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The Goldbugg Report – October 20, 2009

October 20, 2009

-Gold will hit $2,000 an ounce within decade, says Jim Rogers

- BMO Global Commodities Analyst Bart Melek sees gold going to $1,300.

-Silver is currently trading at $17.50/oz and looks very bullish technically and fundamentally.

GOLD

-Gold may climb to $1,879 an ounce by 2013 as investors buy the metal to protect against accelerating inflation, according to Edison Investment Research. As the U.S. kept interest rates near zero and government debt surged on spending aimed at ending the worst economic slump since the 1930s. Edison said in April that gold would reach $1,567 in the “foreseeable future” as investors buy the precious metal as an inflation hedge.

“We reiterate our belief that gold is in the second phase of its bull run and that it has the potential to spike higher in the near term,” Edison analyst Charles Gibson said in a report. “With the world still facing deflationary forces in the near term, gold’s peak is likely to be delayed to 2013, but that its peak will be correspondingly higher at $1,879 an ounce.”

The Fed has kept its target rate for overnight loans among banks between zero and 0.25 percent since December to help stimulate the economy. President Barack Obama increased the nation’s marketable debt to an unprecedented $7.1 trillion as the government borrows to revive growth.

Goldman Sachs Group Inc. predicts the U.S. will sell about $2.9 trillion of debt in the two years ending next September. “We assume the continuation of an environment of very low and/or negative real U.S. interest rates and a relatively well-supported oil price,” Gibson said. Read more here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=ay7mn07f84Bs

-Gold will hit $2,000 an ounce within decade, says Jim Rogers. “I like gold,” he said in the interview, pulling a Chinese Panda gold coin from his pocket. While bullish on gold, Rogers said silver and palladium will perform even better.

“There are better opportunities in silver and palladium,” he said. “Silver is still 70% below its all-time high,” while palladium, standing at around $310 an ounce, is also much lower than its high above $1,000 an ounce hit in early 2001. Rogers said he owns all four major precious metals: gold, silver, platinum, and palladium. Read more here-

http://www.marketwatch.com/story/story/print?guid=47F09412-904E-4823-8DCA-4840BF4A1363

-Goldcorp CEO ‘won’t argue’ with $1 200-$1 500/oz gold in next few years. In one of the first interviews he gave after replacing Kevin McArthur as CEO of Canadian gold-miner Goldcorp, in January, Chuck Jeannes went on record with a prediction that bullion prices would beat the all-time record before the year was out. Read more here-http://www.miningweekly.com/article/goldcorp-ceo-wont-argue-with-1-200—1-500oz-gold-in-next-few-years-2009-10-10

-Lihir Gold’s Hood Says Metal Price May Rise to $1,500 an Ounce. Lihir Gold Ltd., the second-largest gold mining company on the Australian stock exchange, said prices for the metal may reach $1,500 an ounce buoyed by demand from China and central banks.

“There’s been talk this week of $1,500 and I see that as perfectly achievable,” Chief Executive Officer Arthur Hood told Australian Broadcasting Corp. television today. Read more here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=azAAypHuGsg0

- BMO Global Commodities Analyst Bart Melek sees gold going to $1,300. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=90632&sn;=Detail

-Citigroup says gold could rise above $2,000 next year. According to an internal client note the US bank stated that gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world’s monetary system with liquidity.

Barclays Capital predicted that the gold price could rise as high as $1,500/oz. The bank is targeting $1,050/oz initially, followed by $1,120/oz. It advises holding long positions in the precious metal. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=90588&sn;=Detail

-About gold, the Adens note that “gold’s peak in 1980 at $850 is the equivalent of about $2,300 in current dollars. Gold has not even approached that level yet and the situation is far more serious now than it was then.”

“The focus now is on the next phase of the current rise. If we continue to use proportions, the bull market’s second rise from 1976 to 1980 gained 750%. Using the same growth and applying it to the current bull market, we could see gold eventually reach $4100 during the next run-up.

And if you take the entire bull market gain in the 1970s at 2300% and extrapolate, then $5800 would be the equivalent upside target.” Long-term, the Adens expect an inflationary collapse. Aden Sister-Read more here-http://www.marketwatch.com/story/story/print?guid=C9D3BD6A-5539-4824-9D64-32BCEBF54820

-Harrods Selling Gold Bars, Coins to Customers for First Time. Read more here-http://www.telegraph.co.uk/finance/personalfinance/investing/gold/6328823/Harrods-to-sell-gold-bullion-for-first-time.html or http://www.bloomberg.com/apps/news?pid=20601110&sid;=axbgzvi.cQtw

-The tug-of-war I described in my last commentary has ended. Gold has won another battle in its decade-long bull market by finally breaking through resistance at $1010-$1012, as we can see on the following chart.

Gold’s short-term and long-term uptrends have now been re-confirmed. The $1010-$1012 area should now act as support, but I doubt if we will see those levels. I don’t expect much of a pull-back here. Two things are happening. First, there is a lot of money parked on the sidelines looking to participate in gold’s break-out as well as to find a safe home. Consequently, I expect any pull-backs to be well bid.

Second, and more importantly, there is presently a scramble for physical metal. I made this point on October 9th in an interview on CNBC Europe. In my CNBC interview I mention Greenlight Capital, which is a large hedge fund that switched in this year’s second quarter out of GLD, the gold ETF, into physical metal. I believe this switch marks a tipping point from which we will see gold climb much higher.

People are increasingly seeking physical gold, rather than paper gold, which is a bullish development. Note that GLD has less gold now than it did in June (1109 tonnes today vs. circa 1132 tonnes in June). The gold price since June has nevertheless risen by more than $100, proving that gold does not have to flow into GLD for the gold price to rise.

My point is that given the large short position that presently exists in gold, the gold price can rise even if GLD contracts in size. Assuming the gold reportedly backing GLD really exists and isn’t double counted or encumbered in any way, in a contracting GLD the short-sellers will increasingly be forced to cover so that their short position does not become too large a percentage of GLD’s total assets.

The implications for the gold market from the trading action this past week are very bullish. Breaking above $1000 is a major event. It is a worldwide wake-up call that the global monetary problems arising from mismanaged fiat currencies are worsening. In my view, a 3-digit gold price is history, just like a 3-digit price was never seen again when the Dow Jones Industrial Average finally hurdled 1000 in 1983. James Turk-Read more here-http://www.fgmr.com/gold-october-9-2009.html

-On CNBC Europe, Turk cites flight to gold in hand. Read and watch more here-http://www.gata.org/node/7885

-China’s gold investors undeterred by high prices. Read more here-http://www.gata.org/node/7880

-Adrian Douglas: The explosive dynamics of the gold and silver markets. Read more here-http://www.gata.org/node/7887

-GATA’s Adrian Douglas interviewed by King World News. Read more here-http://www.gata.org/node/7884

-Adam Hamilton: Commitment of traders reports don’t fully tell the tale. Read more here-http://www.zealllc.com/2009/goldcot3.htm

-U.S. Mint didn’t try as hard to keep up with gold, silver coin demand. Read more here-http://www.gata.org/node/7883

-Fox Business interviews Jay Taylor to explain gold’s rise. Read more here-http://www.gata.org/node/7881

-Gold: it’s all about currency crisis protection. If what you are looking for is insurance against economic Armageddon then gold could be the place to start. Read more here-

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=90468&sn;=Detail

-Gold-Silver: The First Global Bull Market. Read more here-http://www.321gold.com/editorials/acamarjournal/acamarjournal100909.html

-Ned W. Schmidt’s Gold Thoughts. Read more here-http://news.goldseek.com/NedSchmidt/1255413780.php or http://www.gata.org/node/7898

-In a bull rally gold needs to rise in all currencies not just in dollar terms Walker. GFMS says that while prices may rise in the short-term longer-term prices could be hurt by weak physical demand. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=90657&sn;=Detail

-GATA consultant Rob Kirby of Kirby Analytics in Toronto alleges some funny stuff with the inventory of exchange-traded gold fund GLD amid a panic in London and other bullion-vaulting centers to come up with the real metal said to back the burgeoning paper claims to gold. Read more here-http://www.gata.org/node/7902

-Gold ETF overhang a worry in a double dip scenario. While in theory gold is perhaps still the best wealth protector if there is a second leg to the depression/recession, the big ETF overhang could create a problem if institutions are again forced to divest themselves of any saleable assets to preserve liquidity. Read more here-

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=90571&sn;=Detail

-A small gold mine will never make you big money Rule. When investing in junior gold miners it is worth looking for those with a large production potential and long life projects. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=90590&sn;=Detail

-Market analyst Hutchinson acknowledges gold suppression. Read more here-http://www.gata.org/node/7899

-’Gold, peace, and prosperity,’ Ron Paul tells New Orleans conference. Read more here-http://www.gata.org/node/7895

-GATA’s Chris Powell: Remarks to the 2009 New Orleans Investment Conference. Read more here-http://www.gata.org/node/7894

SILVER

Gold to silver ratio at 80 to 1 with gold at $1,700 the silver price would be $21.25

Gold to silver ratio at 70 to 1 with gold at $1,700 the silver price would be $24.29

Gold to silver ratio at 60 to 1 with gold at $1,700 the silver price would be $28.33

Gold to silver ratio at 50 to 1 with gold at $1,700 the silver price would be $34.00

Gold to silver ratio at 40 to 1 with gold at $1,700 the silver price would be $42.50

Gold to silver ratio at 30 to 1 with gold at $1,700 the silver price would be $56.67

Gold to silver ratio at 20 to 1 with gold at $1,700 the silver price would be $85.00

Gold to silver ratio at 15 to 1 with gold at $1,700 the silver price would be $113.33

-Silver is currently trading at $17.50/oz and looks very bullish technically and fundamentally. Silver in euro terms looks on the verge of a very significant breakout. Silver remains less than half of its nominal high in dollars in 1980 and remains undervalued on an historical basis. Traders and astute investors will notice the anomaly and this will see many wisely allocate funds to silver. Goldcore.com

-Investors may take shine to silver after gold high. Read more here-http://in.reuters.com/article/businessNews/idINIndia-42977120091007

-Ted Butler silver commentary. Read more here-http://news.silverseek.com/SilverSeek/1255368577.php

-Silver market analyst Ted Butler interviewed by King World News. Listen here-http://www.gata.org/node/7890

-Silver is the best hedge against Inflation: Robert Kiyosaki. Watch video here-http://www.youtube.com/watch?v=s7fb8jWImGM&feature;=player_embedded

-Reporting from New Orleans, Thom Calandra writes about gold going to $4,000 and silver $500. Read more here-http://www.gata.org/node/7897

-Indian bank to start selling silver bars. HDFC, a large gold seller is looking to sell into the silver retail market because it says investment demand is growing faster than jewellery. Read more here-http://mineweb.net/mineweb/view/mineweb/en/page32?oid=90344&sn;=Detail

-Mexico’s Hugo Salinas Price interviewed by King World News. Read more here-http://www.gata.org/node/7888

-Silver institute Q3 report. Read report here-http://www.silverinstitute.org/images/pdfs/3q09.pdf

CHARTS OF THE WEEK-QUOTES-QUICK HITS

-Chart of the week: The Government Debt Explosion. The growth of government debt has “decoupled” from the rest of the economy. While households, businesses and the financial sector reduce leverage, public sector debt growth has simply exploded.

As you can see from the chart, every non-governmental sector of the economy is now in debt reduction mode while governmental debt is growing a breakneck speeds. Read more here-http://www.businessinsider.com/chart-of-the-day-debt-growth-by-sector-2009-10

Source: chartoftheday.com

-Investors are celebrating an incipient “recovery,” but the interventions that were responsible for it are sowing the seeds of a more violent contraction down the road. The problem, quite simply, is debt. We’ve accumulated record amounts, yet many economists tell us we need more.

Leading the charge is Paul Krugman. He exhorts us to borrow our way back to prosperity, but he doesn’t acknowledge that his brand of Keynesian economics ignores the consequences of debt. If you look at a chart of America’s total debt burden, he’s leading us over a cliff. Rolfe Winkler-Read more here-http://blogs.reuters.com/rolfe-winkler/2009/09/30/krugman-and-the-pied-pipers-of-debt/

-The dollar is a scrap of paper, or an electronic impulse, the value of which is anchored by the analytical acuity of the monetary bureaucracy that failed to predict the greatest financial crackup since the 1930s. James Grant, WSJ, 20 September 2009

-On a real basis (not nominal) the Dow at 10,000 ten years ago is equivalent to 7,537 today! In other words, not only have we had a lost decade for all those who focus on the absolute flatness of the DJIA, but it is also a decade where the US Consumer has lost 25% of purchasing power from the perspective of stocks! Zerohedge.com

-Russia ready to drop dollar in energy trade with China, Putin says. Russia is ready to consider using the Russian and Chinese national currencies instead of the dollar in bilateral oil and gas dealings, Prime Minister Vladimir Putin said on Wednesday. The premier, currently on a visit to Beijing, said a final decision on the issue can be made only after a thorough, expert analysis.

“Yesterday energy companies, in particular Gazprom, raised the question of using the national currency. We are ready to examine the possibility of selling energy resources for rubles, but our Chinese partners need rubles for that. We are also ready to sell for yuans,” Putin said. He stressed that “there should be a balance here.”

Britain’s Independent newspaper reported last Tuesday that Russian officials had held “secret meetings” with Arab states, China and France on ending the use of the U.S. dollar in international oil trade.

The countries are reportedly seeking to switch from the dollar to a basket of currencies including the euro, Japanese yen, Chinese yuan, gold, and a new unified currency of leading Arab oil producing countries. The Independent said the meetings have been confirmed by Chinese and Arab banking sources. Read more here-http://www.gata.org/node/7900

-Gold will surpass its inflation-adjusted all-time high of more than $2,300 an ounce, Rogers said. He said that the timing will depend on many factors, including global politics. Some investors buy gold as a hedge against political instability and to preserve assets.

Commodity supplies will lag behind demand during the next 10 to 20 years, further fueling a rally in raw materials, according to investor Jim Rogers. “I don’t see any adequate-supply situation in any commodity market over the next decade or two,” Rogers, the chairman of Singapore-based Rogers Holdings, said today in an interview in New York. “The commodities boom is not over and the bull market has several years to go.”

“Oil could reach between $150 and $200 a barrel,” because known reserves of crude are declining, Rogers said. He said international relations, particularly between the U.S. and Iran, will help guide prices. “Natural gas is very cheap,” he said in the interview between sessions at an ETF Securities Ltd. investor conference.

As a long-term investor, “I am horribly pessimistic about the dollar,” Rogers said. “I am not selling it yet. I think there may be a rally. I don’t think it will be sustainable if there is one.” Read more here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=aMYHzYh0dzCY

-The Dow closed above the 10,000 market for the first time in a year October 3, 2008 was the last time the Dow was at 10,000. The media are certainly going to town on this news but it is, in fact, old news; it’s “only” the 26th time the Dow has managed to cross this milestone. David Rosenberg-Gluskin/Sheff

-A “V” shaped recovery? In this particular case, “V” stands for Valuation because every basis point of this 60% rally in the U.S. equity market from the lows has been due to an unprecedented expansion in P/E ratios. In fact, by some measures, the S&P; 500 is already trading at valuation levels that would ordinarily be consistent with an economic expansion that is five-years old as opposed to a recovery that, at best, is in its infancy stages.

There has been plenty of debate over whether equities are overvalued or not, and certainly we would assume that many investors know where we stand on the topic. Let’s look at the facts now that the September data are in.

On an operating (“scrubbed”) basis, the trailing P/E multiple on the S&P; 500 has expanded a massive 10 points from the March lows, to stand at 27.6x. Historically, when the economy is taking the turn away from contraction towards expansion, which indeed was the case in Q3, the trailing P/E multiple is 15x or half what it is today (and that 15x is also calculated off depressed earnings level of prior recessions we have more on the historical comparisons below).

While we will not belabour the point, when all the write-downs are included, the trailing P/E on “reported” earnings just widened to its highest levels in recorded history of nearly 140x, which is three times the levels prevailing during the height of the tech bubble.

It is interesting to hear market bulls talk about how distorted it is to be using trailing multiples that include ‘recession earnings’ (even though using ‘forward’ earnings means relying on consensus forecasts on the future and these are rarely, if ever, correct).

It is also interesting that the last time the multiple was this high was back in March 2002, again after a huge countertrend rally that deployed ‘recession earnings’ from the 2001 downturn. If memory serves us correctly, this was right around the time that the bear market rally started to roll over and in fact, six months later, the S&P; 500 was hitting new lows and 34% lower than it was when the multiple had expanded to today’s level! David Rosenberg-Gluskin/Sheff

-U.S. consumers are increasingly late paying off loans on their primary home, as the highest unemployment in a quarter of a century pushes up delinquency rates on home loans and most other types of loans, according to a monthly report by the Equifax credit bureau.

“Every major consumer product line, in terms of delinquency, is up again, except for (credit) cards,” said Dann Adams, president of U.S. Information Systems. Read more here-

http://www.reuters.com/article/ousivMolt/idUSTRE59D4T520091014

-Prudent Bear David Tice Battles Bull Run, Says Market Will Make New Lows. Tice thinks the market will retest the lows, he thinks the next crash will make the one we just lived through look minor. “We don’t think this market will bottom until we get to book value,” which is about “3100 on the Dow,” he says (with a straight face.)

Why does he remain so negative on stocks? As you can see in this accompanying clip, Tice believes many of the problems that caused last year’s crisis still exist. His largest short position right now is in S&P; 500 futures, reflecting that view.

So what about all the economists that say the worst is behind us? Tice says its best to ignore them: “Can you count on these same economists who didn’t see any of this coming tell you we’re going to come out of it?” Read and watch more here-http://finance.yahoo.com/tech-ticker/article/353831/Prudent-Bear-David-Tice-Battles-Bull-Run-Says-Market-Will-Make-New-Lows;_ylt=Aop4UsYoAJEj7KEvPFI2fl5l7ot4;_ylu=X3oDMTE3MjA4NmIxBHBvcwMxMARzZWMDcmVjZW50UG9zdHMEc2xrA3BydWRlbnRiZWFyZA–?tickers=BEARX,^GS

-City watchdogs were monitoring cash withdrawals from Royal Bank of Scotland every hour during the height of the banking crisis, the Guardian can reveal. The Financial Services Authority demanded 60-minute updates on cash flooding out of the bank’s branches and hole-in-the-wall machines in the days before Britain’s historic bank bailout, which took place a year ago.

The regulators stepped up their surveillance after realising that confidence was draining from the banking system following the collapse of Lehman Brothers a month earlier, and that customers were concerned about the safety of their deposits. Read more here-http://www.guardian.co.uk/business/2009/oct/11/banking-crisis-one-year-on

-U.K. Considers Privatizations to Cut Its Debt. Read more here-http://online.wsj.com/article/SB125533924279879927.html or

http://www.breitbart.com/article.php?id=CNG.e6817121a4ab03ad4f5ec50ab56dc235.181&show;_article=1

-Homeland Security Secretary Janet Napolitano said law-enforcement authorities are tracking terrorists with al-Qaeda leanings in the U.S. Read more here-

http://www.bloomberg.com/apps/news?pid=20601087&sid;=al87YRCSOi3A

-Iran to “blow up heart” of Israel if attacked: official. Read more here-http://news.yahoo.com/s/nm/20091009/ts_nm/us_iran_israel_usa

-Bleak U.S. job market boosts military recruitment. Read more here-http://www.reuters.com/article/topNews/idUSTRE59C5O320091013

-New flu still raises questions among experts. Read more here-http://www.reuters.com/article/newsOne/idUSN1529221620091015

-2012 isn’t the end of the world, Mayans insist. Read more here-http://apnews.myway.com/article/20091011/D9B8P09O0.html

-Modern man a wimp says anthropologist. Read more here-http://www.reuters.com/article/newsOne/idUSTRE59D0BR20091014

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

-Blue Diamond Fetches Asian Record of $5.7 Million at Sotheby’s. An 8.74-carat blue diamond, the size of a hazelnut, fetched HK$43.8 million ($5.7 million) in Hong Kong, the most expensive of its type sold at auction in Asia.

The emerald-cut, so-called fancy intense blue gem, went to an anonymous phone buyer after a two-minute tug-of-war with at least four rivals that escalated at a rate of HK$1 million a bid. The diamond has the third-highest grade of VVS1, which means it is very slightly flawed, according to host Sotheby’s.

A carat is one-fifth of a gram. New York-based Sotheby’s says it holds the per-carat world auction record for any gemstone with its May sale of a 7.03-carat cushion-shaped fancy vivid-blue diamond in Geneva for 10.5 million Swiss francs ($9.5 million); it was sold to Hong Kong property tycoon Joseph Lau.

“Only about a handful of such diamonds exist in the world,” said Fyzee Thambi, a Hong Kong-based gem dealer, in an interview at the venue yesterday. “That price is a bargain. In better economic times, people would have paid much more for it.” Diamonds are prized for being portable stores of value. Read more here-

http://www.bloomberg.com/apps/news?pid=20601088&sid;=aRQFbHxkoXpc or http://www.idexonline.com/portal_FullNews.asp?id=33045

-Market for Luxury Goods Shifts Further to the East. In December, Christie’s will auction off “the Vivid Pink,” a bubble-gum-colored five-carat diamond with an estimated value between $5 million and $7 million. But instead of scheduling the sale in New York or Geneva, the venue chosen was Hong Kong.

Emerging Asia’s role in the market for super high-end luxury goods is mushrooming, reflecting an underlying shift in consumer spending power that has been creeping along for years, but got added impetus from the global economic crisis.

Christie’s and its rival Sotheby’s say that within the past few years, Hong Kong has emerged as a top location for sales of expensive jewelry, gems and fine wines. Asians have also become major buyers of ultra-luxury goods at the auction houses’ sales in cities like London, New York and Geneva.

Christie’s sold its clear 101-carat Shizuka diamond in Hong Kong for $6.2 million in May 2008. That sale and the one coming Dec. 1 of its big pink diamond “are both great examples showing how important this market has become at the very top end,” said Vickie Sek, head of jewelry at Christie’s Asia.

“Both stones would have been offered in New York or Geneva just a few short years ago,” she said. In another telling example, Rolls-Royce, which did not even have dealerships in Asia until 2003, immediately got 20 orders for its new $250,000 Ghost when it presented the car in Hong Kong last month, despite taxes that effectively double that price.

More broadly, household spending in Asia’s developing nations is expected to increase as continued growth, rising populations and improving health and retirement provisions reduce the need for families to save for a rainy day. Read more here-http://www.nytimes.com/2009/10/13/business/global/13luxury.html

-Rio Tinto’s third quarter diamond production fell 54 percent to 2.787 million carats, the mining group reported in its production summary for the period. Third quarter production at Argyle dropped 51 percent, compared with 2008, to 2.274 million carats. Argyle’s year-to-date production fell 28 percent to 7.086 million carats. Read more here-

http://www.diamonds.net/news/NewsItem.aspx?ArticleID=28287 or http://www.idexonline.com/portal_FullNews.asp?id=33080

-Rio Tinto Raises Diamond Prices 15% as Demand Begins to Recover. Read more here-http://www.bloomberg.com/apps/news?pid=20601012&sid;=aScBiIMfjiGw

-Diamonds aren’t forever, the pipes are running dry. According to Rio and BHP Billiton analysis, most existing mine resources for rough stones will be gone within 15 years. This is because new diamond discoveries are becoming increasingly rare. According to Rio, annual discoveries of kimberlite ”pipes” kimberlite is a host rock for diamonds have fallen (on a five-year moving average basis) to little more than 100.

And history shows that only one in 10 kimberlite pipes contain diamonds and only one in 100 of those are economic to mine. The lack of new discoveries since the mid-1980s means the world’s mine reserves of rough diamonds have fallen from 80 years’ supply to the 15 years that Rio now forecasts. Read more here-

http://www.smh.com.au/business/diamonds-arent-forever-the-pipes-are-running-dry-20090923-g2sp.html

-Diamonds sparkle at NYC’s natural history museum. Read more here-http://www.nationaljewelernetwork.com/njn/content_display/diamonds/supply/e3ica001feccbe3877bc904186bc282c0a5

THE WORLD FINANCIAL CRISIS IS NOT OVER

-The US economist widely credited with having predicted the financial crisis has warned we are already “planting the seeds of the next crisis.” Nouriel Roubini told the BBC that he is concerned about the growing gap between the “bubbly and frothy” stock markets and the real economy.

Over the last six months, the Dow Jones Industrial Average has risen about 45%. But Mr. Roubini says he sees an economy where consumers are “shopped out” and “debt burdened”.

Based on the run up in share prices in recent months, investors appear to be betting that good times are around the corner. A view not shared by Mr Roubini. “The crisis is not yet over,” the New York University professor said.

“I see an economy where the consumers are shopped out, debt burdened, they have to cut back consumption and save more. “The financial system is damaged and for the corporate sector I don’t see a lot of capital spending because there is a glut of capacity.” Mr. Roubini believes US house prices have further to fall, straining America’s fragile recovery. Read more here- http://news.bbc.co.uk/2/hi/business/8298182.stm

U.S. DOLLAR

-Dollar Reaches Breaking Point at Banks Shifting Record Reserves. Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.

Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.

World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.

“Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.” Read more here-

http://www.bloomberg.com/apps/news?pid=20601068&sid;=aS2s2mhDVBSM

-President Barack Obama’s effort to lead the world economic recovery by spending the U.S. out of its recession is undermining the dollar, triggering record commodities rallies as investors scour the globe for hard assets.

As threats of a financial meltdown fade, the currency is falling victim to an unprecedented budget deficit, near-zero interest rates and slow growth. The dollar is down 10 percent against six trading partners’ legal tender in Treasury Secretary Timothy Geithner’s first eight-and-a-half months, the sharpest drop for a new occupant of that office since the Reagan administration’s James Baker persuaded world leaders to boost the deutsche mark and yen by debasing the dollar in 1985. This year’s drop followed its best two quarters in 16 years.

“The dollar had been strong because the U.S. was a haven in the storm, and now that the storm is abating, who needs the dollar?” said Edmund Phelps, who won the 2006 Nobel Prize in economics and teaches at Columbia University in New York. “People got exasperated with the tiny returns on safe assets.”

Investors are sating their renewed risk appetites with developing nations’ stocks, currencies and the commodities some of them produce. Gold is up 19 percent this year, touching an all-time high $1,062.70 an ounce on Oct. 8. Copper has rallied 103 percent with the biggest three-quarter rise in at least 21 years. Crude oil, up 64 percent, just finished its steepest eight-month climb since 1999. Aluminium has gained 24 percent, propelled by its best two quarters in a dozen years or more. Read more here-

http://www.bloomberg.com/apps/news?pid=20601087&sid;=a7mHS_OElufk

-Dollar facing ‘power-shift’: analysts. The dollar’s position as the world’s leading reserve currency faces increased pressure as the financial crisis allows emerging economies greater influence on the world stage, analysts said.

A report last week in The Independent claiming that China, Russia and Gulf States are among nations prepared to ditch the dollar for oil trades has heightened the uncertainty surrounding the US currency’s future. Read more here-http://www.breitbart.com/article.php?id=CNG.ee8e6856c300b312ea0f64a4522381ca.481&show;_article=1

-Dollar faces long journey downward. Read more here-http://blogs.reuters.com/great-debate/2009/10/13/dollar-faces-long-journey-downward/

-’Benign currency neglect’ could spell real danger for US economy. What’s happening to the dollar? That’s the question dominating the world’s financial markets. Last week the US currency fell, on a trade-weighted basis, to a fresh 14-month low. The dollar’s decline is now gaining momentum. Read more here-http://www.telegraph.co.uk/finance/comment/liamhalligan/6292787/Benign-currency-neglect-could-spell-real-danger-for-US-economy.html

-The Message of Dollar Disdain. With U.S. debt set to exceed 100% of GDP in 2011, it’s no wonder people are looking for alternative ways to preserve wealth. Read more here-

http://online.wsj.com/article/SB10001424052748704107204574470961505506386.html?mod=rss_opinion_main

-Your dollars are just Monopoly money. Since Nixon severed gold from the greenback in 1971, the dollar’s comparative value has fallen 97%. Money printing today will only hasten the currency’s destruction. Read more here-http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/your-dollars-are-just-monopoly-money.aspx?page=all

-The Dollar in Your Wallet Is Only Worth 18¢. Read more here-http://news.goldseek.com/GoldSeek/1255626453.php

U.S. CONSUMER-BUSINESS IS NOT BORROWING TO SPEND

-Constrained lenders and wary borrowers explain falling levels of credit in America. Read more here-http://www.economist.com/daily/news/displaystory.cfm?story_id=14636886&fsrc;=nwl

-Data published on Oct. 7 confirms what we all know, that the U.S. consumer is not borrowing to spend. In a world where credit has become so important to consumer spending, and where consumer spending drives 70% of GDP, the indicator confirms that the economy is still in slow-growth territory.

-While overall consumer credit continues slowing and is now declining at a rate of close to 5%, the subset of revolving credit, namely credit cards, is slowing even more by 7.8%. And consumer credit isn’t all that’s on the decline: commercial and industrial loans are off 12%.

Borrowing tends to be a lagging indicator, as the aftermath of a recession still lingers in the minds of consumers, and is reflected in more cautious banking practices. As the charts clearly show, the whole private sector is still in record-low borrowing mode.

The government, on the other hand, is doing the opposite borrowing like crazy in an attempt to counteract the Great Deleveraging. If we didn’t have the government directly supporting specific markets, the trends in private-sector borrowing would likely be even worse. And, with them now falling at a record pace, they are already about as bad as it gets confirming how serious the current recession is. Bud Conrad-Casey Research

BIG OR SMALL FDIC HAS PROBLEMS

-Failures of Small Banks Grow, Straining F.D.I.C. Read more here-http://www.nytimes.com/2009/10/11/business/economy/11banks.html

-The FDIC acts as guarantor to 8,195 financial institutions holding over $4.8 trillion worth of deposits. However, the majority of those deposits are concentrated in just 116 banks – the same banks that are sitting on the lion’s share of the toxic assets currently plaguing the economy.

After 123 bank failures in the last 22 months, the FDIC piggy bank is running on empty with less than $1 backing for every $500 insured. Of those failures, only six were banks holding assets of $10 billion or more, and 20 had assets between $1 billion and $10 billion. Most failures to date have occurred in the smaller local and regional banks with assets less than $1 billion.

As the glut of bad credit continues unwinding, additional bank failures seem a near certainty. It’s the size and scope of potential bank insolvencies that is a major cause for concern as one-third of the largest banks were unprofitable in the second quarter of 2009, and it’s not likely that the FDIC will be able to foot the bill if the trend continues.

Tinkering with mark-to-market accounting rules can only buy time for the struggling banks as the cash inflows disintegrate, it eventually comes time to shut the doors. We can only expect more “Too Big to Fail” taxpayer bailouts. Casey Research

THE NEXT BIG BAILOUT FHA

-The Next Big Bailout? FHA Facing “Cataclysmic” Default Rates. Given the choice between “complete collapse” and increased government involvement in the housing market, Whitney Tilson, manager of T2 Partners, is glad policymakers opted for the latter in 2008.

But there is going to be a heavy price to pay for the U.S. government becoming the nation’s mortgage broker, says Tilson, co-author of More Mortgage Meltdown. Specifically, Tilson is worried about the potential need for a bailout of the Federal Housing Administration (FHA), which has guaranteed about 25% of all new U.S. mortgages written in 2009, up from just 2% in 2005.

Created in 1934 to help low-income and first-time homeowners, the FHA has historically played a minor role in the U.S. housing market. But the agency has become the government’s vehicle of choice for mortgage financing in the past year.

Again, Tilson supports the concept of the government stepping into the breach caused by the near total cessation of private mortgage lending, as well as the curtailed financial activity of Fannie Mae and Freddie Mac, which became wards of the state in September 2008. But “there’s a price to pay,” he says, noting the FHA is facing “cataclysmic default rates” on loans written in 2006, 2007 and early 2008, as detailed by The NY Times.

“Effectively we the taxpayers are now guaranteeing mortgages written by over 10,000 FHA-approved lenders,” Tilson says. “The FHA’s portfolio is exploding [and] the taxpayer is now on the hook for 100% of the losses.”

How big of a hook? The FHA’s mortgage portfolio is now approaching $1 trillion. You can’t assume all those mortgages will default but you can assume the FHA’s exposure will only grow in the months ahead as politicians continue to look for ways to support the housing market (especially in an election year.) In other words, FHA is looking very much like the “new Fannie Mae.” Read and watch more here-http://finance.yahoo.com/techticker/article/352663/The-Next-Big-Bailout-FHA-Facing

U.S. JOB LOSSES MAY BE EVEN LARGER THAN ESTIMATED

-U.S. Job Losses May Be Even Larger, Model Breaks Down. The U.S. economic slump earlier this year was so severe it short-circuited the government’s model for calculating payrolls, raising the risk that today’s jobs report may be too optimistic.

About 824,000 more jobs may be subtracted from the payroll count for the 12 months through last March when the figures are officially revised early next year, a Labor Department report showed today. The revision would be the biggest since at least 1991.

The bulk of the miss occurred in the calculations for the first quarter of this year, the Labor Department said. The economy shrank at a 6.4 percent annual pace in the first three months of 2009, the worst performance since 1982. The figures raise the possibility that the government’s calculations continue to miss the mark.

“We are probably still underestimating job losses,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “There could be another 30,000 to 40,000” that the data isn’t picking up, he said.

That would mean the loss of jobs for September could turn out to be as high as 300,000, rather than the 263,000 reported today by the Labor Department. Today’s report also showed the jobless rate climbed to 9.8 percent last month, a 26-year high. The potential revision for the year through last March would mean that the economy lost 5.6 million jobs for the period instead of the 4.8 million now on the books. Read more here-http://www.bloomberg.com/apps/news?pid=20601068&sid;=aGBkhROUjNds

REAL ESTATE-MORTGAGES-FORECLOSURES

-U.S. Foreclosure Filings Jump 23% to Record in Third Quarter. U.S. foreclosure filings climbed to a record in the third quarter as lenders seized more properties from delinquent borrowers, according to RealtyTrac Inc.

A total of 937,840 homes received a default or auction notice or were repossessed by banks, a 23 percent increase from a year earlier, the Irvine, California-based seller of default data said today in a report. One out of every 136 U.S. households received a filing, the highest quarterly rate in records dating to January 2005.

“The problem is prime loans going into foreclosure and people being underwater and losing their jobs,” Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles, said in an interview. “It’s a really bad number.”

Mounting foreclosures mean U.S. home prices probably will resume falling, analysts from Amherst Securities Group LP in New York said Sept. 23. A “shadow inventory” of 7 million properties are in the foreclosure process or likely to be seized, up from 1.27 million in 2005, they said.

The pace of prime and so-called alt-A loan defaults is accelerating as subprime defaults slow, Standard & Poor’s analysts led by Diane Westerback said yesterday in a report. Prime loans are those made to borrowers with the best credit records while alt-A loans are considered riskier because they were often granted without documenting the borrower’s income. Read more here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=aFofq9_za8Is

-Foreclosures: ‘Worst three months of all time’. Despite signs of broader economic recovery, number of foreclosure filings hit a record high in the third quarter a sign the plague is still spreading. Read more here-http://money.cnn.com/2009/10/15/real_estate/foreclosure_crisis_deepens/?postversion=2009101507

-Southern California Home Prices Fall on Foreclosures. Southern California house and condominium prices fell 11 percent in September from a year earlier as foreclosures dominated sales, MDA DataQuick said.

The median price dropped to $275,000 from $308,500 a year earlier, the San Diego-based research company said today in a statement. The number of homes sold rose 5.1 percent from a year earlier to 21,539 in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties.

Transactions involving houses or condominiums that had been foreclosed on at some point in the past year accounted for 40 percent of all home sales in Southern California last month, MDA DataQuick said. That was down from almost 42 percent in August and a record of almost 57 percent in February. Read more here-

http://www.bloomberg.com/apps/news?pid=20601110&sid;=aeaPGMk4vTnw

-At foreclosure auctions, broken dreams on sale. The seven-bedroom, three-bath house in this city’s West Garfield Park neighborhood had once been someone’s American Dream. But at a recent auction of about 100 foreclosed houses and condos, it was just Property No. 20 and drawing no bids from a roomful of buyers despite its bargain-basement price.

“Any interest in this home at $7,000?” fast-talking auctioneer Renee Jones asked the crowd. “If not, we’ll move on.” Saddled with swollen portfolios of foreclosed and unsold properties in the housing crisis, U.S. lenders and builders are turning to professional auctioneers to help them unload the unwanted real estate in a hurry.

It is an open question whether the auctions indicate that the U.S. real-estate market is recuperating or is still in intensive care. But the rapid-fire, under-the-hammer sales usually resorted to only after every other effort to market a property has failed are on the rise across the United States, providing a colorful burst of activity in a corner of the weak economy that needs all the life it can get.

“Over the last two years, we’ve progressively seen more and more of these,” said Chris Longly, the deputy executive director of the National Auctioneers Association trade group. “It’s a sign of the times.” Hard data on the number of foreclosed properties being sold at auction are hard to come by. “The foreclosure market is a moving target right now,” said Dave Webb of Hudson & Marshall, one of the biggest auctioneers in the market.

But Hudson & Marshall and its rivals say they are gearing up for more in the coming months, convinced that a moratorium on foreclosures earlier this year only postponed what they believe is an inevitable avalanche of new repossessions. “The foreclosures are going to explode again,” said Webb. Read more here-

http://www.reuters.com/article/newsOne/idUSTRE59E01B20091015

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

The Goldbugg Report – October 20, 2009
Posted by Worldwide Precious Metals on Tuesday, October 20, 2009

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