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The Goldbugg Report – December 29, 2009
December 29, 2009
-Several analysts predict a rise in gold prices to dizzying heights in the next two years, but if those forecasts prove true, even gold bugs will need to stay alert to ensure that gains in the metal aren’t overwhelmed by losses on other parts of their portfolio.
-’Gold at $ 2,000 becoming acceptable to investors’.
-NIA Declares Silver Best Investment for Next Decade.
GOLD
-In the last secular bull market in gold (and other tangibles) ending in 1980 gold, interest rates, and inflation all moved up in concert. And once the crisis ended, they all moved down in concert. Read more here-http://www.caseyresearch.com/displayCdd.php?id=302
-Several analysts predict a rise in gold prices to dizzying heights in the next two years, but if those forecasts prove true, even gold bugs will need to stay alert to ensure that gains in the metal aren’t overwhelmed by losses on other parts of their portfolio.
That’s because the economic conditions under which one would expect gold to thrive resemble an investor’s nightmare possible hyperinflation, collapse of the U.S. dollar or a surge in yields on Treasury’s may be conditions under which other asset classes such as fixed income and equities could take a major hit.
“For gold to rise further, people have to continue to be fearful of economic recessionary conditions worsening instead of improving, political developments both at home and globally, and financial markets deteriorating instead of continuing to improve,” said Jeffrey Christian, a managing director at CPM Group.
Mark O’Byrne, a director at bullion dealer GoldCore said gold could “rally much higher in the event of another systemic crisis where large banks, corporates and or even countries go bankrupt.”
It could also go much higher in the event of serious inflation or stagflation, in the event of a dollar crisis or an international monetary crisis, or a serious geopolitical incident, he said. And “at least one of these scenarios is quite possible in 2010 or 2011.”
Those scenarios aren’t at all friendly to the rest of an investor’s portfolio. Gold futures rose as high as $1,218 an ounce in early December before sliding back to the low $1,100 area. A number of analysts say gold could see new highs over the next few years, thanks to the flood of liquidity in the global financial system in the wake of quantitative easing measures by central banks around the world in the wake of last year’s financial crisis.
“The right fundamentals for gold remain in place and look set to remain in place for the foreseeable future,” said O’Byrne. “This makes $3,000 per ounce gold an increasingly likely long-term price target.” Kevin Kerr, president of Kerr Trading International said the precious metal’s “more likely to hit $3,000 than $800 in the next two years.”
“I am bullish longer term on the U.S. and global economies, but I feel the die has been cast for lower fiat currency prices in years to come and a global shift out of the dollar and into commodities as the new reserve currency,” he added.
Kerr listed hyperinflation, more job losses in the U.S., negative interest rates for an extended period of time, efforts to price crude oil in currencies other than the U.S. dollar and attempts by China to move a larger part of its foreign currency holdings into gold as conditions that would support a further increase in the yellow metal’s prices.
A number of other commentators have also been known for their bullish views on gold. CLSA Asia-Pacific Markets, for instance, has for a while maintained that gold could hit $3,360 by the end of this decade. Economic analyst Marc Faber, Gluskin Sheff chief economist David Rosenberg, investor Jim Rogers, investment manager David Tice have all been reported in the media as saying that gold prices could reach a range between $2,000 and $3,000.
And Amerifutures managing director Patrick Kerr lists gold purchases by central banks, “the deepest pockets of them all,” as one of his 10 reasons why gold could shoot up to between $5,000 and $10,000 an ounce. Read more here-http://www.marketwatch.com/story/story/print?guid=6BF840F7-49FD-4311-B721-24A35ABCC0D0
-Gold Beats All in Decade of ‘Fear and Greed’: Chart of the Day. Investors who bought gold or commodities at the beginning of the decade should have tripled their money by the time the ball drops in New York’s Times Square on Dec. 31. Stock holders will be poorer.
The CHART OF THE DAY shows returns on six asset classes, including reinvested interest or dividends where applicable. A $100 investment in gold would now be more than $380 while the same sum in commodities would have grown to about $357, according to the Standard & Poor’s GSCI Enhanced Total Return Index. Stock investors lost $10 in the decade.
Gold’s nine-year bull market was recently given extra impetus by concern that $12 trillion of government spending to rein in the worst global recession since the 1930s will trigger inflation. China’s thirst for the raw materials needed to fuel its export machine helped push up the price of commodities from copper and lead to plastics and coal.
“That’s fear and greed at the same time,” said Toby Nangle, director of asset allocation at Baring Investment Services Ltd. in London. “The fear of inflation is in the gold price. Commodities and oil show emerging markets emerging, and the rest is the developed markets submerging.”
Holders of U.S. high-grade corporate bonds made a profit of about $90 on their investment, as did Treasury investors, according to Bank of America Merrill Lynch index data. Buyers of crude oil saw their $100 turn into $268 after it rose to more than $500 in 2008, based on the futures contract for West Texas Intermediate.
Stocks lost about 10 percent, including reinvested dividends, according to the S&P; 500 Total Return Index. Read more here-http://www.bloomberg.com/apps/news?pid=20601109&sid;=aHuMwsIjMF.U&pos;=15
-Gold to hit US$1400 to US$1450 in 2010. There is scarcely a bank left in the world that has not upgraded its gold price assumptions in the last several weeks. You can now add J.P. Morgan to the list, where analyst John Bridges expects gold to hit a whopping US$1,400 to US$1,450 an ounce in the second quarter of 2010. Read more here-http://www.financialpost.com/personal-finance/story.html?id=2368864
-Agoracom’s chief market analyst, Peter Grandich, analyzed the correction in gold and contended that the risk in gold is $100 on the down side against $1,000 on the up side. Read more here-
-John Embry’s December commentary. Gold’s rally has many years and thousands of dollars to go. Read more here-
-Is The Gold Bull Over? If Not, How High Can Gold Go? Read more and watch video here-http://truthingold.blogspot.com/2009/12/is-gold-bull-over-if-not-how-high-can.html
or http://goldswitzerland.com/index.php/egon-von-greyerz-on-cnbc-squawk-box-europe/
-Clive Maund gold market update. Read more here-http://news.goldseek.com/CliveMaund/1261390953.php
-Donald Cox gold market update. We see no big reason why gold outperformance should be over. After its breathless run to $1220, it’s entitled to correct back toward $1,000 or even a bit below that level without ending its bull market. Read more here-http://www.zerohedge.com/article/don-coxe-gold or http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=94810&sn;=Detail
-Ned Schmidt’s Gold Thoughts. Read more here-http://www.kitco.com/ind/Schmidt/dec212009.html
-Nervous money will limit gold’s downside risks. A more sober assessment of gold’s likely price patterns suggests upwards movement may be limited for the time being, but downside risk is also relatively muted. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=94772&sn;=Detail
-’Gold at $ 2,000 becoming acceptable to investors’. Read more here-http://www.commodityonline.com/news/Gold-at-$-2000-becoming-acceptable-to-investors-23987-3-1.html
-What’s next for the soaring price of gold? Read more here-http://www.gata.org/node/8163
-Passport Capital’s experiment: Owning physical gold. Read more here-http://www.gata.org/node/8174
-Building a wall of worry. Commentary: Sentiment picture for gold is rapidly improving. Read more here-http://www.marketwatch.com/story/story/print?guid=08E7B1DC-6398-46B4-925E-87FB1E041254
-Porter Stansberry: Gold Is “Nowhere Near the Top.” Read more here-http://news.goldseek.com/GoldSeek/1261174176.php
-Jim Sinclair interviewed by King World News. Listen here-http://www.gata.org/node/8170
-Tocqueville’s John Hathaway interviewed by King World News. Listen here-http://www.gata.org/node/8161
-David Tice interviewed by King World News. Listen here-http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2009/12/19_David_Tice.html
-Gene Arensberg: Commercial traders hugely short the dollar. Read more here-http://www.gata.org/node/8172
-Here’s a look at the five-year chart of the greenback using the Dollar Index as a proxy. The Dollar Index shows the U.S. dollar against a basket of competitive paper currencies.
In the chart, the Dollar Index is shown in yellow, gold is shown in green, and the gold stocks in orange. What do these charts mean for gold? Read more here-http://www.caseyresearch.com/displayCdd.php?id=306
-Russian central bank buys finance ministry’s gold. Russia’s Finance Ministry has sold 30 metric tons of gold to the country’s central bank for $1 billion, an official said Monday, saying the cash will be use to help ease the crisis in the country’s budget. Read more here-http://www.gata.org/node/8167
-Royal Canadian Mint explains how it lost gold. More than $3 million in government gold was unwittingly sold off at a fraction of its value as refinery slag, while $8 million more was miscounted and never left the Royal Canadian Mint, the Crown corporation revealed today in a full accounting of how it lost track of a fortune in gold for a year.
A series of miscalculations and blunders in its gold refinery dating back to 2005 were responsible for 17,500 troy ounces of gold going missing from the mint’s Sussex Drive inventory count last October, the mint announced in a 12-page report. That’s the equivalent of almost 44 400-ounce bars and worth more than $20 million in today’s prices. Read more here-
-Eric deCarbonnel graphs the gold suppression scheme. Read more here-http://www.gata.org/node/8173
-Jacqui Smith calls for ‘cash-for-gold’ websites to be regulated. Former Home Secretary Jacqui Smith blames a rise in burglaries on the prominence of gold websites that allow you to exchange jewellery for cash. Read more here-http://www.telegraph.co.uk/finance/personalfinance/investing/gold/6816806/Jacqui-Smith-calls-for-cash-for-gold-websites-to-be-regulated.html
SILVER
Gold to silver ratio at 80 to 1 with gold at $1,500 the silver price would be $18.75
Gold to silver ratio at 70 to 1 with gold at $1,500 the silver price would be $21.43
Gold to silver ratio at 60 to 1 with gold at $1,500 the silver price would be $25.00
Gold to silver ratio at 50 to 1 with gold at $1,500 the silver price would be $30.00
Gold to silver ratio at 40 to 1 with gold at $1,500 the silver price would be $37.50
Gold to silver ratio at 30 to 1 with gold at $1,500 the silver price would be $50.00
Gold to silver ratio at 20 to 1 with gold at $1,500 the silver price would be $75.00
Gold to silver ratio at 15 to 1 with gold at $1,500 the silver price would be $100.00
-NIA Declares Silver Best Investment for Next Decade. We are less than three weeks away from entering the next decade. The most important thing you need to know entering 2010 is that silver is the single best investment for the next decade. In our opinion, investing into silver is the only sure way to tremendously increase your purchasing power over the next ten years.
Throughout world history, only ten times more silver has been mined than gold. If you go back about 1,000 years ago between the years 1000 and 1250, gold was worth ten times more than silver worldwide. From year 1250 to 1792, the gold to silver ratio slowly increased from 10 to 15 and the Coinage Act of 1792 officially defined a gold to silver ratio of 15.
The ratio remained at 15 until forty-two years later when the ratio was increased in 1834 to 16, where it remained until silver was demonetized in 1873. The gold to silver ratio remained between 10 and 16 for 873 years! It is only over the past 100 years that the gold to silver ratio has averaged 50.
History will look back at the artificially high gold to silver ratio of the past century as an anomaly, caused by the dollar bubble and the world being deceived into believing that fiat currencies are real money, when in fact they’re all an illusion. Next decade, the fiat currency experiment will end badly in a currency crisis. The wealthiest people will be those who bought silver today. Read more here-http://www.silverbearcafe.com/private/12.09/investment.html
-NIA’s Top 10 Predictions for 2010. Read more here-http://inflation.us/top10predictions2010.html
-Silver may continue to outshine gold’s performance in 2010. Read more here-http://www.business-standard.com/india/news/silver-may-continue-to-outshine-gold%5Cs-performance-in-2010/380155/
-Ted Butler silver commentary. Read more here-http://www.gata.org/node/8168
-Ted Butler’s weekly interview with King World News. Listen here-http://www.gata.org/node/8160
-All I Really Need To Know About Money, I Learned From A Silver Dime. Read more here-http://news.silverseek.com/SilverSeek/1261147077.php
CHART OF THE WEEK-QUOTES-QUICK HITS
-Chart of the week: Supbrime Delinquencies Continue To Soar. The latest data out of the Officer of the Comptroller of the Currency is not promising. Seriously delinquent mortgages increased in every category in Q3. Regular prime mortgages haven’t exploded higher, but good old fashioned subprime and alt-A continue to blast to new heights. Read more here-http://www.businessinsider.com/chart-of-the-day-seriously-delinquent-mortgages-2009-12
-“Money won’t create success, the freedom to make it will.” Nelson Mandela, former President of South Africa
-Congress and the Obama administration are taking a bigger role in the rescue of the economy from the Federal Reserve, shifting the strategy to stimulus spending from central bank lending.
The amount the Fed and U.S. agencies have lent, spent or guaranteed since September is $8.2 trillion. Bloomberg-Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=ac8_SSGoo5V4
-Seems that Buy & Hold does work, if one buys and holds the right stuff! Ned W. Schmidt
-Gold will trade through $1224 to $1278 and then onward to $1650. After $1650 has been achieved, we will move on to Alf and Martin’s numbers. Jim Sinclair
-I see gold going to $2,000 by the end of 2010 and $5,000 by the end of the bull run. Rob McEwan-Watch video here-http://watch.bnn.ca/#clip249411
-I think the dollar is going to fall for years. It’s not going to fall every day, or every week. There are going to be periods of time where the dollar rallies — that’s how markets work. Like a bull market climbs a wall of worry, a bear market follows a slope of hope. And there’s always going to be hope that the dollar is going to recover, based on “maybe the Fed will raise interest rates,” “maybe the U.S. economy will improve.”
But none of that is going to help the dollar. I think the dollar’s fate has been sealed by the policies being pursued by the government and the Federal Reserve, and unfortunately it’s a grim fate. I think $5,000 is a reasonable expectation of where gold is headed over the course of the next several years, based on monetary and fiscal policy that is in place.
Now if the government were to reverse course if they suddenly brought the budget into surplus, and if the Fed aggressively raised interest rates back up to a reasonable level, say 5%, 6%, or 7%, not just a quarter-point every few months then gold would probably not get to $5,000. Peter Schiff-Read more here-http://www.fool.com/investing/general/2009/12/11/the-future-of-gold-the-dollar-and-more.aspx
-James Turk-Hyperinflation Watch. Contrary to common belief, hyperinflation does not arise from too much bank lending. The sole cause of hyperinflation is always too much government spending. The pattern is as follows.
The government spends more money than it is receiving in taxes, which forces it to borrow. As these deficits grow, they eventually exceed the market’s capacity or willingness to lend money to the government. Invariably, the central bank steps in and provides the government with the money it needs by creating it as the saying goes ‘out of thin air’, or what governments today call “quantitative easing”. The central bank does this in either of two ways.
In cash currency economies, where most commerce is completed by making payments with paper-currency, the central bank cranks up the printing press. Examples are the Weimar Germany hyperinflation in the early 1920s, and just recently, Zimbabwe.
Much has been made of the huge bank excess reserves “sitting idle” at the Fed. It has been said that hyperinflation is not possible when the banks are sitting on such huge reserves, instead of lending them into the economy. This thinking is flawed because it ignores that there are two sides to the Federal Reserve’s balance sheet.
Those reserves are not just sitting there, as if they were in a vacuum. These reserves have funded the Fed’s purchase of US government debt, putting it and the US dollar on the road to hyperinflation. Read more here-http://www.fgmr.com/december-23-2009-what-causes-hyperinflation.html
-The Inflation Bomb Hiding On The Fed’s Balance Sheet. One of the sources of the growth of the monetary base has been the $1 trillion of purchases of mortgage backed securities by the Fed. Much of that hasn’t yet made its way into the broader economy, and instead sits on bank balance sheets.
Actually, much of it is on deposit with the Fed itself, where banks can earn risk-free interest instead of lending it to home buyers at risk of losing their jobs or businesses still suffering from diminished consumer demand. When the economy begins to recover, the Fed will need to reduce the monetary base to prevent all those dollars from flooding the market and triggering hyper-inflation. Read more here-http://www.businessinsider.com/how-the-feds-mortgage-securities-purchases-create-inflation-2009-12
-Nobel Prize-winning economist Joseph Stiglitz says the U.S. needs to prepare for a second stimulus package as there’s a “significant” chance growth will slow in the second half of 2010.
The world’s largest economy isn’t likely to expand fast enough to create jobs for new entrants into the labor force or compensate for increases in productivity that will reduce demand for workers, Stiglitz told reporters in Singapore today.
“The likelihood of this slowdown is very, very high and there’s a significant chance it may be in a negative range,” he said. “If the economy recovers, we don’t need to spend the money. If you don’t prepare now and the economy turns out to be as weak as I think it will likely be, then you are in a very difficult position.” Read more here-
http://www.bloomberg.com/apps/news?pid=20601110&sid;=aqt9C2.TVFdw
-The Great Stabilisation. The recession was less calamitous than many feared. Its aftermath will be more dangerous than many expect. Read more here-http://www.economist.com/opinion/displayStory.cfm?story_id=15127608
-The survival of Irish banks is threatened by a wave of mortgage losses, as house prices slump and unemployment surges, according to Morgan Kelly, an economics professor dubbed the country’s “Doctor Doom.”
Some 3.3 percent of Irish mortgage borrowers were at least 90 days behind in their repayments at the end of September, more than double the share in June 2008, the country’s Financial Regulator said yesterday.
“The Irish banks remain as zombies whose only priority is to reduce their debt, and who face complete destruction from mortgage losses,” said Kelly, a professor at University College Dublin, in a research paper dated Dec. 21. “The Irish state can do nothing but watch as the second wave of the mortgage defaults sweeps in and drowns them.” Read more here-
http://www.bloomberg.com/apps/news?pid=20601110&sid;=aHxeJ2.zzoRg
-Largest 200 pension schemes in deficit by £100 billion. Britain’s largest private pension schemes are more than £100 billion in deficit for the first time, it was disclosed yesterday. Read more here-
-US pensions go bust, gold crashes, China flops, Bunds soar, predicts Saxo. America’s Social Security Trust Fund will go bankrupt; both gold and the Japanese yen will crash; and China’s currency will devalue as bad loans catch up with the over-stretched banking system all in the course of 2010. Read more here-http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6835576/US-pensions-go-bust-gold-crashes-China-flops-Bunds-soar-predicts-Saxo.html
-Oil Rebound Keeps Most-Accurate Forecasters Bullish. Oil’s biggest annual rally since 1999 is poised to continue with gains of at least 19 percent next year as the global economy recovers and OPEC curtails production, the most accurate crude forecasters say.
Societe Generale SA’s Mike Wittner and Hannes Loacker at Raiffeisen Zentralbank Oesterreich AG, whose predictions this year that were within 9 percent of market levels, now say oil will average $92.50 and $88, respectively, in the fourth quarter of 2010, up from current prices of about $74 in New York. The median Wall Street estimate is for an increase to $83. Read more here-
http://www.bloomberg.com/apps/news?pid=20601110&sid;=aG5c8OnDKeEw
-U.S. Economy Grew at 2.2% Annual Rate Last Quarter. Read more here-http://www.bloomberg.com/apps/news?pid=20601068&sid;=aVeAMaVRygoM
-Small-business bankruptcies rise 81% in California. With credit tight and consumers still pinching their pennies, many business owners find they can’t go on. Read more here-
http://www.latimes.com/business/la-fi-smallbiz-bankruptcy22-2009dec22,0,4357844,print.story
-8 in 10 say U.S. economy in poor shape. Read more here-http://money.cnn.com/2009/12/22/news/economy/cnn_poll_weak_economic_conditions.cnnw/index.htm
-Ben Stein: My dinner with Warren Buffett. Read more here-http://money.cnn.com/2009/12/18/news/warren_buffett_stein.fortune/index.htm
-Iran’s president on Tuesday dismissed a year-end deadline set by the Obama administration and the West for Tehran to accept a U.N.-drafted deal to swap enriched uranium for nuclear fuel. The United States warned Iran to take the deadline seriously.
Mahmoud Ahmadinejad also accused the U.S. of fabricating a purported Iranian secret document that appears to lay out a plan for developing a critical component of an atomic bomb.
Ahmadinejad’s remarks underscored Tehran’s defiance in the nuclear standoff and also sought to send a message that his government has not been weakened by the protest movement sparked by June’s disputed presidential election. He spoke a day after the latest opposition protest by tens of thousands mourning a dissident cleric who died over the weekend. Read more here-http://apnews.myway.com/article/20091222/D9COJ8K00.html
-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
-Carrie Underwood’s engagement ring estimated to cost from $150,000 to more than $1 million. Read more here-http://www.vancouversun.com/sports/Carrie+Underwood+engagement+ring+estimated+cost+from+more+than+million/2374675/story.html
-World’s Most Expensive PS3 is Covered in Gold, Diamonds. Read more here-http://gamercrave.com/worlds-most-expensive-ps3-covered-in-gold-diamonds/1241/
-Diamonds Hold Allure as Gem of an Investment. Despite the financial meltdown, luxury assets such as wine and art are drawing strong interest from rich buyers, some looking at the goods as investments. Now, promoters of diamonds are hoping to add the precious stones to the investment mix.
The ‘Vivid Pink’ sold in Hong Kong for $10.8 million. Record sales at recent auctions, set by Asian bidders, is spurring talk of a surge in high-end diamond demand. Several investment funds focusing solely on diamonds have launched or are in the works and are hoping to take advantage.
Asian bidders, especially from mainland China, represent a growing presence at auctions, says Patti Wong, chairwoman of Sotheby’s Asia. At a Sotheby’s auction in New York City earlier this month, five of the top 10 buyers were Asian.
The most expensive item a 30.48 carat oval diamond went to a buyer from mainland China for approximately $4.11 million. At a Christie’s auction in Hong Kong this month, a colored diamond, called “The Vivid Pink,” sold for $10.8 million, setting a record for a gemstone of its kind.
It’s unclear if the buyers were after the rocks for investment purposes or simply to enjoy. But proponents are hoping to turn diamonds traditionally seen as ornaments into wealth-accumulating vehicles. Read more here-http://online.wsj.com/article/SB126099490068094349.html
U.S. STOCK MARKET PERFORMANCE WORST IN 200 YEARS
-Since End of 1999, U.S. Stocks’ Performance Has Been the All-Time Clunker; Even 1930s Beat It. The U.S. stock market is wrapping up what is likely to be its worst decade ever. In nearly 200 years of recorded stock-market history, no calendar decade has seen such a dismal performance as the 2000s.
Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress. Since the end of 1999, stocks traded on the New York Stock Exchange have lost an average of 0.5% a year thanks to the twin bear markets this decade. The period has provided a lesson for ordinary Americans who used stocks as their primary way of saving for retirement.
Many investors were lured to the stock market by the bull market that began in the early 1980s and gained force through the 1990s. But coming out of the 1990s when a 17.6% average annual gain made it the second-best decade in history behind the 1950s stocks simply had gotten too expensive. Companies also pared dividends, cutting into investor returns. And in a time of financial panic like 2008, stocks were a terrible place to invest.
With two weeks to go in 2009, the declines since the end of 1999 make the last 10 years the worst calendar decade for stocks going back to the 1820s, when reliable stock market records begin, according to data compiled by Yale University finance professor William Goetzmann. He estimates it would take a 3.6% rise between now and year end for the decade to come in better than the 0.2% decline suffered by stocks during the Depression years of the 1930s.
The past decade also well underperformed other decades with major financial panics, such as in 1907 and 1893. “The last 10 years have been a nightmare, really poor,” for U.S. stocks, said Michele Gambera, chief economist at Ibbotson Associates. While the overall market trend has been a steady march upward, the last decade is a reminder that stocks can decline over long periods of time, he said. Read more here-http://finance.yahoo.com/banking-budgeting/article/108453/investors-hope-the-10s-beat-the-00s?mod=bb-budgeting
-As the first decade of the new millennium rapidly comes to a close, today’s chart takes a look back at the decade that was. Today’s chart begins shortly after the stock market as well as the nation was partying like it’s 1999 (i.e. dot-com boom). The proverbial punch bowl was taken away early in 2000 and the Nasdaq suffered its 2 1/2 year dot-com bust.
The market eventually bottomed and began a five-year rally thanks in part some infamous financial innovations (i.e. Ninja loans No Income, No Job, and no Assets). Then as it became apparent that those financial innovations weren’t quite as innovative as first hoped, the system went into near meltdown. Over the past nine months, the Nasdaq has been rallying (albeit at a pace that is slowing over time) and is currently testing resistance. All in all, a tough decade. Read more here-http://www.chartoftheday.com/20091218.htm?T
U.S. BANK FAILURES HIT 140-BANKS WITH POLITICAL TIES DID BEST
-Seven U.S. Banks Are Seized, Raising Year’s Failure Toll to 140. Seven U.S. banks were seized by regulators, bringing this year’s total of failed lenders to 140 as financial companies are tested by the recession and the Federal Deposit Insurance Corp. anticipates more shutdowns.
Banks with $14.4 billion in total assets were closed yesterday in six U.S. states, the FDIC said in statements on its Web site. The agency is overseeing the dissolution of banks at the fastest pace in 17 years.
Two of the closures were in California. The assets and deposits of Federal Bank of California in Santa Monica were bought by closely held OneWest Bank, which acquired IndyMac Federal Bank this year. Imperial Capital Bank was bought by City National Corp., the Beverly Hills-based parent of City National Bank, which expanded in Southern California with the purchase.
“Imperial Capital Bank is a very good fit for City National, given that eight of its nine locations are in communities we serve,” City National Chief Executive Officer Russell Goldsmith said in a statement. “We’re pleased to contribute to the increased stability of the banking system.”
Federal Bank was the biggest lender seized yesterday, with $6.1 billion of assets and $4.5 billion in deposits, according to the FDIC. Based in La Jolla, Imperial Capital had assets of $4 billion and $2.8 billion in deposits.
Earlier this week, the FDIC boosted its 2010 budget by 56 percent to $4 billion to manage further shutdowns. The total budget will increase from $2.6 billion and the set-aside for bank failures doubles to $2.5 billion over this year, according to a proposal approved by the FDIC board. The agency staff will increase to 8,653 next year from 7,010 this year. Read more here-
http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=aA4tDKBIB6Ek or http://money.cnn.com/2009/12/18/news/economy/bank_failure/index.htm
-Banks with political ties did best with bailouts, study concludes. U.S. banks that spent more money on lobbying were more likely to get government bailout money, according to a study released on Monday.
Banks whose executives served on Federal Reserve boards were more likely to receive government bailout funds from the Troubled Asset Relief Program, according to the study from Ran Duchin and Denis Sosyura, professors at the University of Michigan’s Ross School of Business.
Banks with headquarters in the district of a U.S. House of Representatives member who serves on a committee or subcommittee relating to TARP also received more funds. Political influence was most helpful for poorly performing banks, the study found.
“Political connections play an important role in a firm’s access to capital,” Sosyura, a University of Michigan assistant professor of finance, said in a statement. Read more here-
U.S. DEBT CRISIS
-Not too long ago, a billion dollars in a governmental budget was a lot of money. Then we got into hundreds of billions. People understood that this was a lot, just because of all the zeros. Now, unfortunately, the number has become small: the world “trillion,” as in $1.2 trillion for health care reform, seems so tiny. But it has 12 zeroes behind it, which is so easy to forget.
If the government stays on the course it’s been on for the past forty years without a radical change, the federal government will soon have a $10 trillion budget. In other words, the federal budget deficit will be $1.4 trillion. Just to make the size more visible, that’s $1,400 billion.
Our colleague Rob Arnott, who always does terrific research, wrote in his recent report that “at all levels, federal, state, local and GSEs, the total public debt is now at 141% of GDP. That puts the United States in some elite company only Japan, Lebanon and Zimbabwe are higher. That’s only the start.
Add household debt (highest in the world at 99% of GDP) and corporate debt (highest in the world at 317% of GDP, not even counting off-balance-sheet swaps and derivatives) and our total debt is 557% of GDP. Less than three years ago our total indebtedness crossed 500% of GDP for the first time.” Add the unfunded portion of entitlement programs and we’re at 840% of GDP.
The world has not seen such debt levels in modern history. This debt is not serviceable. Imagine that total debt is 557% of GDP, without considering entitlements. The interest on the debt will consume all the tax revenues of the country in the not-too-distant future. Then there will be no way out but to create more debt in order to finance the old debt.
It assures a period of economic devastation. In a last, desperate attempt, politicians at the federal and local levels will raise taxes to astronomical heights to raise revenues. And that only assures destruction of the economy. Forget the fable of economic recovery. Unless there is a change in Washington by next year’s election, there will be no way to turn back.
Japan’s recession is now 19 years old. It has the highest debt-to-GDP level (227%) of any industrialized country. The Fitch rating agency is talking about a potential downgrade of Japan’s debt. Japan’s stock market is still down 75% from the high in 1990. We predict it will make new bear market lows next year. That will make it a 20-year-long bear market on the way to 25 years. The bulls in the U.S. should consider that possibility in the formerly great United States of America.
I do not believe the bullish theory that the U.S. situation is different than Japan’s. Ours is so much worse. Is it any wonder that our biggest creditors, China, Russia and the Middle East, are diversifying out of the dollar and into gold? Read more here-http://www.forbes.com/2009/12/18/government-budget-deficit-personal-finance-financial-advisor-network-treasury-debt_print.html
-Playing Ponzi-The legacy of the financial crisis will continue for some years yet in advanced economies. Read more here-http://www.economist.com/daily/chartgallery/displayStory.cfm?story_id=15108456&fsrc;=nwl
-U.S. debt ’serious’ concern for Canada, Flaherty warns. Read more here-http://www.financialpost.com/story.html?id=2371606
-James Turk: Government debt defaults may end socialism. Read more here-http://www.gata.org/node/8164
CHINA-WORLD DOESN’T HAVE MONEY TO BUY MORE U.S. TREASURIES
-It is getting harder for governments to buy United States Treasuries because the US’s shrinking current-account gap is reducing supply of dollars overseas, a Chinese central bank official said yesterday. The comments by Zhu Min, deputy governor of the People’s Bank of China, referred to the overall situation globally, not specifically to China, the biggest foreign holder of US government bonds.
Chinese officials generally are very careful about commenting on the dollar and Treasuries, given that so much of its US$2.3 trillion reserves are tied to their value, and markets always watch any such comments closely for signs of any shift in how it manages its assets.
China’s State Administration of Foreign Exchange reaffirmed this month that the dollar stands secure as the anchor of the currency reserves it manages, even as the country seeks to diversify its investments. In a discussion on the global role of the dollar, Zhu told an academic audience that it was inevitable that the dollar would continue to fall in value because Washington continued to issue more Treasuries to finance its deficit spending.
He then addressed where demand for that debt would come from. “The United States cannot force foreign governments to increase their holdings of Treasuries,” Zhu said, according to an audio recording of his remarks. “Double the holdings? It is definitely impossible.”
“The US current account deficit is falling as residents’ savings increase, so its trade turnover is falling, which means the US is supplying fewer dollars to the rest of the world,” he added. “The world does not have so much money to buy more US Treasuries.” Read more here-http://www.shanghaidaily.com/article/print.asp?id=423054 or http://www.caseyresearch.com/displayCdd.php?id=303
U.S. STATES JOBLESS FUNDS ARE BEING DRAINED IN RECESSION
-The recession’s jobless toll is draining unemployment-compensation funds so fast that according to federal projections, 40 state programs will go broke within two years and need $90 billion in loans to keep issuing the benefit checks. The shortfalls are putting pressure on governments to either raise taxes or shrink the aid payments.
Debates over the state benefit programs have erupted in South Carolina, Nevada, Kansas, Vermont and Indiana. And the budget gaps are expected to spread and become more acute in the coming year, compelling legislators in many states to reconsider their operations.
Currently, 25 states have run out of unemployment money and have borrowed $24 billion from the federal government to cover the gaps. By 2011, according to Department of Labor estimates, 40 state funds will have been emptied by the jobless tsunami.
“There’s immense pressure, and it’s got to be faced,” said Indiana state Rep. David Niezgodski (D), a sponsor of a bill that addressed the gaps in Indiana’s unemployment program. “Our system was absolutely broke.” Read more here-http://www.washingtonpost.com/wp-dyn/content/article/2009/12/21/AR2009122103269_pf.html
SHRINKING CREDIT THREATENS XMAS SALES
-Shrinking Credit Threatens Almost $9 Billion in Sales. Target Corp. and U.S. retailers may lose almost $9 billion in holiday sales as banks rein in lending to cash-strapped consumers before a new credit-card law takes effect.
Sales in November and December may fall 1.2 percent to $436.7 billion from the same period in 2008, said Britt Beemer, chairman of consumer polling firm America’s Research Group. If lenders weren’t cutting customer spending limits and rejecting more credit-card applicants, sales would gain about 0.8 percent to $445.5 billion, he said in a Dec. 21 interview.
Target Chief Financial Officer Douglas Scovanner says the credit-card legislation is exacerbating a spending slump just as consumers begin to consider more discretionary purchases they would usually buy with credit. Items such as clothing, jewelry and home goods suffered steeper declines during the recession and are among the most profitable sales for retailers.
“It will mute the impact of the rebound that would have otherwise occurred,” Scovanner said. “Diminished availability of credit equals diminished spending.” Read more here-
http://www.bloomberg.com/apps/news?pid=20601087&sid;=awQ8BD6YsPgA&pos;=5
REAL ESTATE
-Sales of U.S. New Homes Unexpectedly Fell in November. Purchases of new homes in the U.S. unexpectedly fell last month, indicating a recovery from the worst housing slump since the Great Depression will be slow to develop. Purchases dropped 11 percent to an annual pace of 355,000.
The prospect that a government tax incentive would expire, combined with a 10 percent jobless rate and competition from foreclosed properties may have hurt builders such as Beazer Homes USA Inc. Last month’s decrease signals a sustained housing recovery may be difficult to secure without additional assistance from policy makers.
“The tax credit put a Band-Aid over the housing problem and in October and November we ripped it off” as it was set to expire, said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who projected sales would fall. “Demand for housing is not likely to pick up on a consistent basis until we start to see some improvement in employment.”
The report from the Commerce Department showed the median price of a new home in the U.S. decreased to $217,400, from $221,600 a year earlier. Sales of new homes were down 9 percent from November 2008.
Construction cutbacks helped bring inventories down. The number of homes for sale fell to a seasonally adjusted 235,000, the fewest since April 1971. The supply of homes at the current sales rate increased to 7.9 months’ worth. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=al3GTnIut0Ao&pos;=1
-Sales of Existing Homes Increase More Than Forecast. Sales of existing U.S. homes in November rose to the highest level in almost three years as first-time buyers rushed to take advantage of a government tax credit and lower prices. Read more here-http://www.bloomberg.com/apps/news?pid=20601082&sid;=awyE9Rp1UIK8
-More prime mortgages default in 3rd quarter. Also: Many homeowners with modified mortgages fall behind again. And the number of homes in foreclosure rises, though new foreclosures are steady, report shows. Troubled home loans continued to mount in the nation’s banks in the third quarter as even once-solid borrowers increasingly fell behind on their mortgage payments.
For the first quarter ever, the number of homes in foreclosure with mortgages serviced by U.S. national banks and savings and loans topped the 1-million mark, according to figures released Monday by the Office of Thrift Supervision and the Office of the Comptroller of the Currency.
The percentage of prime borrowers whose loans were 60 or more days past due doubled from the July-to-September period a year earlier. And more than half of all homeowners whose payments had been lowered through modification plans defaulted again.
The report, which covers about 34 million loans, or about 65% of all U.S. mortgages, underscores the obstacles to strengthening the nation’s rickety housing market. Stubborn unemployment is making it tough for millions of homeowners to pay their debts. In addition, many people whose monthly installments have been lowered still are unable to keep up with their payments.
Of the mortgages serviced by national banks and thrifts, only 87.2% were current and performing. It was the sixth straight quarter that the quality of those home loan portfolios had slipped.
“Mortgage performance continued to decline as a result of continuing adverse economic conditions including rising unemployment and loss in home values,” the report said.
Seriously delinquent mortgages loans 60 or more days past due and loans to delinquent borrowers who have filed for bankruptcy rose to 6.2% of the servicing portfolio. That’s a 16.7% increase over the second quarter and a 73.8% increase from a year earlier, the report said.
Of those seriously delinquent loans, the number of homes in the foreclosure process reached 1.09 million, about 3.2% of all the loans surveyed. Read more here-
http://www.latimes.com/business/la-fi-foreclosures22-2009dec22,0,6921808,print.story
-More homes are poised to hit the market. A ’shadow’ inventory of properties close to foreclosure or seized but not yet for sale has been growing. A supply of 1.7 million homes headed for sale because of foreclosure or delinquency looms over the nation’s housing market, which could dampen progress toward recovery should the Obama administration fail in its efforts to aid struggling homeowners, researchers said.
A variety of measures to keep discounted bank-owned properties off the market including moratoriums on foreclosures by major lenders and federal initiatives aimed at keeping people in their homes with mortgage payments they can afford has helped increase a backlog of so-called shadow inventory 55% in the year ended Sept. 30, according to a report released Thursday by First American CoreLogic, a Santa Ana-based real estate research firm.
Shadow inventory properties are homes that have not been tallied into official inventory numbers tracked by Realtors and other real estate professionals. They include homes taken back by lenders through foreclosures and similar actions, as well as homes whose owners are at least 90 days delinquent on their mortgage payments.
A year earlier, the pending supply of homes not yet up for sale totalled 1.1 million. A debate has emerged among real estate professionals and economists over how big an effect shadow properties will have on housing prices and sales if lenders unload them onto the market next year.
Some argue that lenders, concerned about potential losses, will moderate the pace of repossessions to avoid depressing the market. Others say efforts by the government won’t be able to keep up with the sheer number of defaults brought on by unemployment and depressed home values. Read more here-http://www.latimes.com/business/la-fi-foreclosures18-2009dec18,0,5999713,print.story
-The Second Wave of Mortgage Defaults. Our economy is about to relapse into the disease that sent us into the Great Depression: Part Deux. Subprime loans caused the initial illness. Option-ARMs will cause the relapse.
In the first half of the past decade, subprime loans were king. They were cheap and easy to get approved. Along with the subprime boom came subprime adjustable-rate mortgages (ARMs), which were equally easy to afford for a while.
Of course, the “A” and the “R” in ARM meant that the interest rate borrowers pay changes, or resets. The majority of these resets occurred between the summer of 2007 and the summer of 2008.
This period saw a massive amount of mortgage interest rate hikes, which caused millions of foreclosures. Things spiralled down from there, eventually freezing nearly all credit and causing the panic of 2008.
Of course, that’s the 50-cent version of recent history. There were plenty of other financial calamities that went along with this, including the bundling of mortgage-backed securities and risky derivative products.
If you believe the Obama White House and the glass-half-full press corps, you’d think this mess is now behind us. We are, after all, in a recovery right? Unfortunately, no one is talking about the second wave of ARM resets and foreclosures. Read more here-http://dailyreckoning.com/the-second-wave-of-mortgage-defaults/
-Borrowers with modified loans falling into trouble. Report says homeowners whose loan payments are cut by 20 percent or more still falling behind. Read more here-
http://finance.yahoo.com/news/Borrowers-with-modified-loans-apf-3676161618.html?x=0
-One of Five Modified Loans Fails in 90 Days. Read more here-http://www.upi.com/Real-Estate/2009/12/22/One-of-Five-Modified-Loans-Fails-in-90-Days/5021261517169/
-U.S. Commercial Property Falls to Lowest in 7 Years. Commercial property values in the U.S. declined in October to the lowest level in more than seven years as unemployment reduced demand for apartments, offices and retail space.
The Moody’s/REAL Commercial Property Price Indices fell 1.5 percent in October from September to the lowest since August 2002. Prices were down 36 percent from a year earlier and are 44 percent below the peak in October 2007, Moody’s Investors Service Inc. said in a statement. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=a5joQkpA3l2Y&pos;=5
-U.K. Housing Market Recovery Will Fade Next Year, RICS Says. The U.K. housing market recovery will fade in 2010 as more homes become available to buy and officials start to exit emergency stimulus measures, the Royal Institution of Chartered Surveyors said. Read more here-http://www.bloomberg.com/apps/news?pid=20601068&sid;=awpUTvnbXC_4
-Nice Home. Where’s the Rest of It? The author of the Craigslist posting in Las Vegas made no effort to disguise his or her intentions. “Stripping House Before Foreclosure,” the ad declared, offering potential buyers the cabinets and countertops, the sinks and toilets, the doors, the appliances, the sprinklers. Even the palm and citrus trees in the yard were for sale, with a catch.
“You dig,” the author advised. In Nevada and other states hit hard by the housing crisis, stripping fixtures and appliances from homes in foreclosure has become commonplace. Craigslist, the Web site for classified ads, functions as a bazaar where stripped items are sold openly. Often, the stripping is not done by strangers. It is done by the owner, just before the bank forecloses on the mortgage and takes the property back. Read more here-http://www.nytimes.com/2009/12/23/business/economy/23stripped.html?_r=2&pagewanted;=print
© 2012, Worldwide Precious Metals Canada Ltd.
www.wwpmc.com
The Goldbugg Report – December 29, 2009
Posted by Worldwide Precious Metals on Tuesday, December 29, 2009
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