top of an estimated overvaluation of about 7 percent a year ago made for an overvaluation of about 17 percent by March this year, the study said.

But the dollar slid to its low in 2009 on June 1 against the euro and a basket of currencies amid optimism the prospect of a global economic recovery boosted riskier assets. Despite the dollar's recent slump, the study said the currency remained "substantially overvalued." Read more here-

http://www.reuters.com/article/reutersEdge/idUSTRE55301520090604

-Senior Chinese leaders have privately voiced fear over the soaring US budget deficit and are increasingly looking to diversify from the dollar, a Republican congressman said. "We heard across the board in private substantial, continuing and rising concern," Representative Mark Kirk said after a trip to China that included talks with government officials and central bank chief Zhou Xiaochuan.

"It's clear that China would like to diversify from its dollar investments," the lawmaker said at the Center for Strategic and International Studies, a Washington think-tank. Kirk's assessment differed with that of Treasury Secretary Timothy Geithner, who said last week on a separate visit that Chinese leaders had expressed "justifiable confidence" on the future of the recession-hit US economy.

Kirk traveled with Representative Rick Larsen, a member of President Barack Obama's Democratic Party, who also painted a less gloomy picture of Chinese officials' views. China is the largest creditor to the United States with some 700 billion dollars invested in Treasury bonds. Zhou earlier this year floated the idea of replacing the dollar with a basket of currencies as the benchmark global unit.

Kirk said that Chinese leaders were sharply critical in private of the US Federal Reserve's policy of "quantitative easing" -- a form of flooding the financial system with cash, which critics deride as printing imaginary money. Read more here-http://www.breitbart.com/article.php?id=CNG.59d40e44d29fb24306de4a8aee8d691e.891&show_article=1

-IMF Says New Reserve Currency to Replace Dollar Is Possible. Read more here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aUYeJEwZaQrw

-The dollar’s status as the world economy’s sole reserve currency may deteriorate, said Nouriel Roubini, the New York University economics professor who predicted the financial crisis.

“We may see complementary reserve currencies,” Roubini said at a conference today in Athens. While it’s “not going to happen overnight,” the development “will diminish the role of the dollar over time.” Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid=aRMZbES7DNFc

-A top Chinese banker on Sunday called on the U.S. government and the World Bank to sell yuan-denominated bonds in Hong Kong and Shanghai to encourage the development of debt markets in those centers and to promote the yuan as a major international currency. Read more here-http://www.reuters.com/article/newsOne/idUSTRE5561QK20090607

-Russian President Dmitry Medvedev questioned the U.S. dollar’s future as a global reserve currency and said using a mix of regional currencies would make the world economy more stable. Russia may consider ruble-yuan swaps. The dollar “is not in a spectacular position, let’s be frank, and its prospects cause various questions as do the prospects for the global currency system,’’ said Medvedev. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid=anvHhN4CqQOE

-Russia May Swap Some U.S. Treasuries for IMF Debt. Read more here-http://www.bloomberg.com/apps/news?pid=20601068&sid=ap2Aq3GZySvE

INTEREST RATES

-Pacific Investment Management Co., which runs the world’s biggest bond fund, said the economic outlook “looks bad” for most of the world and central banks will refrain from raising interest rates. “Rate hikes will be some time in coming,” Andrew Balls, a managing director for the company in London, wrote in a report on the company’s Web site. Read more here-

http://www.bloomberg.com/apps/news?pid=20601087&sid=apSiuh9eDtFE

-New Zealand’s central bank kept its benchmark interest rate unchanged for the first time in a year amid signs that a pickup in the housing market may bring the worst recession in more than three decades to an end.

“We expect the New Zealand economy to begin growing again toward the end of this year, but the recovery is likely to be slow and fragile,” Reserve Bank Governor Alan Bollard said in a statement in Wellington today after leaving the official cash rate at 2.5 percent. “It’s likely to be some time before monetary policy support can be withdrawn.” Read more here-

http://www.bloomberg.com/apps/news?pid=20601087&sid=aGuhF21ksZ9k

-Bank of Korea Keeps Rate Unchanged at Record-Low 2%. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid=accR85HmVWqY

-European Central Bank Governing Council member Axel Weber said central banks may have to raise interest rates before inflation risks materialize as a precaution to prevent future crises. Read more here-http://www.bloomberg.com/apps/news?pid=20601068&sid=aJjYH6BdK6CI

OIL-NAT GAS

-Pricey oil bringing revolution in lifestyle, writer says. Say goodbye to winter trips and millions of cars, Jeff Rubin warns. Read more here-

http://www.edmontonjournal.com/business/fp/Pricey+bringing+revolution+lifestyle+writer+says/1669859/story.html

-Looming oil shock means globalization's end. Triple-digit oil prices are once again around the corner and will sound the death knell for globalization, an audacious but sometimes prescient Canadian economist predicts in a new book.

Jeff Rubin, who until two months ago was the chief economist and strategist at investment bank CIBC World Markets, argues that the days of cheap oil are over, making the global economy unsustainable and turning back the clock on the way we live.

"Everything we have taken for granted is about to change," Rubin said in an interview with Reuters a few days after the publication of his book "Why your world is about to get a whole lot smaller: Oil and the end of globalization".

"Our cars, our homes, our whole world has been getting bigger in the cheap-oil era. Now it is about to get smaller, And, greener. Much greener," Rubin said. In his book, Rubin argues that an ever-decreasing amount of supply but ongoing insatiable demand for oil will propel prices to highs not yet seen. Read more here-

http://www.reuters.com/article/GCA-Oil/idUSTRE54P4O520090526

-Predictions of $250 a barrel on fears for oil reserves, hopes of economic recovery and hedging against weak dollar. Read more here-

http://www.guardian.co.uk/business/2009/jun/10/oil-market-reserves

-Crude oil is set to “spike” without new investments and a price surge is in the making, Royal Dutch Shell Plc Chief Executive Officer Jeroen van der Veer said. The global energy industry is facing “severe challenges” and the world needs unconventional energy supplies to meet rising demand, he said at the Asia Oil and Gas Conference in Kuala Lumpur today.

Oil’s decline to about $32 a barrel in December from a record $147.27 reached in July prompted explorers to delay or halt projects, a move that will cut supplies and push prices higher as the global economy recovers. Crude has since rebounded, gaining 52 percent this year on signs of economic growth and record production cuts by the Organization of Petroleum Exporting Countries.

“The economy will turn, demand will come back and the overcapacity of supply will disappear,” van der Veer said. Oil and natural gas won’t be able to meet all the additional demand that’s required, van der Veer said. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid=aDn4zJ9bhRag

-The decline in crude oil prices that began in mid-2008 was historic plunging over $90 per barrel in just eight months. Over the past four months, however, crude oil prices have spiked up nearly $30 per barrel. Today’s chart provides some perspective on the historic decline and recent spike with a long-term view of inflation-adjusted West Texas Intermediate Crude.

Today's chart illustrates that most oil price spikes were a result of Middle East crises and often preceded or coincided with a US recession. It is also interesting to note that the recent spike in oil prices has brought the price of oil back to a relatively high level a level that was surpassed only during the major price spikes of 1979-1982 and 2005-2008. Read more here-

http://www.chartoftheday.com/20090605.htm?T

-This year’s 34 percent decline in natural gas made it the worst performing commodity and the cheapest next to oil since the fall of the Soviet Union. That’s about to change, if history is any guide.

Natural gas lost 73 percent in 11 months as the U.S. fell into the deepest recession in 50 years and drillers failed to idle rigs fast enough to control inventories. Stockpiles are 22 percent larger than the five-year average, the Energy Department said. Oil costs 18 times more than gas, the biggest gap since 1992, when the collapse of communism cut supplies from Russia, according to data compiled by Bloomberg.

Now, gas drillers are tightening their grip on production just as the economy shows signs of improving. The number of U.S. rigs plunged 56 percent in nine months, the steepest drop in two decades, Baker Hughes Inc. said. Gas may rise 38 percent in the second half, while oil will gain 22 percent, according to Bloomberg analyst surveys.

“The scope for gas to rally before the end of the year is bigger than for oil,” said Ben P. Dell, an energy analyst with Bernstein Research in New York. “The gas market is playing out as expected. Supplies are getting drastically reduced because of falling rig counts, and demand is showing some signs of stabilization.” Read more here-

http://www.bloomberg.com/apps/news?pid=20601110&sid=ao8VzWCo7.90

-The surplus in natural gas may stay longer than expected as the U.S., Australia and Qatar boost output from unconventional sources and in liquefied form, Morgan Stanley said. “I will expect gas to stay in excess for years to come, even after the economic recovery,” William Wicker, Morgan Stanley’s managing director and vice chairman of global natural resources, told the Asian Oil & Gas Conference in Kuala Lumpur today. “This is not a short-term phenomenon.”

There may be an excess of as much as 2.5 trillion cubic feet of gas this year, he said in a presentation, as the global recession contracts output and reduces demand for electricity. Gas supplies may be around 110 trillion cubic feet compared with 106.5 to 108.5 trillion in demand, he said.

“One of the most significant things to happen is shale gas production in the U.S.,” he said. Output rose from 1 billion cubic feet a day in 2000 to about 8 billion cubic feet a day, Wicker’s presentation showed. The U.S., Europe, Russia, Japan and Latin America, which account for 69 percent of the global gas market, are contracting, he said. Japan, the world’s biggest buyer of liquefied natural gas, may see imports decline to 61 million metric tons this year from 69 million last year, he said. Read more here-

http://www.bloomberg.com/apps/news?pid=20601072&sid=a7Dn17iAbUEo&refer=energy

STOCK MARKET CHARTS

REAL ESTATE-MORTGAGES-FORECLOSURES

-Shiller Says Home Prices in U.S. May Decline for ‘Some Time.’ Shiller noted that U.S. home prices didn’t begin moving up, “even incrementally,” until six years after the end of the prior housing boom in 1990-91. Home prices in Japan fell every year for 15 years after the 1991 bursting of Japan’s real estate bubble, he wrote in the column.

While long price declines appear to defy common sense and traditional economic laws, Shiller writes that most homeowners don’t behave like investors trying to time the market. Decisions to buy or sell homes are more frequently tied to life-style changes or growing pressures of economic necessity, further reason why a buying decision would be delayed at a time when unemployment is at quarter-century highs. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid=azlxhEqiym6Q

-House Prices Likely To Crash Through Fair Value And Bottom Down 45%-50%. Read more here-http://www.businessinsider.com/henry-blodget-house-prices-will-crash-through-fair-value-and-bottom-down-45-50-2009-6

-The Five Waves of the Housing Collapse. Read more here-http://www.businessinsider.com/henry-blodget-the-five-waves-of-the-housing-collapse-2009-6

-Option ARMs Threaten U.S. Housing Rebound as 2011 Resets Peak. Shirley Breitmaier’s mortgage payment started out at $98 when she refinanced her three-bedroom home in Galt, California, in 2007. The 73-year-old widow may see it jump to $3,500 a month in two years. Breitmaier took out a payment-option adjustable rate mortgage, a loan popular during the housing boom for its low minimum payments before resetting at higher costs later.

About 1 million option ARMs are estimated to reset higher in the next four years, according to real estate data firm First American CoreLogic of Santa Ana, California. About three quarters of those loans will adjust next year and in 2011, with the peak coming in August 2011 when about 54,000 loans recast, the data show.

Option ARM borrowers hit with unaffordable monthly payments are another threat to the housing recovery and the economy, said Susan Wachter, a professor of real estate finance at the University of Pennsylvania’s Wharton School in Philadelphia. Owners who surrender properties to the bank rather than make higher payments for homes that have plummeted in value will further depress real estate prices and add to the inventory of properties on the market, she said.

“The option ARM recasts will drive up the foreclosure supply, undermining the recovery in the housing market,” Wachter said in an interview. “The option ARMs will be part of the reason that the path to recovery will be long and slow.” Option ARM recasts will mean more pain for California, the state with the most foreclosures in the U.S. Read more here-

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aQ_ZgC75Zfyw

-Some owners who used homes to buoy finances are sinking. They relied on cash-out refinancing or took out home equity lines of credit to get capital during the easy-money era, but now many are underwater on their loans. Read more here-http://www.latimes.com/business/la-fi-loans9-2009jun09,0,2313433,print.story

-U.S. Commercial Mortgage Defaults May Rise to 17-Year High. Read more here-http://www.bloomberg.com/apps/news?pid=20601103&sid=a7pUfRPFjS7Q&refer=us

-MetLife Says Commercial Mortgage Defaults Will Rise. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid=aoyMd8TReXo8

-Foreclosure crisis spreads from subprime to prime mortgages. Read more here-http://www.usatoday.com/money/economy/housing/2009-06-08-home-loan-foreclosures-subprime_N.htm

-May U.S. foreclosures third highest on record. U.S. Foreclosure Filings Top 300,000 as Bank Seizures Loom. U.S. foreclosure filings surpassed 300,000 for the third straight month in May and may hit a record 1.8 million by the first half of the year, RealtyTrac Inc. said.

A total of 321,480 properties received a default or auction notice or were repossessed last month, up 18 percent from a year earlier, the Irvine, California-based seller of default data said today in a statement. One in 398 U.S. households received a filing last month.

“The foreclosure bucket is filling faster than it’s emptying,” Jay Brinkmann, chief economist of the Washington- based Mortgage Bankers Association, said in an interview. “It will continue through next quarter at least.”

Job losses and falling property prices are delaying the housing recovery as more homeowners are unable to pay the mortgage or have difficulty selling or refinancing. The unemployment rate climbed to 9.4 percent in May, the highest since 1983, the Labor Department said last week. Prices in 20 U.S. cities dropped 18.7 percent in March, according to the S&P/Case-Shiller home-price index. Read more here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aHEpXU3Pg_oU or http://www.reuters.com/article/newsOne/idUSTRE55A0NS20090611

-RealtyTrac's Sharga Interview on Foreclosures. Watch video here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aKxTrhYN0blY

© 2009, Worldwide Precious Metals.
www.wwpmc.com

The Goldbugg Report - June 16, 2009
Posted by Worldwide Precious Metals on Tuesday, June 16, 2009

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