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The Goldbugg Report – August 24th, 2010

August 24, 2010

-Crude oil will hit $100 a barrel while gold will reach $1,500 an ounce by the end of this year, Byron Wien

-Hinde Capital report: Silver velocity the coming bullet.

-Silver historical pointers to better things ahead. See the Chart.

GOLD

-Crude oil will hit $100 a barrel while gold will reach $1,500 an ounce by the end of this year, said Byron Wien, vice chairman of Blackstone Advisory Services. Read more here-http://www.cnbc.com/id/36221000/Byron_Wien_Oil_at_100_Gold_at_1_500_by_Year_End

-Embry Still Burns Bright. John Embry interview with The Gold Report.

TGR: You had an interesting interview with Mineweb recently. The headline used a quote from your interview. It reads: “If gold is not between $1,500 and $2,000 in the next 18 months, I’m dead wrong.” What specifically would you be “dead wrong” about? The price? The timing? The underlying fundamentals?

JE: I would say probably the underlying fundamentals, because I think that they’re sufficiently bad that we will not be able to hold this together for another 18 months. In that event, I would see the gold price moving up sharply. They could conceivably keep this thing stuck together for 18 months.

I just don’t believe it. If it’s not $1,500 to $2,000 by then, clearly I’m wrong in the sense that they’ve been able to allay the difficulties in the system longer than I thought. The United States is plunging back into a hard recession, if not worse. The implications of that for the gold price are extraordinarily bullish.

TGR: What’s your view of silver compared to gold in this economic environment?

JE: I like it better, believe it or not, as much as I love gold for the simple reason that there’s so much less aboveground inventory in silver. Unlike gold, silver gets consumed at a reasonably rapid clip because of its medical and industrial uses. The current price ratio of gold to silver is about 65 to 1.

Historically, it has been as low as 15 to 1. As the whole precious metal cycle really starts to lift off again, I suspect that the silver ratio is going to fall fairly significantly from 65. If that happens, clearly you’re going to have a better percentage gain in silver than you are in gold. I wouldn’t have all my money in silver, but I would certainly have solid exposure.

TGR: Do you have any parting thoughts?

JE: My one parting thought is that people have to understand how serious this is and protect themselves. They’ve got to have some precious metals in their portfolio. If they don’t, I think they’ll rue the day they didn’t.

TGR: How much should they have?

JE: I used to say 5% to 10% before this mess started rolling. I’d say a minimum of 25% now. Read more here-http://www.theaureport.com/pub/na/7087 and http://www.gata.org/node/8925

-John Embry: “Gold’s On the Cusp of a Parabolic Move Up.” Read more here-http://www.sprott.com/Docs/InvestorsDigest/2010/06_23_2010%20Gold%27s%20on%20the%20cusp%20of%20a%20parabolic%20move%20up.pdf

-Dundee Capital Markets: History shows that gold and gold equities outperform under three scenarios; heightened economic/financial risk, outright inflation and/or deflation. The latter risk is spotted by our gold reflation gauge, which jumped into positive territory lately.

As such, we have become more comfortable with golds’ fundamentals and are raising the gold group to an overweight stance. The next push up, in our view, could mark the beginning of a much-awaited price bubble in gold land. Read more here-http://research.dundeesecurities.com/Research/Incubator081810.pdf

-Mindich’s Eton Park Leads Hedge Funds Joining John Paulson’s Bet on Gold. Eric Mindich’s $13 billion Eton Park Capital Management LP led hedge funds in raising gold investments last quarter, joining billionaire John Paulson’s bet that bullion will increase amid inflation concerns.

Eton Park bought 6.58 million shares of SPDR Gold Shares, an exchange-traded fund that tracks the price of bullion, in the second quarter, according to a regulatory filing yesterday. The investment was valued at $800.3 million as of June 30, making it the hedge fund’s biggest holding.

Leon Cooperman and Dmitri Balyasny also added shares of the gold fund, while George Soros and David Einhorn acquired shares in mining companies. Hedge-fund managers have been investing in bullion and gold miners after the worst financial crisis since the Great Depression shook confidence in equities and currencies, and as increased government spending fanned speculation inflation may accelerate.

Paulson, who offers clients investments denominated in gold, started putting money into the precious metal last year. Gold futures have gained 39 percent since the start of 2009 and reached a record on June 21. Read more here-http://www.bloomberg.com/news/2010-08-17/mindich-s-eton-park-leads-hedge-fund-managers-joining-paulson-s-gold-bet.html

-Jim Trippon: China’s first gold rush is underway. I mentioned in my article how big the coming stampede is. If you haven’t already read about it then read these bullet points. Changes in China will make 2010 a golden year for investing in gold:

1. China is actively promoting consumer investment in gold

2. China will let many more banks import and export gold for consumption

3. China will also open gold trading to foreign companies in China

4. China is going shopping globally for “large scale” new gold sources

5. Beijing is helping to create new consumer products to boost demand

6. China is stockpiling more gold in its reserves

There are plenty of good reasons why Beijing believes that now is the time for China to go for the gold. For investors, the important fact is that China will push up global demand. Even though China is the world’s largest gold producer it cannot mine enough of its own ore.

China had to import 100 tons of bullion a year even before Beijing’s latest gold drive. The new demand from China will drive gold prices higher worldwide. The important starting point is gauging just how much demand the Chinese will add to the global market. Read more here-http://seekingalpha.com/article/221079-profiting-from-the-chinese-gold-rush

-Chinese spending on gold sextupled in the noughties. The annual rate of growth of gold spending in China has been 23% this decade and the nation’s gold purchases could see an additional 200 tonnes of consumption in the next decade. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=109714&sn=Detail&pid=33

-Demand perspectives: driving the gold price ever higher. Six key demand factors which will come together and help drive the gold price upwards over the next couple of years. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=109887&sn=Detail&pid=33

-Gold and Silver Highs Adjusted for CPI-U/SGS Inflation. Despite the June 28th historic high gold price of $1,261.00 per troy ounce, gold and silver prices have yet to approach their historic high levels, adjusted for inflation.

The London afternoon fix, per Kitco.com of January 21, 1980 would be $2,382 per troy ounce based on July 2010 CPI-U-adjusted dollars and would be $7,727 per troy ounce in terms of SGS-Alternate-CPI-adjusted dollars [all series not seasonally adjusted].

In like manner, the all-time high price for silver in January 1980 of $49.45 per troy ounce [London afternoon fix, per silverinstitute.org] has not been hit since, including in terms of inflation-adjusted dollars.

Based on July 2010 CPI-U inflation, the 1980 silver price peak would be $139 per troy ounce and would be $450 per troy ounce in terms of SGS-Alternate-CPI-adjusted dollars [again, all series not seasonally adjusted]. John Williams-Shadowstats.com

-Aden Sisters: All the glitters. As you can see looking at gold’s big picture since 1967, this rise since November 2008 came from a cyclical eight year low bottom that tends to precede good sized rises in gold.

That’s been another big plus in gold’s favor, along with so many others. The point is, despite normal ups and downs, gold remains very bullish. So again, stay with it we strongly believe you’ll be glad that you did. Read more here-http://www.321gold.com/editorials/aden/aden081710.html and http://news.goldseek.com/AdenResearch/1281981363.php

-Frank Holmes: What’s driving gold. Read more here-http://www.usfunds.com/interactive/whats-driving-gold/?CFID=1574644&CFTOKEN=36191514

-Frank Holmes: Gold and deflation. Gold attractive in deflationary environment. History shows that gold performs well in a deflationary environment. Deficit spending puts downward pressure on the dollar, and when the dollar falls, investors tend to turn to gold. Read more here-http://www.321gold.com/editorials/holmes/holmes081710.html and http://news.goldseek.com/GoldSeek/1281978886.php

-The Best Gold Interview of 2010. Much of what passes for “insider” information these days is often conspiracy-edged or largely conjecture. True inside information is actually hard to come by. So what follows is the refreshingly candid and uncut version of my talk with a first-hand participant in the murky and little-understood world of gold bullion, mints, and bullion dealers.

Customarily, when considering a company for a potential recommendation, I hold a series of discussions with management. It was during one of these vetting procedures that I spoke with Andy Schectman of Miles Franklin and heard some disturbing reports about supply that every investor should know.

Andy is a bullion seller, so you’re welcome to take his comments with a grain of salt. On the other hand, what he sees week after week and what he hears from his high-level industry contacts might just make you pull back on that salt shaker and re-inventory the number of ounces you own. Read more here-http://www.caseyresearch.com/editorial/3585?ppref=GLD192ED0810C and http://news.goldseek.com/GoldSeek/1281969661.php

-Billionaire investor George Soros in the second quarter stuck with his big bet on gold. Read more here-http://www.reuters.com/article/idUSTRE67F4T320100816?loomia_ow=t0:s0:a49:g43:r1:c0.165746:b36575198:z0 and http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=109850&sn=Detail

-Roger Wiegand: Gold Readies For A Major Price Thrust To $1,325-$1,375 This Fall. Read more here-http://www.kitco.com/ind/Wieg_cor/roger_aug182010.html

-Western Economies Face Hyperinflation: Gold Bull. Read more here-http://www.cnbc.com/id/38767004

-Gold is the best investment at this time West. Midas Letter Editor James West sees gold as being in a long and slow ‘mania’ continuing more or less unabated on a macro level. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=109788&sn=Detail&pid=33

-David Levenstein: Gold remains firm despite global currency volatility. The yellow metal consolidated above $1200/oz at the end of last week and it looks set to break above the 50 day moving average. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=109790&sn=Detail&pid=33

-Physical market is beating paper gold, Turk tells King World News. Listen here-http://www.gata.org/node/8926

-Peter Brimelow: Gold gearing up? Read more here-http://www.gata.org/node/8939

-Iran Imports 23 Tons of Gold in 4 Months, 22 Tons in the Previous Year. Iran imported 23 tons of gold in the four months ending July 22, the state-run Fars news agency reported. Imports of the precious metal totaled $855 million and came from Turkey, the United Arab Emirates, Russia and Switzerland, Fars said. The Persian Gulf country imported 22 tons of gold in the year ending March 20, the agency said. Read more here-http://www.bloomberg.com/news/2010-08-17/iran-imports-23-tons-of-gold-in-4-months-22-tons-in-the-previous-year.html

-Chris Weber: How much gold remains in Fort Knox? Not much. Read more here-http://www.gata.org/node/8929

-Tons of gold imports in UAE turn out to be fake. Several tons of gold imported into the UAE by traders and investors turned out to be fake on closer inspection, resulting in millions of dirhams in losses and high levels of stress to the victims.

Speaking to Emirates 24|7, Mohamad Shakarchi, managing director of Emirates Gold, said: “A lot of people in the UAE who tried to import gold at lower prices or through dubious overseas companies have been cheated.

We have inspected many consignments from African countries, especially Ghana, and found that there is not an ounce of gold in them. For importing pure dust or other metals with yellow colour, these traders have paid several million dirhams.” Read more here-http://www.gata.org/node/8921

-Central banks and investors weigh in as gold market transforms. The global gold market has been transformed over the past decade. Jewellery, for decades the backbone of gold consumption, has moved to the sidelines amid voracious demand from investors. Central banks, for years big sellers of bullion, have performed a radical U-turn and started to buy.

These changes help explain the surge in gold prices to a nominal all-time high of more than $1,200 a troy ounce earlier this year, from roughly $250 an ounce in 2000. Adjusted for inflation, however, prices are still far from their all-time high above $2,300 an ounce, reached in 1980 during the Soviet invasion of Afghanistan and the oil crisis. Read more here-http://www.gata.org/node/8930

-Henry Smyth: The recent history of the future of gold. Read more here-http://www.gata.org/node/8920

-Gold, silver ETFs are price-suppression schemes, Hinde Capital report finds. Read more here-http://www.gata.org/node/8913

-Hinde Capital’s attack on gold ETF makes Financial Times. Read more here-http://www.gata.org/node/8922

-Hinde Capital’s Ben Davies discusses his indictment of ETFs with King World News. Listen here-http://www.gata.org/node/8914

-Martin Hennecke on CNBC: Most market manipulation suppresses commodities, gold. Watch more here-http://www.gata.org/node/8916

-Jim Rickards: Political intervention destroying price discovery and markets. Read more here-http://www.gata.org/node/8927

-Adrian Douglas: The imminent failure of the second London Gold Pool. Read more here-http://www.gata.org/node/8936

-Adrian Douglas: Gold market isn’t ‘fixed’; it’s rigged. Read more here-http://www.gata.org/node/8919

-GATA distributes international press release on Douglas study. Read more here-http://www.gata.org/node/8937

-Alasdair Macleod: Central banks in deep trouble for their gold manipulation. Read more here-http://www.gata.org/node/8934

-Ian Gordon: Lies, manipulation, and deception all for naught. Read more here-http://www.gata.org/node/8933

-’Banging the close’ is illegal in commodities, unless you bang it down. Read more here-http://www.gata.org/node/8923

-A review of gold, silver market manipulation complaints to the CFTC. Read more here-http://www.gata.org/node/8924

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

-Those who believe a recovery is on the way had best examine their premises. The Fed, Wall Street and banking intend to buy two more years. If they are successful inflation will elevate substantially and the only place to find safety will be in gold and silver related assets. A word to the wise should be sufficient. Bob Chapman-Read more here-http://news.goldseek.com/InternationalForecaster/1282140352.php and http://news.goldseek.com/InternationalForecaster/1281888240.php

-Hinde Capital report: Silver velocity the coming bullet. Hinde Capital in London, whose CEO, Ben Davies, lately has thrown himself into the campaign to expose manipulation of the precious metals markets, this month published a long report on the excellent prospects for silver, citing the concentrated short position of the bullion banks and the work of silver market analyst Ted Butler. The Hinde report is titled “Silver Velocity the Coming Bullet.”

Long term silver fundamentals imply a substantial re-rating of silver will happen, but this was first highlighted at the beginning of the decade and as yet remains highly undervalued. When such assets are so undervalued one has to maintain a core allocation. However as Fund managers, we also have to look for prudent times to increase (or even reduce) such holdings.

We look for inflection points on nearer term horizons to adjust allocations higher. Right now we believe is that time. Although the current gold/silver ratio at 65 looks to be the mean of a severe financial crisis and boom time, we believe this will become the upper band (cheaper end) of the spread.

At this point in the monetary cycle we envisage the silver spread narrowing to nearer 50 or tighter this fall (on overshoots) in line with the surfeit liquidity that similarly buoyed markets in 2007 despite the onset of subprime mortgage issues. Should we see more monetisation of silver then this spread will narrow dramatically and sooner.

We believe the near term catalysts for an outperformance of silver are a pick up in monetary velocity (notably Asia), a potential cessation to excessive ‘manipulative’ silver Comex shorts by a very concentrated number of bullion banks (namely two), positive seasonals, and a trend ready silver bullion market.

We believe the narrowing in the gold silver spread will be based on a superlative break out to nominal new highs. The coming silver bullet just may be approaching faster than we could imagine.

Read more here-http://www.hindecapital.com/docs/hil_reports/HindeSight%20Investor%20Letter%20August%202010%20Silver%20Velocity%20The%20coming%20bullet-1.pdf and http://www.gata.org/node/8938

-Silver historical pointers to better things ahead. Rick Mills revisits silver’s history and the silver-gold ratio and looks for an upwards rerating in this time of fiat currencies. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page32?oid=110010&sn=Detail&pid=32

-Silver Institute world silver survey 2010. Read more here-http://www.silverinstitute.org/images/stories/silver/PDF/wss10sum.pdf

-Morgan retreating from silver rig, Ted Butler tells King World News. Listen here-http://www.gata.org/node/8917

-Malaysian state introduces gold and silver Islamic currency. Read more here-http://www.gata.org/node/8915 and http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=109729&sn=Detail&pid=34

CHARTS OF THE WEEK-QUOTES-QUICK HITS

-Chart of the week: A Really Long View Of Inflation Shows That It’s All The Fed’s Fault. In its latest investor letter, Matterhorn Asset Management warns of a hyperinflationary depression worse than Japan’s, as piles and piles of worthless paper collapse in on themselves.

Who do they blame for this predicament? The Fed, of course. In this chart, they claim to back-measure the CPI going to 1800, and the point to take away is that while there were inflationary spells in the past, what really got the ball rolling was the creation of The Federal Reserve and the dissolution of the gold standard. Read more here-http://www.businessinsider.com/chart-of-the-day-inflation-1800-2009-2010-8

-Matterhorn Asset Management: Here’s 7 Reasons Why The Coming Hyperinflationary Depression Will Be Way Worse Than Japan. Read more here-http://www.businessinsider.com/matterhorn-asset-management-there-will-be-no-double-dip2010-8 and http://matterhornassetmanagement.com/2010/08/16/there-will-be-no-double-dip/

Source: www.chartoftheday.com

-Chart of the week: Goldman Sachs Thinks The End Of The Stimulus Is Going To Crush GDP Growth. Goldman Sachs (via Zero Hedge) have released what certainly is a depressing sight in their latest GDP report. The bank continues to predict that U.S. GDP will remain positive through 2011, with 1.5% growth in H2 2010 and 1.5% growth for Q1 2011, rising to 3% growth by the year’s end. But that’s pretty much anemic growth, and below consensus.

More interesting might be the impact of the withdrawal of fiscal stimulus on GDP growth for the U.S. economy. The positive impact of said stimulus can be viewed in the first half of this chart, pointing to how it dragged up the U.S. growth rate through some more difficult quarters. But now with its withdrawal, its absence will be felt through 2011, where the pace of growth might have been lifted by its retention.

This could partially explain Goldman’s projection that unemployment is set to rise back to 10% in the middle of 2011. Read more here-http://www.businessinsider.com/chart-of-the-day-gdp-growth-fiscal-stimulus-2010-8

Source: www.chartoftheday.com

-”What’s happened is a lot of U.S. companies have reached the limit of how much they can slash their workforce and work existing employees to the bone.” Nariman Behravesh-Chief economist with IHS Global Insight-Read more here-http://www.caseyresearch.com/displayCdd.php?id=512

-The latest WSJ/NBC News poll contained some jarring results. No need to call for a double-dip the first recession never ended. At least, that is the perception of two-thirds of the American public (you know, the ones that actually make up the economy). David Rosenberg-Gluskin/Sheff

-“Change of a long term or secular nature is usually gradual enough that it is obscured by the noise caused by short-term volatility. By the time secular trends are even acknowledged by the majority they are generally obvious and mature.

In the early stages of a new secular paradigm, therefore, most are conditioned to hear only the short-term noise they have been conditioned to respond to by the prior existing secular condition. Moreover, in a shift of secular or long term significance, the markets will be adapting to a new set of rules while most market participants will be still playing by the old rules.” Bob Farrell

-In a nutshell, we are in the early stages of a secular credit collapse following the biggest credit bubble in human history. The credit expansion that began with the Diner’s Club card in the 1950s (one card per family!) finally morphed into a full-fledged bubble post the 2001 “ownership society” craze when buy-now, pay-later mortgage loans populated and polluted the financial backdrop.

The bubble was the result of a universal, irrational and linear belief in real estate asset appreciation that developed in the 1990s and reached its glorious peak in 2007. But the problem of not having enough income nationally (globally, in fact) to support the record debt load, especially as asset prices succumbed to their own grotesque degree of overvalued excess, led to the credit collapse and financial crisis.

The credit collapse and financial crisis continued through 2008 despite the cry and hue from the economic intelligentsia that all we were in for was a soft-landing during this wonderful period labelled “The Great Moderation.” In turn, what followed were that all the king’s horses and all the king’s men brandishing marvellous new tools attempting, with futility, to put Humpty back together again.

We then got a pause in the collapse and a spectacular bear market rally in the final eight months of 2009 and into early 2010. But as Mick Jagger put it in an oldie but goodie, “it’s all over now.” David Rosenberg-Gluskin/Sheff

-The cumulative household debt-income ratio peaked in Q1 2008 at 136%. Currently, this ratio is at 126%. But the pre-bubble norm was 70% (no wonder 25% of Americans have a sub-600 FICO score). To get down to this normalized ratio again, debt would have to be reduced by around $6 trillion. So far, nearly $600 billion of bad household debt has been destroyed. In other words, we have much further to go in this deleveraging phase. David Rosenberg-Gluskin/Sheff

-The event that shattered the overdone psychological environment this cycle was the abrupt reversal in the market for residential real estate. Real estate had become the foundation for practically the entire society’s financial plan, not to mention the primary source of discretionary dollars for most households’ profligate consumption. Never before had the home been used abused as an automatic bank teller as was the case during the 2001-07 mortgage cash-out cycle. David Rosenberg-Gluskin/Sheff

-We continue to receive Wall Street research telling us to overweight stocks and underweight bonds. This does not happen at true fundamental bottoms in equity prices and Treasury yields. I continue to get asked what will turn me more bullish. This doesn’t happen at lows, either.

At the true lows, the bears get asked why they’re not even more bearish. At the lows, people threaten to call the police when equity brokers go cold-calling. What the bulls still refuse to see is that we are in an entirely new paradigm and that the old rules of thumb are rarely, or are ever going to be able to be relied upon, as was the case in the familiar credit-expansion days of yore.

There is simply too much debt overhanging the U.S. household balance sheet the largest balance sheet on the planet. And, despite the deleveraging efforts to date, the process of balance sheet repair is still in its infancy. David Rosenberg-Gluskin/Sheff

-Canadian Imperial Bank of Commerce said “continuing weakness in the U.S. economy” may force the Bank of Canada to delay interest-rate increases after September. CIBC reduced its forecast for the central bank’s overnight rate to “no higher” than 2 percent by the end of 2011, a quarter percentage point lower than its previous forecast.

CIBC also reduced its forecast for the Canadian dollar to parity with the U.S. dollar by the end of 2011. Earlier, it had forecast that one U.S. dollar would be worth 98 Canadian cents. Read more here-http://www.bloomberg.com/news/2010-08-18/cibc-forecasts-delay-in-canada-interest-rate-increase-due-to-u-s-economy.html

-Vietnam devalued its currency for the third time since November, moving to reverse a slump in exports that helped to drive stocks close to a bear market. Read more here-http://www.bloomberg.com/news/2010-08-18/vietnam-devalues-currency-to-boost-exports-as-stocks-approach-bear-market.html

-10 Signs the U.S. Is Becoming a Third World Country. Read more here-http://www.activistpost.com/2010/08/10-signs-us-is-becoming-third-world.html

-U.S. Economy Faces ‘Painful Period,’ Berkshire’s Sokol Says. The U.S. is facing a “painful period” in the next five years as homeowners and governments unwind debt built up during the housing boom, Berkshire Hathaway Inc.’s David Sokol said today.

“All of that just feeds into a slow-growth environment,” Sokol, who heads Berkshire’s energy and luxury-flight divisions, said today in an interview at Bloomberg headquarters in New York. “If we could average 2 percent for the next five years, we’d be pretty happy.” Read more here-http://www.businessweek.com/news/2010-08-16/u-s-faces-painful-period-due-to-debt-sokol-says.html

-States in the Red. Most states have addressed or still face gaps in their budgets totalling $121 billion for fiscal year 2011. See more here-http://s.wsj.net/public/resources/documents/st_STATEBUDGET100414_20100414.html

-US Says Bankruptcies Reach Nearly 5-Year High. U.S. bankruptcy filings have reached the highest level since 2005, government data released on Tuesday show, as the economy slows and the unemployment rate hovers just below double digits. Read more here-http://www.cnbc.com/id/38744090

-Max Keiser interviews William K. Black, watch his absolutely stunning indictment of the U.S. banking system, Wall Street and the U.S. government. Watch more here-http://www.youtube.com/watch?v=5Bf5Frx1lZk&feature=player_embedded

-Martin Armstrong: Deflation: To Be Or Not To Be. As Martin Armstrong says herein, what is coming is more sinister and less understood than the 1929 economic model. The fact is it is coming without any doubt. Gold is the only insurance against this insidious currency driven event. Read more here-http://jsmineset.com/wp-content/uploads/2010/08/Deflation-to-Be-or-Not-to-Be-08-05-2010.pdf

-Back to School? Bring Your Own Toilet Paper. Read more here-http://www.cnbc.com/id/38711521

-A Consumer Reports for the Cheap. Read more here-http://bucks.blogs.nytimes.com/2010/08/16/a-consumer-reports-for-the-cheap/?src=me&ref=business

-How to Set Your Child’s Allowance. Read more here-http://bucks.blogs.nytimes.com/2010/08/16/how-to-set-your-childs-allowance/?src=me&ref=business

-America’s 10 Most Dangerous Jobs. Last year was the safest year in the American workplace, but heights, weather and heavy equipment still put many people at risk. Which 10 jobs are the worst? Read more here-http://money.cnn.com/galleries/2010/pf/1008/gallery.most_dangerous_jobs/index.html

-What’s Popular Around the World? Read more here-http://images.businessweek.com/ss/10/08/0812_popularity_index_international/1.htm

-Best Countries in the World. Read more here-http://www.newsweek.com/photo/2010/08/15/best-countries-in-the-world.html

-British sniffer dogs help Italian fraud squad sniff out cash. British-trained sniffer dogs are being recruited by Italian police to help step up their fight against mafia money laundering. Read more here-http://www.telegraph.co.uk/news/worldnews/europe/italy/3550787/British-sniffer-dogs-help-Italian-fraud-squad-sniff-out-cash.html

-Why the US keeps minting coins people hate and won’t use. Read more here-http://www.bbc.co.uk/news/world-us-canada-10783019

-Gold-Dusted Dunhill-Namiki Stars in $650,000 Bonhams Fountain Pen Auction. Read more here-http://www.bloomberg.com/news/2010-08-18/gold-dusted-dunhill-namiki-stars-in-650-000-bonhams-fountain-pen-auction.html

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’s of Harold Seigel on colored diamonds. Watch video here-http://www.rarecoloreddiamonds.com/watchnow.html and http://www.b-tv.com/features/watch-now.html?id=326

-Argyle diamond mine. Learn more here-http://en.wikipedia.org/wiki/Argyle_diamond_mine

-Rio Tinto launched its exclusive 2010 Argyle Pink Diamond Tender. This year’s collection features 55 pink diamonds that are notable for their depth of color. Highlights in the collection include a classic, 2.02-carat, round, brilliant, fancy, vivid purplish pink diamond known as the “Argyle Mystra,” a 1.43-carat, fancy purplish red, square-shaped diamond named “Argyle Ava” and a 0.50-carat, fancy purplish red, round-shaped diamond.

The names of the diamonds were inspired by the tender collections theme of “Earth Magic.” “We are delighted to showcase this beautiful collection to the world,” said Josephine Archer, the business manager for Argyle Pink Diamonds. “The color saturation across this year’s collection has set a benchmark, with many more vivd pinks than precious years.”

Tender viewings will be held in Perth, Australia through August 22 and then in Hong Kong from September 13 to September 20 and in New York from October 12 to October 17. Rio Tinto noted that 2010 is the first year the collection will be showcased on Mainland China, with a tender viewing scheduled in Shanghai on September 27.

The company also released a new publication, Rare and Collectible, to coincide with the tender viewings. The publication highlights the increasing rarity and investment potential of Argyle pink diamonds within the context of global supply and demand. Read more here-http://www.diamonds.net/news/NewsItem.aspx?ArticleID=32178 and http://www.israelidiamond.co.il/english/News.aspx?boneID=918&objID=7746

-Stuck for gift ideas for the woman who has everything? This tiara of 178 rare pink diamonds set in platinum and rose gold will set you back $2.3 million. Read more here-http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10666912

-Rio Tinto Announces Indian Bridal Campaign Initiative. Rio Tinto Diamond is launching a marketing campaign focused on the Indian bridal occasion. The campaign, titled Nazraana, will focus on the growing segment of diamond accessories for family and friends celebrating at Indian weddings. Read more here-http://www.idexonline.com/portal_FullNews.asp?id=34376

ATTACK ON IRAN COMING IN DAYS?

-Israel has only mere days to launch an attack on Iran’s Bushehr nuclear reactor if Russia makes good on its plan to deliver fuel there this weekend, former US ambassador to the UN John Bolton warned Tuesday. He said that once Russia has loaded the fuel into the reactor slated for Saturday Israel would no longer be willing to strike for fear of triggering widespread radiation in an attack.

“This is a very, very big victory for Iran,” Bolton told The Jerusalem Post. “This is a huge threshold.” Bolton, who also once oversaw US non-proliferation policy, said that when Russia announced the plans to load the fuel last Friday, “the element of surprise was essentially taken away” from Israeli calculations.

Bolton noted that he doesn’t “have a clue” as to whether Israel would actually attack, but he said, “If Israel was right to destroy the Osiraq reactor, is it right to allow this one to continue? You can’t have it both ways.” Israel took out Iraq’s Osiraq reactor during a stealth mission in 1981. It is also believed to have conducted a similar strike on an alleged Syria nuclear site in 2007.

Russia signed a contract with Iran to construct the Bushehr reactor in 1995, but has several times delayed completion. In announcing the long-overdue fuel installation, which should make Bushehr operational in September, Russia did not indicate why it was going ahead with the final stages now.

In addition to Bushehr for which Russia says it has guarantees it will receive back the spent fuel, the material needed to make a nuclear bomb Iran has its own uranium enrichment facilities. Iran expert Ilan Berman of the American Foreign Policy Council said that the uranium enrichment plants are the real backbone of Iranian efforts and expenditures to get a nuclear weapons capability, and he suspected that they, rather than Bushehr, would be Israel’s primary targets in any attack.

He suggested that Bolton was setting up a “straw man” by focusing on the fuel delivery to the Bushehr reactor. “It’s not at all clear that Bushehr would be a high value target because it’s only tangentially related to any conceivable Iranian nuclear weapons program,” he said. “My suspicion is this isn’t a game changer. This isn’t going to give Iran enough fissile material for a bomb overnight.”

Berman added that since Bushehr is the most public Iranian nuclear facility, and therefore well monitored by international inspectors, it was also a less likely candidate for use by Iran to construct a bomb, though he nevertheless said if it became operational it would be “an enormous PR coup for the Iranians.”

Bolton dismissed the idea that international inspectors would contain the threat from the Bushehr reactor, pointing to instances inspectors had been kicked out. He also said it was unlikely that Israel would attack Bushehr now and make another sortie against the enrichment facilities in later months because that would be a much more challenging task.

For one thing, he point out that an attack on Bushehr would likely spur the Russians to transfer to Iran advanced missile defense systems it has agreed to sell Tehran but refrained from actually delivering. Instead, Bolton indicated, if Israel were to attack now it would probably hit multiple targets. Iran, for its part, dismissed talk of a possible Israel strike. Read more here-http://www.jpost.com/LandedPages/PrintArticle.aspx?id=185060

-’Israel’s Existence Is in Danger’ If It Attacks Nuclear Plant, Iran Says. Iran will respond if Israel attacks its first nuclear power plant, which will begin loading fuel Aug. 21, according to the Persian Gulf country’s defense minister.

“In that case we will lose a power plant, but Israel’s existence will be in danger,” Ahmad Vahidi was cited as saying today by the state-run Mehr news agency, in response to questions about the possibility of an attack by Israel on the Russian-built atomic facility at Bushehr.

The Foreign Ministry’s spokesman, Ramin Mehmanparast, said today he “doubts” that Israel would “make such a dangerous move.” In comments on state television, he said, “Any aggression against this power plant will result in a serious reaction.” Read more here-http://www.bloomberg.com/news/2010-08-17/-israel-s-existence-is-in-danger-if-it-attacks-nuclear-plant-iran-says.html

-Iran says to unveil array of weapons next week. Defence Minister Ahmad Vahidi said on Tuesday that Iran will unveil next week an array of weapons, including missiles, speedboats and a long range drone, the ISNA news agency reported. Read more here-http://www.breitbart.com/article.php?id=CNG.3feb3f5f39259253ed4519db00d15acd.4e1&show_article=1

-Exclusive: Al Qaeda Plans for Israel War. Al Qaeda is warning its supporters and sympathizers to prepare for a new war in the Middle East, which it says will pit Israel against Iran. Al Qaeda’s franchise in Yemen, the self-styled al Qaeda in the Arabian Pennisula (AQAP), issued an audio message this month with a lecture by its second-in-command Saeed al Shehri in which he tells jihadists in the Middle East that “what is expected is for the war to begin by the Jews against Iran.”

Israel will stage air strikes on Iran’s nuclear installations to start. Shehri expects the Iranian Shia regime to try to take advantage of an Israeli attack on its nuclear facilities to seize the holy cities of Mecca and Medina by blaming Saudi Arabia for helping Israel attack. In turn, the Israelis will seize territory in the Levant to establish “the greater state of Israel.”

The Sunni Arab population of the Middle East will be caught between the “Jews in the Middle East and Iran in the Peninsula.” Iran will attack American installations in the Gulf, encourage its proxies in Iraq and Afghanistan to attack Americans, and engage in a global terror campaign. Read more here- http://news.yahoo.com/s/dailybeast/9517_alqaedaplansforwarwithisrael

-Iran will build uranium enrichment centers, nuclear chief says. Read more here-http://edition.cnn.com/2010/WORLD/meast/08/16/iran.nuclear/#fbid=dJRVgaJMdno&wom=false

STOCK MARKET CRASH COMING?

-Is a Crash Coming? Ten Reasons to Be Cautious. Read more here-http://online.wsj.com/article/SB10001424052748703723504575425723973560744.html?mod=loomia&loomia_si=t0:a16:g2:r1:c0.0863308:b36545500

-What is the Hindenburg Omen? Read more here-http://en.wikipedia.org/wiki/Hindenburg_Omen

-’Hindenburg Omen’ Flashes. Technical Gauge and Its Creator Sense Stock Gloom; ‘Good Conspiracy Theories’? Read more here-http://online.wsj.com/article/SB20001424052748703321004575427791421316112.html

-Hindenburg Omen: Is a Stock Market Crash Imminent? Read more here-http://www.thestreet.com/print/story/10835851.html

-Deflation’s coming, says Gary Shilling, and It’s Going To Clobber The Stock Market. Read more here-http://www.businessinsider.com/gary-shilling-deflation-2010-8

U.S. FED

-Fed Buys $2.551 Billion Treasuries in Resumption of Purchases. The Federal Reserve bought $2.551 billion of Treasuries in the first outright purchase of U.S. government debt since October to prevent money from being drained from the financial system. Read more here-http://www.bloomberg.com/news/2010-08-17/fed-buys-2-55-billion-of-treasuries-in-first-outright-purchase-since-2009.html

-Federal Reserve Buys $3.609 Billion of Treasuries in Reinvestment Program. Read more here-The Federal Reserve bought $3.609 billion of Treasuries as part of a program to reinvest principal payments on its mortgage holdings into long-term government debt to prevent money from being drained out of the financial system.

-Fed’s Hoenig: Keeping Rates Too Low ‘Dangerous Gamble’. The Federal Reserve is undertaking a “dangerous gamble” by keeping rates at near zero for so long, and must start raising rates or risk damaging the nascent U.S. recovery, a top Federal Reserve official said on Friday. Read more here-http://www.cnbc.com/id/38693128 and http://www.bloomberg.com/news/2010-08-13/hoenig-says-fed-s-zero-rate-policy-reinforces-doubts-on-economic-recovery.html

-How the US economy is being ‘Japanised’. Federal Reserve policy is taking a worrying turn towards monetarism. This can only result in an American ‘lost decade’. Read more here-http://www.guardian.co.uk/commentisfree/cifamerica/2010/aug/12/useconomy-usdomesticpolicy

-Time is running out for the West. The Great Recession has dramatically shrunk the time left for the big AAA states to prevent a full-blown sovereign debt crisis as their demographic time-bomb threatens, US rating agency Moody’s has warned. Read more here-http://www.telegraph.co.uk/finance/economics/7950775/Time-is-running-out-for-the-West.html

-U.K., U.S., France, Germany `Well Positioned’ on Aaa Ratings, Moody’s Says. Read more here-http://www.bloomberg.com/news/2010-08-17/u-s-u-k-france-germany-well-positioned-on-aaa-ratings-moody-s-says.html

U.S. DEBT-DEFICIT

-U.S. Budget Deficit Forecast Increased by CBO to $1.066 Trillion for 2011. The U.S. Congressional Budget Office predicted the budget deficit for fiscal year 2011 will be $1.066 trillion, revised up from an estimate of $996 billion in March.

The nonpartisan agency said today in a semi-annual report on the state of the budget that the deficit will be 7 percent of the nation’s gross domestic product in 2011. The budget deficit has become a central issue in November’s midterm elections.

The CBO projected that the cumulative deficit for the next decade will be $6.27 trillion, compared with its March estimate of $5.99 trillion. Read more here-http://www.bloomberg.com/news/2010-08-19/u-s-budget-deficit-forecast-increased-by-cbo-to-1-066-trillion-for-2011.html

-Fannie Mae and Freddie Mac reform: Would it add $5 trillion to US debt? The Obama administration held a conference Tuesday about how to reform mortgage giants Fannie Mae and Freddie Mac. Reform could involve adding Fannie and Freddie’s roughly $5 trillion in obligations, in effect, to the federal balance sheet.

In the end, losses to Fannie and Freddie related to the financial crisis may cost taxpayers $305 billion, according to one estimate recently published by Mr. Zandi and Alan Blinder of Princeton University. But that figure could rise or fall depending on what happens with the economy and with government policies on housing. Read more here-http://www.csmonitor.com/layout/set/print/content/view/print/320109

-Global Deficits Will Create $4.5 Trillion in New Debt: Hedge Fund Manager. How much additional sovereign debt does the world have to issue this year, just to make up the massive, growing budget deficits? Read more here-http://www.cnbc.com/id/38739845/

BANKING

-Illinois Regulators Close Bank, 110th in U.S. This Year. Illinois racked up its 14th bank failure of the year as state regulators on Friday shut down Palos Bank & Trust Co. in Palos Heights, Ill. Palos Bank & Trust had total assets of $493.4 million and total deposits of $467.8 million as of June 30, the Federal Deposit Insurance Corp. said.

First Midwest Bank of Itasca, Ill., plans to purchase all of Palos’s deposits at a premium of 1% and most of its assets. The FDIC has agreed to help shoulder losses on $343.8 million of those assets. The FDIC expects the failure to cost its deposit insurance fund an estimated $72 million.

Palos Bank & Trust is the 110th U.S. bank to fail this year. Since the recession officially began in December 2007, more than 270 banks have failed. Read more here-http://www.bloomberg.com/news/2010-08-14/chicago-area-lender-first-midwest-buys-shut-down-bank-third-in-10-months.html

-Banks May Face $134 Billion Loss on Loan Refunds, Compass Says. Bank of America Corp. and JPMorgan Chase & Co. are among 11 lenders that could suffer $133.8 billion in combined losses as mortgage-bond investors and insurers demand refunds for soured loans, according to an analysis by Compass Point Research and Trading LLC.

That’s the base estimate by analyst Chris Gamaitoni, who told clients costs may range from $55.3 billion in a best-case scenario to $179.2 billion at worst. The losses would be in addition to $28 billion of buyback demands by Fannie Mae and Freddie Mac that Compass previously predicted. Deutsche Bank AG and Goldman Sachs Group Inc. are among lenders confronting the biggest potential impact, according to Gamaitoni’s report.

Lenders have been barraged by claims from mortgage buyers and insurers who say banks sold housing debt to investors based on untrue or misleading data about home loans. The estimated losses exceed 10 percent of tangible book value at eight of the banks Gamaitoni cited. While solvency isn’t at risk, the drain on profit could last for years, he said.

“The investor community overall doesn’t understand the magnitude of the problem,” Gamaitoni said in a telephone interview. Gamaitoni was a senior financial analyst at Fannie Mae before joining Compass Point, a Washington-based research and investment banking firm founded in 2007 by former executives of Friedman Billings Ramsey & Co. Read more here-http://www.bloomberg.com/news/2010-08-18/bofa-jpmorgan-may-lead-banks-facing-134-billion-loss-on-loan-repurchases.html

JOBS

-Jobless Claims in U.S. Rose to Highest Since November. laims for U.S. jobless benefits jumped to the highest level since November and Philadelphia-area manufacturing shrank for the first time in a year, indicating the economy may be slowing faster than forecast.

The number of unemployment claims unexpectedly shot up by 12,000 to 500,000 in the week ended Aug. 14, Labor Department figures showed today in Washington. The Federal Reserve Bank of Philadelphia’s general economic index turned negative in August, signaling contraction.

“There’s a red flag being waved right now that says ‘Danger,’” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Growth is going to slow in the second half and we might face something a little more ominous than that.” Read more here-http://www.bloomberg.com/news/2010-08-19/jobless-claims-in-u-s-rose-to-500-000-highest-since-november.html

-Chart of the week: Today’s Unemployment Claims Ruined Any Hope Of A Decent Jobs Situation This Year. Initial jobless claims came in today at 500,000, which as a 12,000 increase from the previous week’s level, and substantially worse than the 475,000 expected by consensus.

What does this mean? Whereas before jobless claims were merely ’stubbornly high’, and not declining meaningfully, now they’ve clearly gotten worse, as shown below in a chart from Waverly Advisors. What this means is that even if things start to get better, and jobless claims improve, it’s fair to say they will remain pretty ugly through year’s end. Read more here-http://www.businessinsider.com/chart-of-the-day-initial-jobless-claims-2010-8

Source: www.chartoftheday.com

-Jobless millions signal death of the American dream for many. Even the criminals have fallen on hard times in America’s poorest city as the long-term unemployed struggle to keep a grasp on normality. Read more here-http://www.guardian.co.uk/world/2010/aug/15/jobless-millions-death-american-dream

ANOTHER THREAT TO ECONOMY BOOMERS CUTTING BACK

-America’s baby boomers those born between 1946 and 1964 face a problem that could weigh on the economy for years to come: The longer it takes for the economy to recover, the less money they’ll have to spend in retirement.

Policy makers have long worried that Americans aren’t saving enough for old age. And lately, current and prospective retirees have been hit on many fronts at once: They have less money, they earn less on what they have, their houses aren’t rising in value and the prospect of working longer to make up the shortfall has dimmed significantly in a lousy job market.

“We will have to learn to make do with a lot less in material things,” says Gary Snodgrass, a 63-year-old health-care consultant in Placerville, Calif. The financial crisis, he says, slashed his retirement savings 40% and the value of his house by about half.

Banks, home buyers and bond issuers are all benefiting as the U.S. Federal Reserve holds short-term interest rates near zero to support a recovery. But for many of the 36 million Americans who will turn 65 over the next decade and even for the 45 million who have another decade to go the resulting low bond yields, combined with a volatile stock market, are making a dire retirement picture look even worse.

Low yields present retirees with a difficult choice: Accept the lower income offered by safer bonds, or take the risk of staying in the stock market. Either way, their predicament could put a long-term damper on the consumer spending that typically drives U.S. growth.

“If these rates stay as low as they are, then a lot more people are going to be hurting,” says Jack Van Derhei, research director at the Employee Benefit Research Institute. The non-partisan outfit estimates that if current conditions persist, nearly three in five baby boomers will be at risk of running short of money in retirement.

“There are going to be many luxury items that will simply have to be eliminated,” for retirees to make ends meet. Read more here-http://online.wsj.com/article/SB10001424052748703321004575427881929070948.html?mod=WSJ_hpp_LEFTWhatsNewsCollection

CHINA

-China Cuts Long Term Treasuries By Most Ever as Yields Drop. China cut its holdings of Treasury notes and bonds by the most ever, raising speculation a plunge in U.S. yields that sent two-year rates to a record low has made government securities unattractive.

The Asian nation’s holdings of long-term Treasuries fell by $21.2 billion in June to $839.7 billion, a U.S. government report showed yesterday. Total Chinese investment in U.S. debt declined 2.8 percent to $843.7 billion, the least in a year, following a 3.6 percent slide in May.

China, America’s largest creditor, is cutting back after scrapping its currency peg in June, giving it less reason to buy dollars and invest them in Treasuries. China is also turning more bullish on Europe and Japan, purchasing bonds of both nations.

The shift comes as President Barack Obama increases U.S. debt to record levels, counting on overseas investors to buy, as he borrows to sustain the U.S. economic expansion. Read more here-http://www.bloomberg.com/news/2010-08-17/china-cuts-long-term-treasury-holdings-by-most-ever-as-u-s-yields-decline.html

-China Favors Euro Over Dollar as Bernanke Alters Path. China, whose $2.45 trillion in foreign-exchange reserves are the world’s largest, is turning bullish on Europe and Japan at the expense of the U.S.

The nation has been buying “quite a lot” of European bonds, said Yu Yongding, a former adviser to the People’s Bank of China who was part of a foreign-policy advisory committee that visited France, Spain and Germany from June 20 to July 2. Japan’s Ministry of Finance said Aug. 9 that China bought 1.73 trillion yen ($20.1 billion) more Japanese debt than it sold in the first half of 2010, the fastest pace of purchases in at least five years.

“Diversification should be a basic principle,” Yu said in an interview, adding a “top-level Chinese central banker” told him to convey to European policy makers China’s confidence in the region’s economy and currency. “We didn’t sell any European bonds or assets, instead we bought quite a lot.” Read more here-http://www.bloomberg.com/news/2010-08-15/china-favors-euros-over-dollars-as-bernanke-shifts-course-on-fed-stimulus.html

-China Doubles Korea Bond Holdings as Asia Switches From Dollar. China more than doubled South Korean debt holdings this year, spurring the notes’ longest rally in more than three years, as policy makers shifted part of the world’s largest foreign-exchange reserves out of dollars. Read more here-http://www.bloomberg.com/news/2010-08-18/china-doubles-korean-bond-holdings-as-central-bank-switches-from-u-s-debt.html and http://www.gata.org/node/8931

-China Tops Japan as World’s No. 2 Economy. China surpassed Japan as the world’s second-largest economy last quarter, capping the nation’s three decade rise from Communist isolation to emerging superpower.

Japan’s nominal gross domestic product for the second quarter totaled $1.288 trillion, less than China’s $1.337 trillion, the Japanese Cabinet Office said today. Japan remained bigger in the first half of 2010, the government agency said. Japan’s annual GDP is $5.07 trillion, while China’s is more than $4.9 trillion. Read more here-http://www.bloomberg.com/news/2010-08-16/china-economy-passes-japan-s-in-second-quarter-capping-three-decade-rise.html

-Andy Xie: China Swallows Obama Stimulus Meant for U.S. Economy. The global economy is like fried ice cream: If you don’t act fast, it turns into a mess. American pundits, Nobel laureates included, are predicting Japan-style deflation for the U.S. and Europe.

They are urging the Federal Reserve to pursue another round of quantitative easing to stop the onset of an Ice Age for Western economies. The Fed didn’t oblige at its last meeting, but it threw a bone to the deflation crowd by promising not to pull money out of its previous round of asset purchases to stimulate a recovery.

On the other side of the world, consumer prices are surging. Emerging markets as a whole now have an inflation rate of more than 5 percent. India is registering price increases of more than 13 percent. China’s are more than 3 percent. But it surely feels a lot higher for average Chinese. Much of the “heat” comes from the property market in emerging markets.

Million-dollar flats in Mumbai have panoramic views of the city’s slums. Hong Kong’s real-estate prices have almost reclaimed their 1997 peak, though the economy has barely grown since then in per-capita terms. Overpaid bankers who pay 15 percent income tax in Hong Kong are stretched to buy Beijing or Shanghai properties.

Moscow is somehow always near the top of the list of the world’s most expensive cities. The emerging markets are on fire. Read more here-http://www.bloomberg.com/news/2010-08-17/china-drains-obama-stimulus-meant-for-u-s-economy-commentary-by-andy-xie.html

-William Pesek: Beware of $1 Trillion Under Chinese Mattress. Now that’s one big mattress. Last week, we learned China’s households hide as much as 9.3 trillion yuan ($1.4 trillion) of income not reported in official figures 80 percent of it by the nation’s wealthiest. This massive pile of stashed cash is equal to about 30 percent of gross domestic product.

There may be both good and bad news in the above study conducted for Credit Suisse Group AG. The good: it lends credence to the domestic-demand story for Chinese growth. It turns out, the average urban disposable household income is 32,154 yuan, or 90 percent more than official figures. The bad: China’s rich-poor gap may be much bigger than we realize. Read more here-http://www.bloomberg.com/news/2010-08-15/beware-1-trillion-lying-under-chinese-mattress-william-pesek.html

EUROPE

Matthew Lynn: Debt Virus Spreads During Make-Believe Recovery. The euro area is growing again. The banking system has survived its stress tests. The Greeks have implemented their first austerity measures with some success.

The fevered predictions of the early summer that the euro was doomed, and that Europe’s sovereign-debt crisis would rip through countries such as Spain and Portugal like a virus, have been forgotten. The crisis appears to be over.

Don’t believe it. Under the surface, the cracks in the euro are getting worse. The imbalances in the euro area are growing all the time. The resistance to the bailout package will rise as the terms turn out to be immoral and absurd. And the big-deficit nations are locked in a downward economic spiral.

The euro has bought itself some time, at a huge cost. And yet little has been done to fix the causes of the crisis. Read more here-http://www.bloomberg.com/news/2010-08-16/debt-virus-spreads-after-make-believe-recovery-commentary-by-matthew-lynn.html

-Double-Dip Recession in U.K. Is Possible, Outgoing Budget Chief Budd Says. Read more here-http://www.bloomberg.com/news/2010-08-16/budd-says-u-k-economy-faces-the-possibility-of-a-double-dip-recession.html

-Economy is on a knife-edge, warn Bank of England policymakers. Britain’s economy is teetering on a knife edge, with “substantial” risks of a relapse balanced against signs of “gathering momentum” in the recovery, according to minutes from the Bank of England’s August rate-setting meeting. Read more here-http://www.telegraph.co.uk/finance/economics/7953145/Economy-is-on-a-knife-edge-warn-Bank-of-England-policymakers.html

-Irish debt under fire on fresh bank jitters. Ireland’s borrowing costs have begun flashing warning signs again on fears the full damage from the country’s banking crisis has yet to surface. Read more here-http://www.telegraph.co.uk/finance/economics/7940078/Irish-debt-under-fire-on-fresh-bank-jitters.html

-Tensions Rise in Greece as Austerity Measures Backfire. The austerity measures that were supposed to fix Greece’s problems are dragging down the country’s economy. Stores are closing, tax revenues are falling and unemployment has hit an unbelievable 70 percent in some places. Frustrated workers are threatening to strike back. Read more here-http://www.spiegel.de/international/europe/0,1518,712511,00.html

ERIC SPROTT-FOOLED BY STIMULUS

-In the end, Keynesian stimulus ultimately fooled us all. It roped in the politicians of the richest countries and set them on an unsustainable course of debt issuance. Recent Keynesian stimulus has even managed to fool the sophisticated economic models designed by central banks.

The process of accounting for massive government spending ‘confuses’ the models into calculating a recovery trajectory when it doesn’t exist. The Bank of England confirmed this with its announced £3.5 million overhaul of its current model due to its inability to generate accurate inflation and recession forecasts.

Keynesian stimulus can’t be blamed for all our problems, but it would have been nice if our politicians hadn’t relied on it so blindly. Debt is debt is debt, after all. It doesn’t matter if it’s owed by governments or individuals.

It weighs on the institutions that issue too much of it, and the ensuing consequences of paying off the interest costs severely hinders governments’ ability to function properly. It suffices to say that we need a new economic plan a plan that doesn’t invite governments to print their way out of economic turmoil.

Keynesian theory enjoyed a tremendous run, but is now for all intents and purposes dead and now it’s time to pay for it. Literally. Read more here-http://www.sprott.com/Docs/MarketsataGlance/07_10%20Fooled%20by%20Stimulus.pdf

GULF OIL SPILL

-Scientists Say as Much as 79% of Oil Remains in Gulf of Mexico. A group of scientists says as much as 79 percent of BP Plc’s leaked oil remains in the Gulf of Mexico, challenging an Obama administration assessment that the crude is largely gone or rapidly disappearing. Read more here-http://www.bloomberg.com/news/2010-08-17/scientists-say-79-of-spilled-oil-may-remain-challenging-administration.html

-Gulf of Mexico `Dead Zone’ Grows as Spill Impact Is Studied. The Gulf of Mexico faces a renewed and enlarged threat to marine life: a low-oxygen “dead zone” about the size of Massachusetts, caused by chemical runoff into the Mississippi River that flows into the sea.

The dead zone, which occurs in Gulf waters in summer and is unrelated to BP Plc’s oil spill, covers an area twice as large as last year, according to a National Oceanic and Atmospheric Administration study released this week. The low-oxygen area this year is the fifth-largest since measurements began in 1985.

Aside from the dead zone, where shrimp and other sea life can’t survive, and the BP spill that dumped an estimated 4.1 million barrels of crude oil into the Gulf, there’s a looming threat of hurricanes. Meteorologists at the U.S. National Hurricane Center say a warming of the Atlantic indicates the storm season could be one of the most active on record. Read more here-http://www.bloomberg.com/news/2010-08-12/crude-marred-gulf-of-mexico-s-dead-zone-grows-as-spill-impact-is-studied.html

-Gulf Oil Spill Brings Concerns about Skin, Breathing Troubles and Cancer. Residents of the U.S. Gulf Coast and crews cleaning up the BP Plc oil spill that dumped 4.9 million barrels of oil into the water may suffer long-term health problems, including breathing difficulties, skin ailments, mental health effects and cancer, researchers said.

Doctors should watch for symptoms such as headaches, dizziness, respiratory trouble and chest pain, said investigators from the University of California, San Francisco, and the Natural Resources Defense Council. Physicians should ask where their patients live and work to determine their potential health risk from the disaster, the researchers said. Read more here-http://www.bloomberg.com/news/2010-08-16/gulf-oil-spill-may-have-long-term-consequences-on-health-researchers-say.html

REAL ESTATE

-Housing stuck in the basement. The National Association of Home Builders housing market index was at 22 in May, 16 in June, 14 in July and now 13 in August. Moreover, the forward-looking NAHB index essentially guaranteed that we will be on the hook for another round soft housing data ahead.

At 13, the NAHB index is now at the low-water mark for the year and the worst result since the economy was detonating in April 2009. Buyer traffic is barely showing a pulse even with the bond market working so hard to take mortgage rates to record lows the subindex remained at 10 and is just three points away from matching an all-time low.

Sales expectations sank to 18 from 21, well off the nearby high of 27posted last May ahead of the tax goodie expiry date, and at its lowest level since March 2009 (pre-dating the green-shoot era).

To put the NAHB into some context, in expansions it averages 55.5. In recessions, it averages 25.0. And today, it is sitting at 13.0. Draw your own conclusions on what we should label the cycle we are in. David Rosenberg-Gluskin/Sheff

-US Homeowner Confidence Drops in Second Quarter. U.S. homeowners were less confident about the value of their homes in the second quarter, with one-third believing home prices had not yet reached a bottom, real estate website Zillow.com said on Thursday.

Nevertheless, a significant number of homeowners said they planned to put their home up for sale in the next six months if they saw signs of a real estate market turnaround. Homeowners were more pessimistic about the short-term future of home values in their local market than they had been in the previous three quarters, according to the Zillow Second Quarter Homeowner Confidence Survey. Read more here-http://www.cnbc.com/id/38653757

-U.S. Home Resales Due for New Low, Citigroup Says: Chart of the Day. Read more here-http://www.bloomberg.com/news/2010-08-13/u-s-home-resales-due-for-new-low-citigroup-says-chart-of-the-day.html

-Housing Starts in U.S. Increased Less Than Forecast in July. Work began on fewer homes than forecast in July and building permits fell to the lowest level in more than a year, indicating little evidence of a rebound in U.S. construction following an expired tax credit. Read more here-http://www.bloomberg.com/news/2010-08-17/housing-starts-in-u-s-increased-less-than-economists-forecast-last-month.html

-U.S. Homebuilder Confidence Unexpectedly Drops to Lowest Since March 2009. Read more here-http://www.bloomberg.com/news/2010-08-16/u-s-homebuilder-confidence-unexpectedly-drops-to-lowest-level-since-2009.html

-Michael Carliner: Your House Might Be Underwater for Years. The housing market has usually led the U.S. economy into and out of recessions. It certainly led us into the latest slump. The same can’t be said of the recovery. If anything, housing today is stifling economic expansion. Read more here-http://www.bloomberg.com/news/2010-08-16/your-house-might-be-underwater-for-years-commentary-by-michael-carliner.html

-Debts Rise, and Go Unpaid, as Bust Erodes Home Equity. During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back. Read more here-http://www.nytimes.com/2010/08/12/business/12debt.html?_r=4

-U.S. Treasury, Mortgage-Lenders Aim to Keep Government Role in Housing Fix. The Obama administration, looking to overhaul the U.S. mortgage-finance system, gathered support from lenders and the real estate industry for reducing, without ending, the government’s role in insuring loans. Read more here-http://www.bloomberg.com/news/2010-08-18/u-s-treasury-morgage-lenders-seek-to-keep-government-role-in-housing-fix.html

-Pimco’s Gross Urges `Full Nationalization’ of Housing Finance. Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the U.S. should consider “full nationalization” of the mortgage- finance system as the Obama administration plots the revival of a market that was at the center of the 2008 credit crisis.

“To suggest that there’s a large place for private financing in the future of housing finance is unrealistic,” Gross said today at a U.S. Treasury Department conference in Washington. “Government is part of our future. We need a government balance sheet. To suggest that the private market come back in is simply impractical. It won’t work.” Read more here-http://www.bloomberg.com/news/2010-08-17/geithner-says-fannie-mae-freddie-mac-need-overhaul-to-reduce-u-s-role.html

-London House-Price Decline Wipes Out Gains From 2010 Rally, Rightmove Says. Read more here-http://www.bloomberg.com/news/2010-08-15/london-house-price-drop-wipes-out-gains-from-2010-rally-rightmove-says.html

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

The Goldbugg Report – August 24th, 2010
Posted by Worldwide Precious Metals on Tuesday, August 24, 2010

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