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The Goldbugg Report – July 27, 2010

July 27, 2010

- David Morgan said he believes silver will be over $20 by the end of the year, and could reach $25 as the desire to own gold and silver will return.

- “Gold it is just an asset that, like everything else in life, has its time and place. And now is that time.” Paul Tudor Jones founder and chairman of Tudor Investment

- Gold as a percentage of global financial assets chart.

“SPECIAL GOLDBUGG ANNOUNCEMENT!”

Worldwide Precious Metals proudly welcomes the latest “Goldbugg”, namely Cassius Kingston Bugg born to Lucas & Crystal Bugg on July 18^th, 2010!

GOLD

-As you can see on the chart below, it compares gold as a percentage of global financial assets at the apex of gold’s last big bull market in 1980, to today. Based on that, gold would seem to have a long way to go before reaching a top.

Of course, things won’t roll out in exactly the same way this time around but a solid case can be made that the economic problems are much worse today than they were in 1980. How high could the price of gold go?

Given the price of gold is really just a reflection of the underlying currency unit it is priced in, the answer to the question is to ask yourself how well the government is handling fiscal and monetary policy. If we “go Zimbabwe,” then the price of gold could top $1,000,000 per ounce. Casey Research-Read more here-http://www.caseyresearch.com/displayCdd.php?id=489

-”Gold it is just an asset that, like everything else in life, has its time and place. And now is that time.” Paul Tudor Jones founder and chairman of Tudor Investment-Read more here-http://www.gata.org/node/8814

-The consensus view among the Hedge 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. Read more here-http://www.gata.org/node/8814

-These 72 Analysts Believe Gold Will Go Parabolic To Between $2,500 and $15,000! Read more here-http://news.goldseek.com/GoldSeek/1279566456.php

-Eric King: The gold bull market will end in a mania. The chart below was sent to me by one of our listeners. Unfortunately he did not know who created it, but it gives a clear illustration of why the bull market in gold will end in a mania. There is a great deal of fear in the gold and silver markets at this point. You can clearly see looking at the chart that we are in phase II and that we are climbing a “Wall of worry.”

Investors are worried that if the stock market is going to fall that gold will head lower as well and sentiment has dropped off accordingly. It may be the case that gold would go down if the stock market heads lower, but the truth is that no one knows how gold is going to react in the short-term. It is being accumulated and has been under accumulation for many years.

The smart money knows this is a cycle where investors move away from traditional paper investments and into gold. As gold corrects lower, there are large amounts of physical buyers that buy the dips and continue to accumulate on weakness. This is one of the primary reasons why gold has remained strong so far this summer.

We are nearing the end of July and I think it will be interesting to see how gold trades in August to close out the summer. If gold remains firm in August that would surprise many professionals. Some have been looking for a correction to the $1,000 area, which on the surface would seem reasonable as gold continues to consolidate between roughly $1,000 and $1,200.

Having said all of that, bull markets in many cases surprise investors and traders alike on the upside. Take a look again at the chart, and note one more time the “Wall of worry.” Although that chart is comprised of the Nasdaq mania and subsequent collapse, you can see that during phase II there were dips, and sometimes significant market reactions.

The important thing to note is that they were always, without exception, buying opportunities to accumulate prior to the mania. Use weakness in gold as an opportunity to continue dollar cost averaging into the metal at lower prices. Read more here-http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/7/21_The_Gold_Bull_Will_End_In_A_Mania.html

-Jeff Clark: Is Now a Good Time to Buy Gold? Read more here-http://www.caseyresearch.com/editorial/3532?ppref=GLD014ED0710B and http://news.goldseek.com/GoldSeek/1279472400.php

-Gold is also a hedge against financial instability and when the world is awash with over $200 trillion of household, corporate and government liabilities, deflation works against debt servicing capabilities and calls into question the integrity of the global financial system. This is why gold has so much allure today.

It is a reflection of investor concern over the monetary stability, and Ben Bernanke and other central bankers only have to step on the printing presses whereas gold miners have to drill over two miles into the ground (gold production is lower today than it was a decade ago; hardly the same can be said for fiat currency).

Moreover, gold makes up a mere 0.05% share of global household net worth, so small incremental allocations into bullion or gold-type investments can exert a dramatic impact. Gold cannot be printed by central banks and is a monetary metal that is no government’s liability.

It is malleable and its supply curve is inelastic over the intermediate term. And central banks, who were selling during the higher interest rate times of the 1980s and 1990s, are now reallocating their FX reserves towards gold, especially in Asia. David Rosenberg-Gluskin/Sheff

-The real value of gold $52,831 an ounce? In terms of US dollar circulation and US gold holdings, to make the dollar convertible into gold would mean a gold price in excess of $50,000 an ounce. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=108331&sn=Detail&pid=33

-Jim Rogers: I will hold gold to $2,000. Read more here-http://money.outlookindia.com/article.aspx?266216

-Kyle Bass Explains Why Gold And The Dollar Can Trade As One. Read more here-http://www.businessinsider.com/kyle-bass-explains-why-gold-and-the-dollar-can-trade-as-one-2010-7

-Price falls make gold more attractive to long term investors Nichols. The recent decline in gold prices is more typical of the northern summer hiatus than a sea-change in pattern and price dips remain excellent buying opportunities for the gold investor. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=108316&sn=Detail&pid=33

-Investment flows to prop up gold GFMS. Read more here-http://www.miningmx.com/news/gold_and_silver/Investment-flows-to-prop-up-gold-GFMS.htm

-Double dip or recovery Has gold had its day? Whether we are entering a double dip recession or a mild recovery gold will perform well in both scenarios. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=108217&sn=Detail&pid=33

-Top Chinese Economists Call For Government To Ditch U.S. Treasuries And Buy Gold. Read more here-http://www.businessinsider.com/top-chinese-economist-calls-for-government-to-ditch-us-treasuries-and-buy-gold-2010-7 and http://www.gata.org/node/8842

-Russian central bank still buying gold but purchase volumes slipping. While central bank gold policies continue to hit the headlines, the net position in terms of tonnage change so far this year is small. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=108272&sn=Detail&pid=33

-Short term price outlook for gold and silver. The VM Group/ABN Amro’s latest metals report takes a fairly conservative view on the prospects for gold and silver prices in the short to medium term. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=108204&sn=Detail&pid=33

-Can gold be a haven for all of inflation, deflation and stock crash? Read more here-http://opinion.financialpost.com/2010/07/16/can-gold-be-a-haven-for-all-of-inflation-deflation-and-stock-crash/

-Gold Coin Sellers Angered by New Tax Law. Amendment Slipped Into Health Care Legislation Would Track, Tax Coin and Bullion Transactions. Read more here-http://abcnews.go.com/Business/gold-coin-dealers-decry-tax-law/story?id=11211611

-On 1099-Tax Reporting Requirements For Half Ounce Gold Transactions. Read more here-http://www.zerohedge.com/article/1099-tax-reporting-requirements-half-ounce-gold-transactions and http://www.businessinsider.com/obamas-health-care-contains-a-hidden-tax-on-gold-coins-2010-7

-All Gold To Be Tracked? Read more here-http://www.thedailybell.com/1224/All-Gold-to-be-Tracked.html

-Michigan Says Enough To Fed: Takes Matters Into Own Hands As It Starts Using Own Currency And Gold. Read more here-http://www.zerohedge.com/article/michigan-says-enough-fed-takes-matters-own-hands-it-starts-using-own-currencyand-gold

-Competing currency being accepted across Mid-Michigan. Watch part 1 here-http://www.connectmidmichigan.com/news/story.aspx?id=481793 and part 2 here-http://www.connectmidmichigan.com/news/story.aspx?id=482130

-Reuters actually puts gold questions to BIS, which clams up. Read more here-http://www.gata.org/node/8834 and http://uk.reuters.com/article/idUKLNE66F03J20100716

-Max Keiser interviews Ben Davies on gold, silver suppression, BIS swaps. Read more here-http://www.gata.org/node/8843

-Izabella Kaminska: Looks like BIS swaps relieved gold market squeeze. Read more here-http://www.gata.org/node/8850

-Central banks care mainly about saving big banks, Eric Sprott tells King World News. Read more here-http://www.gata.org/node/8845

-Hinde Capital’s Ben Davies On The Gold Market. Read more here-http://www.zerohedge.com/article/hinde-capitals-ben-davies-gold-market

-Guest Post: Carpe Aurum Seize the Gold. Read more here-http://www.zerohedge.com/article/guest-post-carpe-aurum-seize-gold

-Ferdi Lips warned about gold market’s 100-1 leverage nine years ago. Read more here-http://www.gata.org/node/8840

-Adrian Douglas: Proof of gold price suppression gold and the U.S. dollar. Read more here-http://www.gata.org/node/8844

-FT stumbles into central bank admissions of market manipulation. Read more here-http://www.gata.org/node/8833

-Rust discovered on Bank of Russia-issued ‘gold’ coins. Read more here-http://www.gata.org/node/8835

-Gold Makes Dead Portuguese Dictator Top Investor. Read more here-http://www.bloomberg.com/news/2010-07-21/gold-makes-dead-portuguese-dictator-top-investor-without-gains-to-prove-it.html

SILVER

Gold to silver ratio at 80 to 1 with gold at $1,500 the silver price would be $18.75

Gold to silver ratio at 70 to 1 with gold at $1,500 the silver price would be $21.43

Gold to silver ratio at 60 to 1 with gold at $1,500 the silver price would be $25.00

Gold to silver ratio at 50 to 1 with gold at $1,500 the silver price would be $30.00

Gold to silver ratio at 40 to 1 with gold at $1,500 the silver price would be $37.50

Gold to silver ratio at 30 to 1 with gold at $1,500 the silver price would be $50.00

Gold to silver ratio at 20 to 1 with gold at $1,500 the silver price would be $75.00

Gold to silver ratio at 15 to 1 with gold at $1,500 the silver price would be $100.00

Gold to silver ratio at 80 to 1 with gold at $2,000 the silver price would be $25.00

Gold to silver ratio at 70 to 1 with gold at $2,000 the silver price would be $28.57

Gold to silver ratio at 60 to 1 with gold at $2,000 the silver price would be $33.33

Gold to silver ratio at 50 to 1 with gold at $2,000 the silver price would be $40.00

Gold to silver ratio at 40 to 1 with gold at $2,000 the silver price would be $50.00

Gold to silver ratio at 30 to 1 with gold at $2,000 the silver price would be $66.67

Gold to silver ratio at 20 to 1 with gold at $2,000 the silver price would be $100.00

Gold to silver ratio at 15 to 1 with gold at $2,000 the silver price would be $133.33

-David Morgan said he believes silver will be over $20 by the end of the year, and could reach $25 as the desire to own gold and silver will return. “It will become apparent that gold and silver to some degree will be the asset of the day,” he said. Read more here-http://www.kitco.com/reports/debbie_july222010_focus.html

-James Turk: Waiting for silver’s upside breakout. Two months ago I stated that silver is inching closer to an upside breakout. It turns out that “inching” was the right word because since then silver has been moving at a snail’s pace. Nevertheless, the huge accumulation pattern that silver has been building over the past three years remains intact, as can be seen on the following chart.

The accumulation pattern on the above chart is nearly complete. All silver needs now is one last push above the neckline around $20. As I noted back on April 1st, silver looks ready to soar once that key level is hurdled.

In presenting my outlook for 2010 I said: “We need to start thinking about silver hurdling above $50.” Noting that this event was only a 20% probability in my view for 2010, I went on to add that “this important event which is unimaginable to many will I expect happen in 2011.”

That forecast remains on track, but two events are necessary. The obvious one is that silver must first hurdle above $20, but secondly, silver needs to approach $30 this year. This $30 price target is needed to keep silver on track for challenging $50 next year.

Given that we are now in mid-July, the limited time constraint means that $20 needs to be hurdled soon if silver is going to reach $30 before the end of this year. As a consequence, the next few weeks will be critically important for silver. Read more here-http://www.fgmr.com/waiting-for-silvers-upside-breakout.html

-Jay Taylor interviews GoldMoney’s James Turk on many gold and silver topics. Listen here-http://www.gata.org/node/8848

-Silver institute Q2 news. Read more here-http://www.silverinstitute.org/images/pdfs/2q2010.pdf

-Commodity Manipulation May Be Easier to Prove With U.S. Financial Overhaul. Traders will face new rules aimed at making it easier for regulators to prove manipulation in markets for commodities such as oil, wheat and natural gas under the financial overhaul signed by President Barack Obama. Read more here-http://www.bloomberg.com/news/2010-07-19/commodity-manipulation-may-be-easier-to-prove-with-u-s-financial-overhaul.html

-Ted Butler: When, not if. Today, President Obama signed into law the historic Financial Regulatory Reform legislation package. I reviewed this in “A Done Deal” a few days ago, so I won’t restate my position here. I’m putting this short missive out to bring your attention to a new video put out by Commissioner Bart Chilton on the same issue. Watch video here-http://www.cftc.gov/files/oirm/video/cftc_023455.wmv Read more here-http://news.silverseek.com/SilverSeek/1279732290.php and http://www.gata.org/node/8846

-On King World News, Butler is bullish for precious metals in short term. Silver market analyst Ted Butler tells Eric King of King World News that he’s bullish on the precious metals in the short term now that the technical funds in the futures market have been nearly cleaned out by the big commercial traders.

Butler is also encouraged by the financial regulation legislation just passed by Congress, which requires the U.S. Commodity Futures Trading Commission to establish position limits in futures trading in gold and silver. Listen here-http://www.gata.org/node/8836

-Gene Arensberg: Metals in backwardation but a little more slippage likely. Read more here-http://www.gata.org/node/8839

-The Coming Silver Supernova. Few investment opportunities arise in our lifetime like silver. The stage is set for a silver price percentage gain of extraordinary magnitude! Forget the popular refrain of “Got Gold?” and make some additions to your portfolio to take advantage of the coming silver supernova!

Diminishing Supply: Increasing Demand, Massive Short Position Exists, and underground Silver Is Limited and Will Become Much More Expensive to Mine, The Result: The Price of Silver Can Only Increase Dramatically! The stage is set for a silver price percentage gain of extraordinary magnitude! It is time to embrace the new refrain “Got silver?” Read more here-http://news.silverseek.com/SilverSeek/1279818424.php

-Why the silver price looks set to surge. Read more here-http://www.moneyweek.com/investments/precious-metals-and-gems/resurgent-silver-prices-02902.aspx

-Scotiabank gives long abuse to cancer victim trying to reclaim her silver. The difficult attempt of a cancer-stricken Toronto woman to exchange her Scotiabank silver certificates for real metal, witnessed last week by a writer for the Globe and Mail, whose account of the matter is appended, recalls the difficult attempt of Harvey and Lenny Organ to do the same thing with the same bank.

The bank’s mistreatment of the Toronto woman is so outrageous that perhaps some of those who were skeptics of the Organs’ story will begin to wonder if there isn’t after all really a bullion banking policy to discourage buyers from taking possession of their metal precisely because the banks are selling far more claims to metal than they have actual metal. Chris Powell-GATA-Read more here-http://www.gata.org/node/8837

-If you want to know why Scotiabank abused that cancer-stricken silver depositor. Read more here-http://www.gata.org/node/8841

CHARTS OF THE WEEK-QUOTES-QUICK HITS

-Charts of the week: U.S. dollar and inflation. Read more here-http://dshort.com/inflation/inflation-since-1872.html?decline-in-purchasing-power-of-dollar-since-1871 and http://dshort.com/inflation/inflation-since-1872.html?inflation-linear and http://dshort.com/inflation/inflation-since-1872.html?alternate-inflation-1872-present

-”If you’ll not settle for anything less than your best, you will be amazed at what you can accomplish in your lives.” Vince Lombardi-Bio here-http://en.wikipedia.org/wiki/Vince_Lombardi

-”Nobody who ever gave his best regretted it.” George Halas-Bio here-http://en.wikipedia.org/wiki/George_Halas

-”Nothing can stop the man with the right mental attitude from achieving his goal; nothing on earth can help the man with the wrong mental attitude.” Thomas Jefferson-Bio here-http://en.wikipedia.org/wiki/Thomas_Jefferson

-In periods where “black swans” are no singular occurrences, but are practically coming in flocks, the status of gold as a safe haven has yet again proven its worth. Nassim Nicholas Taleb

-I am often asked when it will be time to buy real estate again. An old adage says, “Never try to catch a falling safe.” The Wall Street variation is “never try to catch a falling knife.” Real estate is still in decline, and there is still a huge overhang of foreclosed and unsold properties.

Until these have been worked through and the market has rebalanced itself, residential and commercial real estate will not bottom out. Inflation hedges only make sense if they have an upside. At these prices, the upside is a long ways away, if not non-existent. Howard Ruff-Read more here-http://www.kitco.com/ind/Ruff/ruff_jul192010.html

-Federal Reserve Chairman Ben Bernanke warned Congress Wednesday that the economic outlook remains “unusually uncertain.” Read more here-http://www.bloomberg.com/news/2010-07-21/bernanke-says-fed-is-prepared-to-act-as-needed-to-aid-u-s-economic-growth.html and http://money.cnn.com/2010/07/21/news/economy/bernanke_testimony/index.htm

-Recessions in U.S. May Be More Frequent, Severe, Credit Suisse’s Soss Says. Read more here-http://www.bloomberg.com/news/2010-07-21/recessions-in-u-s-may-be-more-frequent-severe-credit-suisse-s-soss-says.html

-John Malone gave a little-noticed interview to The Wall Street Journal from Allen & Co.’s annual Sun Valley conference. Asked about the biggest risks to Liberty, his media conglomerate, Mr. Malone said his concern was this country’s survival. “We have a retreat that’s right on the Quebec border. We own 18 miles on the border, so we can cross. Anytime we want to, we can get away.”

His wife is more concerned: She’s already moved her personal cash to Australia and Canada. “She wants to have a place to go,” said Mr. Malone, No. 400 on this year’s Forbes list of the richest people in the world, “if things blow up here.” Read more here-http://www.observer.com/2010/wall-street/new-doom

-But we still have to ask the question: if things are as bright as the bulls would have us believe, then why is the IMF seeing another $250bln in additional commitments? David Rosenberg-Gluskin/Sheff

-We’re in a struggle between inflation and deflation right now. We may never get to a negative consumer price index, but the danger is a drop in asset prices and the destruction of credit. It means corporate bonds defaulting because companies aren’t getting enough business and they can’t pay off their debts. It means foreign governments defaulting.

It’s individuals with mortgages who can’t get out from under their 16 tons of debt. The economy can’t recover, and unemployment stays high. Stocks would be in trouble because some companies would be going bankrupt while others couldn’t get the credit they need to grow. Bill Gross-Read more here-http://money.cnn.com/magazines/moneymag/moneymag_archive/2010/08/01/105959264/index.htm

-Faber Sees Fed Introducing `Massive’ Quantitative Easing. Watch video here-http://www.bloomberg.com/news/2010-07-16/faber-sees-fed-introducing-massive-quantitative-easing-video.html

-Bank of Canada Forecast Includes `Gradual’ Rate Rises to Curb Inflation. Read more here-http://www.bloomberg.com/news/2010-07-22/bank-of-canada-forecast-includes-gradual-rate-rises-to-curb-inflation.html and http://www.bloomberg.com/news/2010-07-20/canada-raises-lending-rate-will-weigh-future-moves-against-slower-growth.html

-Bank of Canada Raises Benchmark Interest Rate to 0.75%. Read more here-http://www.bloomberg.com/news/2010-07-20/bank-of-canada-raises-benchmark-interest-rate-to-0-75-text-of-statement-.html

-Ireland Credit Rating Cut by Moody’s on Debt Outlook. Read more here-http://www.bloomberg.com/news/2010-07-19/moody-s-downgrades-ireland-s-government-bond-rating-to-aa2-stable-outlook.html

-Hugh Hendry: “If There Was A Way To Short Obama, I Would”. Read more here-http://www.nytimes.com/2010/07/20/business/global/20hedge.html?_r=2&src=twt&twt=nytimes

-Poll: Faith in Social Security system tanking. Read more here-http://www.usatoday.com/news/washington/2010-07-20-1Asocialsecurity20_ST_N.htm

-A Quiet Axis Forms Against Iran in the Middle East. Read more here-http://www.spiegel.de/international/world/0,1518,706445,00.html

-Facebook Passes 500 Million User Milestone, CEO Says. Read more here-http://www.bloomberg.com/news/2010-07-21/facebook-passes-500-million-user-milestone-ceo-says.html

-10 products to never buy generic. Read more here-http://www.walletpop.com/blog/2010/07/19/10-products-to-never-buy-generic/

-10 Company Perks That Will Make You Insanely Jealous. Read more here-http://www.businessinsider.com/10-company-perks-that-will-make-you-insanely-jealous-2010-7#sc-johnson-concierge-1

-The 10 Most Expensive Cities In The World. Read more here-http://www.businessinsider.com/the-ten-most-expensive-cities-to-live-in-the-world-2010-7#10-copenhagen-denmark-1

-Computers to translate world’s ‘lost’ languages after program deciphers ancient text. Read more here-http://www.dailymail.co.uk/sciencetech/article-1296214/Computer-program-translates-ancient-language.html

-Buffett Auctions Autographed Ice-Cream Spoon to Aid Children’s Hospitals. Read more here-http://www.bloomberg.com/news/2010-07-21/buffett-auctions-autographed-ice-cream-spoon-to-aid-children-s-hospitals.html

-Manchester United, Tiger Woods Top Forbes Lists of the Richest in Sports. Read more here-http://www.bloomberg.com/news/2010-07-21/manchester-united-tiger-woods-are-atop-forbes-lists-of-richest-in-sports.html

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

-While global rough diamond output will be higher this year than in 2009, supply constraints will lead to a “significant” shortfall over the next three to five years as the largest mines are depleted, the company said. Bloomberg-Read more here-http://www.bloomberg.com/news/2010-07-20/diamond-market-recovers-on-economic-growth-higher-u-s-demand-petra-says.html

-Duke of Windsor’s Jewel Gifts to Bride May Sell for $5 Million. Read more here-http://www.bloomberg.com/news/2010-07-22/duke-of-windsor-s-jewel-gifts-to-bride-may-fetch-5-million-at-sotheby-s.html

-Richard Russell-Wealthy Getting Out of Fiat Money. The wealthy are on a buying spree, their goal is to lessen their exposure to paper currencies. “I watch the jewellery auctions, and I subscribe to the Sotheby’s and Christie’s catalogues. Prices for top-grade gems are going through the roof.

I was talking to a jeweller friend yesterday who just returned from a Sotheby’s auction. He said he couldn’t believe the prices that some of the jewellery was going for. One diamond that he expected to be able to buy for $200,000 went for $950,000. He said he was staggered by the prices. Read and listen to more here-http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/4/27_Richard_Russell_-_Wealthy_Getting_Out_of_Fiat_Money_.html

-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 CRISIS

-17 Charts That Show The World’s Sovereign Debt Fate. Read more here-http://www.businessinsider.com/19-charts-that-show-the-worlds-sovereign-debt-fate-2010-7#we-all-know-the-story-of-the-pigs-gips-to-morgan-stanley-1

-US financial system support up $700 bln in past year-watchdog. Increased housing commitments swelled U.S. taxpayers’ total support for the financial system by $700 billion in the past year to around $3.7 trillion, a government watchdog said on Wednesday. Read more here-http://www.reuters.com/article/idUSN2010140720100721 and http://money.cnn.com/2010/07/21/news/economy/TARP_report/index.htm

-The U.S. Federal Reserve’s balance sheet rose in the latest week on an increase of its holdings of mortgage-backed securities, Fed data released on Thursday showed. The balance sheet a broad gauge of Fed lending to the financial system rose to $2.324 trillion in the week ended July 14 from $2.314 trillion the previous week.

They reached a record $2.333 trillion on May 19 on rising ownership of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and the Government National Mortgage Association (Ginnie Mae). The central bank’s holding of housing agency MBS grew to 1.129 trillion on Wednesday, up from $1.118 trillion a week earlier.

The Fed had committed to buy up $1.25 trillion in MBS and $175 billion in bonds issued by Fannie Mae, Freddie Mac and the Federal Home Loan Bank System. Read more here-http://www.reuters.com/article/idUSTRE66E6C120100715-

-UK deficit fears reappear as debts hits £927bn. Plans to cut Britain’s mountainous national debt have been given fresh urgency by new figures showing that the state of the public finances is even worse than feared. Read more here-http://www.telegraph.co.uk/finance/economics/7901306/UK-deficit-fears-reappear-as-debts-hits-927bn.html

-John Mauldin: The Debt Supercycle. Read more here-http://news.goldseek.com/MillenniumWaveAdvisors/1279490063.php

U.S. ECONOMIC CRISIS

-Comparisons to the Great Depression keep popping up. Read more here-http://www.usatoday.com/money/markets/2010-07-19-1930smarket19_CV_N.htm

-The Fed Charts That Show The True Nightmare Of Our Economy. Chairman of the Federal Reserve Ben Bernanke spoke to members of the Senate today on the reality of our economy. He denied being “out of bullets,” but the reality is that he is facing up to an extraordinary combination of deflation, unemployment, and sovereign debt woe. Read more here-http://www.businessinsider.com/the-fed-charts-that-show-the-true-nightmare-of-our-economy-2010-7#mortgage-delinquencies-remain-high-1

-Rosenberg: Still Not Convinced? Here’s 13 More Signs The Recovery Has Hit The Skids. Read more here-http://www.businessinsider.com/rosenberg-13-more-signs-the-recovery-has-hit-the-skids-2010-7#bank-credit-contracted-at-a-7-annual-rate-1

-Consumer Metrics Institute: In about 20 days the 2010 slowdown could be more severe on a day-to-day basis than the 2008 ‘Great Recession’. Read more here-http://www.economicpolicyjournal.com/2010/07/consumer-metrics-if-things-continue-in.html

-Consumer sentiment sinks to lowest in 11 months. Read more here-http://news.yahoo.com/s/nm/20100716/bs_nm/us_usa_economy_sentiment

-Stores push summertime ‘Christmas’ sales. Retailers are pumping still more energy this year into trying to get shoppers to loosen their purse strings early for Christmas with sparkly ornaments, holiday music and special prices. In July. Read more here-http://news.yahoo.com/s/ap/20100719/ap_on_bi_ge/us_christmas_in_july

-Buffett warns Obama U.S. economy only halfway back. Read more here-http://www.reuters.com/article/idUSTRE66E7AB20100715?feedType=RSS&feedName=topNews

U.S. JOBS

-Chart of the week: Nevada Is The New King Of Unemployment. The chart below from Calculated Risk, points to what are some shocking realities for states breaking unemployment records and a reshaping of the worst hit parts of the country.

Now Nevada is number 1 for unemployment, rather than Michigan, which held the title for four years until May 2010. Rhode Island, Georgia, and Connecticut are notably close to their records. Read more here-http://www.businessinsider.com/chart-of-the-day-state-unemployment-rates-2010-7

Source: chartoftheday.com

-Unemployment Rate Declines in 40 States Even As Economy Double Dips, Nevada Worst State Again. Read more here-http://www.zerohedge.com/article/unemployment-rate-declines-40-states-even-economy-double-dips-nevada-worst-state-again

-Payrolls Fall in 27 U.S. States, Led by California. Payrolls decreased in 27 U.S. states in June, led by California and New York, signalling the slowdown in hiring is broad-based. Employers in California cut staff by 27,600 workers last month and those in New York reduced employment by 22,500, the Labour Department said today in Washington. Tennessee, Arizona and New Mexico rounded out the five states with the biggest job losses. Read more here-http://www.bloomberg.com/news/2010-07-20/payrolls-decline-in-27-u-s-states-signaling-broad-based-hiring-slowdown.html

-Jobless Claims in U.S. Increase More Than Economists Forecast to 464,000. Read more here-http://www.bloomberg.com/news/2010-07-22/unemployment-claims-in-u-s-increase-more-than-forecast-to-464-000.html

-Congress Extends $34 Billion Jobless Benefits Package. Read more here-http://www.bloomberg.com/news/2010-07-22/congress-set-to-approve-extension-of-unemployment-benefits-for-millions.html

-US Economy Will Return To December 2007 Employment Levels in 2021. Read more here-http://www.zerohedge.com/article/us-economy-will-return-december-2007-employment-levels-2021

BANKING CRISIS

-U.S. bank failures hit 96. Read more here-http://www.bloomberg.com/news/2010-07-17/investor-group-led-by-former-bank-of-america-executive-buys-three-lenders.html

-Regulators list 40 North Carolina banks as ‘troubled.’ Nearly half of North Carolina’s 86 state-chartered banks are on N.C. regulators’ list of troubled institutions, up 74 percent in less than a year and a grim record that underscores the strain of the multiyear downturn.

The tally of 40 troubled banks compares with 23 in October 2009. Typically, there are only two or three on the list. Regulators are legally barred from disclosing individual bank names or ratings. Doing so could risk a “run” on deposits, which could prevent banks from working through problems.

However, banks where conditions have deteriorated significantly are made public. In North Carolina, there are seven of those, according to state and federal regulators’ records. Read more here-http://www.charlotteobserver.com/2010/07/19/1569384/regulators-list-40-nc-banks-as.html

-Bailed-out small US banks face takeover risk panel. Smaller banks that got U.S. government bailout money are likely to run into trouble repaying it and may become vulnerable to takeovers as a result, a congressional watchdog agency warned on Wednesday.

In its latest critique of the Treasury Department’s handling of the Troubled Asset Relief Program, or TARP, the Congressional Oversight Panel said smaller banks face far more difficulty than their big Wall Street counterparts in exiting the bailout program. Read more here-http://www.reuters.com/article/idUSN1412464020100714

-David Cameron Raids Dormant U.K. Accounts as Minister Attacks Banks. Read more here-http://www.bloomberg.com/news/2010-07-18/cameron-raids-dormant-u-k-accounts-while-minister-attacks-rip-off-banks.html

-British banks face £390bn ‘funding gap’. British banks face a funding crunch next year as they attempt to refinance debt amounting to double the amount they raised on average during the years of the credit boom. Read more here-http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7901326/British-banks-face-390bn-funding-gap.html

-The crisis affecting Europe is nothing new. It goes back three years and the beginning of the credit crisis, 60% of the subprime CDOs, collateralized debt obligations, had been sold to European institutions. These were the mortgage bonds, which contained a variety of toxic waste, which the rating agencies, S&P, Moody’s and Fitch, in collusion with banks and brokerage houses, had sold as AAA bonds, when in fact their ratings should have been considerably lower.

The holders of these bonds in many instances became insolvent and had to be bailed out by capital injections from central banks, most of the funds were lent by the Federal Reserve. These debt problems, as in the US, have never been resolved. Those companies and institutions have over the past three years been allowed to keep two sets of books. Bob Chapman-Read more here-http://news.goldseek.com/InternationalForecaster/1279473600.php and http://news.goldseek.com/InternationalForecaster/1279725447.php

OIL-WE HAVE KILLED THE GULF

-Matthew Simmons: “We’ve Now Killed The Gulf Of Mexico”. Matthew Simmons has been saying the spill is worse than anyone admits for weeks, and he hasn’t been wrong yet. Today he tells Bloomberg we’ve now killed the Gulf of Mexico. Simmons says the leak is much bigger than the cameras show thanks to a big gushing hole around ten miles from the sunken rig:

“What we don’t know anything about is the open hole which is caused by the drill bit when it tossed the blow-out preventer way out of the hole…and 120,000 minimum of toxic poison has now covered the floor of the Gulf of Mexico. So what they’re talking about is the biggest environmental cover-up ever.

And they knew that that well, that riser, would finally deplete. And then they could say it’s over. And unfortunately, we now have killed the Gulf of Mexico.” Oil could decimate aquatic life by depleting oxygen and poisoning the food chain. This would also kill the $2.2 trillion Gulf economy. Read more here-http://www.businessinsider.com/matthew-simmons-we-now-have-killed-the-gulf-of-mexico-2010-7

-China Passes U.S. as World’s Biggest Energy Consumer, IEA Says. Read more here-http://www.bloomberg.com/news/2010-07-19/china-passes-u-s-as-biggest-energy-consumer-as-oil-imports-jump-iea-says.html

STOCK MARKET

-The latest Shiller P/E ratio continues to point to a market that is overvalued. At the most current reading of 20.1x, the S&P 500 is 23% overvalued (relative to the long-term average), up slightly from the 21% overvalued reading in June.

In fact, on this basis, July marks the ninth consecutive month that the S&P 500 has been overvalued by 20% or more. What will it take to get the market back to fair value? For the Shiller P/E to mean revert to the long-term average of 16.4x, we would need to see a sell-off of about 170 points, to 900 on the S&P 500. David Rosenberg-Gluskin/Sheff

-The market, like life and the seasons, moves in cycles 16 to 18 year cycles, in fact. Sadly, this secular down-phase in the equity market began in 2000 when the major averages hit their peak in real terms, and so the best we can say is that we are probably 60% of the way into it.

This by no means suggests that we cannot get periodic rallies along the way, but in a secular bear market, these rallies are to be rented, not owned. In contrast, corrections in a secular bull market, as we saw in 1987 (as scary as it was) are opportunities to build long-term positions at more attractive pricing.

In secular bear markets, the indices do hit new lows during the recessions (ie, 2002, 2009), when they occur; in secular bull markets, you do not make new lows they are just corrections (ie, 1987, 1990, 1994, 1998). The market is not as cheap as the pundits, who rely on year-ahead EPS estimates, deem it to be.

When one incorporates cyclically-adjusted corporate earnings in ‘real’ terms, equities are still roughly 20% overvalued even after the recent correction. More fundamentally, it would seem reasonable to expect that the equity market will trade down to a valuation level that is historically commensurate with the end of secular bear markets.

This would typically mean no higher than a price-earnings multiple of 10x and at least a 5% dividend yield on the S&P 500. So, we very likely have quite a long way to go on the downside. But it will not be a straight line and there will be intermittent rallies, as we experienced a year ago April; however, not even that 80% bounce off the lows managed to violate any of the long-term trend lines, which continue to portray a primary bear market, not unlike what we endured from 1966 to 1982.

Back then the principal cause was an inflationary spiral; this time it is a deflationary debt deleveraging that is the root cause. Within the next 12 to 18 months, I can see the S&P 500 breaking back below 900, and a substantial test of the March 2009 lows cannot be ruled out. David Rosenberg-Gluskin/Sheff-Read more here-http://www.zerohedge.com/article/qa-david-rosenberg-bearish-outlook

-A Mid-Year Bull vs. Bear Investing Smackdown, David Rosenberg vs. James Paulsen. Read more here-http://online.wsj.com/article/SB127939762798918181.html

-David Rosenberg Explains His Investing Mantra: S.I.R.P. Read more here-http://www.businessinsider.com/david-rosenberg-explains-his-investing-mantra-sirp-2010-7

-Dow May Crash to 7,500 If 10,600 Not Breached. Read more here-http://www.cnbc.com/id/38253735

-Bond Yields Imply The Fair Value Of The S&P Is 750. Read more here-http://www.zerohedge.com/article/bill-miller-says-large-caps-once-lifetime-buying-opportunity-and-he-has-many-them-sell-you

-Charles Nenner: “Long-Term Investors Should Wait Until Dow Hits 5,000″. Read more here-http://www.zerohedge.com/article/charles-nenner-long-term-investors-should-wait-until-dow-hits-5000

-Hussman: Here’s Why The Market Is Not Cheap And You Should Start Saving. Read more here-http://www.businessinsider.com/hussman-heres-why-the-market-is-not-cheap-and-you-should-start-saving-2010-7

-Clive Maund: Don’t get fleeced get rich, stock market crash update. Read more here-http://www.clivemaund.com/article.php?art_id=2309

-You Won’t Understand How Badly Our Stock Market Is Doing Until You Look At These Charts. Read more here-http://www.businessinsider.com/you-cant-fully-appreciate-how-badly-our-stock-market-is-doing-until-you-look-at-these-charts-2010-7?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29

-Equity Analysts Were Nearly 100% Over-Bullish For The Past 25 Years. Read more here-http://www.businessinsider.com/grading-equity-analysts-failed-over-bullish-for-25-years-2010-7

-Will The “Cult Of The Equity” Investor Die? Read more here-http://www.businessinsider.com/cult-of-the-equity-investor-die-2010-7

REAL ESTATE

-Haven’t we learned? We just came off the largest credit bubble-turn-bust experience since the 1930s: one in seven mortgage debtors are either in arrears or already in the foreclosure process, 90 banks have failed so far this year, and 25% of the U.S. household sector has a sub-600 FICO score.

But yet, we see this article in the Wall Street Journal Signs of Risky Lending Emerges in U.S. and are completely dumbfounded. The country is going to fight a debt deleveraging process by enticing the riskiest borrowers to line up at the trough yet again.

Fannie is offering financing to first-time buyers who only have a $1,000 down-payment. Several banks are now offering clients home-equity lines of credit of up to $2.5 million. According to FICO and J.D. Power, 8% of all loans made last quarter by the banks were to borrowers with the weakest credit scores up from 6.2% at the end of last year. Surreal. David Rosenberg-Gluskin/Sheff

-Banks repossessed a record number of U.S. homes in the second quarter, so the headline news of slower foreclosure notices was a bit misleading. The banks took over 269,962 properties, up 5% sequentially and 38% from a year ago (RealtyTrac data).

In a normal year, banks repossess 100,000 homes they are on now track for over a million in 2010! And, more than 3 million homeowners will receive at least one foreclosure notice (oh, but it would be far, far worse without HAMP, right?).

So, the headlines last week read that foreclosure filings were down 7% YoY, but it’s not the change but the continued astronomical levels that is the real story north of 300,000 for sixteen months in a row. It’s an unmitigated disaster. And, the shadow bank inventory will inevitably flow into the market and continue to depress real estate prices likely for years. David Rosenberg-Gluskin/Sheff

-Purchases of U.S. Existing Homes Fell in June. Sales of U.S. previously owned homes fell in June for a second month, adding to evidence the market will slump as the effects of a federal tax credit fade. Read more here-http://www.bloomberg.com/news/2010-07-22/purchases-of-u-s-existing-homes-fall-a-second-month-as-tax-credit-fades.html

-Housing Bubble Leaves $4 Trillion Hangover. The bursting of the U.S. housing bubble has left homeowners buried under about $4 trillion of excess mortgage debt, according to Dhaval Joshi, the chief strategist at RAB Capital.

The Chart of the day compares the total amount of home loans outstanding with the value of residential real estate, as compiled by the Federal Reserve, for the past two decades. The latter is adjusted to reflect the average 40 percent debt to value ratio that prevailed from 1990 to 2005.

Mortgage balances were $3.64 trillion higher than the adjusted figure as of March 31, as shown in the top panel. The actual ratio, which stood at 62 percent at the end of the first quarter, appears in the bottom panel.

To eliminate the excess and bring down the ratio to its historical norm, either house prices would have to surge or home-loan repayments and defaults would have to accelerate, Joshi said today in an interview.

“In either scenario, it would be a disaster,” the strategist said, adding that prices are unlikely to recover any time soon. The U.S. has 4 million more homes than it needs, by his count. Interest rates will have to stay relatively low for “a prolonged period” to revive the housing market, he said.

Joshi raised what he called the “4 trillion dollar question” in a July 9 report. Read more here-http://www.bloomberg.com/news/2010-07-16/housing-bubble-leaves-4-trillion-hangover-chart-of-the-day.html

-U.S. Housing Starts Drop to Lowest Level Since October. Housing starts fell in June to the lowest level in eight months after the expiration of a U.S. government tax incentive caused sales to slump. Read more here-http://www.bloomberg.com/news/2010-07-20/housing-starts-in-u-s-slide-to-lowest-level-since-october-on-sales-slump.html

-Homebuilder Confidence in U.S. Falls to One-Year Low. Read more here-http://www.bloomberg.com/news/2010-07-19/homebuilder-confidence-in-u-s-falls-to-lowest-level-since-april-of-2009.html

-Fannie Subpoenas to Show $30B Bad Mortgages, Rosner Says. Fannie Mae and Freddie Mac’s regulator may identify as much as $30 billion of debt included in mortgage bonds that the companies can force sellers to repurchase, according to Joshua Rosner, an analyst who in 2007 predicted the collapse in the market for the securities. Read more here-http://www.bloomberg.com/news/2010-07-21/fannie-freddie-subpoenas-reveal-30-billion-of-bad-mortgages-rosner-says.html

-Gov’t watchdogs: mortgage program is not working. Bailout watchdogs say Obama mortgage program is failing to help homeowners facing foreclosure. Read more here-http://finance.yahoo.com/news/Bailout-watchdog-calls-apf-1527849934.html?x=0

-Banks Can’t Hold Back Highend Mortgage Foreclosures For Long. Read more here-http://www.businessinsider.com/banks-cant-hold-back-highend-mortgage-repos-for-long-2010-7

-Homeowners Use Room-Renting Site to Dodge Foreclosure. Read more here-http://www.bloomberg.com/news/2010-07-19/u-s-homeowners-use-airbnb-com-s-room-renting-site-to-dodge-foreclosure.html

-Chinese Central Bank Warns Of ‘Relatively Large’ Property Collapse This Year. Read more here-http://www.businessinsider.com/china-property-prices-fall-2010-7

-Poor Chinese Are Throwing Money Into An Inescapable Capital Trap. Read more here-http://www.businessinsider.com/chinese-real-estate-a-capital-trap-2010-7

-Watch out, the great £50bn property unload is about to begin. Banks are ready to purge unwanted commercial property from their balance sheets as part of the normal boom and bust cycle – only this time around the world has changed. Read more here-http://www.telegraph.co.uk/finance/comment/jeremy-warner/7903205/Watch-out-the-great-50bn-property-unload-is-about-to-begin.html

-Lack of Sales Leaves Dubai Property Buyers Guessing on Prices. Read more here-http://www.bloomberg.com/news/2010-07-20/dubai-s-lack-of-home-sales-auctions-leaves-purchasers-guessing-on-prices.html

TOP SECRET AMERICA

-Everyone knows that after 9/11, dealing with the threat of terrorism became priority #1 in Washington. The government ramped up the existing security apparatus and created a giant new bureaucracy on top of that. It’s big business now.

How big? And what do all these people do? And are they effective? The answers have been shrouded in secrecy. Until now. This week, the Washington Post is running the results of a two-year investigation into the subject, in a multi-part series called “Top Secret America.” Among the details uncovered by the Post’s journalists:

Some 1,271 government organizations and 1,931 private companies work on programs related to counterterrorism, homeland security, and intelligence in about 10,000 locations across the United States. An estimated 854,000 people hold top-secret security clearances.

Just in Washington and the surrounding area, 33 building complexes for top-secret intelligence work are under construction or have been built since September 2001. Together they equal almost three Pentagons, about 17 million square feet of space.

Analysts who try to make sense of documents and conversations obtained by foreign and domestic spying share their judgments by publishing 50,000 intelligence reports each year a volume so large that many are routinely ignored. Read more here-http://projects.washingtonpost.com/top-secret-america/ and http://www.pbs.org/wgbh/pages/frontline/topsecretamerica/

© 2010, Worldwide Precious Metals.
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The Goldbugg Report – July 27, 2010
Posted by Worldwide Precious Metals on Tuesday, July 27, 2010

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