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The Goldbugg Report – September 01, 2009
September 1, 2009
WORLD FINANCIAL REPORT ON RADIO AUG 28 2009 SHOW
-Silver to Jump 29% on ‘Crushing’ U.S. Debt
-Why China is about to buy a lot more silver.
-Clive Maund gold market update.
GOLD
-Clive Maund gold market update. UPSIDE BREAKOUT ALERT: gold is now believed to be very close to an upside breakout to new highs, a development that should lead to a rapid advance towards the $1300 area, and it should be noted that this scenario will not be negated by a brief sharp drop that may be aimed at wrong-footing a lot of traders. The reasons for shifting from our recent stance of neutral/bullish to flat out bullish are as follows.
1. Massive inflationary pressures building as the gargantuan panic measure increases in M0 money supply by the US Fed late last year and well into this year come through the pipe, replicated in other countries around the world although probably not on such a grand scale. 2. strong breakout by US stockmarkets late last week that portends continued gains, confirming the building inflationary pressures. 3. ongoing gains in the prices of other commodities copper continues to advance, crude oil threatening to break clear above June highs.
4. window for dollar to stage a strong rally believed to be closing, increasing downside risk it appears that the dollar is to be sacrificed in favour of Treasuries a quite logical way of reducing the debt burden, even if not entirely appreciated by creditors. 5. significant improvement in gold COT last week. 4. gold’s best month of the year seasonally, September, is just around the corner. Read more here-http://news.goldseek.com/CliveMaund/1251065400.php
-Gold ‘Deja Vu’ Shows Advance Above $1,000: Technical Analysis. Gold will rise to more than $1,000 an ounce next month based on moving-average “deja vu” patterns since the start of 2005, according to Barclays Capital.
This year’s trading was similar to previous patterns that indicated gold has a tendency to “break higher” in September and the 200-week moving average showed the uptrend on the precious metal remained intact, Jordan Kotick and other analysts at Barclays wrote in a report on Aug. 21.
Bullion jumped 7.8 percent in September 2005 and 10 percent in September 2007, laying the ground for the metal to rise to new highs in the following months. “This is likely a repeat of Aug. 2005 and Aug. 2007 when the market broke significantly higher in September,” the analysts said. “We are looking for a breakout above $1,033 next month.” Gold rose to a record $1,032.70 on March 17 last year.
JPMorgan Chase & Co., Standard Chartered Bank and three other financial companies predicted bullion would top $1,000 in the fourth quarter, the survey showed. Read more here-
http://www.bloomberg.com/apps/news?pid=20601012&sid;=au9vWBOfMd9g
-Charts: Gold to Hit $1,040 ‘Very Quickly’; S&P; to Weaken. Gold’s “breaking out” to a higher level as imminent, Chris Locke, managing director at Oystertrade.com Management, told CNBC Wednesday, as other analysts have said the precious metal could shine again as inflation fears resurface.
“We’re on this point of the market making a substantial move to the upside,” Locke said. “We will see the market move through the bull market highs of $1,040 very, very quickly,” he added. Read more here-http://www.cnbc.com/id/32562897
-Can you buy gold today and then walk away? Gold has tracked its seasonal pattern very closely this year, and indications are it reached a low during July. Traditionally, August is an excellent time to buy gold. Read more here-http://www.mineweb.net/mineweb/view/mineweb/en/page31?oid=87932&sn;=Detail
-Gene Arensberg: Gold, silver consolidating, waiting for a sign. Read more here-http://www.gata.org/node/7725
-Zimbabwe considering gold-backed currency. The country is looking for an alternative to its hyperinflation-ravaged Zimbabwean dollar that was replaced by multiple currencies in January. Read more here-http://www.mineweb.co.za/mineweb/view/mineweb/en/page504?oid=87809&sn;=Detail
-Adrian Douglas: ‘Cash cost’ hides unprofitability of gold mining. It is estimated by some in the industry that a gold price of $1,500 per ounce would be necessary for new reserves to be exploited at a profit today.
As mining costs climb, the price of gold must climb at an equal or faster rate for production to continue. But the gold cartel has been preventing that, and as a result world gold production is in rapid decline. Read more here-http://www.gata.org/node/7709
-Global gold hedge book drops just 31 tonnes in Q2 SocGen. Next year should see at least 80 tonnes of dehedging a far cry from the annual average of 290 tonnes since net dehedging became part of the annual supply-demand balance in 2000. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=88114&sn;=Detail
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 40 to 1 with gold at $1,000 the silver price would be $25.00
Gold to silver ratio at 30 to 1 with gold at $1,000 the silver price would be $33.33
Gold to silver ratio at 20 to 1 with gold at $1,000 the silver price would be $50.00
Gold to silver ratio at 15 to 1 with gold at $1,000 the silver price would be $66.67
-Silver to Jump 29% on ‘Crushing’ U.S. Debt, Coeur d’Alene Says. Silver prices will jump 29 percent by the end of the year as soaring U.S. debt spurs inflation, said Dennis Wheeler, the chief executive officer of Coeur d’Alene Mines Corp., the largest U.S. producer of the metal.
Demand from investors seeking a store of wealth accounts for more than half of silver’s 23 percent price jump this year before today, Wheeler said in an interview in New York. The metal will reach $18 an ounce with supplies little changed and demand buoyed by purchases from exchange-traded funds, he said.
“We have this crushing new debt and dollar weakness,” Wheeler said today. “The outlook for precious metals is very positive, and silver will be No. 1.” The U.S. government has pledged $12.8 trillion, an amount that approaches U.S. gross domestic product, in a bid to stem the longest recession since the 1930s. The spending will erode the value of the dollar and boost the appeal of silver and gold as alternative assets, Wheeler said.
The metal will outperform gold in the next few years, Wheeler said. “There’s a lot of anxiety out there over this debt,” Wheeler said. “Around the world, there are a growing number of investors who want protection. They’re going to want silver as part of their portfolio.” Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aAMz2EFsmKtk
-Why China is about to buy a lot more silver. Citizens urged to put 3% to 5% of their net worth in precious metals. Two years ago, on August 21, China’s government allowed its citizens to invest in an entirely new asset. It allowed them to invest in Hong Kong-listed stocks. Hong Kong is a special region of China. It’s one of the most dynamic, capitalistic places on Earth. The move from the government was a move toward “investment freedom” for the Chinese people.
On that day, Hong Kong’s benchmark stock index rose 8.74%. Over the next two and a half months, it skyrocketed from 11,000 to over 20,000. It was a chapter in a story that you should get used to over the coming years: When the Chinese decide to invest in something, it causes giant ripples across the world. This sort of situation is starting to happen again: This time it’s happening in precious metals, especially silver.
The Chinese have a centuries-old affinity with silver. It began in the 1500s with the explosion of trade with Mexico via the Spanish galleons. These sailing ships were the super-tankers of their age. They made one voyage per year, carrying tea, silks, and spices from Asia to Mexico. The ships returned to Asia with gold and silver. After the Chinese threw off imperial rule in 1912, the country used silver money. Today, the Chinese word for “bank” means, “silver movement.”
And now that China is becoming one of the richest, most dynamic capitalistic countries on Earth, this story is about to take a modern twist. The Chinese want silver again. Thanks to a decade of wealth accumulated by regular Chinese citizens, there is plenty of cash to chase good investments. As the famed global investor Jim Rogers points out, these people are the best capitalists in the world. They are great savers. Chinese people want their money to work for them so they invest.
I recently watched a China Central Television piece on gold investing. According to the program, there are some 400 million households in China, with an average ownership of about 0.1 ounces of gold. The average gold ownership in most emerging countries works out to about one ounce per household. The Chinese are beginning to make up that gap. From 2006 to 2007, domestic demand for gold rose 60% to around 700,000 ounces. Experts continue to urge citizens to put 3% to 5% of their net worth in precious metals.
Chinese government statistics show the average urban Chinese household has about $1,300 in disposable income to invest. While that doesn’t seem like much, when you add up all those households, there’s about $36 billion that could move into the next big investment opportunity precious metals.
The government is now actively encouraging its citizens to buy gold and silver. They recently unveiled silver bullion for investing (you can see the video here). The premise is that gold was 50 times more expensive than silver in 2007, but is now 70 times more expensive.
The government is promoting silver bullion as an investment for regular citizens. And remember, a bunch of Chinese students laughed at U.S. Treasury Secretary Tim Geithner this year when he claimed the dollar was safe. The Chinese know the value of real assets real money like gold and silver.
What does this mean for silver prices? It’s impossible to say. But here’s a little math that interests me. According to the Silver Institute, demand for silver in 2008 (for industry, jewelry, and investing) was 832 million ounces. At today’s price, that’s an $11.5 billion market, or about 1/3 the capital available in China alone.
The most important thing to understand about this situation is the Chinese people become freer every time the government loosens up a restriction. These people couldn’t legally buy silver bars before. Now, they can. They’re becoming richer, and they will continue to do so for decades. Add this to a world already waking up to the grand currency debasement, and you have a recipe for the continuation of the big bull market in silver and other precious metals. Read more here-http://www.stockhouse.com/Columnists/2009/Aug/21/Why-China-is-about-to-buy-a-lot-more-silver
-Silver’s fundamentals offer plenty of reasons to be bullish in the coming years. Relentlessly growing global investment demand coupled with reduced production is a recipe for much higher prices. With something like 3/4ths of all the silver mined globally being merely a byproduct, primarily of base metals, supplies will remain constrained. Investors will have to compete in a tiny market for this scarce metal.
While silver’s long-term bullish case is well-known among its investors, this volatile metal also has incredible near-term potential. In the coming months, silver is likely to witness exceptional gains. Unfortunately, the driver of this potential big autumn silver rally is not widely discussed. Thus many investors and speculators still sidelined since the panic risk missing out on this rare opportunity. Adam Hamilton-Read more here-http://www.321gold.com/editorials/hamilton/hamilton082109.html
-Silver is being used to kill germs. In a world where the norovirus travels by cruise ship and the swine flu can hop a plane, we have become a country with germ compulsions, a nation of microbephobes. Still, bacteria have learned to outsmart antibiotics, and Pure Bioscience, a company based in El Cajon, Calif., says it is counterattacking with an even smarter biocide.
The company developed a molecule called silver dihydrogen citrate, or S.D.C., that it bills as an all-purpose germ killer. Hungry germs are attracted to the citrate part of the molecule, which they recognize as a food source. Then microscopic particles of ionized silver, an antimicrobial agent, emerge and destroy the germ cells.
Tradition is found here: silver has been used since the days of the ancient Greeks to purify water containers. And silver dihydrogen citrate turns out to be a pretty effective killer of certain viruses, bacteria and fungi. Read more here-http://www.nytimes.com/2009/08/23/business/23stream.html
-Clive Maund silver market update. Read more here-http://news.silverseek.com/CliveMaund/1251053968.php
-David Morgan silver commentary, China and silver. How much silver investment demand there will be and how it will catch on, nobody knows. I expect it to catch on. I believe that, as we get nearer to the ultimate top in the precious metals markets, silver will far out-perform gold. My belief, and this certainly can’t be proven, is that people have almost a financial survival instinct, just like a basic survival instinct, and when things are really going south in a hurry, people will seek something, anything, that they perceive will preserve their wealth or protect them.
And both metals have done that throughout history. Now, if gold is going north of 1,000 or 2,000, pick a number; the idea is that you might not have that much to preserve, but whatever you’ve got you are highly motivated to preserve, and you’re going to go to either the next best thing or the only thing that you can and that of course is the silver market.
Now we saw a taste of that in 1980. Basically what was happening at the panic buying phase of the market where “everybody,” or about 1 percent of the population, was trying to ditch the U.S. dollar. They were saying, “Get me anything but dollars the dollar is history.” And they were seeking silver and gold, and a lot of silver was purchased at the top because silver was more affordable to a lot of these people.
I see that taking place this time around, except this time it’s not going to be 1 percent of the United States’ population, it’s going to be roughly 1 percent of the world’s population. And on top of that, you’ve got to remember that at the time silver hit $50.00 in 1980, and there’s roughly 1.6 billion ounces more fine silver available above ground than there is today.
So, we have a much smaller silver supply that’s available for investment or industrial use or either, and we also have a much larger base of people willing to get into the silver market than there was before. I think that the $50.00 level is going to be breached in real terms. If we take the $50.00 price that silver achieved in 1980 and adjust for inflation, that’s roughly $130.00 an ounce in today’s dollars!
I have been on record as saying I see silver going over $100.00 an ounce in U.S. terms. Now I want to be very clear here: I’m very practical. For something to get to $100.00 it means it must get past $20.00 again and then it needs to get to $30.00 and $40.00 and $50.00 and on and on, so certainly I’m not trying to give any false hope or false indicators here. But I know these markets fairly well and when the U.S. dollar goes this time, the panic of 1980 will look like a warm-up event.
That is, in this euphoric phase of the market where everybody and his brother and mother and aunt and uncle are looking to get into precious metals, that’s all you’re going to see on the mainstream news. You’re going to see silver and or gold on the cover of TIME Magazine.
What you’re going to see is a huge, huge move. But before we get there, we have to come off the base that we’re building this long consolidation, this wide trading range and then after that we will get to the phase of the market psychologically, where there’s optimism in the precious metals again.
During this phase you might see that gold goes from, let’s say a $1,000.00 barrier, breaks through that, and moves up nicely over several months to maybe $1,500.00, $2,000.00, $2,500.00, I don’t know the number exactly. But I want to give you the correct idea.
Gold (silver too) builds this back-and-forth and back-and-forth upward trend over several months, and then after that’s accomplished, you usually get some type of pullback and consolidation. But in most markets, shortly after that, the market will go into the euphoric state. This is where, as stated earlier, everyone wants out of the dollar and into precious metals. This is usually a very fast moving market with new highs being set day after day, and people simply cannot believe that the gold and silver prices are what they are! Read more here-
http://news.silverseek.com/SilverInvestor/1250862020.php
-Ted Butler interview with King World News. Listen here-http://www.gata.org/node/7705
CHARTS OF THE WEEK-QUOTES-QUICK HITS
-Chart of the week: The White House Caves On The Deficit. Today The White House confirmed news that leaked last Friday, about the deficit being wider than they had previously estimated. As you can see, while the deficit as a percentage of GDP has been revised down for this year due to less bailout spending it’s been bumped up every year going out to 2019. Next year the hike is big from 8.6% to 10%. Read more here-http://www.businessinsider.com/chart-of-2009-8
-Chart of the week. New Foreclosures Dwarf New Home Sales. New home sales are ticking up again, bringing some much-needed relief to the beleaguered homebuilders. But watch out. Mark Hanson produced this chart, showing foreclosure starts against new home sales. As you can see, the new foreclosure starts jumped even more in July than new home sales, meaning trouble down the road for homebuilders especially once that $8,000 first-time homebuilder tax credit runs out. Read more here-http://www.businessinsider.com/chart-of-the-day-xxxx-2009-8
-Chart of the week: When Social Security runs Out. The CBO has updated its projections for both outlays and revenue (via Market Ticker). For now, outlays are still less than revenue, though the “surplus” consists of IOUs.
But the day is coming when the government won’t have that surplus anymore, and that could happen very shortly. The “outlays” line is an estimate, but the dark green shaded space shows the range of possibilities, including the possibility that a shortfall is just around the corner. Read more here-
http://www.businessinsider.com/chart-of-the-day-social-security-2009-8
-”The people who delivered this problem to us don’t have a whole lot of sanity, except where it reflects their own personal wealth.” Jim Sinclair.
-There are really only three types of investors: 1-Bulls, 2-Bears, and 3-Pigs. The bulls and bears will each have their days but the pigs always end up going to the slaughterhouse.
Having CNBC-TV as the world’s largest slaughtering house for pigs is more than enough. Peter Grandich
-In 25 years, I’ve never seen an investment perform as it was intended to yet receive little praise (and much dismay) as gold has. Throughout 2008 and early 2009, many in the media questioned why gold was not performing well given the so-called market conditions for it. Forgive me, but I suspect any and all investors who lost money in the more “touted” plays like stocks would gladly take what gold was up versus their own losses in those great blue chip stocks.
Now gold’s supposed inability to go much higher if not fall dramatically is being bantered about and such talk is not limited to the usual anti-gold crowd. This is music to my ears as after nearly increasing 300% this decade, such a great bull run usually doesn’t end in a whimper but instead a busting of over enthusiasm something we’re not even remotely close to.
Gold’s seasonally weak period ends in a few weeks. Any and all selling bouts are quickly met with strong physical buying. Central bank sales, once the darling of all carrots dangled by the bears, has little or no impact any more on the price. A tremendously long-term bullish reverse head and shoulders pattern is setting gold up for its next leg up. A four-digit gold price is not a question of if, but when. Not too long after that, the lowest four-digit price should become the floor, not the ceiling. Peter Grandich-Read more here-
http://news.goldseek.com/Grandich/1251059404.php
-Gold is going to a minimum of US$2,000 an ounce by 2011, in my view, for all the reasons above. World money supply has doubled in the last two years. No new gold supply, plus dwindling faith in ‘fiat’ currencies all around the world. Neither the dollar, nor the yen, nor the Euro will fill the bill. The Hon Robert Lloyd-George, chairman of Lloyd George Management, Hong Kong-Read more here-http://www.321gold.com/editorials/thomson/thomson082109.html
-I maintain a long-term bullish view on gold bullion, with my long-term target price set at US$3,360 an ounce. Christopher Wood, managing director and equity strategist, CLSA Asia-Pacific Markets, Hong Kong
-Just as economists did not expect the recent collapse of global markets, they do not expect what will happen next. So much money is now in circulation, economists actually believe that rising stock markets reflect expanding economic activity instead of reflating speculative bubbles.
The trillions of dollars of credit being pumped into the global economy is only an interim solution to a long-term systemic problem; and, until those problems are fixed, the consequences will continue, consequences which now include a severe deflationary depression coupled with the possibility of hyperinflation.
These are the real possibilities which now face the global economy, no matter how optimistic the ostriches believe the future to be. Buy gold, buy silver, have faith. Darryl Robert Schoon-Read more here-http://www.kitco.com/ind/schoon/aug272009.html
-Since March we have watched a stock market rally borne by low volume and short covering. The gains are reminiscent of the rallies of 1930 and 1932. What you are witnessing is a rally engineered by our government. If you watch the tape and you can read it you can see exactly what they are doing, and how they are doing it.
Yes, it is legal under an Executive Order singed by President Ronald Reagan in the aftermath of the October 19th, 1997 collapse of the stock market. It was named the “Working Group on Financial Markets” and was to be used for such emergencies. Unfortunately, like many things in government, the mission of the “Plunge Protection Team” has been distorted.
For over the last more than ten years it has been used to manipulate markets 24/7. Thus, what you are witnessing is a sucker rally, which has little hope of lasting. What do you do with a market that has a trailing P/E of 24 times earnings? You stay as far away from it as possible. Bob Chapman-Read more here-http://news.goldseek.com/InternationalForecaster/1251306428.php or http://news.goldseek.com/InternationalForecaster/1251060355.php or
http://news.goldseek.com/InternationalForecaster/1250835300.php
-If analysts like Robert Prechter and the Elliott Wave theorists are correct, and the 2009 market recovery is similar to the 61% retracement in 1930 following the ‘29 crash, then we are on the verge of a frightening collapse. As Prechter notes in a recent interview: “What I have been saying publicly is that the Dow could go below 1,000 which is a radical enough statement.” Could it happen? If history repeats itself…
To put the above chart in perspective, consider that the Dow did not fully recover its 1929 peak until 1953! The growth was so moderate, in fact, that the Dow did not eclipse 1,000 until 1972 and this occurred when the US economy was production-based. Tarek Saab
-“The question is not whether the dollar will weaken over time, but how it will weaken,” said El-Erian, a former deputy director of the International Monetary Fund whose firm runs the world’s largest bond fund. “The real risk is that you will get a disorderly decline.”
By the end of 2010, the euro will rise to about $1.60, its highest since April 2008, while Canada’s currency will appreciate to C$1.01 per U.S. dollar, its strongest since July 2008, as the U.S. is slow to tighten credit, said Sophia Drossos, co-head for global foreign-exchange strategy at Morgan Stanley in New York. Read more here-
http://www.bloomberg.com/apps/news?pid=20601109&sid;=av_._ayG1vEU
-Back when the U.S. Dollar Index traded well north of 100, I began to make a statement that I repeated over and over again. It needs to be said constantly because whenever these little blip up opportunities come from very oversold conditions, the “Don’t Worry, Be Happy” crowd on Wall & Broad will come out like clockwork and declare the U.S. Dollar undervalued.
That statement is again worth repeating after yet another short-term interruption in the dollar’s march to oblivion: “The only party that doesn’t know the U.S. Dollar is dead is the U.S. Dollar.” The dollar has had reasons to rally despite the market turning upside down a long standing factor that was once quite dependable. In the “good old times,” a stronger economy meant rising interest rates which usually coincided with a rising U.S. Dollar.
In the “New World Order,” the U.S. Dollar is a lose-lose. Stronger economy means less need for it as a supposed “safe haven” play. Weaker economics mean low interest rates translating into less demand for the dollar.
Poor old Uncle Sam. The glory days are gone. Other than some temporary relief rallies (believe it or not, we just had one), the dollar’s long-term path is a slow march to death. Only one song should come to mind when you think of the dollar long-term. Peter Grandich
-Fed’s Lockhart Says Low Rates Needed for Recovery. The U.S. economy needs the stimulus from low interest rates for some time as it begins a “fragile” recovery from the worst recession since the 1930s, said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta.
“Overall, the U.S. economy is improving but still fragile,” Lockhart said today in remarks prepared for a speech in Chattanooga, Tennessee. “The FOMC has stated its intention to keep the policy interest rate low for an extended period. I agree that this approach is needed.” Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=atgz839sKie4
-ECB Warns of ‘Bumpy Road’ as No Stimulus End Signalled. European Central Bank officials led by President Jean-Claude Trichet greeted mounting evidence of an economic recovery with caution, suggesting they won’t rush to reverse their emergency stimulus.
“We see some signs confirming that the real economy is starting to get out of the period of freefall,” Trichet said at the U.S. Federal Reserve’s annual symposium in Jackson Hole, Wyoming, on Aug. 22. This “does not mean at all that we do not have a very bumpy road ahead of us.” Read more here-
http://www.bloomberg.com/apps/news?pid=20601087&sid;=aMfDK.S6QHWk or http://www.bloomberg.com/apps/news?pid=20601087&sid;=auZs4FjGAgeU
-Britain is sleepwalking towards a decade of economic misery. Despite the hype about recovery, there is no real evidence that the recession is over, says Liam Halligan. Read more here-
-Oil May Reach $90 as Trend Remains Upward: Technical Analysis. Crude oil is likely to approach $90 a barrel if it remains above a $68 support level, according to technical analysts at WJB Capital Group. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aHAaQM3znn1g
-Peak Oil Supply Data Doesn’t Lie. Read more here-http://news.goldseek.com/GoldSeek/1251266700.php
-A one hour program in which Ron Paul provides the basics of the Federal Reserve and why it is high time transparency was introduced to this most critical of institutions. Watch video here-http://fora.tv/2009/06/24/Ron_Paul_Bringing_Transparency_to_the_Federal_Reserve
-Eric Sprott August commentary, beyond the stimulus. In the world of government stimulus, the size and speed of the injections are critical to their impact. Once the taps are turned on full bore, any reduction to the stimulus will have almost the same negative impact as removing it entirely.
We are now seeing this reduction on three fronts: the Federal Reserve threatening to close the window on its ‘quantitative easing’ program; the tax cuts and transfers already paid out to US citizens; and the Chinese banks now reining in their excessive lending. In trader terms we will soon have no “dry powder” left to burn.
In their 2008 annual report, the Bank for International Settlements (BIS) recently reviewed previous banking crises and suggested that a sustainable recovery would require the banking system to take losses, dispose of non-performing assets, eliminate excess capacity and rebuild capital bases.
The BIS concludes that “these conditions are not being met and any stimulus will therefore only lead to a temporary pick up in growth followed by protracted stagnation.”10 We agree wholeheartedly, and have seen nothing yet to suggest that the real problems plaguing the world’s banking system are being addressed.
In our view, the threat of a double dip recession remains real. When the stimulus effects wear off there will be nothing left to replace the artificial demand they have induced. Investors should be prepared for what awaits us beyond the stimulus. Read more here-http://www.sprott.com/Docs/MarketsataGlance/August_2009.pdf
-’Cash for Refrigerators’ Debuts in the fall, really! Read more here-http://www.reuters.com/article/mnEnergy/idUS225779891520090825
-Food stamp enrolment surges in Hawaii, with 9% now getting aid. Enrolment up 25% as Islanders struggle to make ends meet. Read more here-
http://www.honoluluadvertiser.com/article/20090823/NEWS01/908230390/-1/RSS02?source=rss_localnews
-Mullen Says Afghan Security Situation ‘Serious,’ Getting Worse. A top U.S. military official said Afghanistan’s security situation is getting worse, as Senator John McCain warned that there aren’t enough troops deployed in the country.
“It is serious and it is deteriorating,” Admiral Michael Mullen, chairman of the Joint Chiefs of Staff, said on CNN’s “State of the Union” program yesterday. “The Taliban insurgency has gotten better, more sophisticated. Their tactics, just in my recent visits out there and talking with our troops, certainly indicate that.” Read more here-
http://www.bloomberg.com/apps/news?pid=20601070&sid;=aJAjcvV8kgWI
-Ahmadinejad Names Man on Interpol Wanted List as Defense Chief. An Iranian official wanted by Interpol in connection with the 1994 bombing of an Argentine Jewish center has been nominated for promotion to defense minister in President Mahmoud Ahmadinejad’s cabinet. Read more here-
http://www.bloomberg.com/apps/news?pid=20601110&sid;=aTgjE4GvMogI
-Hezbollah Readies for War as UN Peacekeepers Can Only Observe. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aeol1KbCenkM
-Swine Flu May Infect Half of U.S., Kill 90,000, Report Says. Swine flu may hospitalize 1.8 million patients in the U.S. this year, filling intensive care units to capacity and causing “severe disruptions” during a fall resurgence, scientific advisers to the White House warned.
Swine flu, also known as H1N1, may infect as much as half of the population and kill 30,000 to 90,000 people, double the deaths caused by the typical seasonal flu, according to the planning scenario issued yesterday by the President’s Council of Advisers on Science and Technology. Intensive care units in hospitals, some of which use 80 percent of their space in normal operation, may need every bed for flu cases, the report said.
The virus has sickened more than 1 million people in the U.S., and infections may increase this month as pupils return to school, according to the Centers for Disease Control and Prevention in Atlanta. If swine flu patients fill too many beds, hospitals may be forced to put off elective surgeries such as heart bypass or hernia operations, said James Bentley with the American Hospital Association. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=abCN9aBVJIkg
-Swine Flu Pandemic Paradox Kills Few, Overwhelms ICUs. Read more here-http://www.bloomberg.com/apps/news?pid=20601124&sid;=a74PVQloYnFc
-WHO predicts ‘explosion’ of swine flu cases. Read more here-http://www.google.com/hostednews/ap/article/ALeqM5gGBK5q0LgRNjBQCvYaHi4SlH0RwgD9A75RKG0
-Swine Flu Infects Children 14 Times More Often Than Elderly. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=apjNe9a4e6To
-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/HistoricalPriceTrackingsystem.html
-Watch BTV interview of Harold Seigel on colored diamonds and his website http://www.rarecoloreddiamonds.com/. Watch video here-http://www.rarecoloreddiamonds.com/watchnow.html
-About Rio Tinto’s Argyle Diamond Mine. Rio Tinto’s Argyle Diamond mine (100% owned by Rio Tinto), in Australia, is the world’s only consistent supplier of rare pink diamonds and provides a large proportion of the world’s colored diamonds. Production commenced in 1983 and at its peak the mine produced more than 40 million carats per annum.
The discovery of the Argyle diamond deposit is one of innovation, patience, foresight and meticulous attention to detail in an area that is remote, even for Australians. The search for diamonds in the Kimberley region began in 1972 with a number of exciting finds proving uneconomic. However, in October 1979 diamonds were found embedded in an ant hill in the East Kimberley region of Western Australia.
In a classic exploration exercise these discoveries were followed up along a creek bed and led to what is known as the AK1 pipe, the remnant of an ancient volcano and the site of the vast Argyle deposit. Today most of the valley floor is occupied by the Argyle open pit. The Argyle Diamond mine is currently transitioning from an open pit mine to an underground mine, which on current estimates will extend its life to 2018. Argylepinkdiamonds.com.au
-Every Argyle pink diamond is 100% natural in colour and clarity. None are ever altered in any way. The transformation from rough diamond to polished stone is managed by Argyle Pink Diamonds’ artisans, and Argyle remains sole custodian from the day it is unearthed until the day it is sold as a polished diamond. Argylepinkdiamonds.com.au
-The process of preparing an Argyle pink diamond for sale is a specialized one. A team of highly trained artisans spend time ‘listening to the stone’, so to speak, before deciding how best to unlock its colour and brilliance with its cut.
The importance of their judgement can’t be underestimated, as the cut can affect the fire or scintillation of the diamond, while colour may be lost if too much of the diamond is polished away. Polished with such artistry and passion it’s no wonder an Argyle pink diamond fascinates like no other. Argylepinkdiamonds.com.au
-Argyle pink diamonds are rare; in fact they are beyond rare. With just an estimated decade of supply remaining in the mine, as time passes the Argyle pink diamond becomes evermore precious. Exactly what gives a pink diamond its color is largely unknown and the subject of ongoing debate, but it’s this intrigue that adds a delightful inimitability to each stone.
It is thought that pink diamonds obtain their colour as a result of pressure beneath the Earth’s surface. As pressure raises the diamond closer to the surface, it is believed that its structure becomes altered, thus absorbing light and producing color.
What is known is that from one hundred miles deep within the Earth’s surface comes the treasure that is the pink diamond. It is so remarkable that nothing compares to its colour and brilliance, and it is substantially more valuable than its white diamond equivalent.
Although the Argyle mine supplies approximately ninety percent of the world’s pink diamonds, astonishingly, a whole year’s worth of production of stones over half a carat would fit in the palm of your hand. The larger rare violet diamonds would barely fill a teaspoon.
They are highly sought after by investors, jewellers and their customers, celebrities, and diamond aficionados. They are prized by all who possess them and revered for their unique provenance, intrinsic beauty and extreme rarity. Argylepinkdiamonds.com.au
-About Argyle Pink Diamonds. Pink Diamonds, produced at Rio Tinto’s Argyle Mine in Western Australia, are highly coveted as the world’s most sought after gems. The Argyle Diamond mine produces more than 90 per cent of the world’s pink diamonds, which are sold in a broad range of colors and sizes to an international customer base. The best stones are reserved for the annual Pink Diamond Tender.
Rio Tinto’s Argyle Pink Diamonds business is located in Perth, Western Australia, alongside its cutting and polishing factory. Pink diamonds’ value is directly related to their rarity. For every colored diamond, there exist at least 10,000 colorless ones because the physical conditions needed to color a diamond naturally occur very scarcely.
Rio Tinto’s Argyle mine occupies the traditional land of the Gidja and Mirriuwong speaking people and neighbouring language groups who have a very different view on how the Argyle diamonds became colored.
The Aboriginal people believe that the Argyle mine was created when three women were trying to trap a barramundi fish, however the barramundi was too clever and jumped through the net and landed at the site where the mine was established. It is believed that the colors of the diamonds come from different parts of the barramundi as the fish wiggled through the net, with the pink diamonds coming from the heart of the barramundi. Argylepinkdiamonds.com.au
-Rare “vivid pink” diamond could break sale record. A rare, 5-carat pink diamond will be sold in Hong Kong this December by Christie’s, which expects the stone to hover near world record prices, thanks in part to the buying prowess of top Asian jewellery collectors.
The stone, set in a so-called “cushion-cut” ring by famed jewellers Graff Diamonds, is expected to fetch between $5-$7 million, in reach of the current world auction record for a pink diamond a 19.66-carat stone that sold in Geneva for $7.4 million in 1994.
While just a quarter the size of the record-holding pink gem and not quite flawless, the stone’s “vivid pink” is considered near perfect and the auction house has touted it as one of the best colored stones to appear in recent years.
“There are pink diamonds and then there are pink diamonds,” said Francois Curiel, the international head of Christie’s jewellery department. “It is extremely rare for a stone of such top quality to appear on the market with top notes in color, cut, clarity and carat weight. This 5-carat vivid pink gem combines the best of all criteria,” Curiel added.
While the South African-mined diamond isn’t quite rated flawless given minor blemishes, Christie’s said that these could be removed by minor repolishing. Christie’s has a track-record of putting rare polished stones up for sale in Asia, given its confidence in the depth of the Asian market for the world’s top gemstones and artwork.
While the world’s most expensive jewel ever sold at auction is the “Wittelsbach” blue diamond, a 17th-century deep greyish-blue stone that fetched $24 million last year, top red and pink gemstones are also known for stratospheric valuations. “In the fascinating realm of natural color diamonds, those of a distinct pink hue are among the rarest and most sought after,” Christie’s said. Read more here-http://www.reuters.com/article/lifestyleMolt/idUSTRE5720ZO20090803
HYPERINFLATION-INFLATION-DEFLATION
-Senator warns of hyperinflation rivalling the 1980s. The economy could spiral into hyperinflation not seen since the early 1980s if the Federal Reserve does not tighten its monetary policy soon, Sen. Chuck Grassley (R-Iowa) warned Tuesday.
Grassley, speaking about the renomination of Federal Reserve Chairman Ben Bernanke to a second term as head of the Fed, asserted that Bernanke’s ability to hold down inflation would be the metric by which the Fed’s success would be measured.
“We won’t know for a year if he’s done a good job so far, because he shovelled money out of an airplane to save banks and the financial system,” Grassley said in a conference call with Iowa reporters. “But shovelling money out of an airplane to solve problems can be inflationary in this case, hyperinflationary if he doesn’t start mopping up some of the money that’s out there.”
Grassley, the ranking member of the Senate Finance Committee, said that inflation as a result from government spending on bailouts could result in inflation rivaling rates in 1980, when it hit a peak of 13.5 percent. “The Fed has the ability to put money out, it’s got the ability to take money back in, and if they don’t do that, we will have hyperinflation worse than we had in 1980 and ‘81,” Grassley said. “And I hope he demonstrates that ability.” Read more here-http://briefingroom.thehill.com/2009/08/25/senator-warns-of-hyperinflation-rivaling-the-1980s/
-There’s no will to fight inflation. As we’re already seeing outside the US, central banks won’t stop printing money if it means choking off growth. Don’t expect anything different from the Fed. Read more here-http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/theres-no-will-to-fight-inflation.aspx?page=all
-Inflation: A threat or not? Read more here-https://news.fidelity.com/news/article.jhtml?guid=/FidelityNewsPage/pages/viewpoints-is-inflation-rising&topic;=economy
-Zimbabwe’s Hyperinflation: #2 in world history. Steve Hanke and Alex Kwok just published a paper calculating last year’s hyperinflation in Zimbabwe, when “conventional inflation measures were not available.” Their conclusion is that in mid-November, prices were doubling every day. That means Zimbabwe’s hyperinflation ranks second worst in world history. Read more here-http://blogs.reuters.com/rolfe-winkler/2009/08/18/zimbabwes-hyperinflation-2-in-world-history/
-Chart of the day: Deflation Coming In From Abroad. The deflation story to pick up steam. Today’s trading consisted of falling stocks, falling commodities, falling gold and a stronger dollar a classic deflationary combo. And new data from the Bureau of Labour Statistics shows that after several months of rising prices, imports are starting to drop again watch out. Read more here-http://www.businessinsider.com/chart-of-the-day-imports-price-index-2009-8
ROUBINI SEES INCREASING RISK OF DOUBLE DIP RECESSION
-Nouriel Roubini, the New York University professor who predicted the financial crisis, said the chance of a double-dip recession is increasing because of risks related to ending global monetary and fiscal stimulus.
The global economy will bottom out in the second half of 2009, Roubini wrote in a Financial Times commentary today. The recession in the U.S., the U.K., and some European countries will not be “formally over” before the end of the year, while the recovery has started in nations such as China, France, Germany, Australia and Japan, he said.
Governments around the world have pledged about $2 trillion in stimulus measures amid the worst worldwide recession since the Great Depression. Federal Reserve Chairman Ben S. Bernanke and other global policy makers have cautioned that the recovery is likely to be muted, indicating they would not soon remove all the stimulus injected into the financial system.
“There are risks associated with exit strategies from the massive monetary and fiscal easing,” Roubini wrote. “Policy makers are damned if they do and damned if they don’t.” Government and central bank officials may undermine the recovery and tip their economies back into “stagdeflation” if they raise taxes, cut spending and mop up excess liquidity in their systems to reduce fiscal deficits, Roubini says. He defines “stagdeflation” as recession and deflation. Read more here-
http://www.bloomberg.com/apps/news?pid=20601087&sid;=aXbZZWXPR5mw or http://www.ft.com/cms/s/0/90227fdc-900d-11de-bc59-00144feabdc0.html
CBO-WH-BIGGER U.S. DEFICITS TO COME-U.S. BALANCE SHEET
-Congressional Budget Office Forecasts $1.4 Trillion ‘10 Deficit. The federal budget deficit will total $1.6 trillion this year as revenue falls and the U.S. government spends at the fastest pace in 57 years, according to the nonpartisan Congressional Budget Office.
Next year’s deficit will total $1.4 trillion, the agency said today. The CBO also said it anticipates a “relatively slow and tentative” economic recovery because of “global economic weakness, continued strains in financial markets and households’ desire to rebuild their savings.”
The economy will grow between the fourth quarter of this year and next year by 2.8 percent and by 3.8 percent in 2011, the agency said. Unemployment will increase next year to 10.2 percent before falling to 9.1 percent in 2011, the agency said.
This year’s deficit, for the fiscal year ending Sept. 30, will amount to 43 percent of the $3.68 trillion the government will spend, the CBO said. The gap will be equal to 11.2 percent of the economy, the biggest since World War II. The shortfall is largely attributable to the financial crisis, CBO said.
“That deficit figure results from a combination of weak revenues and elevated spending associated with the economic downturn and financial turmoil,” the report said. “The deficit has been boosted by various federal policies implemented in response, including the stimulus legislation and aid for the financial, housing and automotive sectors.” Read more here-
http://www.bloomberg.com/apps/news?pid=20601087&sid;=aDAOUtTrVndY
-Obama Increases 2010 Deficit Forecast 19% to $1.50 Trillion. U.S. unemployment will surge to 10 percent this year and the budget deficit will be $1.5 trillion next year, both higher than previous Obama administration forecasts because of a recession that was deeper and longer than expected, White House budget chief Peter Orszag said.
“While the danger of the economy immediately falling into a deep recession has receded, the American economy is still in the midst of a serious economic downturn,” the White House report said. “The long-term deficit outlook remains daunting.”
The budget shortfall for 2010 would mark the second straight year of trillion-dollar deficits. Along with the unemployment numbers, the deficit may complicate President Barack Obama’s drive for his top domestic priority, overhauling the U.S. health care system.
“It throws a wrench in health-care reforms,” Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, said in an interview. “No matter the specific numbers, they’re a constant reminder that we’re in bad, bad shape.” Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aNaqecavD9ek
-Grassley Says Deficit Will Force Congress to Limit Health Plan. Read more here-http://www.bloomberg.com/apps/news?pid=20601070&sid;=aZtKLbVq35XA
-Why the deficit will raise taxes. The nation’s debt must be brought to heel, and doing so will require tough choices beyond spending cuts, experts say. Read more here-
http://money.cnn.com/2009/08/27/news/economy/deficit_taxes/index.htm?postversion=2009082713
-Goldman’s Hatzius Says Fed Balance Sheet Could Hit $4 Trillion. Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc., said the Federal Reserve could double the size of the central bank’s balance sheet again if needed to support economic growth.
A rise in the balance sheet to $4 trillion is a “possibility,” Hatzius said in an interview on Bloomberg Radio in New York. “It is going to depend on not just what inflation does, but also on whether the economy does move back to a slower growth pace.”
Fed Chairman Ben S. Bernanke has cut the main U.S. interest rate to almost zero and more than doubled total assets on the central bank’s balance sheet to unclog credit markets and help meet banks’ demand for cash. Fed officials have started to phase out such programs, deciding this month to let a $300 billion program to purchase long-term Treasuries expire in October.
The size of the Federal Reserve’s balance sheet has increased to $2.02 trillion as the central bank purchased assets aimed at lowering interest rates, as of the week ended Aug. 12. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=awWsNf0zRkYY
U.S. SOCIAL SECURITY WILL MAKE DEFICITS WORSE
-With the slowdown in tax receipts from fewer people earning wages, the income to the Social Security funds is declining. The surpluses that were contributing to fund other expenses of government are about to be replaced by demands for funds that exceed the revenues. The Congressional Budget Office produced an update of the situation in August 2009.
It reports on the % of GDP that will be required to make the projected retirement payments of around 6%, which is funded by 3% to 5% of revenues, leaving the balance (ongoing surplus or deficit) at around 1% to 3%. As percentages, the devil hides in the small numbers, which do not appear like a significant danger. And partly that is right, because the bigger retirement problem is the medical costs that are continually escalating.
But to see how big the expenses per year might become, I multiplied the % balance by the projected GDP to get a dollar figure. This is partly understating how the scenario will unfold by using 2009 dollars as the measure, ignoring the strong potential for inflation down the road. The result is that there will be big spending on Social Security in the baby boomer retirement years ahead. Bud Conrad-Casey Research
1,000 BANKS TO FAIL-BANKING CRISIS
-1,000 Banks to Fail In Next Two Years: Bank CEO. The US banking system will lose some 1,000 institutions over the next two years, said John Kanas, whose private equity firm bought BankUnited of Florida in May. Read more and watch video here-http://www.cnbc.com/id/32581463
-‘Problem’ Banks Rise to 15-Year High on Bad Loans, FDIC Says. The U.S. added 111 lenders to its list of “problem banks” in the second quarter, a 36 percent increase that pushed the group to a 15-year high.
A total of 416 banks with combined assets of $299.8 billion failed the Federal Deposit Insurance Corp.’s grading system for asset quality, liquidity and earnings, the most since June 1994, the Washington-based FDIC said in a report today. Regulators didn’t identify companies deemed “problem” banks.
“For now, the difficult and necessary process of recognizing loan losses and cleaning up balance sheets continues to be reflected in the industry’s bottom line,” FDIC Chairman Sheila Bair said in a statement.
Regulators have taken over 81 banks this year, including Guaranty Financial Group Inc. in Texas and Colonial BancGroup Inc. in Alabama. Twenty-four banks collapsed in the second quarter as the pace of failures accelerated amid the worst financial crisis since the Great Depression.
The surge in failures prompted the agency to charge the industry an emergency fee in the second quarter to raise $5.6 billion to replenish its insurance fund, which fell to $10.4 billion as of June 30 from $13 billion in the previous quarter, the agency said. An $11.6 billion increase in loss provisions for bank failures caused the decline in the fund, the FDIC said.
FDIC-insured banks reported a net loss of $3.7 billion in the second quarter, compared with a $5.5 billion gain in the first quarter. The loss, the second quarterly one the industry has reported in 18 years, was driven by increased expenses for bad loans, the FDIC said. Read more here-
http://www.bloomberg.com/apps/news?pid=20601082&sid;=aKrqdLil0pGI
-Four more banks fail, with 2009 tally now at 81. Guaranty Bank of Texas joins list of biggest U.S. bank failures of all time. Read more here-
http://www.marketwatch.com/story/story/print?guid=8465B339-95EE-4887-8EC6-D4E0E59870A8 or http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=aj833suxjw1o
Largest U.S. bank failures Amounts in $ billions
-Meredith Whitney Says Bank Failures Will Rise to More Than 300. Meredith Whitney, the analyst who predicted that Citigroup Inc. would cut its dividend last year, said the number of U.S. bank failures will quadruple as lenders struggle with bad loans.
“There will be over 300 bank closures,” Whitney said in an interview with Bloomberg Television from Jackson Hole, Wyoming. “The small-business owner on Main Street continues to see liquidity come away.” Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=a1B7kV_7EPhI
-Analyst Bove sees 150-200 more U.S. bank failures. A prominent banking analyst said on Sunday that 150 to 200 more U.S. banks will fail in the current banking crisis, and the industry’s payments to keep the Federal Deposit Insurance Corp afloat could eat up 25 percent of pretax income in 2010.
Richard Bove of Rochdale Securities said this will likely force the FDIC, which insures deposits, to turn increasingly to non-U.S. banks and private equity funds to shore up the banking system. “The difficulty at the moment is finding enough healthy banks to buy the failing banks,” Bove wrote. Read more here-
-Big banks still hold FDIC captive. Read more here-http://blogs.reuters.com/rolfe-winkler/2009/08/21/big-banks-still-hold-fdic-captive/
-Federal Reserve Says Disclosing Loans Will Hurt Banks. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=a6mdEyvr7Mpk
-U.S. regulators prep defences to survive bank crisis. U.S. regulators are set to buttress their defences this week against a slew of sick banks still facing closure and the risks to the dwindling fund that protects depositors.
The Federal Deposit Insurance Corp has been looking at expanding the pool of potential bidders for distressed banks, providing some capital relief for troubled assets that will soon be brought back onto banks’ books, and charging further industry premiums to replenish the insurance fund.
All of these moves are geared to get the banking industry, and the agency charged with ensuring the industry’s safety, through a financial crunch that is coming to a head. “We’re working through this problem. We’re not at the beginning, we’re not at the end,” said James Chessen, chief economist for the American Bankers Association. “We’re in the middle and it’s painful.” Read more here-http://www.reuters.com/article/ousiv/idUSTRE57O4KX20090825
-Banks Cut Credit for 58M Card Holders in 1 Year. Read more here-http://www.nytimes.com/aponline/2009/08/20/business/AP-Credit-Cards-Credit-Limit-Cuts.html
-Chart of the day: The Great Banking Recovery Or The Next Bubble? Should we be happy that the value of investments owned by commercial banks has begun to rapidly climb? Or should we be worried that the value is climbing at such a rapid clip that it looks a bit like an unsustainable bubble? Or is it just evidence of banks hoarding money and refusing to lend it out, holding Treasuries and securities instead? Read more here-http://www.businessinsider.com/ch-2009-8
EURO-U.S. DOLLAR
-Euro May Rise to 8-Month High Versus Dollar: Technical Analysis. The euro may extend its advance against the dollar to $1.4718, the strongest level since December 2008, Ueda Harlow Ltd. said, citing trading patterns.
The euro’s uptrend versus the greenback is evident, with the 16-nation currency staying above the top line of the ichimoku cloud on a daily and weekly basis, Toshiya Yamauchi, manager of the foreign-exchange margin trading department at Ueda Harlow, said in Tokyo.
“This currency has a tendency to extend its gains once the deviation from the 21-day moving average line tops 1 percent, which has just emerged,” Yamauchi said. “Looking at these key charts, the chance of testing the December 2008 high of $1.4718 is now looking to be reasonably high.” Read more here-
http://www.bloomberg.com/apps/news?pid=20603037&sid;=amyXrqpfP1X8
-French President Nicolas Sarkozy said Wednesday that the dollar can’t remain the world’s only reserve currency, as the rise of emerging powers such as China and Russia challenge the U.S.’s prominence.
“The political and economic reality of a multipolar world will have to find sooner or later a translation on the monetary level,” Sarkozy told foreign ambassadors, gathered for a yearly reception at the Elysee Palace. “A multipolar world can’t count upon one currency only.” Sarkozy also said that he won’t allow the euro to be the only currency to bear the weight of foreign exchange market adjustments as has happened in the past. Read more here-http://www.gata.org/node/7726
-Dollar May Surpass ‘Established Lows,’ Goldman Says. The dollar may weaken through “established lows” as signs of a global economic recovery drive gains in equities and oil, Goldman Sachs Group Inc. said.
“That kind of shift could easily be prompted by continued good news from the macro front and the persistently negative dollar-equity and dollar-oil correlations,” Thomas Stolper, an economist at Goldman Sachs in London, wrote in a report yesterday. “Dollar bulls could well end up disappointed. Even a short-term move beyond our three- and six-month forecasts of $1.45 per euro is getting increasingly likely.”
The Dollar Index, which Intercontinental Exchange Inc. uses to track the U.S. currency against the euro, yen, pound, Canadian dollar, Swiss franc and the Swedish krona, has weakened as the Standard & Poor’s 500 Index of U.S. shares gained more than 85 percent of the time since June and more than 50 percent of the time since September as investors sought higher-yielding assets on signs on an economic recovery.
The index fell 11 percent from its high this year on March 4, during which time the S&P; 500 gained 44 percent. Read more here-
http://www.bloomberg.com/apps/news?pid=20601110&sid;=aVKHuJf1e_Nc
-As Budget Deficit Grows, So Do Doubts on Dollar. The U.S. economy may be showing signs of recovering from the financial crisis, but the jury is still out on the future of the U.S. dollar.
While many analysts expect the dollar to strengthen in coming months as the crisis fades and the U.S. economy turns toward growth, a growing chorus of investors is expressing concern about the longer-term outlook for the greenback.
In a new twist to an old refrain among economists, who have long worried about the effects of growing U.S. debt, they say that the huge liabilities the U.S. is taking on to dig its way out of crisis could ultimately undermine faith in the dollar.
“There has been a lot of disappointment with the way the U.S. credit crisis was handled,” says Claire Dissaux, managing director of global economics and strategy for Millennium Global Investments Ltd., a London investment firm specializing in currencies. “The dollar’s loss of influence is a steady and long-term trend.”
On Tuesday, the Obama administration added fuel to concerns about the dollar, saying the U.S. will run a cumulative budget deficit of $9 trillion over the next 10 years, $2 trillion more than it had previously projected. Read more here-http://online.wsj.com/article/SB125122938682957967.html
-Stiglitz Sees Risk to Dollar, Need for Reserve System. The dollar’s role as a good store of value is “questionable” and the currency has a high degree of risk, said Nobel Prize-winning economist Joseph Stiglitz.
“There is a need for a global reserve system,” Stiglitz, a Columbia University economics professor, said at a conference in Bangkok today. Support from countries like China should ensure orderly discussions on a new reserve system, he added.
The dollar has lost 12 percent since March 5 against an index comprising the euro, yen and four other major currencies. China, the world’s largest holder of foreign-currency reserves, and Russia have both called for a new global currency to replace the dollar as the dominant place to store reserves.
“The current reserve system is in the process of fraying,” Stiglitz said. “The dollar is not a good store of value. Right now, the dollar is yielding almost no return and yet anybody looking at the dollar has to say there’s a high degree of risk.”
The dollar will weaken as the U.S. pumps “massive” amounts of money into the economy, according to Curtis A. Mewbourne, a portfolio manager at Pacific Investment Management Co., the world’s biggest manager of bond funds. Read more here-http://www.bloomberg.com/apps/news?pid=20601082&sid;=a4QMMa4gnquY
-”Our Country Would Be Healthier” With a Weaker Dollar, O’Rourke Says. “I don’t expect the Federal Reserve to pull back that aid or that liquidity too quickly,” Michael O’Rourke, chief market strategist with BTIG tells Tech Ticker. As he puts it, policy makers are “trying to trade the 1930s for the 1970s.” In other words, do anything to avoid deflation, even if that means eventually dealing with runaway inflation.
But doesn’t that mean further devaluing the dollar? Yes and O’Rourke believes that’s actually a good thing. “This reserve currency status is what has allowed us to be fiscally irresponsible run these deficits all the irresponsible behaviour in the credit markets and housing market over the last five years,” he states. “If people weren’t willing to finance that it wouldn’t have happened.
Most of that financing was a result of the dollar as a reserve status.” A weak dollar would also help invigorate the ailing manufacturing sector “because it would be cheaper than importing,” he says. “Our country will be healthier for it.” Read more here-http://finance.yahoo.com/tech-ticker/article/310070/%22Our-Country-Would-Be-Healthier%22-With-a-Weaker-Dollar-O%27Rourke-Says?tickers=^dji,^gspc,spy,dia,udn,uup&sec;=topStories&pos;=9&asset;=&ccode;
STOCK MARKET
-Stock rally is “dash for trash”: hedge manager Bullman. Speculation rather than economic fundamentals has driven this year’s sharp rally in stocks, and equities may now be 20 percent overpriced, said the managing partner at hedge fund firm Bullman Investment Management.
Nick Bullman, who told Reuters he has this week placed bets on falling share prices, is concerned that government stimulus packages have not revived bank lending as much as hoped and that conditions remain as tough for companies as they did last year.
“The rally has been a ‘dash for trash’ based on speculation. On Wednesday (I) went short on the S&P; (500) and financials via ETFs (exchange-traded funds),” he said in an interview on Friday.
“Stocks that were on their knees have risen to pre-Lehman levels, but the fundamentals haven’t changed at all. Credit card debt in the U.S. is getting worse. I think the U.S. equity market is potentially up to 20 percent overvalued over the short term.”
The S&P; 500 .SPX index has risen more than 50 percent from a March low on hopes the recession will not be as severe as some had originally feared and that government action will help stimulate an upturn.
However, Bullman said he is concerned that quantitative easing whereby central banks flood the banking system with new money by buying up assets from banks will eventually push up inflation in some assets. This has led him to buy into gold, often viewed as a hedge against inflation.
-Chart of the day: The Trashiest Stocks Are On Fire (FNM, FRE, AIG). Since the market hit its lows in early March, the trashiest, most beaten-down stocks have been the big winners. Some are arguing that the trash stocks have to slow down soon. But in the meantime, it looks like investors are reaching for the trashiest of the trash. Check out the crazy runs in Fannie Mae (FNM), Freddie Mac (FRE), AIG (AIG) and even the soon-to-be-liquidated GM over the last few weeks. This is the kind of behaviour that might foretell the end of the junk rally. Read more here-http://www.businessinsider.com/chart-of-the-day-xxx-2009-8
S&P; 500 PE RATIO AT RECORD LEVELS
-Today’s chart illustrates how the recent plunge in earnings has impacted the current valuation of the stock market as measured by the price to earnings ratio (PE ratio). Generally speaking, when the PE ratio is high, stocks are considered to be expensive. When the PE ratio is low, stocks are considered to be inexpensive.
From 1936 into the late 1980s, the PE ratio tended to peak in the low 20s (red line) and trough somewhere around seven (green line). The price investors were willing to pay for a dollar of earnings increased during the dot-com boom (late 1990s) and the dot-com bust (early 2000s).
As a result of the recent plunge in earnings and recent stock market rally, the PE ratio spiked and just peaked at 144 a record high. Currently, with 97% of US corporations having reported for Q2 2009, the PE ratio now stands at a lofty 129. Read more here-http://www.chartoftheday.com/20090821.htm?T
-Chart: Earnings Distortion over Time. Sweeping losses under the rug is nothing new on Wall St, but it’s getting worse. S&P; 500 P/Es range from 16-134, depending on which earnings methodology you use. The first number is based on “operating earnings”, and the second is based on the real bottom line.
If you need background on the difference between operating and non-GAAP, go here or here. This graph shows the difference between S&P; 500’s GAAP and operating earnings, in billions of dollars. The trend line is telling. Read more here-http://news.goldseek.com/GoldSeek/1250697600.php
REAL U.S. UNEMPLOYMENT RATE AT 16 PERCENT
-Real US unemployment rate at 16 pct: Fed official. The real US unemployment rate is 16 percent if persons who have dropped out of the labour pool and those working less than they would like are counted, a Federal Reserve official said Wednesday.
“If one considers the people who would like a job but have stopped looking so-called discouraged workers and those who are working fewer hours than they want, the unemployment rate would move from the official 9.4 percent to 16 percent, said Atlanta Fed chief Dennis Lockhart. Read more here-http://www.breitbart.com/article.php?id=CNG.4452bed82adf3124e5884678e236d7fb.361&show;_article=1
-Unemployment Rates Rose in 26 U.S. States in July. Unemployment rates rose in 26 U.S. states in July, a sign the labour market will take time to improve and budget crises in capitals across the nation may deepen.
California, Nevada, Rhode Island and Georgia all reached their highest level of joblessness since records began in 1976, with California’s rising to 11.9 percent from 11.6 percent the previous month, the Labour Department reported today in Washington. The number of states with at least 10 percent unemployment held at 16.
The figures are a blow to states already hammered by falling income and sales-tax receipts and underscore economists’ projections that the national unemployment rate will reach 10 percent by early next year. Companies will probably trim payrolls at a slower pace in coming months as factories and the housing market show signs of stabilization.
“State revenues could fall short of expectations if consumer spending doesn’t pick up and if the labour market fails to improve,” said Alex Miron, an economic analyst at Moody’s Economy.com in West Chester, Pennsylvania. “We’re going to see higher unemployment over the month ahead.” Read more here-
http://www.bloomberg.com/apps/news?pid=20601110&sid;=aUjHZ_FeLe64
-Fewer Americans filed claims for jobless benefits last week, another sign the economy is pulling out of the worst recession since the 1930s. Applications fell by 10,000 to 570,000, a higher level than forecast, in the week ended Aug. 22 from a revised 580,000 the week before, Labour Department data showed today in Washington. The total number of people collecting unemployment insurance fell to the lowest level since April.
Companies’ staff cuts are easing as government stimulus measures help stabilize the housing and manufacturing industries. At the same time, a rebound in hiring will take longer to occur, restraining the consumer spending that accounts for about 70 percent of the economy.
“We’re definitely seeing firings slowing as firms are much leaner than they were earlier,” said David Semmens, an economist at Standard Chartered Bank in New York. “Any good news in the labour market provides a floor for consumer sentiment.” Read more here-http://www.bloomberg.com/apps/news?pid=20601068&sid;=aO6T81ycefaQ
ROBERT KIYOSAKI-PREPARING FOR THE WORST
-”Is the crisis over?” is a question I am often asked. “Is the economy coming back?” My reply is, “I don’t think so. I would prepare for the worst.” Like most people, I wish for a better future for all of us. Life is better when people are working, happy, and spending money.
The stock market has been going up since March 9, 2009. Talk of “green shoots” fill the air. Yet, in spite of the more positive news, I continue to recommend that people prepare for the worst. The following are some of my reasons:
1. I believe the stock market is being manipulated. I suspect the government, banks, and Wall Street are doing everything they can to keep the market from crashing. Our leaders know that nothing makes the world feel better than a raging bull market.
Do I have any proof that the market is being manipulated? No. I just smell a rat, or a pack of rats. I believe greed, self-interest, arrogance, and fear control the financial markets. I suspect those in charge will do anything to keep us all from panicking… and I don’t blame them. A global panic would be ugly and dangerous.
2. In my view, this global crisis has been caused by the Federal Reserve Bank, the U.S. Treasury, Wall Street, and the central banks of the world. They caused the problem, profited excessively in doing so, and now profit by being asked to fix the problem.
Every time I hear a politician mention the word stimulus, my mind flashes back to high school biology class, when I touched battery wires to a dead frog to make it twitch. Today, you and I are the dead frogs. Pretty soon the dead frog will be fried frog.
In the 1980s, our government’s hot money stimulus was measured only in the millions of dollars. By the 1990s, the government had to ramp the stimulus voltage into the billions in order to get the frog to twitch. Today the frog has jumper cables with trillions in high-voltage hot money pouring through the lines.
While most us feel better when we have more high-voltage money in our hands, none of us feel good about higher taxes, increasing national debt, and rising inflation for the long term. Another old saying goes, “Sometimes the cure is worse than the disease.” I say the government stimulus cure is killing us frogs.
3. Old frogs don’t hop. Another reason I am cautious about the future is that the Western world has a growing number of old frogs. Between 1970 and 2000, the economy responded to bailouts and stimulus packages because the baby boomers of the world were entering their greatest earning years their purchasing power increased, and demand for homes, cars, refrigerators, computers, and TVs boosted the economy.
The stimulus plans seemed to work. But when a person turns 60, their spending habits change dramatically. They stop consuming and start conserving like a bear preparing for winter. The economy of the Western world is heading into winter. Hot wires and hot money will not get old frogs to hop. Old frogs will simply join the bears and stick that money in the bank as they prepare for the long, hard winter known as old age. The businesses that will do well in a winter economy are drug companies, hospitals, wheelchair manufacturers, and mortuaries.
4. The dying frog economy will lead us to the biggest Ponzi schemes of all: Social Security and Medicare. If we think this subprime financial crisis is big, it’s my opinion that this crisis will be dwarfed by the crisis brewing in Social Security and Medicare. Medicare being the biggest crisis of all. As old frogs head for the big lily pad in the sky, they will demand young frogs spend even more in tax dollars just to keep old frogs from croaking.
5. The 401(k)Ponzi scheme. A Ponzi scheme, like the scheme Madoff ran, depends upon young money to pay off old money. In other words, a Ponzi scheme needs tadpoles to finance old frogs. The same is true for the 401(k) and other retirement plans to work. If young money does not come into the stock market, the old money cannot retire. One reason so many people my age are worried, not only about Social Security and Medicare, is because they’re concerned about getting their money out of the stock market before the other old frogs decide to drain the swamp.
The facts are that the 401(k) plan has a trigger that requires old frogs to begin withdrawing their money at a certain age. In other words, as baby boomers grow older, more and more will be required, by law, to begin withdrawing their money from the market. You do not have to be a rocket scientist to know that it is hard for a market to keep going up when more and more people are getting out.
The reason the 401(k) has this law related to mandatory withdrawals is because the Federal government wants to collect the taxes that they deferred when the worker’s money went into the plan. In other words, the taxman wants their pound of flesh. Since they allowed the worker to invest without paying taxes, the government wants their tax dollars when the employee retires. That is why the laws require older workers to sell their shares and pay their pound of flesh.
Demographics show that we are entering a battle between young and old. I call it the “Age War.” The young want to hang onto their money to grow their families, businesses, and wealth. The old want the tax and investment dollars of the young to sustain their old age. This war is not coming it is upon us now. This is one of many reasons why I remain cautious and say, “The worst is yet to come.” Read more here-http://finance.yahoo.com/expert/article/richricher/184720
REAL ESTATE-MORTGAGES-FORECLOSURES
-U.S. Home Prices Tumble 6.1% on Surging Foreclosures. U.S. home prices fell 6.1 percent in the second quarter from a year earlier as a record number of foreclosures eroded the value of real estate.
The rate of decline slowed from the first quarter’s 7.1 percent drop, according to a report today from the Federal Housing Finance Agency. Measured monthly, prices rose 0.5 percent in June after a 0.6 percent monthly gain in May, the Washington-based agency said.
Prices fell in June in four of nine U.S. regions covered by the report as banks seized real estate from delinquent borrowers. About 4.3 percent of U.S. homes, or one in 25 properties, were in foreclosure in the second quarter, according to an Aug. 20 report from the Mortgage Bankers Association in Washington. That’s the most in three decades of data. Read more here-
http://www.bloomberg.com/apps/news?pid=20601110&sid;=aNnP_i73Xc.4
“Foreclosures have a tangible negative impact on prices,” Gleb Nechayev, a senior economist at CBRE/Torto Wheaton Research in Boston, said in an interview before the price index was released. “It’s very stressful not just for individual households, but for whole neighbourhoods.”
-Home Prices in 20 U.S. Cities Fall Less Than Forecast. Home prices in 20 U.S. cities fell in June at a slower pace than forecast, signalling the real- estate crisis that triggered the worst recession since the 1930s is dissipating.
The S&P;/Case-Shiller home-price index declined 15.4 percent from a year earlier, the smallest drop since April 2008, the group said today in New York. The gauge rose from the prior month by the most in four years. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aXpJdIqUXDQ8
-Case-Shiller Flashing The “Ultimate False Bottom” In Housing. Following the news that the Case-Shiller Index showed the second-straight month of home price gains in June, analyst Mark Hanson, of Mark Hanson Mortgage Advisors is out calling the numbers the “ultimate false bottom.”
The argument that the current bump-up in housing prices is meaningless is one that’s been going around for awhile and that we’ve addressed before. The idea is that foreclosures sales are home-price killers when they occur. But they are non-seasonal and have basically held steady.
All that the home price increase reflects, then, is the expected seasonal increase in higher-end, non-foreclosure sales. This chart from Hanson explains. Read more here-http://www.businessinsider.com/case-shiller-flashing-the-ultimate-false-bottom-in-housing-2009-8
-John Burns of John Burns Real Estate Consulting suggests we may be seeing a false bottom in housing. What we are seeing is the result of a government program that offers first-time home buyers $8,000 if they buy a home by November 30; and that program is working, especially at the lower end of home prices. 31% of home sales in July were involved with this program.
But like Cash for Clunkers in automobiles, this is pushing demand for homes from next year into this year. John offers us the following chart that gives us what he thinks is happening in the markets, from his surveys. He thinks that we saw a “false bottom” in April of this year and that activity will peak in November, before going on to the actual bottom, from which there will be a long, slow recovery. Read more here-http://news.goldseek.com/MillenniumWaveAdvisors/1251064800.php
-Existing Home Sales in U.S. Jump to Two-Year High. Sales of existing U.S. homes jumped more than forecast in July to the highest level in almost two years, signalling the housing crisis that crippled the world’s largest economy is easing.
Purchases climbed 7.2 percent to a 5.24 million annual rate, the most since August 2007, the National Association of Realtors said today in Washington. The gain was the biggest since records began in 1999. The median price fell 15 percent.
Foreclosure-driven declines in prices, government credits for first-time buyers and near-record-low borrowing costs may keep stoking demand, helping the economy recover from the worst recession since the 1930s. At the same time, more Americans will probably lose their homes as companies cut payrolls, indicating a rebound will be slow to take hold. Read more here-
http://www.bloomberg.com/apps/news?pid=20601087&sid;=aaCRVTkj_Idk
-U.S. New Home Sales Jump 9.6%, Most in Four Years. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aqnFJ5TBePL8
-U.S. Housing May Be Turning Around, Shiller Says. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=a5tOdeaxYuvI
-Taylor, Bean & Whitaker Mortgage Corp., the 12th largest U.S. mortgage lender, filed for bankruptcy protection from creditors as regulators question its involvement with Colonial BancGroup Inc.
“The filing follows a series of events in recent weeks that have crippled the company’s business operation,” Taylor Bean said in a statement. The company today listed both assets and debt of more than $1 billion in Chapter 11 documents in U.S. Bankruptcy Court in Jacksonville, Florida. Read more here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=a9kb5v7bThoU
HOW MANY MINUTES TO EARN A BIG MAC?
-The size of your pay packet may be important, but so is its purchasing power. Helpfully, a UBS report published this week offers a handy guide to how long it takes a worker on the average net wage to earn the price of a Big Mac in 73 cities. Fast-food junkies are best off in Chicago, Toronto and Tokyo, where it takes a mere 12 minutes at work to afford a Big Mac. By contrast, employees must toil for over two hours to earn enough for a burger fix in Mexico City, Jakarta and Nairobi. Read more here-
http://www.economist.com/daily/news/displaystory.cfm?story_id=14288808&fsrc;=nwl
© 2012, Worldwide Precious Metals Canada Ltd.
www.wwpmc.com
The Goldbugg Report – September 01, 2009
Posted by Worldwide Precious Metals on Tuesday, September 1, 2009
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