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The Goldbugg Report – July 20th, 2010

July 20, 2010

-It’s time to preserve your portfolio’s purchasing power. In a world of increasing volatility and uncertainty, precious metals bullion provides tangible, predictable wealth protection for currency-denominated investment portfolios. -Nick Barisheff

-Goldman Sachs sees silver rising by more than 15% in the next 6 months and has raised its 6 month silver forecast to $21.50/oz. Goldcore

-Gold far more desirable than its dollar value. There isn’t enough gold out there for it to be a true means of exchange but it is still the ultimate measure of value in its deeply realistic monetary role. Julian Philips Mineweb

SILVER

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

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

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

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

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

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

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

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

-Goldman Sachs sees silver rising by more than 15% in the next 6 months and has raised its 6 month silver forecast to $21.50/oz. Goldcore

-Silver will hit $25 during the next 12 months and soar to $100 by 2012. Paul Mladjenovic-Read more here-http://www.kitco.com/ind/Mladjenovic/july152010.html

-Silver ‘robbed of its lustre’. There is evidence to support allegations that the price of silver has been manipulated and suppressed by the large US bullion banks, says precious metals analyst David Levenstein, of Lakeshore Trading.

“These companies continually use the futures markets to create price distortions in the market. At the moment, there is a huge [disparity] between the price and the real market situation,” says Levenstein. Historically, silver’s price moves, in percentage terms, are greater than those of gold.

But, unlike gold, the price of silver is way off its all-time high, when it traded at above $50/oz. The demand for silver has exceeded supply for almost 20 years. But why is the price of this metal so depressed? Levenstein asks.

In 1940, the US government owned almost half the world’s 10billion ounces of silver. Today, it owns none. The only way to bring the supply and demand into balance is going to be higher prices.

Levenstein, who began trading silver in 1979, believes that silver is going to be one of the best investments of the decade. Read more here-http://www.timeslive.co.za/business/article545100.ece/Silver-robbed-of-its-lustre and http://www.gata.org/node/8819

-Staggering Stats About Silver Supply. Read more here-http://news.silverseek.com/SilverSeek/1278997440.php

-Silver The Early Stages of Re-monetisation? Read more here-http://www.moneymorning.com.au/20100715/silver-the-early-stages-of-re-monetisation.html

-Futures positions make gold, silver very bullish again, Butler tells KWN. Listen here-http://www.gata.org/node/8811

-Dr. Jeffrey Lewis: What are the Differences between Investing Silver and Gold? Read more here-http://news.silverseek.com/SilverSeek/1279160285.php

-Dr. Jeffrey Lewis: “Jobless Recovery” is Great for Metals Investors. Read more here-http://news.goldseek.com/GoldSeek/1279174080.php

GOLD

-Watch World Wide Precious Metals power point presentation on investing in precious metals. Watch video here-http://www.youtube.com/watch?v=qJ_cjvb-eMo&feature=youtu.be and http://www.youtube.com/user/thegoldbugg

-World Wide Precious Metals Live Metals Quotes. See quotes here-http://www.wwpmc.com/quotes.aspx

-Read Testimonial letters from World Wide Precious Metals clients. Read letters here-http://www.wwpmc.com/testimonials.html

-Betting against gold is the same as betting on governments. He who bets on governments and government money, bets against 6,000 years of recorded human history. Charles de Gaulle

-Gold is headed to $1650 and beyond. All your concerns in retrospect will be seen to have been concerns caused by manufactured noise. Time and time again you have seen this. Time and time again gold will not be stopped. Nothing has changed. Nothing has been rescued. The can that is being kicked daily down the path is going to turn around and bite the kickers. Gold is the only insurance. Jim Sinclair

-A successful and sophisticated investor friend of mine bought more bullion coins yesterday, bought ‘em during the correction. He told me, “I’ll never sell them, I consider them part of my estate. I don’t give a damn what the dollar price or the euro price of gold is. If I own 10,000 ounces of gold (and I intend to) I’ll always be wealthy. And I don’t have to worry about inflation, devaluation or solvency of any counter-parties. Richard Russell-Read more here-http://www.321gold.com/editorials/russell/russell071310.html and http://www.thedailycrux.com/content/5198/Richard_Russell

-It’s time to preserve your portfolio’s purchasing power. In a world of increasing volatility and uncertainty, precious metals bullion provides tangible, predictable wealth protection for currency-denominated investment portfolios.

For the past several years, as currency creation has reached unprecedented levels, gold, silver and platinum have resumed their traditional role as a store of wealth. Over time, purchasing, or adding to, a core holding of physical bullion is a prudent investment strategy.

While a minimum 10 percent allocation is considered adequate under normal conditions, a much larger allocation of 20 percent or more is suggested for protection today. If you have not already done so, now is the time to rethink your investment strategy and preserve your hard-earned wealth with physical bullion. Nick Barisheff-Read more here-http://news.goldseek.com/GoldSeek/1279204500.php

-Chart of the week: Actually, Gold Isn’t Just A Worthless Rock. Yesterday, money manager and writer James Altucher wrote a column slamming gold, arguing that ultimately it was just a worthless rock. And to back it up, he cited various periods when gold didn’t return that much.

The folks at MF Mine Fund argue that Altucher cherry picked a period that coincided with the peak of the previous boom, and as such they’ve put together this chart, breaking the time since 1968 down to three periods. As you can see, only in the middle one do equities outperform. The norm over the last 40+ years is for gold to outperform. Read more here-http://www.businessinsider.com/chart-of-the-day-equities-vs-gold-2010-7

Source: chartoftheday.com

-Data from the gold options market shows that smart money believes that gold will go higher in the coming months and that the recent fall in prices may be another correction and consolidation prior to another move up in prices.

Open interest in options which allow holders to buy gold at $2,000 an ounce by December 2011 has surged a massive 11-fold on the Comex since May 11. Open interest to buy at $1,500/oz by the end of the year has fallen by 33 percent which suggests that gold market participants remain unsure of gold’s short and medium term prospects but confident of higher prices in the long term. Read more here-http://www.bloomberg.com/news/2010-07-14/gold-options-divergence-signals-a-bullish-pause-for-rally-chart-of-day.html

-Harry Schultz on the Power Elite, Free Markets, the Internet and Why Gold Is Going Much Higher. Read more here-http://www.thedailybell.com/1204/Harry-Schultz-on-the-Power-Elite-Free-Markets-the-Internet-and-Why-Gold-Is-Going-Much-Higher.html

-We know that the supply curve of gold is more inelastic now than it has ever been and that the marginal costs of production are rising sharply. We also know that Bernanke is probably going to have to become even more aggressive in terms of expanding the Fed’s balance sheet, which means more monetary creation, at least as far as base money is concerned.

At the same time, demand is rising from many sources take a read of the article Hedge Funds Join the Rush to Stock Up on Gold (this is only a page 15 story in the weekend FT). Also have a look at Big Inflows Into Money Market Funds as Double-Dip Fears Rise (this is a front page story in Saturday’s newspaper) the equity bulls still think that this cash ($3 trillion worth) is going to be diverted to the stock market.

Sorry, but it has left the stock market more and more of this retail cash is finding its way into gold and precious metals, which is why commodity funds have attracted $11 billon of fresh new inflow so far this year. David Rosenberg-Gluskin/Sheff

-Buying Gold in the Summer Sales. Read more here-http://www.321gold.com/editorials/ash/ash071010.html

-Seasonal impact means recent pull backs in gold could be short lived. Despite continued strong demand, gold may trade sideways for a few weeks before the next break to the upside. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=107811&sn=Detail&pid=33

-James Turk: Fear Index at 16-year high amid dollar debasement. The Fear Index has risen to a 16-year high. As of June 30th, the Fear Index is 2.35%, based on M3 data made available by shadowstats.com. Here is the formula and calculation for June 30th.

The following chart illustrates the Fear Index at the end of each month since December 1967. It also highlights important low points in the Fear Index and the gold price at those points in time.

There are two important conclusions to be made from the above chart.

1) The Fear Index remains in an uptrend. Given the ongoing uncertainty about bank solvency and sovereign debts that cannot be repaid, there is no reason to assume that the Fear Index is about to reverse course any time soon. It is therefore reasonable to expect that the Fear Index will keep climbing higher. Given the formula above, this result can be achieved in two ways. M3 has to decline and/or the gold price must rise. I expect it will be the latter.

2) Do not be misled by today’s seemingly high price of gold. Even though gold was $1,240 at June 30th and near its record high price, gold remains good value. Note that the Fear Index is still less than the 2.49% low it reached in February 1985. The Fear Index is still less than the 2.60% level marked by the dashed line on the above chart that I have used to delineate exceptionally low levels reached by the Fear Index.

Thus, gold remains good value and should continue to be accumulated. The Fear Index makes clear that gold’s high price is simply a result of the debasement of the dollar, and not that gold has become overvalued. Read more here-http://www.gata.org/node/8823

-Gold keeps rising as panicky investors look for security. Gold price may go beyond record high to top $2,000 an ounce as bullion sales rocket and central banks stock up. Read more here-http://www.guardian.co.uk/business/2010/jul/11/gold-shines-uncertain-market

-Hedge funds look for a golden edge. Not so long ago hedge funds would send their most junior analysts to the seminars that bullion bankers hosted. Gold, for much of the past two decades, was the ultimate dreary asset of interest only to central bankers and miners.

Now those same bankers are struggling to find time in their diaries to fit in many of the hedge fund industry’s biggest players. In mid-town New York funds that employ barely 100 staff are finding themselves with gold holdings larger than those of some developed nations.

The reason for this is simple. Amid fears that the global economy could be heading for a double-dip recession and as financial markets continue to gyrate some hedge managers are becoming increasingly bullish about the precious metal. They are drawn to gold’s traditional status as a store of value in crises.

Paulson & Co. is the largest hedge fund to back gold, but others including Soros Fund Management, Tudor Investment Corp., Greenlight Capital, and Third Point, are now converts. “I have never been a gold bug,” Paul Tudor Jones, founder and chairman of Tudor Investment, wrote last year. “It is just an asset that, like everything else in life, has its time and place. And now is that time.”

The consensus view among the funds is that the price of gold trading at around $1,200 an ounce will rise to well above $1,500 before it suffers any sizeable correction. This expectation of further prices rises (gold has increased four-fold since 2002) is based in part on the view that bullion provides a hedge against a rise in inflation.

Some fund managers believe a sharp jump in inflation is unavoidable as a result of central banks’ monetary easing policies, which have, in effect pumped more money into the economy. Historically, they say, the correlation between gold and inflation is hard to ignore.

Over the past half century, the gold price has tracked the amount of money in the world measured broadly in terms of “M2″ monetary supply fairly accurately, peaking at times of inflation, such as the mid-1970s and early 1980s. The hedge funds argue that the recent swelling of the monetary base will translate into a spike in monetary supply. When it does, gold prices will follow.

“The number of funds who are exposed to gold has increased massively in the last three or four years,” says Philip Klapwijk, executive chairman of GFMS, a precious metals consultancy. In common with other investors, hedge funds are also keen to hold their gold in physical form either as bars in a vault or as an investment in an exchange-traded fund backed by physical assets.

Marcus Grubb, head of investment research at the World Gold Council, an industry-backed body, says the funds are looking to reduce counterparty risk in the event of another crisis: “In the past they might have been happy to just use futures strategy. Now they are looking to have physical investment.”

Many analysts agree that gold is likely to set fresh nominal all-time highs in the coming months. But they also see the weight of investment in the metal as a warning signal. Mr. Klapwijk says the rush to invest in the metal is not irrational.

The motivation is fear about the debasement of paper currencies and of a panic in markets fuelled by any worsening in the eurozone debt crisis. But he also says that gold currently has “elements of a bubble.” Jeffrey Currie, head of commodities research at Goldman Sachs, points to a strong historical inverse relationship between gold prices and real interest rates.

The time to sell, he says, will be when the economy returns to normal. “It’s pretty simple. Just stay long until real rates rise, likely driven by central banks taking liquidity out of the system.”

Paulson & Co. remains optimistic that the trade is not crowded.

In a presentation to potential investors, salesmen from the firm point out that gold ETF holdings amount to $78.3 billion, a fraction of the $2,849 billion held by U.S. money market funds. The implication is that, with massive unconventional monetary easing under way, gold will become the ultimate store of value. Read more here-http://www.gata.org/node/8814 and http://www.ctv.ca/generic/generated/static/business/article1635220.html

-Getting gold for China is world’s top financial problem, Rickards tells KWN. Listen here-http://www.gata.org/node/8827

-Jordan Roy-Byrne: More Clueless Mainstream Commentary on Gold. Read more here-http://www.321gold.com/editorials/roy_byrne/roy_byrne071410.html

-Darryl Robert Schoon: The End-Game and The Illusory Gold Bubble. Read more here-http://www.321gold.com/editorials/schoon/schoon071410.html

-WGC study on holding gold reserve assets: Natalie Dempster World Gold Council. Read more here-http://www.moneyweb.co.za/mw/view/mw/en/page295799?oid=495836&sn=2009+Detail

-Gold ‘biscuits’ selling like hotcakes in Mumbai. With jewellers offering gold accumulation schemes Indian consumers are tuning into gold bars as an investment opportunity and prefer to take delivery of physical gold. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=107818&sn=Detail&pid=34

-Gold far more desirable than its dollar value. There isn’t enough gold out there for it to be a true means of exchange but it is still the ultimate measure of value in its deeply realistic monetary role. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=107878&sn=Detail&pid=33

-Central Bank structural shift key to gold’s strong performance. While not the only reason for the strong price performance, the shift from net sellers to net buyers has had an impact. And, it is likely to continue to do so. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=107967&sn=Detail&pid=33

-CNBC Europe interviews Hinde Capital’s Davies on gold paper risk. Read more here-http://www.gata.org/node/8805

-Hinde Capital CEO Ben Davies speaks with King World News on the nature of money and concludes that the current market bubble isn’t in gold but in paper money, and it’s a bubble about to be pricked. Listen here-http://www.gata.org/node/8822

-Gold fund manager Ben Davies praises GATA in King World News interview. Listen here-http://www.gata.org/node/8809

-BIS Swaps $12.6 Billion for Gold With Banks. The Bank for International Settlements swapped about $12.6 billion for gold with commercial banks in five months through April, more than eight times the amount sold globally by central banks last year.

The information shows the amount of metal related to swaps held by the BIS grew from about zero in November to about 349 metric tons by the end of April. The figures are calculated by subtracting the bank’s own gold holdings, currently at 120 tons, from its total amount held as reported by the International Monetary Fund, the World Gold Council said.

“It demonstrates once again the effectiveness of gold as a reserve asset because even in the midst of a severe liquidity crisis, institutions owning gold were able to make use of it to generate dollars,” said George Milling-Stanley, the producer funded council’s managing director of government affairs. Read more here-http://www.bloomberg.com/news/2010-07-08/bis-swaps-12-6-billion-for-gold-dwarfs-central-bank-sales-chart-of-day.html

-Telegraph notes BIS gold swap mystery, quotes GATA’s Douglas. Read more here-http://www.gata.org/node/8818

-Julian Phillips: BIS swap shows gold is back as money. Read more here-http://www.gata.org/node/8806

-BIS swap transactions show creative use of gold GFMS. GFMS Chairman Philip Klapwijk says the operations validate gold’s centrality to the financial system. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=107900&sn=Detail&pid=33

-BIS gold swap best news to hit gold in 30 years. As the reported BIS gold swap transaction effectively represents back door remonetisation of gold, it is extremely positive for the yellow metals future path. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=107700&sn=Detail&pid=33

-Reg Howe: BIS swaps seem meant to stretch out paper gold. Read more here-http://www.gata.org/node/8830

-Mike Kosares: BIS gold swap signifies a threat to Europe, not to gold. Read more here-http://www.gata.org/node/8825

-FT’s Lex on gold and the BIS: Nothing to see here. Read more here-http://www.gata.org/node/8815

-Gene Arensberg: Huge short covering in gold by large commercials. Read more here-http://www.gata.org/node/8816

-Murray Pollitt: Investors and fund managers are too distant from their money. Read more here-http://www.gata.org/node/8824

-Tinfoil hats are earned just by questioning central banks. Read more here-http://www.gata.org/node/8821

-Adrian Douglas: Price suppression follows inevitably from fractional reserve gold banking. Read more here-http://www.gata.org/node/8820

-Jeff Nielson: How the banksters serve the gold buyers. Read more here-http://www.gata.org/node/8808

-Is gold price manipulation becoming a respectable topic? Read more here-http://www.gata.org/node/8810

-Peter Grandich has a $50,000 bet for two gold perma-bears. Read more here-http://www.gata.org/node/8828

-A Modern Day Gold Rush. Businesses try to cash in on surging gold prices by selling prospecting gear, storage and even gold-bar vending machines. Read more here-http://www.businessweek.com/bwdaily/dnflash/content/jul2010/db2010079_208857.htm

CHARTS OF THE WEEK-QUOTES-QUICK HITS

-Chart of the week: As the charts below illustrate, we are into an unprecedented period of market volatility as the secular forces of deflation bump against recurring rounds of policy reflation. Twelve years of no return but with massive swings along the way (Chart 1). And, look at Chart 2, which takes this year’s choppy pattern into focus six whippy rallies and selloffs, and again, no return. Very frustrating for the bulls and the bears. David Rosenberg-Gluskin/Sheff

-Goldman Sachs Group Inc. agreed to pay $550 million and change its business practices to settle U.S. regulatory claims it misled investors in collateralized debt obligations linked to subprime mortgages. Read more here-http://www.bloomberg.com/news/2010-07-15/goldman-sachs-to-pay-record-550-million-to-settle-sec-subprime-fraud-suit.html

-Historian warns of sudden collapse of American ‘empire’. Harvard professor and prolific author Niall Ferguson opened the 2010 Aspen Ideas Festival Monday with a stark warning about the increasing prospect of the American “empire” suddenly collapsing due to the country’s rising debt level.

“I think this is a problem that is going to go live really soon,” Ferguson said. “In that sense, I mean within the next two years. Because the whole thing, fiscally and other ways, is very near the edge of chaos. And we’ve seen already in Greece what happens when the bond market loses faith in your fiscal policy.”

Ferguson said empires such as the former Soviet Union and the Roman empire can collapse quite quickly and the tipping point is often when the cost of servicing an empire’s debt is larger than the cost of its defense budget. “That has not been the case I think at any point in U.S. history,” Ferguson said. “It will be the case in the next five years.” Read more here-http://www.aspendailynews.com/section/home/141349

-Chinese rating agency strips Western nations of AAA status. China’s leading credit rating agency has stripped America, Britain, Germany and France of their AAA ratings, accusing Anglo-Saxon competitors of ideological bias in favour of the West. Read more here-http://www.telegraph.co.uk/finance/china-business/7886077/Chinese-rating-agency-strips-Western-nations-of-AAA-status.html

-Portugal had its credit rating cut two levels to A1 at Moody’s Investors Service on prospects for weak economic growth and a growing debt burden after the government allowed its budget deficit to balloon. “The Portuguese government’s financial strength will continue to weaken over the medium term,” Moody’s said in a statement today, adding that the outlook is stable.

“The Portuguese economy’s growth prospects are likely to remain relatively weak unless recent structural reforms bear fruit over the medium-to-longer term.” Read more here-http://www.bloomberg.com/news/2010-07-13/portugal-downgraded-at-moody-s-on-high-debt-level-for-foreseeable-future-.html

-The Federal Reserve has become more pessimistic about the economy. The Fed’s latest forecast, included in the minutes of the central bank’s June 23 meeting released Wednesday, is the latest sign of growing concern that the recovery is losing steam. Read more here-http://money.cnn.com/2010/07/14/news/economy/fed_outlook/index.htm and http://www.bloomberg.com/news/2010-07-14/fed-officials-saw-no-need-for-further-stimulus-trimmed-growth-forecasts.html

-Sales at U.S. Retailers Fell for a Second Month in June. Sales at U.S. retailers dropped in June for a second month, indicating the economic recovery dissipated heading into the second half of 2010. Read more here-http://www.bloomberg.com/news/2010-07-14/sales-at-u-s-retailers-fell-for-a-second-month-in-june.html

-Crude oil will climb to as much as $90 a barrel by the end of this year and $100 in 2011, T. Boone Pickens, the billionaire energy hedge-fund manager, said today. Prices will “move up here pretty quick in the third quarter,” Pickens, chairman of Dallas-based BP Capital LLC, said today in an interview on Bloomberg Radio with Tom Keene.

Pickens said he expects oil in the range of $85 to $90 a barrel by the end of 2010 and $95 to $100 a barrel in 2011. Read more here-http://www.bloomberg.com/news/2010-07-14/crude-oil-futures-fall-from-two-week-high-as-supplies-climb-equities-drop.html

-Shadowstats’ John Williams Exposes The Media’s Propaganda Spin, Or Why Watching CNBC Can Be Hazardous To Your Wealth. Read more here-http://www.zerohedge.com/article/shadowstats-john-williams-exposes-medias-propaganda-spin-watching-cnbc-can-be-hazardous-your

-Iran War Even Closer? Read more here-http://www.thedailybell.com/1210/Iran-War-Even-Closer.html

-Obama Meets With Warren Buffett to Discuss Economic Growth, Job Creation. Read more here-http://www.bloomberg.com/news/2010-07-14/obama-meets-with-warren-buffett-to-discuss-economic-growth-job-creation.html and http://money.cnn.com/2010/07/14/news/economy/obama_buffett_meeting/index.htm

-Obscure book by British adviser becomes cult hit after Warren Buffett tip. An obscure book about the collapse of the German economy in the 1920s has become cult reading among leading financiers, after a tip from billionaire investor Warren Buffett. Read more here-http://www.telegraph.co.uk/finance/financetopics/recession/7883931/Obscure-book-by-British-adviser-becomes-cult-hit-after-Warren-Buffett-tip.html

-Americans in 70% Majority See More Jobless as Deficit Widens. More than 7 out of 10 in the U.S. say the economy is mired in recession, and the country is conflicted over how to balance concerns over joblessness and the federal budget deficit, according to a Bloomberg National Poll. Read more here-http://www.bloomberg.com/news/2010-07-13/americans-in-70-majority-see-frozen-unemployment-as-budget-deficit-widens.html

-Many early baby boomers may have a hard time making ends meet in retirement, according to a new study. The Employee Benefit Research Institute estimates that 47% of boomers between the ages of 56 and 62 are likely to run shy of the cash they’ll need to pay for basic expenses and uninsured health costs in retirement. Read more here-http://money.cnn.com/2010/07/14/retirement/boomers_retirement_savings/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 and http://www.b-tv.com/features/watch-now.html?id=326

-Richard Russell on Diamonds. When I first suggested (many years ago) that my subscribers buy top quality diamonds, it was a time when nobody wanted diamonds. I was told repeatedly that you “buy diamonds at retail and sell them at wholesale.” besides, I was told that “new diamond mines are opening all over the world.”

Further, it was said that the price of diamonds had done nothing for the last decade, and what could change? Well alot has changed. Diamonds are now sizzling in price. Chinese and Indian women adore them. And the Russian covet them. Currently there’s a scarcity of large, good quality stones. Most American jewellers have never seen anything like it.

Nobody wants to sell their inventory of diamonds. Today any good quality stone over 8 carats will bring a price of mover a million dollars. I understand that dealers are calling retailers and asking them if they have any stones that they don’t want to can’t sell.

The Hong Kong market is now the hot market for diamonds. Today the only way a diamond dealer can make a real profit is if he is lucky enough to find an uninformed private party who is ready to sell “mom’s old wedding ring.” Why do you think you are seeing all those big ads for “We want your diamonds and we’ll pay top prices for your jewellery? Read more here-http://www.321gold.com/editorials/russell/russell071310.html

DEBT-DEFICIT CRISIS

-The debt crisis remains unresolved. In the third quarter of 2007, total U.S. credit market debt as a percentage of GDP rang in at 344%. At the end of the first quarter of 2010 it totalled 357%.

You can also see the global nature of the problem in the following chart showing just government debt as a percentage of GDP (and ignoring unfunded liabilities, such as Social Security and Medicare). Most notably, the world’s two largest economies, the U.S. and Japan, are both well into the red with Japan, especially, at clear and present risk. Read more here-http://www.caseyresearch.com/displayCdd.php?id=483

-June Budget Deficit in U.S. Narrowed to $68.4 Billion. The U.S. government posted a smaller budget deficit in June compared with the same month last year as the economic recovery brought in more tax revenue.

The excess of spending over receipts fell to $68.4 billion last month from $94.3 billion in June 2009, according to a Treasury Department report issued today in Washington. It was the 21st consecutive shortfall. For the fiscal year to date, the budget deficit totaled $1 trillion compared with $1.42 trillion during the prior year to date.

Even as the economy recovers from the deepest recession since the 1930s, the budget deficit is forecast to reach a record $1.6 trillion this fiscal year as the government funds efforts to revive growth and employment. The mounting shortfalls underscore the challenge facing the Obama administration. Read more here-http://www.bloomberg.com/news/2010-07-13/u-s-budget-deficit-narrowed-to-68-4-billion-in-june-on-higher-tax-income.html

-June Federal Budget Deficit Comes At ($68.4) Billion, $1 Trillion+ In Deficit Raked Up For First Nine Months. Read more here-http://www.zerohedge.com/article/june-federal-budget-deficit-comes-684-billion-expectations-69-billion-previous-93-billion

-June Deficit Fails To Account For $142 Billion In Excess June Borrowings; U.S. Has Issued $1.5 Trillion Excess Debt Over Budget In Past 4 Years. Read more here-http://www.zerohedge.com/article/june-deficit-fails-account-142-billion-excess-june-borrowings-us-has-issued-15-trillion-exce

-Obama’s debt commission warns of fiscal ‘cancer’. The co-chairmen of President Obama’s debt and deficit commission offered an ominous assessment of the nation’s fiscal future here Sunday, calling current budgetary trends a cancer “that will destroy the country from within” unless checked by tough action in Washington.

The two leaders former Republican senator Alan Simpson of Wyoming and Erskine Bowles, White House chief of staff under President Bill Clinton sought to build support for the work of the commission, whose recommendations due later this year are likely to spark a fierce debate in Congress.

“There are many who hope we fail,” Simpson said at the closing session of the National Governors Association annual meeting. He called the 18-member commission “good people with deep, deep differences” who know the odds of success “are rather harrowing.”

Bowles said that unlike the current economic crisis, which was largely unforeseen before it hit in fall 2008, the coming fiscal calamity is staring the country in the face. “This one is as clear as a bell,” he said. “This debt is like a cancer.” Read more here-http://www.washingtonpost.com/wp-dyn/content/article/2010/07/11/AR2010071101956_pf.html

-Niall Ferguson: A U.S. Debt Crisis Is On Its Way. Read and watch more here-http://finance.yahoo.com/tech-ticker/niall-ferguson-a-u.s.-debt-crisis-is-on-its-way-518725.html?tickers=tlt,tbt,^dji,^gspc,spy,^ftse&sec=topStories&pos=9&asset=&ccode

-UK debt is ‘twice as much as we thought’. The true scale of the national debt is £2 trillion more than twice the official figure, an alarming study shows. The black hole in the public accounts equates to £78,000 for every household in the country.

The ‘real’ state of the national finances is exposed in a study published today by the Centre for Economics and Business Research, which warns of a series of mammoth debts that aren’t revealed by the official figures.

The national debt forecast to reach £932m by next spring does not include a number of expensive liabilities, such as the cost of civil service and town hall pensions and projects funded under the Public Finance Initiative.

Putting these liabilities into the official figure would add £1.13 trillion to Britain’s whopping overdraft, according to CEBR. Under the worrying scenario, the debt would jump from 62% to 138% of Britain’s income. In its study, CEBR warned that the Government cannot formulate a plan to revive the economy while the liabilities remain hidden. Read more here-http://www.thisismoney.co.uk/news/article.html?in_article_id=508582&in_page_id=2&ito=1565

STOCK MARKET

-Stock Bears Outnumber Bulls for First Time Since April ‘09. Read more here-http://www.bloomberg.com/news/2010-07-14/stock-bears-outnumber-bulls-for-first-time-since-april-09.html

-John Hussman: The Market Is 40% Overvalued. “On a valuation basis, the S&P 500 remains about 40% above historical norms on the basis of normalized earnings. The disparity between our valuation assessment and the putative undervaluation being touted by Wall Street analysts is so great that a few remarks are in order.

First, virtually every assessment that “stocks are cheap” here is based on the ratio of the S&P 500 to year-ahead operating earnings estimates, and often comes with a comparison of the resulting “earnings yield” with the depressed 10-year Treasury yield.

What’s fascinating about this is that this is the same basis on which analysts deemed stocks to be about 40% undervalued just prior to the 2007 top, following which the market plunged by more than half. Read more here-http://www.businessinsider.com/john-hussman-the-market-is-40-overvalued-2010-7

-Rosenberg’s Explanation For Recent Market Surge: Liquidity Pump And Short Covering. Read more here-http://www.zerohedge.com/article/rosenbergs-explanation-recent-market-surge-liquidity-pump-and-short-covering

-’Sell the Rallies’ Before S&P 500 Correction, UBS Says: Technical Analysis. Investors should “sell the rallies” as the Standard & Poor’s 500 Index will soon enter a strong correction, according to technical analysts at UBS AG. The U.S. benchmark index will fall to between 944 and 1,000 at the end of the third quarter, UBS analysts Michael Riesner and Marc Mueller wrote in a note dated yesterday.

“Although the rally is going higher than initially thought, our negative medium-term view is unchanged and we would use strength to sell instead of chasing the market on the upside,” Zurich-based Riesner said in a phone interview today. “In the very short-term the sharp rally of the last six sessions shows that the market is getting increasingly overbought.” Read more here-http://www.bloomberg.com/news/2010-07-14/-sell-the-rallies-before-s-p-500-correction-ubs-says-technical-analysis.html

-Computerized stock trading leaves investors vulnerable. The time it takes to read this sentence is all it takes for nearly 2 million stock trades to flash through the stock market. Most of those trades aren’t coming from trigger-happy day traders and mutual fund managers with billions of dollars at their disposal.

It’s a flood of machine gun speed fury coming from an army of computers programmed to obey complicated algorithms that are hyperactively buying and selling. What does that mean to you, the individual investor? The next time you buy or sell a stock, forget the quaint idea that there is a living, breathing human being on the other side of the transaction. You’re trading with a computer.

Not only are the markets completely computerized, more than half of the market’s volume is churned by computers programmed to spot certain patterns in trading. These machines see stocks not as securities used by companies to raise money, but rather, symbols, numbers and bits that are traded, swapped and exchanged.

And now, traders say, humans are responding to machines rather than the other way around. Increasingly, too, the machines are reacting to each other, trying to second-guess what their next moves might be on how to take advantage of an edge that might be gone in milliseconds. “There are no real buyers or sellers,” says Joe Saluzzi, trader at Themis Trading. “It’s all about the machines.” Read more here-http://www.usatoday.com/money/markets/2010-07-09-wallstreetmachine08_CV_N.htm

-Ellen Brown: How stock brokers became bookies, the insidious transformation of markets into casinos. Read more here-http://www.webofdebt.com/articles/brokers_bookies.php

-Wall Street Fix Seen Ineffectual by Four of Five in U.S. Americans harbour doubts that a financial-regulation bill about to be passed by Congress will do what President Barack Obama says it will: help avoid another crisis and make their finances safer.

Almost four out of five Americans surveyed in a Bloomberg National Poll this month say they have just a little or no confidence that the measure being championed by congressional Democrats will prevent or significantly soften a future crisis. More than three-quarters say they don’t have much or any confidence the proposal will make their savings and financial assets more secure.

A plurality 47 percent says the bill will do more to protect the financial industry than consumers; 38 percent say consumers would benefit more. Read more here-http://www.bloomberg.com/news/2010-07-13/wall-street-fix-from-congress-seen-ineffectual-by-four-out-of-five-in-u-s-.html

BANKING CRISIS

-Crisis Awaits World’s Banks as Trillions Come Due. The sovereign debt crisis would seem to create worry enough for European banks, but there is another gathering threat that has not garnered as much notice: the trillions of dollars in short-term borrowing that institutions around the world must repay or roll over in the next two years.

The European Central Bank, the Bank of England and the International Monetary Fund have all recently warned of a looming crunch, especially in Europe, where banks have enough trouble raising money as it is.

Their concern is that banks hungry for refinancing will compete with governments which also must roll over huge sums for the bond market’s favor. As a result, credit for business and consumers could become more costly and scarce, with unpleasant consequences for economic growth.

“There is a cliff we are racing toward it’s huge,” said Richard Barwell, an economist at Royal Bank of Scotland and formerly a senior economist at the Bank of England, Britain’s central bank. “No one seems to be talking about it that much.” But, he added, “it’s of first-order importance for lending and output.”

Banks worldwide owe nearly $5 trillion to bondholders and other creditors that will come due through 2012, according to estimates by the Bank for International Settlements. About $2.6 trillion of the liabilities are in Europe.

U.S. banks must refinance about $1.3 trillion through 2012. While that sum is nothing to scoff at, analysts seem most concerned about Europe because the banking system there is already weighed down by the sovereign debt crisis.

How banks will come up with the money is an open question. With investors worried about government over-indebtedness in Greece, Spain, Ireland and other parts of Europe, many banks have been reluctant or unable to sell bonds, which they typically use to raise money that they lend on to businesses and households. Read more here-http://www.nytimes.com/2010/07/12/business/global/12refinance.html?_r=3&pagewanted=print

-Maryland, New York, Oklahoma Banks Shuttered as Failures This Year Hit 90. Read more here-http://www.bloomberg.com/news/2010-07-10/maryland-new-york-oklahoma-banks-shuttered-as-failures-this-year-hit-90.html

-Bank Profits Depend on Debt-Writedown `Abomination’. Bank of America Corp. and Wall Street firms that notched perfect trading records in the first quarter are now depending on an accounting benefit last used in the depths of the credit crisis to prop up their results.

Bank of America, the biggest U.S. bank by assets, may record a $1 billion second-quarter gain from writing down its debts to their market value, Citigroup Inc. analyst Keith Horowitz estimated in a June 23 report. The boost to earnings, stemming from an accounting rule that allows banks to book profits when the value of their own bonds falls, probably represented a fifth of pretax income, Horowitz wrote. Read more here-http://www.bloomberg.com/news/2010-07-11/bank-earnings-depending-on-debt-writedown-abomination-in-latest-forecast.html

-James Turk: Banks are not lending again. I need to correct an article I wrote last month stating that banks are lending again. Total bank loans have indeed grown as I reported, but not because banks made new loans. Instead, the increase was a result of pure accounting.

On April 1, 2010, the accounting rules for banks changed. Credit previously extended in the form of derivatives booked off bank balance sheets now has to be accounted for on a bank’s balance sheet. Thus, in accordance with rule FAS 166/67, banks brought about $300 billion of assets and liabilities onto their balance sheets in April. This was credit already extended.

So contrary to the conclusion in my previous article, bankers are still sitting on their hands. They are not making new loans, when taking into consideration the bookkeeping change explained above. Bankers are still trying to repair their over-leveraged balance sheets, as we can see in the following chart.

Note too that bank purchases of US government paper continue to taper off. I noted earlier this year I noted how banks were using their depositors’ money to buy US government paper. The pace of those purchases is slowing down. Read more here-http://www.fgmr.com/banks-are-not-lending.html

-Spanish Banks Boost ECB Borrowing 48% to Record 126 Billion Euros in June. Read more here-http://www.bloomberg.com/news/2010-07-14/spanish-banks-boost-ecb-borrowing-48-to-record-126-billion-euros-in-june.html

-Iceland Faces Second Wave of Bank Failures as Loan Ruling Depletes Assets. Read more here-http://www.bloomberg.com/news/2010-07-14/iceland-faces-second-wave-of-bank-failures-as-loan-ruling-depletes-assets.html

-Latest European Stress Test Rumor: 23% Haircut On Greek Debt Held In Trading Books. Read more here-http://www.zerohedge.com/article/latest-stress-test-rumor-23-haircut-greek-debt-held-trading-books

U.S. DOLLAR-INFLATION-DEFLATION-HYPERINFLATION

-Central banks start to abandon the U.S. dollar. There’s mounting evidence that central bankers have little faith in the greenback these days. Can we blame them? Read more here-http://wallstreet.blogs.fortune.cnn.com/2010/07/09/central-banks-start-to-abandon-the-u-s-dollar/

-James Turk: Inflation, not deflation, is the threat to the dollar. GoldMoney founder and GATA consultant James Turk argues that the U.S. dollar has reached its “Havenstein moment,” named for the president of Weimar Germany’s Reichsbank who printed the mark into oblivion.

Inflation, Turk writes, is already raging as measured by oil and other commodity prices, and since the dollar is not restrained by any requirement for redeeming it in precious metals, deflation isn’t even possible. Read more here-http://www.gata.org/node/8804

-King World News: James Turk explains disbelief of chances for deflation. Listen here-http://www.gata.org/node/8812

ERIC SPROTT-WITHER GREEN SHOOTS

-With the summer now upon us, the “Sell in May and Go Away” adage has proven itself true once again. The major market indexes are all turning downward, and while they haven’t dropped enough yet to warrant panic, we certainly want to be positioned properly if this trend continues into the fall.

The market tea leaves are no longer sending mixed signals either most of the new data is decidedly bearish. So what happened to all the ‘green shoots’? What happened to the strong recovery the market rally was promising? Economic data released over the past two weeks have decimated any remaining belief in a lasting economic recovery.

Slowdowns are appearing in the US, Europe, Japan and even China. Auto sales, housing starts, employment, consumer confidence, factory orders, consumer purchase intentions just about every aspect of the economy that can be measured, is showing decided weakness.

At the end of the day, nobody should be surprised by the recent economic data. The stock market rally that began in March ’09 was driven by monetary phenomena rather than anything fundamental, and based on data from CMI for 2010 it appears that we have already entered an economic contraction phase.

The market is now beginning to reflect the fact that the green shoots were actually just the early signs of weeds, and it would suffice to say that virtually all the major world governments have some serious gardening to do.

The recent contractions don’t necessarily mean that we’ll experience a repeat of 2008’s stock market performance in 2010, but it does suggest that investors should question the real fundamentals underlying their investments, lest the market begins to trade on them again. Read more here-http://www.sprott.com/Docs/MarketsataGlance/06_10%20Wither%20Green%20Shoots.pdf and http://www.zerohedge.com/article/sprott-wither-green-shoots

REAL ESTATE

-Taking into count the shadow inventory of foreclosed homes in the U.S., what we have is a two-year backlog of unsold homes. David Rosenberg-Gluskin/Sheff

-U.S. Home Seizures Rise 38% to Record as Banks Process Backlog. A record 269,962 U.S. homes were seized from delinquent owners in the second quarter as lenders set a pace to claim more than 1 million properties by the end of 2010, according to RealtyTrac Inc.

Home seizures climbed 38 percent from a year earlier and 5 percent from the first quarter, the Irvine, California-based data company said today in a statement. More than 1.65 million properties received a foreclosure filing, including notices of default, auction and bank repossession, in the first half. That was up 8 percent from the first six months of 2009.

“Foreclosures haven’t peaked yet,” Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies in Cambridge, Massachusetts, said in a telephone interview. Unemployment suggests that bank repossessions may climb for another six to nine months, he said.

Waning consumer confidence and the jobless rate, which was 9.5 percent in June, are holding back a housing recovery. The expiration of a federal tax credit for homebuyers also cut demand, even as average borrowing costs for a 30-year fixed-rate loan set record lows. The rate was 4.57 percent last week, according to McLean, Virginia-based mortgage finance company Freddie Mac.

“It’s not interest rates that will get us out of this, but jobs,” Retsinas said. “New defaults seem to have stabilized, but there’s still a lot of volatility overall.” One in 78 U.S. households received a foreclosure filing in the first half, and filings surpassed 300,000 for the 16th consecutive month in June, RealtyTrac said.

A total of 529,633 homes were seized by lenders the last stage of the foreclosure process in the first half, said Daren Blomquist, the data firm’s marketing manager. Read more here-http://www.bloomberg.com/news/2010-07-15/u-s-home-seizures-rise-38-to-record-as-banks-process-forclosure-backlog.html

-The 15 States With The Most Underwater Mortgages. Read more here- http://www.businessinsider.com/the-15-states-with-the-most-underwater-homes-2010-7

-Pending Home Sales Have Crashed To Record Lows, Prices To Follow. Read more here-http://www.businessinsider.com/pending-home-sales-crash-to-record-lows-prices-to-follow-2010-7

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The Goldbugg Report – July 20th, 2010
Posted by Worldwide Precious Metals on Tuesday, July 20, 2010

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