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The Goldbugg Report – September 22, 2009

September 22, 2009

-$5,000/oz gold? Rob McEwen says it’s coming in 2014 or 2015.

-A golden age for silver coming? Silver has been hitting 12-month highs but where does it go from here?

-If you own the silver ETF sell now and get into physical silver. Find out why.

The Week in Review

Another fantastic week for precious metals! This week’s memo will be arriving early as the authors will be on vacation until next Wednesday.

September, traditionally a weak month for stocks is proving to be the opposite so far this year. The stock market continues rising even as the media continues to play images of experts saying they essentially have no idea why. Consensus seems to be building that the stock market is setting up for a correction in the near future. BEWARE OCTOBER!

On Tuesday, September 15^th, Ben Bernanke declared the recession was “technically, very likely, over” proving that he knows nothing of macro economics. With unemployment soaring, companies and consumers both hoarding cash (consumers aren’t spending, and companies are not hiring and are continuing to cut spending in other ways), and the dollar at its weakest levels in years “the recession is very likely over”. We can’t help but doubt that statement.

The White House has done a couple of things of note this week. They have seriously ramped up the rhetoric on health care reform while, at the same time, imposing a tariff on Chinese made tires. Some view the tariff move as possibly the opening skirmish of what could become a trade war between the US and China. Any student of the Great Depression can tell you that it was made worse by a serious decline in international trade. It appears that Obama doesn’t care if he angers China, which could be the most dangerous thing he could do for the US and the US Dollar. What a bimbo! This guy would rather get on his soapbox in Elementary schools than pay attention to what would get us out of this huge economic debacle.

Gold spent the week above the $1,000 dollar mark, and rumors surfaced that China, once the lowest per-capita consumer of gold, may soon become the largest. In the beginning of 2009, the central government in China removed restrictions prohibiting the private ownership of gold and is actually pushing people to buy it. China, in addition to its outright purchases of bullion has apparently also been looking to acquire mining assets in South America.

The Fed is involved in a “broad review” of commercial real estate at large regional banks. This lends credence to the rumors that commercial real estate is on the brink of a collapse to rival the current housing market crisis.

The good news of fewer than expected jobless claims was offset by fewer than expected housing starts and weak numbers on new orders and new hires at companies.

The US Dollar continues its decline, down again for the week.

Oil maintained its price above the 70 dollar mark.

Former Fed Chairman Alan Greenspan noted last week that “Rising prices of precious metals and other commodities are an indication of a very early stage of an endeavor to move away from paper currencies.” This sounds suspiciously like a veiled way of stating that people are beginning to buy metals as a hedge against inflation.

Here are your Short Term Support and Resistance Levels for the upcoming week.

Volatility should be expected to continue. Rumors are becoming more abundant regarding China’s entrance into the precious metals market as a major consumer. If the government of China is truly pushing the citizens to purchase precious metals, the increase in demand would push prices even higher. Keeping yourself aware of breaking news is becoming more and more important every day. If you have not yet started your precious metals portfolio it is now time to do so. If you already have started your precious metals portfolio, adding more product to that portfolio should prove out to be one of the best investment decisions you will have made in not only insuring your net worth but providing yourself with extreme profitability in the years ahead. As always the key is not to overextend one’s ability to stay and hold and own for the long term.

Trading Department – Precious Metals International, Ltd.

GOLD

-$5,000/oz gold? Rob McEwen says it’s coming in 2014 or 2015. When über mining investor Rob McEwen makes predictions on gold prices or appears to have developed an interest in silver mines, retail investors heed his clarion call and place their bets that the gold price is about to soar.

In a presentation to the Denver Gold Group on U.S. Gold Monday, McEwen was somewhat subdued as he only briefly mentioned he thought gold could hit $5,000 an ounce before the end of the gold cycle As this reporter scrambled for a clarification of his remarks in a brief interview, McEwen stuck by his prognostication, forecasting the end of the gold cycle would occur either in 2014 or 2015. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=89220&sn;=Detail

-Central banks are expected to buy 6 million to 10 million ounces of gold annually due to currency uncertainties after being net sellers in past decades, Jeffrey Christian, managing director of CPM Group, told the Denver Gold Forum on Monday.

“What we are seeing is that central banks are making the transition from large net sellers to large net buyers,” Christian said. “You will see a net buying of 6 (million) to 10 million ounces per year by central banks, and that is an extremely conservative projection,” he said.

Christian said that European central banks appeared to be done with their gold selling, and that central banks in emerging countries which have been building up foreign reserves were now diversifying into gold due to volatility in the dollar and other major currencies.

Recently, China and other emerging economies have signalled growing interest in gold rather than stockpiling their currency reserves in U.S. dollar-denominated assets. Read more here-

http://www.reuters.com/article/usDollarRpt/idUSN1440639620090914

-Central bank gold purchases could help gold to reach fresh highs GFMS. The research house believes the potential for a sustained period of record prices is very real- but we may have to be a little patient. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=89186&sn;=Detail

-Gold “guru” Martin Murenbeeld has revised his gold price forecasts upwards for 2009 and 2010 citing changing central bank attitudes and rising investment demand for the metal. Addressing the Denver Gold Forum being held in Denver, Colorado Murenbeeld described his prior forecasts made at the September 2008 conference as “too bearish.”

He added, “while volatile, gold did the job for investors” in the wake of the global financial crisis which started with the bankruptcy of investment bank Lehman Brothers almost immediately after last year’s Denver Gold Forum.

He said that, since his most recent forecast made on July 3, gold market conditions had swung towards the more bullish of the three econometric models he used to predict future price movements. Murenbeeld, who is chief economist for Canadian consultancy Dundee Wealth Economics, forecast gold could hit $1,075/oz by the end of the year and average $1,116/oz during 2010. Read more here-http://www.miningmx.com/news/gold_and_silver/murenbeeld-ups-his-call-gold.htm or http://www.gata.org/node/7796

-The price of gold could hit $1,600 an ounce if crude oil goes to $100 a barrel in the next six to 18 months, the chief executive of South Africa’s Gold Fields, the world’s No. 4 gold producer, said on Wednesday.

“Some people say oil is going up to $100 a barrel in the next six to 18 months. If that’s true, and if you look at the long-term relationship between gold and oil, you should find that gold would go to $1,500 to $1,600,” Gold Fields CEO Nick Holland told Reuters in an interview during the Denver Gold Forum.

Holland also attributed his outlook to dwindling industry supply as a result of declining quantity and quality of exploration discoveries. “The bias is more to the upside than the downside at this stage,” he said. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=89369&sn;=Detail

-China’s immense, and growing, impact on the global gold market. There seems little doubt that China’s economic strength can lead to it dominating gold price movement for the foreseeable future. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=89018&sn;=Detail

-Like a battering ram in a medieval siege, gold keeps hammering away at the gate. For the third time in less than twelve months, the yellow metal is once again crashing into the $1,000 per ounce level. As of press time, it looks like gold will close above that level today and will set a new record in the process. Even if the breach is fleeting, who can doubt that it will mount another assault soon?

In the meantime, there is no shortage of market analysts who are not buying gold while questioning the motives of those who are. Although they offer a variety of strained reasons, they nearly all agree that it has nothing to do with inflation, which is nearly universally considered dead and buried. As a self-confessed gold bug, I can assure all that inflation is the only reason I buy gold. And recently, I’m buying a lot.

The bottom line is that gold is continuing its long-term bull run, and those who dismiss the message behind its rise do so at their own financial peril. When it comes to inflation, gold is the canary in the economic coal mine. Just as unseen toxins kill the canary before the miners succumb to the fumes, a spike in gold is a harbinger of reckless monetary devaluation.

Our leading commentators think that since they can’t see or smell the gas, all those canaries (gold prices, commodity prices) must be dying of natural causes. Good luck to them when the toxins flood the mine. Peter Schiff-Read more here-http://www.321gold.com/editorials/schiff/schiff091309.html Watch video here-http://www.youtube.com/watch?v=LhPpzWZDyx0&feature;=email

-Four major developments all gold investors should watch. Read more here-http://www.resourceinvestor.com/News/2009/9/Pages/Four-major-developments-all-gold-investors-should-watch.aspx

-This gold rally no flash in the pan. Investors betting U.S. stimulus will trigger inflation. Read more here-http://www.financialpost.com/personal-finance/story.html?id=1993986

-Clive Maund gold market update. Read more here-http://news.goldseek.com/CliveMaund/1252876734.php

-Ned Schmidt’s Gold Thoughts. Read more here-http://www.kitco.com/ind/Schmidt/sep152009.html

-Why I’m sticking with gold. There is a large and growing school of thought that would have you believe the global economy is recovering, that neither inflation nor deflation is a particular threat and that you no longer need safe haven investments of any kind.

This view might be the right one, but just in case it isn’t there may be more bank failures and another leg of recession, perhaps even inflationary recession ahead I’m going to stick with my gold for a while yet.

I might even buy some more. According to Frank Holmes, the US fund manager, the beginning of September has historically been a pretty good time to start building or to top up a gold holding the price has risen in 16 of the 21 Septembers since 1989. Merryn Somerset Webb-Read more here-http://www.moneyweek.com/investments/precious-metals-and-gems/merryn-somerset-webb-why-im-sticking-with-gold-93804.aspx or http://www.ft.com/cms/s/2/7ae3517c-9efa-11de-8013-00144feabdc0.html

-A golden opportunity for investors? The busy money-printing machines are more predictable than the still-sputtering economy, making gold a smart choice even after a spike to $1,000 an ounce. Read more here-http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/a-golden-opportunity-for-investors.aspx?page=all

-What Price Suits Gold? Leading Gold Bugs See Prices Tripling Someday, But Others Say its Current Level Is About Right. Read more here-

http://online.wsj.com/article/SB10001424052970203917304574415193376917198.html

-Al Korelin interviews Ed Steer on the gold market. Listen here-http://www.gata.org/node/7788

 

-Interviewed by GoldSeek, Turk sees gold’s breakout imminent. Listen here-http://www.gata.org/node/7798

 

-GoldMoney’s James Turk interviewed by King World News. Listen here-http://www.gata.org/node/7787

 

-September 15, 2009 Gold closed today in New York at $1005.00, a new record high. Any new record is always a noteworthy event, but particularly so when the technical position and chart are so bullish. James Turk-Read more here-http://www.fgmr.com/gold-september-15-2009.html

-GATA board member Adrian Douglas interviewed by King World News. Listen here-http://www.gata.org/node/7784

-King World News interviews David Tice on the U.S. stock market, U.S. Dollar, gold, silver, the Fed, bailouts, sentiment, the consumer, a coming funding crisis, threats to our freedoms, capital controls and much more. Listen here-http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2009/9/11_David_Tice.html

-Gold has nowhere to go but up! This is the view of a number of market commentators who see a few pivotal economic events coming together to support the price of the yellow metal. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=89246&sn;=Detail

-Gold mine production costs break through $600/ounce level once more as output jumps higher GFMS. Increases in production stemmed both from new mining ventures and increases at existing operations with Africa the only region to record declining output. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=89188&sn;=Detail

-Gold investors warned to liquidate after ‘buying frenzy’. London’s leading gold forecaster has advised clients to liquidate holdings of gold and silver until the latest speculative fever abates, warning that futures contracts on New York’s Comex exchange are flashing warning signals. Read more here-http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6184136/Gold-investors-warned-to-liquidate-after-buying-frenzy.html

SILVER

Gold to silver ratio at 80 to 1 with gold at $1,300 the silver price would be $16.25

Gold to silver ratio at 70 to 1 with gold at $1,300 the silver price would be $18.57

Gold to silver ratio at 60 to 1 with gold at $1,300 the silver price would be $21.67

Gold to silver ratio at 50 to 1 with gold at $1,300 the silver price would be $26.00

Gold to silver ratio at 40 to 1 with gold at $1,300 the silver price would be $32.50

Gold to silver ratio at 30 to 1 with gold at $1,300 the silver price would be $43.33

Gold to silver ratio at 20 to 1 with gold at $1,300 the silver price would be $65.00

Gold to silver ratio at 15 to 1 with gold at $1,300 the silver price would be $86.67

-GoldMoney founder James Turk’s subscription newsletter, the Freemarket Gold & Money Report, has turned into an occasional public Internet posting, the Free Gold Money Report, and it discloses that silver again has fallen into backwardation even though it has risen 20 percent in two weeks. This is “simply staggering,” Turk writes, adding, “The possibility of a short squeeze in silver cannot be ruled out, particularly given its very bullish chart picture.”

There are two noteworthy points on the above chart. First, and most importantly, silver has broken through the downtrend line going back to its 2008 high, which was $20.68. That price now becomes silver’s next target, and it has been my view that this $20-something price will be reached before the end of this year.

Second, note how silver slipped below its long-term uptrend channel after the Lehman Brothers collapse, and then climbed back into this channel. It is becoming increasingly clear that this break in silver’s price was an aberration that occurred only because of the de-leveraging accompanying the Lehman collapse.

In other words, overleveraged hedge funds and other players threw out the baby with the bath water. They sold what they could sell, not necessarily what they wanted to sell. As is clear from the following charts, silver is also doing well in terms of the other currencies. Read more here-http://www.fgmr.com/silver-september-10-2009.html

-Silver Trending Towards Backwardation Again. The silver backwardation has been on-again off-again throughout 2009 and this portends gigantic problems for the worldwide monetary system. Backwardation is a situation where the fiat currency price of a commodity is pregnant with a premium the buyer is willing to pay for immediate delivery.

The price of a commodity for future deliver is lower than the spot price. This is contrasted with contango where the spot price is lower than the futures price. Backwardation seldom arises in the monetary commodity gold or the quasi-monetary commodity silver.

At all times and in all circumstances gold, silver and platinum remain money. The silver market is miniscule compared to the amount of total tangible and financial assets in the world. Yet silver can never become worthless because it is a tangible asset. As capital continues seeking a safe and liquid home silver is among the beneficiaries.

With the Chinese and Indian acquisition of physical silver there will be even more strain on the paper markets for delivery. While silver is currently not as cheap as it was earlier when I recommended buying; the ‘tears of the moon’ is still a decent value. Trace Mayer-Read more here-http://news.silverseek.com/SilverSeek/1252878023.php

-Silver is in the spotlight at U.S. gold gathering. Silver has outperformed gold this year as investors flocked to precious metals in the economic downturn and silver producers can look forward to good times ahead, the head of Coeur d’Alene Mines said on Tuesday.

“In the wake of this (financial) hurricane, this is a new golden age for us,” Dennis Wheeler, the silver producers’ chairman, president and chief executive officer told the Denver Gold Forum industry gathering.

Not only were investors buying silver as a safe haven against the recession, but new demand from electronic appliance makers for the metal was likely to strain global supplies, he said.

“We continue to see a deficit of about 100 million ounces for silver this year and it is continuing.”

Wheeler noted that the gold price had risen some 15 percent this year to around $1,000 an ounce, but silver was up 50 percent. “The number one performer this year has been silver. Silver has outperformed gold three-to-one,” said Wheeler.

“We are seeing the beginnings of a new sustainable global silver market. Clearly investors were driving the market this year.” He said that as the economy got back on its feet, silver demand was seen increasing, especially after “upbeat” outlooks from computer and appliance makers who use the metal for batteries.

Apart from traditional uses for jewellery, silver is increasingly in demand for solar energy and water purification components, medical uses and photography. Read more here-

http://www.reuters.com/article/marketsNews/idAFN158637020090915?rpc=44

-A golden age for silver coming? Silver has been hitting 12-month highs but where does it go from here? Read more here-

http://www.mineweb.com/mineweb/view/mineweb/en/page32?oid=89330&sn;=Detail

-The production of silver in the world 2009. Read more here-http://news.silverseek.com/Dani/1253109688.php

-All the silver ever mined fits in a 55 metre cube! Read more here-http://www.commodityonline.com/news/All-the-silver-ever-mined-fits-in-a-55-metre-cube!-21132-3-1.html

-Ross Clark, silver from a technical perspective. Read more here-http://www.321gold.com/editorials/hoye/hoye091209.html

-Ted Butler silver commentary. Read more here-http://news.silverseek.com/SilverSeek/1252940702.php

-Ted Butler speaks with King World News on week’s silver, gold action. Read more here-http://www.gata.org/node/7785

-Clive Maund silver market update. Read more here-http://news.silverseek.com/CliveMaund/1252876303.php

-Roland Watson silver update. Read more here-http://news.silverseek.com/SilverSeek/1253196256.php

-If you own the silver ETF sell now and get into physical silver. Read more here-http://seekingalpha.com/instablog/407380-jeff-nielson/27731-your-etf-silver-is-for-sale

-If you own silver certificates sell now and get into physical silver. Read more here-http://seekingalpha.com/instablog/217411-bron-suchecki/27397-scotiabank-certificates

PLATINUM-PALLADIUM

-Fundamentalist view: consider platinum as an alternative inflation hedge to gold. Inflation concerns have led to a sharp rise in investor interest in gold this year, with demand in the first quarter of 2009 increasing by more than a third, despite price volatility. Read more here-http://www.telegraph.co.uk/finance/personalfinance/investing/gold/6191017/Fundamentalist-view-consider-platinum-as-an-alternative-inflation-hedge-to-gold.html

CHARTS OF THE WEEK-QUOTES-QUICK HITS

-Chart of the week: Stocks Rally, But You’re Paying More at The Pump. Back in May we looked at how many gallons of gas you could buy for the cost of the S&P; 500. We noted that since the peak in the late 90s, when you could get over 1300 gallons of gas for the price of the S&P; 500, the trend has been on a fairly steady downhill.

In May you could buy 366 gallons. Since then the S&P; 500 has rallied about 11%, but you are only getting 390 gallons just 6% more. So the trend looks likely to hold. Gas continues to get more expensive, as a percentage of your stock holdings. Read more here-http://www.businessinsider.com/chart-of-the-day-gallons-per-sp-500-2009-9

Source: chartoftheday.com

-Chart of the week-Term Investors Start To Sell. The markets continue to make new highs, but watch out. Long-term mutual fund investors have reversed this month, selling shares, rather than dumping money in. Based on the first two weeks of the month, September’s outflows will be bigger than the inflows seen in the last three months combined. Read more here-

http://www.businessinsider.com/chart-of-the-day-long-term-mutual-fund-flows-into-us-domestic-equities-2009-9

Source: chartoftheday.com

-Interesting financial note, DOW JONES 9605 Sept 10 2009, DOW JONES 9605 Sept 10 2001. Drudgereport.com

-Clunker math. I guess I must be on the wrong page on this “clunker” stuff. A vehicle at 15 mpg and 12,000 miles per year uses 800 gallons a year of gasoline. A vehicle at 25 mpg and 12,000 miles per year uses 480 gallons a year. So, the average clunker transaction will reduce US gasoline consumption by 320 gallons per year. They claim 700,000 vehicles so that’s 224 million gallons per year.

That equates to a bit over 5 million barrels of oil. 5 million barrels of oil is about ¼ of one day’s US consumption. And 5 million barrels of oil costs about $350 million dollars at $75 per bbl.

So, we all just spent $3 billion to save $350 million. The government spent $8.57 for every dollar saved. Hmmm, how good a deal was that? But, I’m thinking that they’ll probably do a great job with health care, though! Now how was it that Pres. Obama said we would pay for it? Anonymous

-”In 1909, the US federal government had an annual budget of $US 0.8 Billion. With this it governed a population of just over 90 million people. The cost of government was about $9 per capita. In 2009, the US federal government has an annual budget of $US 3,550 Billion. With this it governs a population of just over 300 million people. That’s a cost of about $11,675 per capita.” Are we 1200 times better off? The-privateer.com

-You say you’d like to sleep at night and not have to worry about your wealth; well there is a way to accomplish that. Buy gold and silver related assets. After ten years gold has finally broken out over $1,000 an ounce, a signal that phase 2 of 3 or 4 phases has begun. Gold could reach anywhere from $1,200 to $1,700 an ounce before the year is over. If you buy gold and silver coins or bullion, take delivery and store them in your safe at home.

At this stage of the gold and silver bull market anchor your portfolio with 3 or 4 of the strongest producing mining companies and exploration shares. In the 1977 to 1981 period some of the leveraged speculative shares went from $0.35 to $55.00 and that could well happen again. In today’s markets this is how you preserve your wealth. Bob Chapman-Read more here-

http://news.goldseek.com/InternationalForecaster/1252861200.php or http://news.goldseek.com/InternationalForecaster/1253124926.php

-It seems more and more people are waking up to the fact that gold and silver are not only moving up but are also much safer investments currently than any other alternative. At the present time, I treat the commodity differently than I treat the underlining mining equities.

As far as buying bullion or coins, basically I think investors should buy them at any time. Certainly you’re better off buying silver at $15.00 than you are if you’re buying it at $20.00, but the metals themselves, from a long-term perspective, will preserve your wealth and possibly multiply it. Many agree that the real metal is your core position. That is the investment that really counts the most. David Morgan-Read more here-http://news.silverseek.com/SilverInvestor/1252674849.php

-Recently, my friend Ambrose Evans-Pritchard reported in the London Telegraph on his interview with Mr. Cheng Siwei, Vice Chairman of China’s Communist Party’s Standing Committee. According to Evans-Pritchard, Mr. Siwei said, “Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not [to] stimulate the market.”

This single statement should send shivers down the necks of all who believe in the paper currencies of debtor countries. Similarly, it should warm the heart of all those who already own gold. China has indeed resisted upsetting the international gold market with massive purchases. Quietly, she has merely ‘diverted’ part of her own production into her treasury vaults!

Also, China has sought to protect its citizens from the debasement of paper currencies by lifting restrictions on its citizens’ ownership of precious metals. They can be expected to be large buyers of gold and silver (‘poor man’s gold,’ at only $17 an ounce).

In order to protect themselves from the ravages of governments who believe in massive deficit-financed entitlements, Western citizens should think carefully about whether to trust paper currency over real money. Its an easy decision to reach. John Browne-Read more here-http://www.321gold.com/editorials/browne/browne091109.html or

http://www.321gold.com/editorials/browne/browne091709.html

-Kinross Gold Corp., Canada’s third- largest producer of the precious metal, said the gold industry is facing a crisis of declining reserves as investor demand outpaces supply. “We may be in the midst of a perfect storm in terms of price and industry dynamics,” Tye Burt, chief executive officer of the Toronto-based company, said at a conference in Denver today.

“Globally production has been in decline since the peak of 81 million ounces in 2001 to 77 million ounces last year, and we see that decline continuing long term.” Read more here-

http://www.bloomberg.com/apps/news?pid=20601082&sid;=atxJ5yqO73DY

-US credit shrinks at Great Depression rate prompting fears of double-dip recession. Both bank credit and the M3 money supply in the United States have been contracting at rates comparable to the onset of the Great Depression since early summer, raising fears of a double-dip recession in 2010 and a slide into debt-deflation. Read more here-

http://www.telegraph.co.uk/finance/financetopics/recession/6190818/US-credit-shrinks-at-Great-Depression-rate-prompting-fears-of-double-dip-recession.html

-The world has not tackled the problems at the heart of the economic downturn and is likely to slip back into recession, according to one of the few mainstream economists who predicted the financial crisis.

Speaking at the Sibos conference in Hong Kong on Monday, William White, the highly-respected former chief economist at the Bank for International Settlements, also warned that government actions to help the economy in the short run may be sowing the seeds for future crises.

“Are we going into a W shaped recession? Almost certainly. Are we going into an L? I would not be in the slightest bit surprised,” he said, referring to the risks of a so-called double-dip recession or a protracted stagnation like Japan suffered in the 1990s. “The only thing that would really surprise me is a rapid and sustainable recovery from the position we’re in.” Read more here-http://www.ft.com/cms/s/0/e6dd31f0-a133-11de-a88d-00144feabdc0.html

-Volcker Predicts ‘Long Slog,’ Risk of ‘Relapses’ for Economy. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aEJ2RERn3xFM

-US Economy Facing ‘Death by a Thousand Cuts’: Roubini. Read more here-http://www.cnbc.com/id/32837255

-Roach Says U.S. ‘Stall Speed’ Economy Is Vulnerable to Relapse. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aY8U5p9XSeNw

-U.S. Economy May See Its Slowest Recovery Since 1945. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aBj5AeyQqun8

-The Stimulus Didn’t Work. The data show government transfers and rebates have not increased consumption at all. Read more here-

http://online.wsj.com/article/SB10001424052970204731804574385233867030644.html

-Warren Buffett, the billionaire investor who last year called the financial crisis an “economic Pearl Harbor,” said the U.S. economy has “hit a plateau at bottom.” “We have not bounced but we’ve quit going down,” Buffett, the 79-year-old chief executive officer of Berkshire Hathaway Inc., said today in an interview on CNBC. Read more here-

http://www.bloomberg.com/apps/news?pid=20601087&sid;=aYraS__55h34 or http://www.cnbc.com/id/32870258

-Americans plan to refrain from boosting their spending even after the biggest drop in consumption since 1980, signalling concern about the direction of the economy over the next six months.

Only 8 percent of U.S. adults plan to increase household spending, almost one-third will spend less, and 58 percent expect to “stay the course,” a Bloomberg News poll showed. More than 3 in 4 said they reduced spending in the past year.

Respondents were divided over whether the economy will get better or stay the same in the next six months; only 1 in 6 said things will get worse. More than 40 percent of those surveyed said they feel less financially secure than they did when President Barack Obama took office in January, outnumbering 35 percent who said they feel more secure.

“People I never thought would lose their jobs have lost their jobs,” said Angela Payton, 42, a university publications editor in Florence, South Carolina. She kept her children out of summer camp, stopped buying organic milk and plans to curtail the party for her daughter’s 6th birthday in November.

In the poll, conducted Sept. 10-14, 40 percent of those questioned said they have experienced one or more problems from the banking crisis. In the most-often cited repercussions, 27 percent said their credit-card interest rates have risen dramatically and 15 percent report that they couldn’t get a home-equity, car, or other kind of consumer loan. Read more here-

http://www.bloomberg.com/apps/news?pid=20601070&sid;=aDhCOltOR1RY

-Derivatives still pose huge risk, says BIS. The global market for derivatives rebounded to $426 trillion in the second quarter as risk appetite returned, but the system remains unstable and prone to crises, according to the Bank for International Settlements (BIS). Read more here-http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6184496/Derivatives-still-pose-huge-risk-says-BIS.html

-Insiders sell like there’s no tomorrow. Corporate officers and directors were buying stock when the market hit bottom. What does it say that they’re selling now? Read more here-

http://money.cnn.com/2009/09/10/news/economy/insider.sales/index.htm?postversion=2009091107

-For the latest two week period ending yesterday, insiders purchased just $4.6MM in stock while selling an astounding $471MM in stock. That is a $217MM jump over last week’s reading of $254MM. The trend in insider selling has been negative for quite some time, but even more alarming is the total lack of insider buying.

Insiders sell for a number of varying reasons, but it remains confounding that the equity markets can be so convinced of an economic rebound while insiders give a resounding vote of no confidence in their own companies via purchases of their own shares. Perhaps the lack of organic growth via revenue growth has insiders less than convinced of the economic rebound. Read more here-http://pragcap.com/the-negative-trend-in-insider-selling-worsens

-U.S. companies spent the least on share buybacks in the second quarter since at least 1998, S&P; said, as the recession crimped earnings. Read more here-

http://www.bloomberg.com/apps/news?pid=20601110&sid;=a18LYtrK09Ek

-Not much to report in terms of data flow. Equities around the planet are bid yet again as Asia reaches fresh 12-month highs. Bonds are flat in the U.S.A. but selling off overseas. The U.S. dollar is weak and that is helping maintain a positive tone to the gold price. Imagine that, bullion is north of $1,000/oz at a time when the U.S. CPI is -1.5% YoY imagine what gold will do if (when?) that inflation rate turns positive.

As we discuss in today’s Breakfast, the incoming economic data in both the U.S. and Canada have improved and for the most part bettering expectations. The dilemma is that market pricing has moved far beyond the fundamentals. Despite the temptation to jump into a “liquidity-induced” rally, and these rallies can often take you to heights that you can never imagine we would get to, they cannot be sustained without a durable organic economic expansion.

The problem is that the global economy in general, and the U.S. economy in particular, is operating on so much medication that it is difficult to conduct an appropriate examination of the patient at the current time. All we know is that the markets seem to have very rapidly now priced in three years worth of recovery.

Not much more to say. The S&P; 500 is now up more than 60% from the lows, which is truly amazing and kudos to those who called it. But the question is whether the fundamentals will ever catch up to this level of valuation usually after a 60% rally, we are fully entrenched in the next business cycle.

Never before have we seen the stock market rise so much off a low over such a short time period, and usually at this state, the economy has already created over one million new jobs during this extremely flashy move, the U.S. has shed 2.5 million jobs (as may as were lost in the entire 2001 recession). David Rosenberg

-U.S. junk bond default rate rises to 10.2 pct S&P.; Read more here-http://www.reuters.com/article/marketsNews/idUSN039597920090903

-International demand for long-term U.S. financial assets weakened in July as investors cut purchases of Treasuries by more than a third from the prior month, government statistics showed.

Emerging powers such as China and Russia have questioned the dollar’s dominance in the global economy because of a federal budget deficit projected to exceed $1.5 trillion in the fiscal year that ends Sept. 30. Investors abroad were also net sellers of U.S. corporate and agency debt in July.

“The U.S. budget deficits are off the charts, and global investors are starting to get a little wary,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, before today’s report. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=a58PmCDST2Ls

-The FDIC quietly shuttered three more banks on Friday, including Chicago-based Corus Bank, which was riddled with commercial real estate exposure and brings to 92 the total number of banks that have been forced to close so far in 2009, and the year still has more than three months to go. So far this year, there have been more bank failures than in the last 15 years combined. David A. Rosenberg

-Obama adviser Larry Summers, high U.S. unemployment for years. Read more here-http://www.politico.com/news/stories/0909/27052.html

-U.S. unemployment not to peak until 2011: Krugman. Read more here-http://www.reuters.com/article/ousiv/idUSTRE58F61F20090916

-Credit card losses climb with jobless rate in August. Read more here-http://www.reuters.com/article/ousiv/idUSTRE58F42320090916

-Bank of America Corp and Citigroup Inc customers defaulted on their credit card debts in August at the highest rates since the onset of the recession, a sign that the banks’ consumer lending woes are far from over. Read more here-http://www.reuters.com/article/ousiv/idUSTRE58E6LH20090915

-As an economic power, the U.S. may go the way of the British Empire because of the government’s increasing debt burden, according to Richard A. Posner, an economist and federal judge.

The CHART OF THE DAY shows how the public debt, or the national debt aside from liabilities for entitlement programs, has climbed in the past year. The chart goes back to March 2005, when the U.S. Treasury started giving daily updates on the debt.

Public debt will keep growing rapidly, Posner wrote earlier this week on a blog he shares with Gary Becker, an economics and sociology professor at the University of Chicago.

Declining tax revenue, rising Medicare costs, congressional reluctance to cut spending or raise levies, and the likely cost of efforts to overhaul health care and promote climate control will push the debt higher, in Posner’s view.

“At some point the wheels may start coming off the chassis,” he wrote. “The United States may find itself in the kind of downward economic spiral in which ‘developing’ countries often find themselves.” He drew the comparison with the British Empire, whose economic position in the early 20th century was similar to the U.S. role today.

The threat may emerge as the Treasury borrows more and more money, fear of inflation worsens as the Federal Reserve avoids raising interest rates, and government social programs cause unfunded spending to increase, the posting said. Read more here-http://www.bloomberg.com/apps/news?pid=20601109&sid;=aj6qdHrVNXhk

-European Commission sees galloping UK debt crisis. Britain’s public debt will explode to 180pc of GDP within a decade unless future governments take drastic measures to restore fiscal probity, according to a confidential study by the European Commission. Read more here-http://www.telegraph.co.uk/finance/financetopics/recession/6169544/European-Commission-sees-galloping-UK-debt-crisis.html

-U.K. Banks to Post $215 Billion Losses, Moody’s Says. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=afu5IWbkX1ZY

-Ireland plans to spend 54 billion euros ($79 billion) buying real-estate loans to purge the country’s financial system of the toxic assets that are crippling what was once Europe’s fastest-growing economy. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=ah73GDbwTXfg

-Cheap dollars are sowing the seeds of the next world crisis. After years of selling cheap goods to debt-fuelled Western consumers, China now has $2 trillion dollars of foreign exchange reserves. That’s 2,000 billion a reserve haul no less 25 times bigger than that of the UK. Read more here-http://www.telegraph.co.uk/finance/comment/liamhalligan/6179482/Cheap-dollars-are-sowing-the-seeds-of-the-next-world-crisis.html

-Congressman Ron Paul discusses the failures of Keynesian economics, the true cause of the financial crisis, and the need to end the Fed. Watch more here-

http://www.youtube.com/watch?v=WjVpr3zIr8E&feature;=player_embedded

-Peter Schiff: Americans must prepare for deepening unemployment, inflation and possible breadlines. Watch more here-

http://www.youtube.com/watch?v=LhPpzWZDyx0&feature;=email

-The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination and is why your Christmas stocking may be on the light side this year. Read more here-http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession-anchored-just-east-Singapore.html#ixzz0RCbk13Uy

-Peak oil expected in 2009: Macquarie. Read more here-http://www.globeinvestor.com/servlet/story/RTGAM.20090916.wpeakoilmacquarie0916/GIStory/

-The 2008 global recession caused the first worldwide contraction in assets under management in nearly a decade, according to a study that found wealth dropped 11.7 percent to $92.4 trillion. Read more here-http://www.reuters.com/article/ousiv/idUSTRE58E13320090915

-Bin Laden reportedly calls Obama ‘powerless.’ In a tape released Sunday by al-Qaida’s media wing, terrorist leader Osama bin Laden said President Barack Obama is “powerless” to stop the war in Afghanistan. Read more here-http://www.breitbart.com/article.php?id=D9AMS78O0&show;_article=1

-Has Osama Bin Laden been dead for seven years and are the U.S. and Britain covering it up to continue war on terror? Read more here-http://www.dailymail.co.uk/news/article-1212851/Has-Osama-Bin-Laden-dead-seven-years–U-S-Britain-covering-continue-war-terror.html#ixzz0RCXwL6JG

-Experts at the world’s top atomic watchdog are in agreement that Tehran has the ability to make a nuclear bomb and is on the way to developing a missile system able to carry an atomic warhead, according to a secret report seen by The Associated Press. Read more here-http://www.breitbart.com/article.php?id=D9AP714G0&show;_article=1

-U.S. to Confront Iran on Nuclear Program at Oct. 1 Meeting. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=ax5xpsKSA3tY

-Iran Gains U.S. Military Technology Through Malaysia Middlemen. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aK4daf8MD.Bw

-Mullen Says Afghan War Will Require More U.S. Troops. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aR1xqD3sNE4A

-U.S. President Barack Obama will abandon plans championed by his predecessor George W. Bush to build a missile-defense system in Poland and the Czech Republic, Czech Prime Minister Jan Fischer said. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=a9gL2ja4_w54

-Homeland Security to More Than Double Staff for Cyber Threats. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=ayDCHq5H0CH8

-U.K. think tank says US power is fading. Read more here-http://news.yahoo.com/s/ap/20090915/ap_on_re_eu/eu_britain_us_power or http://www.cbsnews.com/stories/2009/09/15/ap/europe/main5311827.shtml

-China could undermine US military power in Pacific: Gates. Read more here-http://www.breitbart.com/article.php?id=CNG.a2e736d334e760c3afc9d72bbc9a211c.bb1&show;_article=1

-Surgical masks worn by doctors since the 1918 flu pandemic to prevent the spread of infection don’t protect against respiratory viruses, according to a study that found thicker, more expensive respirators should be used. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aidFWI_.8j30

-Twenty-two years after appearing on the big screen, and one year after the collapse of investment bank Lehman Brothers, the film character Gordon Gekko continues to resonate on Wall Street.

The “strip and flip” corporate raider played by Michael Douglas will make his comeback in Oliver Stone’s “Wall Street 2,” which began filming in New York this week. The sequel is set in 2008 during the run-up to the financial meltdown with Gekko emerging from two decades behind bars. Read more here-

http://www.reuters.com/article/domesticNews/idUSTRE58E4KF20090915?feedType=RSS&feedName;=domesticNews

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/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

-Rio to Resume Argyle Diamond Mine Expansion Next Year. Rio Tinto Group, the world’s third- largest mining company, will resume work on a A$1.8 billion ($1.5 billion) expansion of its Argyle diamond mine next year as global jewellery demand recovers.

Underground production at the world’s largest diamond mine should start in 2013, Argyle Chief Operating Officer Kevin McLeish said today in an interview from Perth. Work on the expansion had slowed down in January, he said.

Output from the Argyle mine slumped 86 percent in the June quarter from a year earlier to 408,000 carats because of the shutdown in processing facilities from January to June. The mine is now operating at full capacity of 8 million metric tons a year, McLeish said today. Argyle, in Western Australia’s east Kimberley region, normally accounts for about 20 percent of annual global diamond output, according to Rio.

Rio’s Argyle mine supplies 90 percent of the world’s pink diamonds, used exclusively for jewellery. Those gems account for just 1 percent of total production at the mine. Much of the remainder is sold as rough, or uncut, diamonds.

Rio is selling 43 of the best diamonds produced from the mine in the last year in its annual tender. The current tender includes a 2.61 carat pink, heart-shaped diamond named Argyle Amour, the most valuable diamond ever produced from the mine.

Demand for pink diamonds, generally bought by wealthy customers, has not been affected by the global crisis, McLeish said. Pink diamonds are more valuable than colorless diamonds because of their rarity. For every one colored diamond there are 10,000 colorless diamonds in existence, according to Rio.

De Beers, 45 percent owned by Anglo American Plc, is the largest producer of diamonds, followed by Alrosa and Rio, according to Rio Tinto. Read more here-

http://www.bloomberg.com/apps/news?pid=20601081&sid;=a4xAPW0NHhxo

JIM ROGERS-I EXPECT A CURRENCY CRISIS

-The worst of the economic crisis is not over and a currency crisis can happen this year or the next year, because the problem of too much debt in the system has not been solved, legendary investor Jim Rogers told CNBC Monday.

The current recovery is just a consequence of the fact that consumption fell so dramatically in 2008 and people have to buy things they need in 2009, Rogers told “Worldwide Exchange.”

“How can the solution for debt and consumption be more debt and more consumption? How can that be the solution to our problems?” he said.

“I would expect there to be a currency crisis or a semi-crisis this fall or next year. It’s crony capitalism, Bernanke and Greenspan have brought crony capitalism to America but that’s not going to solve the world’s problems,” Rogers added.

There are still “gigantic amounts of horrible, horrible debt that hasn’t been dealt with” in Central Europe, while hopes that China will pull the world out of recession are overblown, according to Rogers. Read and watch more here-http://www.cnbc.com/id/32837500

STIGLITZ-BANKING PROBLEMS ARE NOW BIGGER THAN PRE-LEHMAN

-Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc. “In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”

Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”

A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America Corp.’s assets have grown and Citigroup Inc. remains intact. In the U.K., Lloyds Banking Group Plc, 43 percent owned by the government, has taken over the activities of HBOS Plc, and in France BNP Paribas SA now owns the Belgian and Luxembourg banking assets of insurer Fortis.

While Obama wants to name some banks as “systemically important” and subject them to stricter oversight, his plan wouldn’t force them to shrink or simplify their structure. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aYdgQkXu9eBg

TALEB-WANTS HIS OBAMA VOTE BACK

-U.S. President Barack Obama has failed to appoint advisers and regulators who understand the complexity of financial systems, Nassim Taleb, author of “The Black Swan,” told a group of business people in Toronto. “I want my vote back,” Taleb, who said he voted for Obama, told the group.

The U.S. has three times the debt, relative to the country’s economic output, as it had in the 1980s, Taleb said. He blamed rising overconfidence around the world. U.S. Federal Reserve Chairman Ben Bernanke, who was appointed to a second term last month by Obama, contributed to that misperception, Taleb said.

“Bernanke thought the system was getting stable,” Taleb said, when it was on the verge of collapse last year. Debt is a direct measure of overconfidence, he said. The national debt is $11.8 trillion, according to U.S. Treasury Department figures.

The nation must reduce its debt level and avoid “the moral sin” of converting private debt to public debt, he said. “This is what I’m worried about,” Taleb said in a speech last night at Grano’s restaurant. “But no one has the guts to say let’s bite the bullet.”

Taleb wrote the 2007 best-seller “The Black Swan: The Impact of the Highly Improbable,” which argues that history is littered with rare, high-impact events. The black swan theory stems from the ancient misconception that all swans were white. In addition to overconfidence, Taleb blamed the availability of instant information for contributing to the collapse of banks in the U.S. and the economy in Iceland.

“Ontario messed up the world with this,” Taleb said, holding up a BlackBerry, the mobile e-mail phone made by Waterloo, Ontario-based Research In Motion Ltd. “You guys bankrupted Iceland.” In the past, runs on banks took time as people left their homes, drove or walked to a branch and stood in line to withdraw money, Taleb said.

Now, a run can be accomplished in seconds via the Internet and phones with Web-browsing capabilities like the BlackBerry, he said. “In no time, Iceland is history,” Taleb said. Read more here-http://www.bloomberg.com/apps/news?pid=20601082&sid;=aaxO2K8O3IaY or http://www.theglobeandmail.com/report-on-business/crash-and-recovery/we-still-have-the-same-disease/article1286246/

ERIC SPROTT U.S. DOLLAR COMMENTARY

-So how will this US debt crisis ultimately resolve itself? Let’s consider the options. It would appear from our analysis that the spending ‘promises’ are the crux of the problem now facing the US Government. If there isn’t enough new capital in the current environment to fund new Treasury bill issues (as we argued in “The Solution is the Problem”), then there certainly isn’t enough capital to pay for the US’s unfunded future obligations. The choices, therefore, are bleak:

1. Default on Medicare promises. (Unlikely given the current debate in Washington to expand medical coverage.)

2. Default on Social Security promises. (Unlikely given the increasing average age of the voting public.)

3. Put forward a credible plan to balance the budget. (Unlikely given the most recent budget projections.)

4. Default on outstanding debt. (Unthinkable)

None of these options are feasible for the US Government. So they realistically only have one option left to print their way out of their debt crisis. We keep coming back to the numbers for the US debt, and they don’t add up. Even Alan Greenspan, former Chairman of the Federal Reserve, believes that the rising budget deficits in the United States are “unsustainable”.

Because the US Government is printing dollars to fund their liabilities, it is highly unlikely that we will ever see a failed bond auction similar to that of Poland. The far more likely outcome, therefore, will be a US dollar crisis. It is for this reason that we have positioned our hedge funds and mutual funds so heavily in precious metals.

At the end of the day, when the world finally realizes what the US has done to the world reserve currency, international investors will shift into an asset that no government can print. In our opinion the US dollar’s status as a ‘port’ in the financial storm has officially come to an end. Read more here-http://www.sprott.com/Docs/MarketsataGlance/09_09_MAAG.pdf

REAL ESTATE

-U.K. Housing Slump to Resume in 2010, Item Club Says. The U.K. housing market slump will resume next year as the squeeze on mortgage lending persists, Ernst & Young LLC’s Item Club said.

After “dipping” in the first half of 2010, prices will then stagnate for two years, the research group, which uses the same economic model as the U.K. Treasury, said in a report today in London. Mortgage finance may “remain scarce and expensive” as banks rebuild balance sheets while the economy emerges from the recession, the Item Club said.

U.K. house prices rose the most since 2006 in August amid a shortage of supply, Nationwide Building Society said last month. The slump, which erased 15 percent from home values since the decade-long housing boom peaked in 2007, has left many mortgage holders owing more than their properties are worth. Read more here-

http://www.bloomberg.com/apps/news?pid=20601110&sid;=aG45IIQ6VCjw

-Commercial-property sales in the U.S. this year are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s. About $16 billion of office transactions will be completed by year-end, according to data compiled by Real Capital Analytics Inc., a New York research firm that has tracked deals for almost a decade.

Real Capital Managing Director Dan Fasulo and Sam Chandan, chief economist of Real Estate Econometrics LLC, said that may be the lowest volume since at least 1991. “There’s no real way to sugarcoat it,” Fasulo said in an interview. “A slowdown of this magnitude certainly hasn’t occurred since I’ve been in the business.” Read more here-

http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=aigNcv3uUpag

-Real Estate Rebound Will Reap ‘04 Prices, Simon Says. Prices of U.S. shopping malls may return to 2003 or 2004 levels as consumer spending and the commercial real estate market recover, Simon Property Group Inc. Chief Executive Officer David E. Simon said. That would represent a decline of as much as 23 percent. Read more here-

http://www.bloomberg.com/apps/news?pid=20603037&sid;=ae2FrrmwuUF8

-The Housing Tsunami’s Second Wave. Read more here-http://www.financialsense.com/editorials/benson/2009/0916.html

© 2010, Worldwide Precious Metals.
www.wwpmc.com

The Goldbugg Report – September 22, 2009
Posted by Worldwide Precious Metals on Tuesday, September 22, 2009

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