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The Goldbugg Report – March 9, 2010

March 9, 2010

March 5, 2010

The Week in Review

“Forget US Stocks – Buy Gold Every Month ‘Forever’: Faber”. That was the largest, and leading, headline on CNBC’s website for most of the morning and afternoon on Thursday. Marc Faber, editor of The Gloom, Boom & Doom Report said these exact words in an interview with CNBC on Thursday morning. When asked why he would say such a thing, he had this to say: “[Gold’s] quantity cannot increase at the same rate as you can print money, which will eventually weaken the US dollar. I’m not saying that the dollar will go straight away down, because other currencies like the euro are even worse at the present time, but eventually, if you print money, the purchasing power will lose [value].”

Initial claims for unemployment dropped for the first time in three weeks last week. Continuing claims for unemployment also fell, but this number has been skewed by the sheer number of people who have exhausted their benefits and are now on either extended benefits, or simply no longer qualify for benefits. The number of people receiving extended benefits, in the week ended February 13 (the latest data available), increased to 5.9 million people.

Europe continues to be embroiled in its debt crisis. The British Pound had its largest one-day fall against the dollar in more than a year on Monday. The euro continued its slide, fueled by further fears that Greece is not the only country in need of bailing out and that the situation is continuing to deteriorate. Several Germans have gone so far as to suggest that Greece sell off some of its islands in order to pay off its debt. Ashok Shah, CIO of London & Capital said Wednesday that “there’s a risk of a double dip recession round the corner. Given the sovereign debt crisis that is going around the Mediterranean countries, this is going to put a lot of pressure on Europe.”

Pending home sales dropped 7.6% in January. This figure counts those homes that actually have signed contracts in place on them. Many blame the decline on the weather but with the deadline for the extended home buyer tax credit fast approaching next month, the weather really should have had minimal impact on those looking to take advantage of the credit. The general feeling is that the housing market continues to be plagued by weakness.

US crude oil inventories rose more than expected last week however the price stayed fairly steady at just over $80 a barrel.

After a confusing “setup for disappointment” earlier in the week by Lawrence Summers, economic advisor to president Obama, the jobs numbers came in better than expected. Summers came out early in the week hinting that Friday’s numbers may be horrible due to the recent severe weather experienced across the US. The numbers, when they were released Friday, showed unemployment remains steady at 9.7 % and fewer jobs than expected were cut by US employers. Interestingly, the stock market, the US dollar and commodities all rose on the news.

We consider our February 5^th memo to have been a major buy signal. In that memo we quoted James Turk as saying “Every once in a great while, the market offers a unique opportunity to buy precious metals ‘on the cheap’. I believe today is one of those moments.” To those of you who read that quote and took advantage of prices at the time to add to, or start your precious metals portfolios, congratulations! As you can see in the table below, your decision has served you well.

Volatility should be expected to continue. The situation with Greece and the rest of the eurozone has yet to resolve itself. Germany’s chancellor said Thursday that there would be no aid coming as far as Germany was concerned. The US Congress, apparently ignoring the will of the people of the US, appears to have every intention of pushing through the unpopular health care bill using any means necessary. Deficits around the world continue to skyrocket. Central banks around the world, their hands tied by a global recovery that continues to be sluggish, are keeping policies in place that are increasing the supply of currencies in the world. More money supply in the world means less buying power, which means inflation. We continue to see new precious metals ETF’s coming to the marketplace and although we feel such ETF’s do not properly represent physical ownership of product since a share in one of these funds is only a paper representation of a fractional portion of physical product, it certainly shows that more and more people are trying to capitalize on upward moving prices. Increasing interest in precious metals as an investment means an increase in demand of a finite product. Supply and demand rules would suggest that prices, under those conditions, should increase remarkably. Remember, the key to profitability through the ownership of physical precious metals is to actually own the physical product and hold them for the long term. Never over-extend your ability to maintain ownership of your product over the long term.

Trading Department – Precious Metals International, Ltd.

This is not a solicitation to purchase or sell.

© 2010, Precious Metals International, Ltd.

GOLD

-Implications for Currencies and Gold: http://beforeitsnews.com/news/22664/Sovereign_Debt_-_The_Implications_for_Currencies_and_Gold.html

-Marc Faber: Buy Some Gold Every Month “Forever.” “Gold is not the liability of someone else its quantity cannot increase at the same rate as you can print money, which will eventually weaken the US dollar,” Faber told CNBC on Thursday in a live interview.

“I’m not saying that the dollar will go straight away down because other currencies apparently like the euro are even worse than the U.S. dollar at the present time,” he added. “But eventually if you print money, the purchasing power of money will lose value. Read more here-http://wallstreetpit.com/18613-marc-faber-buy-some-gold-every-month-forever

-China Gold Buy Would Be No Surprise: Analysts. Read more here-http://www.kitco.com/reports/KitcoNews20100226.html

-J.S. Kim: Why China’s purchase of IMF gold would be huge. Read more here-http://www.gata.org/node/8379

-George Soros is helping drive up gold prices by doubling his bet in a market even he considers a “bubble” as Goldman Sachs Group Inc., Barclays Capital and HSBC Holdings Plc predict more gains before it bursts.

Soros Fund Management LLC, which manages about $25 billion, increased its investment in SPDR Gold Trust, the world’s largest exchange-traded fund for the metal, by 152 percent in the fourth quarter, a Feb. 16 Securities and Exchange Commission filing shows.

While prices have fallen 9.2 percent since reaching a record on Dec. 3, 15 of 22 analysts in a Bloomberg survey say gold will reach a new high, with the median forecast predicting a 17 percent advance to as much as $1,300 an ounce this year.

“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment,” Soros said at the World Economic Forum’s annual meeting in Davos, Switzerland, in January. “The ultimate asset bubble is gold,” he said.

In a Jan. 28 Bloomberg Television interview, the 79-year old billionaire recalled that former Federal Reserve Chairman Alan Greenspan warned of “irrational exuberance” in financial markets three years before the technology bubble burst in 2000. The Standard & Poor’s 500 Index rose 89 percent in the period. Buying at the start of a bubble is “rational,” Soros said.

Gold’s fourfold rally since the end of 2000 has also attracted money managers John Paulson, Paul Tudor Jones and David Einhorn. Paulson’s Credit Opportunities Fund soared almost sixfold in 2007 by betting that subprime mortgages would plummet. Einhorn said in October that his Greenlight Capital Inc. bought gold to bet against the dollar.

Investment demand, including in bars and coins, doubled to 1,820 tons last year as investors sought a refuge from the global recession, according to GFMS Ltd. That exceeded jewelry demand for the first time in three decades, the London-based research firm said Jan. 13. Prices reached the record $1,226.56 a decade after the metal fell to a 20-year low of $251.95 amid sales by central banks.

“Perhaps Soros thinks gold is going to bubble but the bubble is going to last for a while and he wants to profit from it,” said Jeffrey Nichols, managing director of American Precious Metals Advisors and an adviser to central banks and mining companies. “We could have a bubble but gold can reach $2,000 or $3,000 before it’s over.”

Goldman predicts gold will reach $1,235 in three months and $1,380 in 12 months. Barclays Capital says the metal will average $1,235 in the fourth quarter. HSBC says it may peak at $1,300 this year. “I absolutely believe it’s heading into a bubble, but that’s why you buy it,” said Charles Morris, who manages $2.5 billion at HSBC Global Asset Management’s Absolute Return Fund in London. “A bubble is good,” he said, forecasting the metal may rise to $5,000 in five years to explain why 11 percent of his fund is in gold.

“Gold makes sense as an investment,” said Jeffrey Christian, the managing director of CPM Group. “Just because the price of gold is going up for the 10th year doesn’t mean it’s a bubble.” Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=avsz5zUl.3yo

-Parsing 200 years of gold trades. Commentary: What is the gold chart saying about the future price? Read more here-http://www.marketwatch.com/story/story/print?guid=E250F4EA-4AD2-4D2F-A8C4-0A529AB94006

-Adrian Douglas: Alarming trend in Comex gold and silver inventory data. Having examined six months of delivery and inventory data from the gold and silver divisions of the New York Commodity Exchange, GATA board member Adrian Douglas has discovered that bullion dealer inventory appears to be reducing dramatically and is not being replaced. Douglas, publisher of the Market Force Analysis letter, concludes that this likely indicates a worsening shortage of gold and silver bullion. Read more here-http://www.gata.org/node/8373

-Gold rise linked to sovereign credit bonds: BMO’s Coxe. Sovereign credit bonds are as significant in fueling gold’s current rise as is a lack of supply, Don Coxe, Strategy Advisor for BMO Capital Markets, said Wednesday. Coxe told the BMO Capital Markets Annual Global Metals and Mining Conference in Florida that the amount of new mined gold has been falling year-over-year, but gold’s rise is not solely attributable to this.

“The fascinating thing about gold is that it peaked past the magic $1,000 mark at a time when the two biggest end-use consumers of gold the jewelry industry worldwide and brides in India were buying much less of it because the price was so high,” Coxe said in his keynote address. “So here you had the two biggest users of the product cutting back drastically on their purchases and yet gold goes to $1,100 an ounce, why?” he questioned.

Coxe said in his answer that the printing of money story is only is part of the equation. “What has happened with gold is that it is a beneficiary of the deteriorating position of another asset class which is seemingly unrelated to it sovereign credit bonds,” he said.

“Investors are looking to what is happening to what were considered the securest assets, government bonds. What they are saying is, ‘what is the long-term store of value?’ Nobody knows what inflation is going to be in two years, five years or 10 years from now. The other thing is we don’t know what currency is going to do because the only major currency of the world that has powerful underlying strength is the Renminbi of China,” said Coxe.

According to Coxe, Gold is gradually becoming the shadow currency . “As opposed to just setting one currency against the other in a classic George Soros style people are saying maybe all the currencies are going to turn out to be bad.” Read more here-http://www.kitco.com/reports/KitcoNews20100303A.html

-Gold to reach $1,500 by year end, continue decoupling from dollar Jeff Nichols. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=99961&sn;=Detail&pid;=1

-Gold entering period of rising prices as currencies depreciate. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=100027&sn;=Detail&pid;=33

-Global Gold Supply. Read more here-http://www.321gold.com/editorials/wright/wright022610.html

-Gold breaks the rules. Precious metal and U.S. dollar start to trade in tandem, but for how long? Read more here-http://www.marketwatch.com/story/story/print?guid=145628E9-3CB7-4E1B-97DA-803477831BA3

-The golden slope of hope. Commentary: Gold timers increasingly see glass as half full. Read more here-http://www.marketwatch.com/story/story/print?guid=6FD64FA2-A74C-4B3B-863F-8E6D273CA876

-Do we really want $5,000 gold? What does $5,000 gold really mean? Perhaps social chaos and, if so, who really wants that? Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=99713&sn;=Detail&pid;=33

-Usher in credit cards backed by gold bullion. Read more here-http://www.commodityonline.com/news/Usher-in-credit-cards-backed-by-gold-bullion-26099-3-1.html

-Peter Grandich challenges the Tokyo Rose of the gold market. Read more here-http://www.gata.org/node/8394

-Grandich increases challenge to gold perma-bears. Agoracom market analyst Peter Grandich reports that he has doubled his $50,000 offer of a wager to gold perma-bears that gold’s next milestone will be $1,200 and not $1,000. But with the bet now standing at $100,000, Grandich has gotten no takers. Read more here-http://www.gata.org/node/8377

SILVER

Gold to silver ratio at 80 to 1 with gold at $1,200 the silver price would be $15.00

Gold to silver ratio at 70 to 1 with gold at $1,200 the silver price would be $17.14

Gold to silver ratio at 60 to 1 with gold at $1,200 the silver price would be $20.00

Gold to silver ratio at 50 to 1 with gold at $1,200 the silver price would be $24.00

Gold to silver ratio at 40 to 1 with gold at $1,200 the silver price would be $30.00

Gold to silver ratio at 30 to 1 with gold at $1,200 the silver price would be $40.00

Gold to silver ratio at 20 to 1 with gold at $1,200 the silver price would be $60.00

Gold to silver ratio at 15 to 1 with gold at $1,200 the silver price would be $80.00

-There is a lot made of the silver-gold ratio. Silver probably will reach what I call the classic, or the monetary ratio, which is 16:1. It could even get down to the natural ratio, which at this time is about 10:1, but I don’t see it getting to any better ratio than that. Of course, this implies that silver is undervalued relative to gold.

We have a 10-year bull market behind us and in my view we have several more years to go. What happens is at the end of these great bull markets is you get into the euphoric or manic stage and this happens in almost all markets. You’ve seen it in the technology sector, when people were buying dot-com stocks that had no business plan and no equity, just an idea.

I think we’ll see the biggest run up of all time in gold and silver, especially the equities, a euphoric state of panic buying driven by fear and greed. I’ll probably face a lynch mob me when I say “sell,” because no one will want to trade physical metal for paper currency and I don’t blame them. Anticipating this, I’ve already planned some techniques to use to preserve our physical metal and still allow us to sell to a strong market, but those are days ahead.

When the panic hits, gold probably will go up to $2,000 and beyond the average person will wake up thinking, “Oh, I’ve got to get gold equities; I listened to my friends and I thought they were idiots and now I see the light.” Many will turn to silver because it’ll still affordable relative to gold.

Significant money will move in to the metals. And because silver is cheaper than gold, a lot of it will go silver, which will cause the ratio to spike relative to gold. You’ll see the ratio drop from 60:1 to 50:1 to 40:1 to 35:1 to 20:1, maybe to 16:1 or 10:1 because there’ll be more money, relatively speaking, moving into silver than in the past. And since silver is such a small market, any small increase in buying power will send the price far higher. David Morgan-Read more here-http://news.silverseek.com/SilverInvestor/1267220221.php

-David Morgan Gives his Predictions for Future Silver Prices. Listen here-http://www.kitco.com/ind/kitcoradio/index.html

-Gene Arensberg: Investors fancy silver in 2010. Read more here-http://www.gata.org/node/8392

-Ted Butler reports at King World News on gold, silver COT. Listen here-http://www.gata.org/node/8383

-Silver Supply Crisis Looms, Part 1. Read more here-http://www.thestreet.com/story/10691881/1/silver-supply-crisis-looms-part-1.html

-Silver Supply Crisis Looms, Part 2. Read more here-http://www.thestreet.com/_catholic/story/10693050/1/silver-supply-crisis-looms-part-2.html

-Chinese Government to Citizens: Buy Gold and Silver. Read more here-http://news.goldseek.com/GoldSeek/1267715760.php

-Brien Lundin: Gold Looking Good; Silver Even Better. Read more here-http://news.silverseek.com/SilverSeek/1267665330.php

-RBC says silver demand will continue to outpace new mine supply. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page32?oid=99957&sn;=Detail&pid;=32

-Q4 Silver news from the Silver Institute. Read more here-http://www.silverinstitute.org/images/pdfs/4q09.pdf

-What is an Olympic Gold Medal Worth? Read more here-http://news.goldseek.com/GoldSeek/1267123200.php

U.S. DEBT CRISIS

-America’s hidden debt bombs. America’s total debt load is on pace to top $13 trillion this year, and $22 trillion by 2020 and that’s just the debt we’re counting. What’s not being counted: potential debt bombs that don’t get factored into most budget analysis.

When anyone talks about U.S. debt, they typically refer to two numbers. The first is the debt held by the public. That’s money owed to those who have bought U.S. Treasurys, most notably big bond mutual funds and foreign governments. Debt held by the public today is roughly $8 trillion and rising.

The second number is the money the federal government owes to government trust funds, such as those for Medicare and Social Security. The government has used revenue collected for those programs to cover other outlays. Currently, the debt to the trust funds is approaching $5 trillion.

The two combined is the total gross debt that’s accounted for. But deficit hawks also worry about what’s not on the books. Here is just a sampling of the unseen or underplayed obligations that could worsen the debt outlook. Read more here-http://money.cnn.com/2010/03/01/news/economy/budget_debt/index.htm

-Rogoff: America Has Defaulted Before And It Will Run Into Trouble Again. Read more here-http://www.businessinsider.com/rogoff-america-has-defaulted-and-we-will-run-into-trouble-again-2010-2

-Bernanke delivers blunt warning on U.S. debt. Read more here-http://www.washingtontimes.com/news/2010/feb/25/bernanke-delivers-warning-on-us-debt//print/

-California is a greater risk than Greece, warns JP Morgan chief. Jamie Dimon, chairman of JP Morgan Chase, has warned American investors should be more worried about the risk of default of the state of California than of Greece’s current debt woes. Read more here-http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7326772/California-is-a-greater-risk-than-Greece-warns-JP-Morgan-chief.html

-City of Angels on brink of abyss. Los Angeles, the second-largest US city, is facing a crisis of funding not seen since the darkest days of the Great Depression. Read more here-http://www.guardian.co.uk/commentisfree/cifamerica/2010/feb/25/financial-crisis-useconomy

-Barack Obama’s home state of Illinois is near the point of fiscal disintegration. “The state is in utter crisis,” said Representative Suzie Bassi. “We are next to bankruptcy. We have a $13bn hole in a $28bn budget.” Read more here-http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7338857/Dont-go-wobbly-on-us-now-Ben-Bernanke.html

-Bill Gross: Markets Will Soon Discover How Sovereign Nations Can Go Bust Just Like Companies. Read more here-http://www.businessinsider.com/gross-markets-will-soon-discover-how-sovereign-nations-can-go-bust-just-like-companies-2010-3 or

CHARTS OF THE WEEK-QUOTES-QUICK HITS

-Failed Banks get Pension-Fund backing. FDIC needs money.- http://www.businessweek.com/news/2010-03-08/failed-banks-may-get-pension-fund-backing-as-fdic-seeks-cash.html

-Charts of the week: Actually, Gold Is On A Tear, And Near All-Time Highs. Disappointed that gold isn’t regularly busting to new highs like it did last year? You’re just looking at it wrong.

In Euros, a currency that’s come under serious pressure, gold is basically at an all-time high.

In other words, it’s not gold that’s gone up or down, it’s changing attitudes towards underlying currencies that has changed. When gold sells off against all the currencies because investors suddenly have a new found love of paper money that will be a story. Read more here-http://www.businessinsider.com/chart-of-the-day-gold-price-euro-per-ounce-2010-3

Source: www.chartoftheday.com

-Chart of the week: Why This Market Needs Cheap Money To Keep On Rallying. The key story of the moment is the beginning of the Fed’s tightening cycle, a topic on which Morgan Stanley

analysts recently dedicated a major report. In it, the company explored the historical connection between cheap money. As you would expect, the market likes it. A lot.

As the below chart shows, the S&P; 500 has been nicely correlated with excess credit growth or the change in non-financial credit. This latest rally was no exception. When the Fed does close the spigot, watch out below. Read more here-http://www.businessinsider.com/chart-of-the-day-sp-500-vs-excess-credit-2010-3

Source: www.chartoftheday.com

-Charts of the week: For some long-term perspective, today’s chart illustrates the Dow adjusted for inflation since 1925. There are several points of interest. For one, when adjusted for inflation, the bear market that concluded in the early 1980s was almost as severe as the one that concluded in the early 1930s.

Also, the inflation-adjusted Dow is a little more than double where it was at its 1929 peak and trades 54% above its 1966 peak not that spectacular of a performance considering the time frames involved. It is also interesting to note that the Dow is up 57% from its March 9, 2009 low which is actually slightly more than what the inflation-adjusted Dow gained from its 1966 peak to today. Read more here-http://www.chartoftheday.com/20100226.htm?T

Source: www.chartoftheday.com

-”You have to trust in something: your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.” Steve Jobs

-”All you have to do is know where you’re going. The answers will come to you of their own accord.” Earl Nightingale

-”Let others lead small lives, but not you. Let others argue over small things, but not you. Let others cry over small hurts, but not you. Let others leave their future in someone else’s hands, but not you.” Jim Rohn

-I hope we can find a way of resurrecting the subprime market, because it was working well until those mortgages were widely securitized. Alan Greenspan, Bloomberg, February 23, 2010

-“Rising prices of precious metals and other commodities are an indication of a very early stage of an endeavour to move away from paper currencies. What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment.” Alan Greenspan, 9 September 2009

-Gold is “just an asset that, like everything else in life, has its time and place. And now is that time,” Paul Tudor Jones said in an October letter to clients. Bloomberg

-Gold makes sense as an investment. Just because the price of gold is going up for the 10th year doesn’t mean it’s a bubble. Jeffrey Christian, CPM Group, Bloomberg, 01 March 2010

-“Gold is going to become the currency of choice as people lose faith in fiat currencies,” said Matt Zeman, a trader at LaSalle Futures Group in Chicago. “These countries continue to write checks that they can’t cash.” Bloomberg

-“There are hopes that the Greek deficit cuts will stem the tide of the declining euro,” GoldCore Ltd., a broker in Dublin, said in a report. “Concerns that the austerity measures being taken in Greece may soon have to be undertaken in other European economies and in the U.K. should lead to continuing safe-haven demand for gold.” Bloomberg

-Russia’s central bank wants to increase the proportion of its international reserves held in gold, First Deputy Chairman Alexei Ulyukayev said in an interview published in Izvestia today. His comments were confirmed by a Bank Rossii official. The bank added 100,000 ounces to its reserves in January. Bloomberg

-“We expect stronger willingness by emerging-market central banks to buy and hold more strategic gold reserves for diversification purposes, due to lost confidence in the dollar,” Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland, said in a report. Gold may average $1,150 this year as the metal enters a “second golden decade,” he said. Bloomberg

-I believe the most important event at our Toronto CIGA meeting was the testimony of two attendees. Two men spoke independently. One is a Canadian resident from Russia and the other from Poland. Both said the same thing, “All the signs that preceded our inflation of more than 100% per year are here now in the West.” What more do you need to know? Jim Sinclair

-Overall investment in gold was 7% higher in 2009 than 2008. This is significant when you consider that demand in the fourth quarter of 2008 during one of the worst financial meltdowns in history was so great that shortages of physical metal abounded everywhere.

And yet investors bought more gold in 2009 when investor fear about global financial uncertainty was subdued. Further, 2009 total funds invested in all forms of gold exceeded 2008 by 20%, and the average price was 11.6% higher.

In other words, investors were buying gold even though the price wasn’t necessarily “low.” To be sure, that’s a broad statement. But the fact remains that year-on-year, more gold was purchased at higher prices when the markets were less scary, than when the price was lower. Casey Daily Dispatch

-Despite the run up in stocks that took place during 2009, the Dow Jones Industrial Average and the S&P; 500 Index are still down about 30% from the highs of 2007. Casey Daily Dispatch

-The fair value of the S&P; 500 is 850, 23 percent below today’s 1105, said Jeremy Grantham. He arrives at that valuation by assuming a long-term average price-to-earnings ratio of about 15 for U.S. stocks and applying it to a long-term average for profit margins.

Jeremy Grantham warned in January 2000 that U.S. equities were “more overpriced than at any time in the last 70 years due to the massive overpricing of technology and especially dot-com stocks.” Bloomberg-Read more here-http://www.bloomberg.com/apps/news?pid=20603037&sid;=ai6GqIOSEWhk

-Bullish sentiment gets more bullish. The latest Investors Intelligence poll shows that the bulls are at 42.1%, up from 41.1% last week; and the bear camp was trimmed back to 22.7% from 23.3%. So the widening in the bull/bear spread is a modest negative for those who are constructive on the market. All the more so with the VIX index now south of 19. Complacency reigns. David Rosenberg-Gluskin/Sheff

-Personal bankruptcies in the U.S. jumped 9% in February and is 14% higher than last year’s already extremely high levels. David Rosenberg-Gluskin/Sheff

-The bottom line is that the U.S. economy is currently about 12 million jobs shy of being at full employment and as such it will likely take anywhere from 5 to 10 years to get back to the prior pre-recession peak in the employment-to-population ratio. David Rosenberg-Gluskin/Sheff

-The Bureau of Labor Statistics reports that total private employment has decreased by 8.5 million jobs and fallen 7.4% from 2007 highs. Real unemployment as reported by John Williams’ Shadow Government Statistics (SGS) is running at 21.2%.

While 21.2% unemployment might raise questions in terms of a comparison with the purported peak unemployment in the Great Depression (1933) of 25%, the SGS level likely is about as bad as the peak unemployment seen in the 1973 to 1975 recession.

The Great Depression unemployment rate was estimated well after the fact, with 27% of those employed working on farms. Today, less than 2% work on farms. Accordingly, for purposes of a Great Depression comparison, I would look at the estimated peak nonfarm unemployment rate in 1933 of 34% to 35%. John Williams

-Over the next four years $1.5 trillion or more in commercial real estate loans will come due. About 50% are in deep trouble. From the top in 2007 their values are off 35% to 40%, so they only have 30% to 35% to go. Losses could be as high as $700 billion. The fallout will affect all banks big and small. The reality of losses will be devastating.

Lenders, mostly banks, already broke, are going to get hit very hard and many will go under. All debt in real estate is in serious trouble. That is why we believe more than 2,000 banks will go out of business over the next 1-1/2% to 2 years.

That is why you should have no CDs and only three months expenses in the bank for operating and 6 months for businesses. That money should be in gold and silver related assets. Read more here-

http://news.goldseek.com/InternationalForecaster/1267632300.php or http://news.goldseek.com/InternationalForecaster/1267370379.php

-The renewed downturn in home prices may be weighing on consumer sentiment too. We just got the latest Zillow data and they showed that final sales prices in February came in 2.8% below the latest asking price in January.

This followed a 2.7% cut from the listing price in December and 2.6% in November so make no mistake, this is still very much a buyer’s market and there is a ton of supply that will continue to weigh in real estate values for the foreseeable future.

The steepest discounts remain in Florida. A must-read, by the way, is Banks Warn on Rates and House Prices on page 4 of the FT “Mortgage rates will rise, home prices will fall and the supply of credit will diminish when the US Federal Reserve and other central banks wind down emergency programmes, a group of global banks warned yesterday.” David Rosenberg-Gluskin/Sheff

-When you read articles like When It’s OK to Walk Away from Your Home in the WSJ and you see websites being constructed that show distressed homeowners how to not pay their mortgage and still stay in their house strategic defaults that allow people to switch from paying their mortgage to vacations in Disney World then all you know for sure is that we have reached a point where freeing up debt means freeing up cash flow for other purposes.

The reason why this was not the Great Depression was because back in the 1930s there was still a certain shame in not meeting your payments there is no longer any stigma in defaulting and the bank-bashing by the Obama team, not to mention foreclosure moratoria by edict and recently, musings from the White House that foreclosures will be practically outlawed entirely, has reinforced this mentality that being delinquent only carries consequences for lenders and their shareholders.

So at the margin, what we have are a growing number of Americans living for free in homes they never could afford to begin with during the bubble era, and the repercussions lie with the lender in today’s populist backdrop, not the borrower. As the banks and the taxpayer foot the bill, retail sales get underpinned even as credit contracts because the debt is either being written off by the banks or socialized by Uncle Sam.

In the meantime, the debtor is enjoying the benefits of living for free with the complicity of a government finding it easy to point the finger at the banks for creating the mess we are still in today. This is why the banks were forced to charge off 2.9 % of their loan book at the end of 2009 the highest rate since the FDIC began keeping records in 1934; not to mention the fact that 5.4% of all bank loans were at least 90 days late at the end of last year.

Meanwhile, the FDIC ate two more banks on Friday, bringing the total number of failures so far this year to 22 compared to 16 this time in 2009 when everyone thought the Battle of Megiddo was days away. As the WSJ concluded, “whether we like it nor not, walking away from debt is as American as apple pie.”

One has to wonder what the implications of all this will be on credit activity in the future. What financial institution will ever want to lend again without the ability for recourse, as is the case in Canada (where for some reason, the default experience turned out to be totally different than was the case state-side). David Rosenberg-Gluskin/Sheff

-Retail sales are down 5.5% from 2007 highs. Meanwhile, corporate earnings have picked up a bit, though sales are still swirling around the toilet bowl. But the kicker is that total household and government debt outstanding is at a new all-time high and has grown 21% over the past three years (and more than doubled in the past ten). In other words, we’re still in the thick of it. And we expect it could get much worse before it gets better. Casey Daily Dispatch

-A possible relapse in home prices that had Fed policy makers concerned late last year may now be coming to pass, underscoring forecasts by economists such as Jan Hatzius that an interest-rate increase is a long way off. Read more here-http://www.bloomberg.com/apps/news?pid=20601109&sid;=aYZxJTQI3w74

-Canada Keeps Lending Rate 0.25%, Cites Faster Prices. Read more here-http://www.bloomberg.com/apps/news?pid=20601082&sid;=aqo3FufkOC7o

-ECB Keeps Key Rate at 1% as It Weighs Greek Crisis. The European Central Bank left its benchmark interest rate at a record low as policy makers weigh the risks of withdrawing emergency lending measures amid Greece’s fiscal crisis. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=adMQdResWgC8

-Man who broke the Bank of England, George Soros, ‘at centre of hedge funds plot to cash in on fall of the euro’. Read more here-http://www.dailymail.co.uk/news/worldnews/article-1253791/Is-man-broke-Bank-England-George-Soros-centre-hedge-funds-betting-crisis-hit-euro.html

-Webster Tarpley: Bankers in slump plot against euro to save dollar. Watch here-http://www.youtube.com/watch?v=8XRFII9AiQc&feature;=player_embedded

-The BOE kept interest rates at a record low of 0.5 percent Thursday and made no increase to its unprecedented asset-buying scheme. Read more here-http://www.reuters.com/article/idUSLAC00566120100304

-While the eyes of the world focus on Greece’s debt crisis, investors in Edinburgh are busy preparing for the U.K. to be next. Turcan Connell, which caters to rich families, expects the pound to lose between 20 percent and 30 percent against the dollar once investors turn their sights on Britain as the government sells a record amount of debt.

“Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,” Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. “The U.K. is in a similar predicament. It could be hit very hard.” Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aJhONJ3Sdkqw

-CLSA’s Chris Wood “In Five Years The US Dollar Paper Standard Will Collapse.” Read more here-http://www.zerohedge.com/article/clsas-chris-wood-five-years-us-dollar-paper-standard-will-collapse-due-persistent-taxpayer-f

-Central bank report tells South Korea to prepare for dollar’s fade. Read more here-http://www.gata.org/node/8385

-Why the Fed won’t stop printing money. Ben Bernanke can talk tough, but the economy would sputter if the cash stopped flowing. Also: The inflation or stagflation that’s probably in our future. Read more here-http://articles.moneycentral.msn.com/Investing/currency/why-the-fed-wont-stop-printing-money.aspx

-James Turk-US Dollar Money Supply Is Underreported. Read more here-http://www.fgmr.com/us-dollar-money-supply-is-underreported.html

-Will The US Devalue the Dollar? Read more here-http://news.goldseek.com/GoldSeek/1267632000.php

-James Turk: What are banks doing with their depositors’ money? Read more here-http://www.gata.org/node/8381

-Head of IMF Proposes New Reserve Currency. IMF’s Strauss-Kahn suggests IMF may one day provide global reserve asset. Read more here-http://abcnews.go.com/Business/wireStory?id=9958995

-It is astounding how many economists, government officials, and Wall Street strategists construe the current economic conditions as evidence of a bona fide recovery. It is a testament to the power of the rose colored glasses handed out by our nation’s leading universities that such a feeling could be widely held despite the clear and present danger that compounds daily.

The myopia leads us to enact policies that actually exacerbate our problems. The “remedies” are postponing, perhaps indefinitely, a true recovery. The only possible way consumers can spend is if the government gives them the money. However, since the government cannot legitimately give money to one American without first taking it from another, the most likely means of doling out cash will be to run it off the printing presses.

That, in a nutshell, is our government’s plan for economic recovery. Print a bunch of money and give it to consumers to spend. This is not a plan for recovery but a recipe for disaster. Those betting that this program can succeed in putting together a healthy and sustainable economy simply do not understand the nature of their wager. The smart money is going the other way. Peter Schiff-Read more here-http://www.321gold.com/editorials/schiff/schiff030210.html or http://www.321gold.com/editorials/browne/browne030110.html or http://www.321gold.com/editorials/browne/browne030510.html

-Economists Warn Another Financial Crisis on the Way. Nonpartisan Group Led by Nobel Winner Calls for Stronger Financial Reforms. Read more here-http://abcnews.go.com/Business/economists-warn-financial-us-economy/story?id=9990828

-US senator warns of ‘financial meltdown’ risk. The US is heading for a debt-driven “financial meltdown” within five to seven years, according to Judd Gregg, the outgoing Republican senator for New Hampshire. In a robust and at times testy video interview for the Financial Times’s View from DC series, Mr Gregg also complimented China for showing rising alarm about the US’s mounting levels of public debt.

“We have had China say that they are looking for other places to put their reserves and that is probably a smart decision on their part,” said Mr Gregg, who will not seek re-election in November. “So the warning signs are pretty clear and the path is unsustainable and, at this point, unless we take different actions, unavoidable.” Read and watch more here-http://www.ft.com/cms/s/0/d618a9a4-225b-11df-a93d-00144feab49a.html or http://www.infowars.com/us-senator-warns-of-financial-meltdown-risk/

-Fannie Seeks $15.3 Billion in Aid After 10th Loss. Fannie Mae will seek $15.3 billion in U.S. aid, bringing the total owed under a government lifeline to $76.2 billion, after its 10th consecutive quarterly loss. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aEYsPfLirnuU&pos;=2

-American reliance on government at all-time high. The so-called “Great Recession” has left Americans depending on the government dole like never before. Without record levels of welfare, unemployment and other government benefits as well as tax cuts last year, the income of U.S. households would have plunged by an astonishing $723 billion more than four times the record $167 billion drop reported last month by the Commerce Department.

Moreover, for the first time since the Great Depression, Americans took more aid from the government than they paid in taxes. The figures show the devastating results of the massive job losses last year and indicate that the economic recovery that began last summer is tenuous and has a long way to go before many Americans resume life as normal, analysts said. Read more here-

http://www.washingtontimes.com/news/2010/mar/01/americans-reliance-on-government-at-all-time-high//print/

-Who is Paying Taxes in the U.S.? Read more here-http://www.mint.com/blog/trends/who-is-paying-taxes/?display=wide

-More consumers file for bankruptcy protection. The economic recovery effort has not slowed consumer bankruptcy filings. They surged 14% in February compared with a year earlier, according to the American Bankruptcy Institute. The 111,693 cases filed last month also represented a 9% increase from January, the report said. Read more here-http://www.usatoday.com/money/economy/2010-03-03-bankruptcy03_ST_N.htm

-Blockbuster to Shut 500 U.S. Stores, Restructure Debt. Blockbuster Inc., the largest U.S. movie-rental chain, will close at least 500 U.S. stores and is exploring ways to restructure debt. Blockbuster is working with Rothschild Inc. on financing and strategy, the Dallas-based company said today in a statement.

The company has total debt of $963.9 million, including leases, according to the statement. The company closed 253 stores in January as more consumers turned to Coinstar Inc.’s Redbox movie vending machines, and mail-order and online rental services such as Netflix Inc. Read more here-http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=axyx0rAJ922o

-The Flu Season That Fizzled. Cases of H1N1 Have Dwindled, Seasonal Flu Has Been a No-Show and Doctors Wonder Why. Read more here-http://online.wsj.com/article/SB10001424052748703429304575095743102260012.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsSecond

-China, Russia Urge More Iran Talks as France Seeks Sanctions. China and Russia said negotiations with Iran remain the best way to resolve the dispute over the purpose of its nuclear program, after a French envoy said the time has come to adopt tougher United Nations sanctions. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=aOLRz4Tjnhyc

-China should build the world’s strongest military and move swiftly to topple the United States as the global “champion,” a senior Chinese PLA officer says in a new book reflecting swelling nationalist ambitions. Read more here-http://www.reuters.com/article/idUSTRE6200P620100301

-Batman comic book beats Superman at auction, sets record. The Dark Knight may be Superman’s next greatest nemesis, after Lex Luthor. Just three days after auction site ComicConnect.com claimed to break world records when it sold an original Superman comic for $1 million, Batman stole his thunder.

A rare, high-quality copy of Detective Comics #27, which marked the first appearance of Batman in 1939, sold for $1,075,500 on Thursday. Heritage Auctions of Dallas sold the comic book to an unnamed bidder on behalf of an anonymous collector.

Seven bidders from three countries participated in the combination live and online auction, taking about eight minutes to decide on a final price — an “eternity” in auction time, said Heritage Auctions president Greg Rohan. Read more here-http://money.cnn.com/2010/02/26/news/economy/batman_comic/index.htm

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

-Rare blue De Beers diamond expected to fetch £4million. A rare flawless blue diamond that was once part of the De Beers Millennium collection is expected to fetch almost £4 million at auction. The 5.16 carat, pear-shaped internally flawless Fancy Vivid Blue gem is the first diamond of its kind to appear at an auction from the collection that De Beers, the world’s largest diamond producer, presented in 2000 to celebrate the Millennium.

It is being put up for sale by a private collector and is the star lot at Sotheby’s Hong Kong jewels and jadeite 2010 spring sale on April 7 and bidding is expected to reach the £3.8 million ($5.8 million) estimate price. The De Beers Millennium collection comprised 12 rare gems and took decades to assemble. “The diamond’s high and even saturation of brilliant sky-blue colour, internally flawless clarity and classic pear shape will undoubtedly spur intense bidding amongst discerning collectors from around the world,” the auction house said in a statement.

The auction’s location is not surprising: China is one of the world’s largest and fastest growing diamond markets, with jewellers forecasting it will be the next big purchaser of rare jewels as its economy surges as the rest of the world still grapples with the fallout from the global financial meltdown. Blue diamonds are among the rarest of all gems and owe their natural blue colour to the presence of the chemical element boron during the stone’s formation.

In May 2009, a 7.03 carat, cushion-shaped internally flawless fancy vivid blue diamond set the world record price per carat for any gemstone at a Sotheby’s Geneva auction when it was bought by a Hong Kong collector for £6.4 million ($9.4 million). Read more here-http://www.telegraph.co.uk/news/worldnews/asia/hongkong/7344676/Rare-blue-De-Beers-diamond-expected-to-fetch-4million.html

-World’s most famous ‘unseen’ blue diamond. Read more here-http://news.bbc.co.uk/2/hi/americas/8488183.stm

-Diamond the size of a ‘chicken’s egg’ sells for record $35.3 million. A 507½-carat gem discovered in South Africa last year has become most expensive rough diamond ever sold. Hong Kong’s Chow Tai Fook Jewellery Company bought the Cullinan Heritage stone for $35.3m, Petra Diamonds announced on Friday.

Petra recovered the gem, the 19th largest ever found described as the size of a chicken’s egg, from its Cullinan mine near Pretoria in South Africa in September last year . Read more here-http://www.telegraph.co.uk/finance/newsbysector/industry/mining/7325663/Diamond-the-size-of-a-chickens-egg-sells-for-record-35.3-million.html

TWO MORE U.S. BANKS FAIL

-FDIC shuts down banks in Nevada and Washington. Regulators shut down banks in Nevada and Washington on Friday, marking the 21st and 22nd failures this year of federally insured banks. The Federal Deposit Insurance Corp. was appointed receiver of Carson River Community Bank, based in Carson City, Nev. and Rainier Pacific Bank in Tacoma, Wash.

Carson River Community Bank had $51.1 million in assets and $50 million in deposits as of Dec. 31. Rainier Pacific Bank had $717.8 million in assets and $446.2 million in deposits as of Dec. 31. The FDIC said that Carson River’s deposits will be assumed by Reno, Nev.-based Heritage Bank of Nevada. Carson River’s lone branch will reopen Monday as an office of Heritage Bank.

Heritage Bank will purchase $38 million of the assets. The FDIC and Heritage Bank agreed to a loss-share agreement on $28.5 million of Carson River Community Bank’s assets. Rainier Pacific’s deposits will be assumed by Umpqua Bank in Roseburg, Ore. Rainier Pacific’s 14 branches will reopen during normal business hours as offices of Umpqua Bank.

Umpqua Bank will purchase $670.1 million of Rainier Pacific’s assets. The FDIC will retain the rest. The FDIC and Umpqua Bank agreed to a loss-share agreement on $578.1 million of Rainier Pacific’s assets. The pace of bank seizures this year is likely to accelerate in coming months, FDIC officials said this week. Read more here-http://finance.yahoo.com/news/FDIC-shuts-down-banks-in-apf-509896487.html?x=0

RBS PAID 1.3 BILLION BONUSES ON PROFIT OF 1 BILLION

-RBS paid £1.3bn bonuses on profit of just £1bn. Royal Bank of Scotland paid its investment bankers £1.3bn in bonuses for making just £1bn in profit last year, not the record £5.7bn declared last week. The state-backed lender’s results show that £4.7bn of the investment bank’s worst losses were hived off to the “non-core” division being wound down. Although the bank’s split into “core” and “non-core” units has been well explained, the separation generously flattered the investment bank’s numbers and allowed management to present it as a record year for the division.

Stephen Hester, chief executive, used the performance to justify the £1.3bn bonuses paid to investment bankers, at least 100 of which received more than £1m. RBS’s numbers show that impairments in the “core” investment bank totalled just £640m, helping it produce £5.7bn of the £8.3bn of profits made by the bank’s ongoing businesses. By contrast, investment banking impairments dumped in the “non-core” bank totalled £4.7bn.

No other UK bank separates out its “toxic” legacy debt. Barclays’ investment bank, Barclays Capital, suffered £2.6bn of impairments last year, cutting profits to £2.46bn. However, analysts point out that RBS, now 84pc owned by the state, has taken more conservative marks on its assets than peers, which contributed to the size of the “non-core” writedowns.

Few rivals have removed the “toxic” assets from their investment bank. Credit Suisse has hived assets off but is linking bonus payments to the performance of the portfolio. Last week, Commerzbank, the German lender that was rescued by Berlin, said it was not paying any bonuses at all in its investment bank. Read more here-http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7340087/RBS-paid-1.3bn-bonuses-on-profit-of-just-1bn.html

REAL ESTATE-FORECLOSURES-MORTGAGES

-U.S. Economy: Sales of Previously Owned Homes Fall. Sales of previously owned U.S. homes unexpectedly dropped 7.2 percent in January to a seven-month low, indicating a lack of job growth is undermining government incentives to bolster the housing market.

The decline to an annual pace of 5.05 million, reported today by the National Association of Realtors in Washington, was the second-largest on record after December’s 16.2 percent plunge. A separate report showed the economy grew at a 5.9 percent pace last quarter, faster than initially estimated. Read more here-http://www.bloomberg.com/apps/news?pid=20601087&sid;=a1WCoPgGSmlg&pos;=1

-Pending Sales of U.S. Existing Homes Fell 7.6% in January. The number of contracts to buy previously owned U.S. homes unexpectedly fell in January, showing the extension of a tax credit is sparking little interest.

The index of purchase agreements, or pending home sales, dropped 7.6 percent after a revised 0.8 percent increase in December, the National Association of Realtors announced in Washington. In November, pending home sales slumped 13.7 percent. Snowstorms in February probably limited contract signings and sales that month as well, the group said.

The renewal of a government incentive to first-time buyers, originally due to expire at the end of November, and its expansion to include current owners has yet to lure buyers back into the market after helping boost sales last year. A lack of jobs and mounting foreclosures have depressed confidence, indicating housing will take time to rebound. Read more here-http://www.bloomberg.com/apps/news?pid=20601110&sid;=aeXJoqa_E6YI

-Detroit homes sell for $1 amid mortgage and car industry crisis. One in five houses left empty as foreclosures mount and property prices drop by 80%. Read more here-http://www.guardian.co.uk/business/2010/mar/02/detroit-homes-mortgage-foreclosures-80

-Buffett Says U.S. Housing Will Recover by Next Year. Billionaire Warren Buffett said the U.S. residential real estate slump will end by about 2011, predicting that’s how long it will take demand for homes to catch up with the supply.

“Within a year or so, residential housing problems should largely be behind us,” Buffett wrote Feb. 27 in his annual letter to shareholders of his Berkshire Hathaway Inc. “Prices will remain far below ‘bubble’ levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits.”

The worst housing decline since the Great Depression has left one in five U.S. mortgage holders owing more than their houses are worth. Record foreclosures last year flooded a real estate market already glutted with unsold property, causing new construction to fall to the lowest in at least 50 years. The fall in homebuilding is the only fix unless the U.S. decides to “blow up a lot of houses,” Buffett joked.

“People thought it was good news a few years back when housing starts the supply side of the picture were running about two million annually,” said Buffett, the chairman and chief executive officer of Omaha, Nebraska-based Berkshire. “But household formations the demand side only amounted to about 1.2 million.” Read more here-http://www.bloomberg.com/apps/news?pid=20603037&sid;=aIDoMVA9jD_Y

-China risks property bubble as prices rise 20pc a month. Property prices in Britain may be back on a downward trajectory, but there is one market where they are still white hot China. Read more here-http://www.telegraph.co.uk/finance/china-business/7339669/China-risks-property-bubble-as-prices-rise-20pc-a-month.html

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

The Goldbugg Report – March 9, 2010
Posted by Worldwide Precious Metals on Tuesday, March 9, 2010

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