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The Goldbugg Report – August 31st, 2010

August 31, 2010

-”Should I buy gold now, or wait for a pullback? I assert that the highs for gold have yet to be charted”, Jeff Clark

-Gold to make new highs as we trend into 2011-Foster.

-Before this secular move is over, silver will outperform gold.  The current status just shows that this bull run has a long, long way to go. Bill Haynes, Founder of CMI Gold & Silver Inc-Read more

GOLD

-I want everyone out of all stocks and bonds except for gold and gold items. Before this bear market is over it’s going to take down everything. We’re in cash and gold, and probably less cash as time goes on. Richard Russell-Read more here-http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/8/21_Richard_Russell_-_The_Stock_Market_Is_Crumbling.html and http://www.321gold.com/editorials/russell/russell082410.html and http://www.321gold.com/editorials/russell/russell082610.html

-Jeff Clark: “Should I buy gold now, or wait for a pullback?” The answer comes when you look at the big picture. If you pull up a 9-year chart of gold, what sticks out is that the price is near its all-time nominal high. One could be forgiven for thinking it looks toppy or at least ripe for a pullback. But I assert that the highs for gold have yet to be charted.

What will a gold chart look like after adding five years to it? When projecting gold’s potential price peak, there are many ways to measure it. Conservatively, gold reaching its inflation-adjusted 1980 high would have it topping around $2,400 an ounce. More radically, if the U.S. tried to cover its cumulative foreign trade deficit with its current gold holdings, gold would need to hit about $32,000/oz.

Let’s take something more middle of the road, and apply the same trough-to-peak percentage advance gold underwent in the 1970s. (I think there’s a greater than 50/50 chance it does more than that, given the precarious nature of the U.S. dollar.) Gold rose from $35 in 1970 to $850 in 1980, a factor of 24.28. Our price bottomed in 2001 at $255.95; multiply that by 24.28 and you get a gold price of $6,214 per ounce.

Sound too high? Well, would it feel high if you had to pay $12.50 for a Big Mac? At $3.39 today at my local McDonald’s, that’s about what it would cost ten years from now if we get the same rate of inflation we had in the late 1970s. So if gold hits $6,214, what might it look like on a chart if you bought today around $1,200?

$1,200 doesn’t seem so pricey, does it? I’m not saying there won’t be pullbacks or that you shouldn’t try to buy at lower prices. Just keep a big-picture perspective. Let’s say gold falls to $1,100 and you’re kicking yourself for having bought at $1,200 if gold reaches $6,200 an ounce, the profit difference between buying at $1,200 and buying at $1,100 is only 1.6%.

If gold gets whacked to $1,000 (at which point I’ll be buying with both hands) the difference is still only 3.2%. Heck, even if gold peaks at $2,400, you still get a double from current levels. (But unless government monetary policies immediately reverse course, gold isn’t stopping at $2,400.)

So there’s my answer. Yes, you have to accept my projection of gold’s ultimate price plateau. And you have to sell at some point to realize the profit. But if the final chapter of this bull market looks anything like the chart above, I don’t think you’ll be too upset having bought at $1,200. Read more here-http://www.caseyresearch.com/articles/3532/is-now-a-good-time-to-buy-gold/

-A contact of mine was kind enough to send me a copy of a speech that Ben Bernanke delivered on Japanese monetary policy back when he was still teaching economics at Princeton A Case of Self-Induced Paralysis.

Imagine that he gave this speech 11 years ago, and everything he laments in his speech is part and parcel of the U.S. macro and market backdrop today. In any event, without getting too critical, this is the earliest piece we can find three years ahead of his famous “What If” speech on November 22, 2002.

What really caught our eye on the same day that gold prices rose another $10 an ounce was the section on “How to Get Out of a Liquidity Trap”, which we are clearly in considering that record-low mortgage rates have not stopped home sales from cratering to record-low levels.

In particular, the subsection that contains one of the solutions to a deflationary debt deleveraging cycle, which is what he was advocating for Japan back then: “Depreciation of the Yen”. Indeed, instead of depreciating, the yen has strengthened 15% since Mr. Bernanke gave that speech, and look where Japan is today.

So, it would go without saying that embarking on investment strategies that are inversely correlated with the greenback would seem to make good sense, and the gold price would certainly fit that bill (we should add silver into that mix as well). David Rosenberg-Gluskin/Sheff

-Gold to make new highs as we trend into 2011 Foster. Portfolio Manager Joe Foster of Van Eck Associates gives his views on the near term prospects for the gold price and looks for sound money policies. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=110107&sn=Detail&pid=33

-Gold’s Low Correlation To Other Asset Classes. Read more here-http://www.forbes.com/2010/03/30/gold-dollar-correlation-intelligent-investing-asset-allocation_print.html

-Rethinking Gold: What if It Isn’t a Commodity After All? Read more here-http://online.wsj.com/article/SB10001424052748703908704575433670771742884.html?mod=WSJ_hps_sections_personalfinance

-Gene Arensberg: Large commercials not aggressively short gold yet. Read more here-http://www.gata.org/node/8947

-David Levenstein: Have faith in gold and not in government rhetoric. Despite assurances to the contrary, the US economy is still struggling and the primary trend for gold remains very much intact and upward. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=110151&sn=Detail&pid=33

-Egon von Greyerz: Hyperinflation Is Coming And Western Civilization Is About To Collapse. Read and watch more here-http://www.businessinsider.com/egon-von-greyerz-2010-8 and http://matterhornassetmanagement.com/2010/08/16/there-will-be-no-double-dip/

-Gold Investment surges as investors change their mindset. According to the World Gold Council’s Jason Toussaint, the surge in investment demand for gold in Q2 is indicative of a paradigm shift in the way in which investors view gold. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=110266&sn=Detail&pid=33

-Gold Demand Jumps 36% as Investors Step Up Purchases of ETFs, Council Says. Gold demand rose 36 percent in the second quarter as investors boosted purchases of bullion-backed funds and sent prices surging during Europe’s sovereign-debt crisis, the producer-funded World Gold Council said. Read more here-http://www.bloomberg.com/news/2010-08-25/gold-demand-jumped-36-in-second-quarter-on-etfs-world-gold-council-says.html and http://www.zerohedge.com/article/gold-spikes-world-gold-council-says-gold-demand-surges-36-q2-sees-ongoing-demand-out-china-a

-Germany, the world’s largest retail gold investor. As doubts persist over public debt levels and the euro, European retail investors are becoming a burgeoning element in the market – up 115% quarter-on-quarter. Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=110257&sn=Detail&pid=33

-Gold Imports Into India May Reach 2009’s Level This Month, Council Says. Gold imports by India this year may reach 2009’s level as early as this month because of “robust” demand in the world’s biggest buyer of bullion, according to the World Gold Council.

Purchases in the six months ended June were 348 metric tons, compared with 559 tons in all of last year, the group said. Jewelry demand surged 67 percent to 272.5 tons in the period and sales for investment more than tripled to 92.5 tons. Read more here-http://www.bloomberg.com/news/2010-08-25/india-gold-imports-may-have-reached-2009-level-in-july-august-wgc-says.html

-Bank of Korea ‘Under Pressure’ to Boost Gold Holdings, Shinhan’s Oh Says. Read more here-http://www.bloomberg.com/news/2010-08-26/bank-of-korea-under-pressure-to-boost-gold-holdings-shinhan-s-oh-says.html

-Gold’s Glitter Remains Despite Spiralling Price. In the wake of complaints lodged by a few gold traders, Nepal Rastra Bank [the Central Bank of Nepal] on Tuesday directed banks to “temporarily” suspend gold supply. The suspension has resulted in a shortage of gold in the market, spurring price hikes, gold traders say. Read more here-http://www.gata.org/node/8940

-Fed ‘probably’ manipulates gold, seeks to ‘destroy’ it, says Ron Paul. Read more here-http://www.gata.org/node/8954

-Over lunch with the FT, more ignorant snickering about gold. Read more here-http://www.gata.org/node/8953 and http://www.ft.com/cms/s/2/e13b361e-abe8-11df-bfa7-00144feabdc0.html

-Thieves stole a $550,000 gold bar from a treasure museum where it went on display after a Florida salvager recovered it from the wreck of a Spanish galleon that lay on the ocean floor for centuries. Read more here-http://www.reuters.com/article/idUSTRE67J0PN20100820?type=domesticNews and http://www.cnn.com/2010/CRIME/08/19/florida.gold.bar.stolen/index.html and http://www.cnn.com/2010/US/08/24/stealing.history/index.html?eref=rss_us&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fcnn_us+%28RSS%3A+U.S.%29

SILVER

Gold to silver ratio at 80 to 1 with gold at $1,400 the silver price would be $17.50

Gold to silver ratio at 70 to 1 with gold at $1,400 the silver price would be $20.00

Gold to silver ratio at 60 to 1 with gold at $1,400 the silver price would be $23.33

Gold to silver ratio at 50 to 1 with gold at $1,400 the silver price would be $28.00

Gold to silver ratio at 40 to 1 with gold at $1,400 the silver price would be $35.00

Gold to silver ratio at 30 to 1 with gold at $1,400 the silver price would be $46.67

Gold to silver ratio at 20 to 1 with gold at $1,400 the silver price would be $70.00

Gold to silver ratio at 15 to 1 with gold at $1,400 the silver price would be $93.33

-We’ve had a summer of more sellers than buyers of silver.  The public is so far away from this market it is incredible. The gold silver ratio is around 65 to 1, before this is over it will be 15 or 20 to one. Some investors have been disappointed that silver has not outperformed gold in this precious metals bull market. 

Before this secular move is over, silver will outperform gold.  The current status just shows that this bull run has a long, long way to go. Bill Haynes, Founder of CMI Gold & Silver Inc-Read more here-http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/8/25_Silver_Flying%2C_Gold_Marching_Towards_Highs.html

-Manipulating the Silver Market. If someone were manipulating the silver market, you would see exactly what has actually occurred in silver over the past several days. To manipulate the price you would use your buying power and accumulate long positions until you force silver above resistance in the high $18.40s and thereby trigger all the buy-stops sitting there, including the one we placed.

You would then sell your long positions into those buy-stops and keep selling until (1) you became short and (2) your selling drove prices lower. I have just described exactly what has just taken place in silver. What we have seen is a classic textbook case of market manipulation.

We have seen it so many times before in recent years, it is the reason I warned on 18 August: “Let’s see if silver can hold this level, particularly with option expiry coming soon.” I expect that we will see the rest of this repetitive pattern of manipulation play out over the next few days until this month’s options expire. I also expect that silver will remain under $18 during this period.

There may in fact be another bout of selling pressure by the shorts to shake out some more weak-hands. It would give the manipulators an even bigger profit when they buy back on even lower prices the short positions they established on the breakout above $18.40. Consequently, I will not be surprised if the 2-year uptrend line in the following chart is broken this week.

I don’t think that uptrend line will be broken, but don’t panic if it is. And don’t be distracted from the big picture – both technical and fundamental. Technically, silver has nearly completed a huge accumulation pattern, and the ‘head-and-shoulders’ pattern in the above chart is far more important than the 2-year uptrend line.

Silver is approaching an important upside breakout. It is the breakout that I have been anticipating for months. The fundamental picture for silver is just as bullish. Monetary debasement throughout the globe is causing astute people everywhere to carefully look for prudent alternatives.

It is inevitable that they eventually discover what countless people have already discovered over the past decade that gold and silver are safe-havens from monetary debasement. Thus, everything remains in place for an upside explosion in silver. With each passing day, week and month we are getting closer. Be ready for that breakout by not losing sight of the big picture. Read more here-http://www.fgmr.com/manipulating-the-silver-market.html

-Adam Hamilton: Big Autumn Silver Rally 2. Silver has been drifting in a rather lackluster summer. Ever since surging to $19.50 in mid-May, this often-popular white metal has been grinding sideways to lower. By late July it had fallen over 10% to about $17.50. But despite silver’s recent excitement-bereft sojourn, it actually has excellent potential for a big autumn rally in the coming months.

The bottom line is silver looks very bullish heading into autumn 2010. Big seasonal gold-demand spikes are approaching, and rising gold prices get traders excited about silver. After consolidating high and forming a strong base for at least a year, silver has the perfect springboard from which to launch to new bull highs.

Couple this with converging major support lines, near-oversold technicals, and little enthusiasm today, and silver is perfectly positioned for a fast ride higher in the coming months. Overarching all these bullish silver technicals is this metal’s continuing panic-driven undervaluation relative to gold.

Until this valuation gap is fully closed, silver has a lot of ground to regain and thus should rally faster on balance to catch up. Thanks to all these bullish influences, this year’s big autumn silver rally certainly has the potential to surprise on the upside. Read more here-http://www.321gold.com/editorials/hamilton/hamilton082010.html

-Silver and gold explosive, Hinde Capital’s Ben Davies tells King World News. Listen here-http://www.gata.org/node/8955

-Ted Butler’s weekly interview with King World News. Silver market analyst Ted Butler tells King World News in his weekly interview that the silver futures market looks 90 percent bullish and the gold futures market about 60 percent bullish, even as he reminds listeners that the futures markets don’t reflect supply and demand for real metal. Butler adds that the biggest silver short, JPMorganChase, still appears not to be increasing its short position. Listen here-http://www.gata.org/node/8945

-Silver ‘Looking Cheap’ Lures Investors, Prompting Decline in Ratio to Gold. Read more here-http://www.bloomberg.com/news/2010-08-26/silver-looking-cheap-lures-investors-prompting-decline-in-ratio-to-gold.html

-Is silver finally breaking through key resistance at $18.50 per ounce? Read more here-http://www.mineweb.com/mineweb/view/mineweb/en/page32?oid=110335&sn=Detail&pid=32

-Silver’s Historical Correlation with Gold Suggests A Parabolic Top As High As $714 per Ounce. Read more here-http://www.munknee.com/2010/07/silver%E2%80%99s-historical-correlation-with-gold-suggests-a-parabolic-top-as-high-as-714-per-ounce/

-Silver demand picks up in India. Festival season in India has picked up pace with Onam, a spring festival celebrated with much gusto and, given the high price of gold, people are buying silver to mark the occasion. Read more here-http://www.mineweb.co.za/mineweb/view/mineweb/en/page32?oid=110148&sn=Detail&pid=102055

CHARTS OF THE WEEK-QUOTES-QUICK HITS

-Chart of the week: In Case It Wasn’t Obvious That The Homebuyer Tax Credit Created A Huge Distortion. Tuesday morning the NAR reported that existing home sales in July plunged 27.2%. Not surprisingly, the end of the homebuyer tax credit caused these sales to fall off a cliff. People just didn’t realize how high that cliff was.

In case there were any doubt that it made a difference, check out this chart from Waverly Advisors which shades in the period of the tax credit. Home sales started rising immediately, and have fallen off immediately with the tax credit’s expiry. Read more here-http://www.businessinsider.com/chart-of-the-day-existing-home-sales-and-homebuyer-tax-credit-2010-8

Source: chartoftheday.com

-Chart of the week: The “Distressing Gap” Between New And Existing Home Sales Still Isn’t Closed. Wednesday’s new home sales numbers did nothing to take the sting out of Tuesday’s massive existing home sales miss, showing further weakening in home sales overall.

Bill McBride of Calculated Risk points out the “distressing gap” between between existing home sales and new home sales. Notably, most of the buying on the market has been of distressed properties and, according to Calculated Risk, this is what is allowing existing homes to remain above the less flexibly priced new homes. Read more here-http://www.businessinsider.com/chart-of-the-day-new-and-existing-home-sales-2010-8

Source: chartoftheday.com

-“I think there is still a realistic possibility in the U.S. that it’s slipping into this pattern like Japan has 10, 20 years of stagnation.” David Wyss-Chief Economist at S&P

-“We don’t believe there is any “bond bubble”. However, there is a bubble in people believing there is a “bond bubble”. Here’s how you will know if there is a bond bubble ask your colleagues how many of them own bonds in their personal accounts.

When nobody/almost nobody raises their hand you should be comforted in knowing that the prospects of the existence of a “bond bubble” have been reduced. By the way, this tactic has worked wonderfully for gold over the last decade.” John Roque-WJB Capital-Read more here-http://www.bloomberg.com/news/2010-08-22/bond-funds-attracting-cash-like-stocks-during-dot-com-boom-credit-markets.html and http://www.bloomberg.com/news/2010-08-23/-shocked-investors-shake-up-fund-industry-as-bond-love-affair-sets-record.html

-Let the housing market find its own equilibrium. Stop wasting taxpayers’ money on trying to influence what structure people would like to live in. David Rosenberg-Gluskin/Sheff

-We’re not sure whether to be happy or sad over the fact that some of our long-standing views once viewed as controversial are now making the headlines in the popular press. David Rosenberg-Gluskin/Sheff

-We could see a situation where another 4 to 5 million jobs could be shed in the United States especially in the three sectors (construction, finance and state/local government) that were, and remain, the most affected by the housing crisis and financial collapse. David Rosenberg-Gluskin/Sheff-Read more here-http://online.wsj.com/article/SB20001424052748703589804575445131261936148.html

-Now we’ll tell you why this is a depression, and not just some garden-variety recession. For all the chatter about whether the recession that started in December 2007 ended sometime last year, here is what you should know about the historical record.

The 1930s depression was not marked by declining quarterly GDP data every single quarter. In fact, the technical recessionary aspect to the initial period following the asset and credit shock goes from the third quarter of 1929 to the third quarter of 1933.

There was another deep downturn in 1937-38, but the initial recession lasted four years and if you read the Benjamin Roth diary, you will see the euphoric response to any piece of good news as brief as they may have been.

Such is human nature and nobody can be blamed for trying to be optimistic; however, in the money management business, we have a fiduciary responsibility to be as realistic as possible about the outlook for the economy and the markets at all times. David Rosenberg-Gluskin/Sheff-Read more here-http://www.cnbc.com/id/38831550

-Another eight U.S. banks were closed on Friday by the FDIC, bringing the year-to-date tally to 118. Credit card rates were just lifted to a nine-year high, 22% of Fidelity’s 401(k) holders are drawing loans against their plans, fully one-quarter of American households have a sub-600 FICO score, and 48% of the 1.3 million folks who enrolled in the Administration’s mortgage relief program had dropped out by the end of July.

So, we are supposed to believe that credit strains are easing just because of the recent Fed Loan Officer Survey showing a greater willingness by the banks to extend credit? What else are the banks going to tell the pollsters with the huge political backlash against the lending community? David Rosenberg-Gluskin/Sheff

-The consensus has certainly taken down its numbers on profits and on the economy, but by not nearly enough. The consensus of equity analysts still sees 13% growth in operating S&P 500 EPS for the coming four quarters, even though the math does not work at all. For one, margins have already very rapidly expanded to cycle highs.

This means that there is very low potential for profits to grow much in excess of nominal GDP growth, which, at best, will be low single digits. That would put EPS for the next year closer to $80 than the $88 consensus forecast and place the forward P/E closer to 13x than 12x (it is 12x on consensus view).

Of course, if the economy does double-dip, then we are talking about EPS going down closer to $60 if the historical pattern during downturns reasserts itself, which then means the forward P/E multiple is really north of 17x. This is why valuation is so tough beauty is in the eyes of the beholder.

Historically, the forward P/E with consensus estimates is 15.6x, and yet if you look at what we actually end up with, it is 19.2x. So the consensus is always publishing an earnings forecast that makes the market look cheap! And, this “bias” is close to 20%, on average.

We still prefer the Shiller P/E, which uses the ‘bird-in-the-hand’ earnings, takes them in real terms, and cyclically-adjusts the earnings data, and the multiple here is 20.6x, which is 26% above the historical norm. So sorry, the only way you can get this market to show that it is “attractively” priced is to rely on consensus earnings projections, which by the way, are coming down but still too high. David Rosenberg-Gluskin/Sheff

-Mark Cuban: Put Money in Bank Not Stocks. Stashing cash in a bank is a better choice for investors than buying U.S. stocks, according to Mark Cuban, a billionaire entrepreneur who owns the Dallas Mavericks basketball team.

“Something is going to give in this market,” Cuban wrote about stocks in an Aug. 20 posting on his Blog Maverick website. “I want to have as much capital available as possible for when it happens.” Read more here-http://www.bloomberg.com/news/2010-08-23/put-money-in-bank-not-u-s-stocks-billionaire-cuban-says-chart-of-day.html

-Stiglitz Says European Economy at Risk of Double-Dip Recession. Read more here-http://www.bloomberg.com/news/2010-08-24/stiglitz-says-government-cuts-set-to-push-europe-into-double-dip-recession.html

-U.S. Has `Realistic Possibility’ of Stagnation, S&P’s Wyss Says. The U.S. has a “realistic possibility” of falling into a Japanese-style economic slump, said David Wyss, chief economist at Standard & Poor’s. U.S. consumer prices, excluding food and energy, increased less than 1 percent for a fourth month in July, Labor Department data showed, while Japan’s so-called core inflation rate has remained mostly negative since September 1998.

“I think there is still a realistic possibility in the U.S. that it’s slipping into this pattern like Japan has 10, 20 years of stagnation,” Wyss said at a seminar in Tokyo today hosted by the Securities Analysts Association of Japan. “A rising population in the U.S. creates more need for capital, more need for housing, which makes deflation a little less likely, but I’m not sure if that makes it impossible.” Read more here-http://www.bloomberg.com/news/2010-08-24/u-s-has-realistic-chance-for-japan-style-stagnation-s-p-s-wyss-says.html and http://www.nytimes.com/2010/08/24/business/global/24deflate.html?pagewanted=all

-Fed’s Charles Evans Says U.S. Recovery Uncertain as Housing Not `Out of the Woods’. Read more here-http://www.bloomberg.com/news/2010-08-24/fed-s-evans-says-u-s-recovery-uncertain-as-housing-not-out-of-the-woods-.html

-Housing Slide in U.S. Threatens to Drag Economy Into Recession. Housing led the U.S. out of seven of the last eight recessions. This time, it may kill the recovery. Home sales collapsed after a federal tax credit for buyers expired in April. Since then, the manufacturing-led expansion, which began in the second half of 2009, has been waning, with jobless claims rising and factory orders falling.

“If foreclosures continue to mount and depress home prices, that could send the economy back into a recession,” said Celia Chen, an economist who tracks the industry for Moody’s Analytics Inc. “The housing market and the broader economy are closely intertwined.” Read more here-http://www.bloomberg.com/news/2010-08-23/housing-slide-in-u-s-may-drag-economy-into-recession-as-foreclosures-rise.html

-Roubini Says Q3 Growth in U.S. to Be `Well Below’ 1%. Nouriel Roubini, the New York University economist who predicted the global financial crisis, said U.S. growth will be “well below” 1 percent in the third quarter and put the odds of a renewed recession at 40 percent.

Roubini, chairman of Roubini Global Economics LLC, said his forecast assumes the government will lower its estimate for growth in the second quarter to an annual rate of 1.2 percent “at best.” Read more here-http://www.bloomberg.com/news/2010-08-25/roubini-sees-u-s-growth-below-1-chance-of-double-dip-recession-at-40-.html

-Hussman: Bernanke’s Quantitative Easing Is About To Trigger A Collapse In The US Dollar. Read more here-http://www.businessinsider.com/hussman-bernankes-quantitative-easing-is-about-to-trigger-a-collapse-in-the-us-dollar-2010-8

-Alen Mattich: Inflation via competitive devaluations may be only way out. Could the Federal Reserve’s decision to restart its quantitative easing program trigger a dollar collapse? That’s what John Hussman, a fund manager, argues in his latest weekly note to investors. And the case he makes is strong as long as one ignores that other central banks don’t want and are unlikely to accept a big dollar devaluation. Read more here-http://www.gata.org/node/8950

-Bernanke Must Raise Benchmark Rate 2 Points, Rajan Says. Raghuram Rajan accurately warned central bankers in 2005 of a potential financial crisis if banks lost confidence in each other. Now the International Monetary Fund’s former chief economist says the Federal Reserve should consider raising rates, even as almost 10 percent of the U.S. workforce remains unemployed.

Interest rates near zero risk fanning asset bubbles or propping up inefficient companies, say Rajan and William White, former head of the Bank for International Settlements’ monetary and economic department.

After Europe’s debt crisis recedes, Fed Chairman Ben S. Bernanke should start increasing his benchmark rate by as much as 2 percentage points so it’s no longer negative in real terms, Rajan says. Read more here-http://www.bloomberg.com/news/2010-08-22/bernanke-must-raise-benchmark-2-points-in-prescient-rajan-s-latest-warning.html

-Ambrose Evans-Pritchard: America no longer needs Chinese money, for now As the Sino-American showdown in the South China and Yellow seas escalates into the gravest superpower clash since the Cold War, the United States cannot wisely rely on China to help fund its budget deficit for any longer.

The cacophony of voices in Beijing questioning or mocking the credit-worthiness of the US is now deafening, from premier Wen Jiabao on down. The results are in any case manifest: US Treasury data show that China has cut its holdings of Treasury debt by roughly $100 billion (L65 billion) over the past year to $844 billion.

ZeroHedge reports that net purchases by the big three of China, Japan, and the UK (Mid-East petro-dollars) have been sliding for two years. In August they bought the least amount of US debt this year. Read more here-http://www.gata.org/node/8951

-Loans From Retirement Plans Rise to 10-Year High. The number of people borrowing from their retirement-savings plans reached a 10-year high in the second quarter, according to Fidelity Investments, as Americans grappled with slowing economic growth. Read more here-http://www.bloomberg.com/news/2010-08-20/loans-from-401-k-plans-rise-to-10-year-high-fidelity-says.html and http://money.cnn.com/2010/08/20/news/economy/fidelity_401k_withdrawal/index.htm

-Illinois Pension May Sell $3 Billion of Assets to Pay Benefits. Illinois’s Teachers Retirement System may sell $3 billion of investments to pay for benefits this year because the state can’t make its contributions to the fund, a spokesman said.

The pension plan sold $200 million of assets in July and $290 million in August, Dave Urbanek, spokesman for the $33 billion fund, said in a phone interview. “We understand from the comptroller that there is no money to pay us,” said Urbanek. “If we don’t get a state contribution, we will have to sell more.” Read more here-http://www.bloomberg.com/news/2010-08-24/illinois-pension-may-sell-3-billion-of-assets-to-pay-benefits-this-year.html

-Chinese don’t believe their own government inflation data. Lydia Wang, a 28-year-old marketing manager in Shanghai, gripes that the shoes and clothing she normally buys are at least 50 percent pricier than in 2009. Wu Sengyun, a 54-year-old retiree in the coastal city of Ningbo, Zhejiang, says prices of fruit and fish are up more than 20 percent in the past year.

Willy Lin has cut back on free drumsticks in the canteen of his Jiangxi clothing factory as meat and vegetables grow dear. “The workers suffer,” he says. “Everybody is crying.” Read more here-http://www.bloomberg.com/news/2010-08-25/china-s-official-inflation-data-mask-surge-in-food-prices-medical-costs.html

-The Erosion of America’s Middle Class. While America’s super-rich congratulate themselves on donating billions to charity, the rest of the country is worse off than ever. Long-term unemployment is rising and millions of Americans are struggling to survive. The gap between rich and poor is wider than ever and the middle class is disappearing. Read more here-http://www.spiegel.de/international/zeitgeist/0,1518,druck-712496,00.html

-Japan and the Ancient Art of Shrugging. Read more here-http://www.nytimes.com/2010/08/22/opinion/22kato.html

-Bugattis Sell for ‘Crazy Money’ as Classic Cars Beat S&P 500. In May, an anonymous buyer paid more than $30 million for this 1936 Bugatti Type 57SC Atlantic, a silver-blue coupe with a raised spine that runs the length of the car. Mullin declined to comment on media reports that he was the buyer.

It’s the highest price ever paid for a car, topping the old record by about $2 million. The same Bugatti sold in 1971 for $59,000. Read more here-http://www.bloomberg.com/news/2010-08-25/bugattis-sell-for-crazy-money-as-classic-cars-beat-s-p-500.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

-Rio Tinto’s Pink Diamonds Tender Starts, Goes to China. Rio Tinto’s annual Argyle Pink Diamonds Tender is starting to do the rounds, and is on view to invited traders and diamond investors in Perth. This year’s tender includes 55 pink diamonds.

A highlight of the 2010 collection is a 2.02 carat round brilliant fancy vivid purplish pink diamond. Inspired by the Tender collection’s theme of “Earth Magic”, Argyle Mystra, is expected to “captivate bidders with its color saturation and purplish hues,” according to the company.

“The color saturation across this year’s collection has set a new benchmark with many more “vivid” pinks than previous years,” Business Manager Josephine Archer said.

Two other stones have also been named in honor of mystical metaphors Argyle Iris, a 1.43 carat fancy purplish red square shaped diamond, named after the Greek messenger goddess and, representing a touch of heaven on Earth, Argyle Ava, a 0.50 carat fancy purplish red round shaped diamond.

In recognition of the rareness of these diamonds, and to coincide with the tender, Argyle Pink Diamonds has released a new publication, Rare and Collectable that places this rarity in the context of global supply and demand and the resulting strong price appreciation.

Tender viewings will be held in Perth (August16-22), Hong Kong (September 13-20), Shanghai (September 25) and New York (October12-17). This will be the first time that the Argyle Pink Diamonds Tender will be showcased in mainland China, in recognition of the growing importance of this market for rare colored diamonds. Read more here-http://www.idexonline.com/portal_FullNews.asp?id=34385

MORGAN STANLEY-GOVERNMENT DEFAULTS INEVITABLE

-Investors face defaults on government bonds given the burden of aging populations and the difficulty of increasing tax revenue, according to a Morgan Stanley executive director. “Governments will impose a loss on some of their stakeholders,” Arnaud Mares in the firm’s London office wrote in a research report today.

“The question is not whether they will renege on their promises, but rather upon which of their promises they will renege, and what form this default will take.” The sovereign-debt crisis is global “and it is not over,” he wrote.

Rather than miss principal and interest payments, governments may choose a “soft” default in which they pay back debts with devalued currencies resulting from faster inflation or force creditors to take lower returns, Mares said in an interview.

Borrowing costs for so-called peripheral euro-region nations from Greece to Ireland surged today, resuming their ascent on concern that governments won’t be able to cut their budget deficits. Standard & Poor’s lowered Ireland’s credit rating yesterday on the rising cost of supporting nationalized banks.

Population trends may be a better predictor of the ability to meet obligations rather than debt as a percentage of gross domestic product, which doesn’t reflect governments’ available revenue and is “backward-looking,” Mares wrote.

While the U.S. government’s debt is 53 percent of GDP, one of the lowest ratios among developed nations, its debt as a percentage of revenue is 358 percent, one of the highest, the report said. Italy has one of the highest debt-to-GDP ratios, at 116 percent, yet has a debt-to-revenue ratio of 188, Mares said. Read more here-http://www.bloomberg.com/news/2010-08-25/morgan-stanley-says-government-bond-default-is-question-of-how-not-if-.html

KOTLIKOFF-U.S SOCIAL SECURITY IS A PONZI SCHEME

-Retiree Ponzi Scheme $16 Trillion Short. Social Security just celebrated its 75th birthday. Love it or hate it, it has done its job and should retire. We need a new system, the Personal Security System, which retains Social Security’s best features, scraps the rest, and covers its costs. Social Security’s objective forcing people to save for retirement is legit. Otherwise millions of us would seek handouts in our old age.

But Social Security has also played a central role in the massive, six-decade Ponzi scheme known as U.S. fiscal policy, which transfers ever-larger sums from the young to the old. In so doing, Uncle Sam has assured successive young contributors that they would have their turn, in retirement, to get back much more than they put in. But all chain letters end, and the U.S.’s is now collapsing.

The letter’s last purchasers today’s and tomorrow’s youngsters face enormous increases in taxes and cuts in benefits. This fiscal child abuse, which will turn the American dream into a nightmare, is best summarized by the $202 trillion fiscal gap discussed in my last column.

The gap is the present value difference between future federal spending and revenue. Closing this gap via taxes requires doubling every tax we pay, starting now. Such a policy would hurt younger people much more than older ones because wages constitute most of the tax base. Read more here-http://www.bloomberg.com/news/2010-08-25/retiree-ponzi-scheme-is-16-trillion-short-laurence-kotlikoff.html Watch interview here-http://www.bloomberg.com/video/62454402/

-Laurence Kotlikoff: U.S. Is Bankrupt and We Don’t Even Know It. Read more here-http://www.bloomberg.com/news/2010-08-11/u-s-is-bankrupt-and-we-don-t-even-know-commentary-by-laurence-kotlikoff.html

 

-”Enron Accounting” Has Bankrupted America: U.S. Deficit Really $202 Trillion, Kotlikoff Says. Read and watch more here-http://finance.yahoo.com/tech-ticker/%22enron-accounting%22-has-bankrupted-america-u.s.-deficit-really-202-trillion-kotlikoff-says-535354.html?tickers=udn,tlt,tbt,uup,TIP,^gspc,GLD&sec=topStories&pos=9&asset=&ccode

-Neeraj Chaudhary: Happy Birthday Social Security? Read more here-http://www.321gold.com/editorials/chaudhary/chaudhary082010.html

GERALD CELENTE-WE’RE HEADED FOR THE GREATEST DEPRESSION

-The fake “recovery” was nice while it lasted, says famous apocalyptic forecaster Gerald Celente, founder of the Trends Research Institute. But now the fun’s over, and we’re headed for what Celente describes as the “Greatest Depression.”

Specifically, the always startling Celente says the country is headed for rising unemployment, poverty, and violent class warfare as the government efforts to keep the economy going begin to fail. The crux of the problem, Celente argues, is that the middle class has been wiped out.

America used to be a land of opportunity for all, where hard-working people could build their own small businesses in their own communities and live prosperous and fulfilling lives. But now a collusion of state and corporate interests that Celente describes as “fascism” have conspired to help only the biggest companies and the richest Americans.

This has put a shocking amount of the country’s wealth in the hands of a privileged few and left the rest of the country to subsist on chicken-feed wages and low job satisfaction as Wal-Mart “associates” or worse.

The answer, Celente says, is to bring back the laws that prevented huge companies from getting so big and powerful, and put some opportunity back in the hands of ordinary people. But doing that is going to take a while. And in the meantime, we’re headed for trouble. Read and watch more here-http://finance.yahoo.com/tech-ticker/and-now-we%27re-headed-for-the-greatest-depression-says-gerald-celente-535350.html

U.S. BANK FAILURES HIT 118

-ShoreBank of Chicago, Seven Others Shuttered as 2010 Failures Climb to 118. ShoreBank Corp., the Chicago lender operating under a Federal Deposit Insurance Corp. cease-and- desist order for 13 months, and seven other banks were shut by regulators as 2010 bank failures climbed to 118.

Regulators also closed four banks in California, two in Florida and one in Virginia. All eight closures cost the FDIC’s deposit-insurance fund $473.5 million, the agency said yesterday. This year’s bank failures will surpass last year’s total of 140, FDIC Chairman Sheila Bair said last month in a Bloomberg Television interview. Read more here-http://www.bloomberg.com/news/2010-08-21/shorebank-of-chicago-seven-others-shuttered-as-2010-failures-climb-to-118.html and http://jsmineset.com/2010/08/24/cumulative-bank-failures-reported-by-fdic/

-Fed’s Hoenig Says Largest Banks Still Benefit From Government Safety Net. Read more here-http://www.bloomberg.com/news/2010-08-23/fed-s-hoenig-says-largest-banks-still-benefit-from-government-safety-net.html

STOCK MARKET

-Dow Faces Bouncy Ride to 5,000: Strategist. The Dow Jones Industrial Average will lose about half of its value over the next couple of years as it follows a Nikkei-like pattern of several sharp rallies in an overall decline, according to Charles Nenner, founder and president of Charles Nenner research.

Stocks are currently in a bear-market rally, and looking at charts and past trends, unemployment and leading indicators suggest the Dow will drop to 5,000 in the next two to two-and-a-half years, Nenner told CNBC in an e-mail.

Deflation will arrive, along with a sharp double-dip recession, pushing the Dow lower, although, like the Japanese market, stocks will see several jumps of 30 percent to 40 percent, he said.

“Things look really bad for the next 10 years,” Nenner said.

Nenner is bullish on gold and silver over the longer term and expects the precious metals to start a new leg higher by the end of the year. Read more here-http://www.cnbc.com/id/38826988 Watch video here-http://www.bloomberg.com/news/2010-08-25/charles-nenner-sees-dow-falling-to-5000-in-two-years-video.html

-Hindenburg Omen Inventor Exits From Stocks. And he’s out. The blind mathematician behind the Hindenburg Omen (you remember, that’s the technical indicator that tells us a stock market crash is nigh) tells the Wall Street Journal he’s gotten out of stocks a little more than a week before September, when this crash is supposed to happen.

Jim Miekka, who developed the indicator more than a decade ago, says its “sort of like a funnel cloud. It doesn’t mean it’s going to crash, but it’s a high probability. You don’t get a tornado without a funnel cloud.”

The Hindenburg Omen, named after the airship that exploded as it was docking in New Jersey in 1937, has preceded every crash since 1987, but it has also popped up plenty of times without any subsequent market decline. It resurfaced in mid-August and became popular fodder for various trading oriented blogs.

It was triggered by two important statistical events. One, NYSE highs and lows both exceeded 2.5% stocks reaching 52-week highs were 2.9% of stocks traded at the Big Board, while stocks hitting 52-week lows were 2.6%. And two, a rising 10-week moving average for the NYSE compared to a negative indicator that shows market fluctuations (the McClellan Oscillator).

The trends had to be reconfirmed, and they were last week. Read more here-http://blogs.forbes.com/lizmoyer/2010/08/23/hindenburg-omen-prompts-exit-from-stocks/?partner=dailycrux

-In Striking Shift, Small Investors Flee Stock Market. Renewed economic uncertainty is testing Americans’ generation-long love affair with the stock market. Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group.

Now many are choosing investments they deem safer, like bonds. If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked. Small investors are “losing their appetite for risk,” a Credit Suisse analyst, Doug Cliggott, said in a report to investors on Friday.

One of the phenomena of the last several decades has been the rise of the individual investor. As Americans have become more responsible for their own retirement, they have poured money into stocks with such faith that half of the country’s households now own shares directly or through mutual funds, which are by far the most popular way Americans invest in stocks. So the turnabout is striking.

So is the timing. After past recessions, ordinary investors have typically regained their enthusiasm for stocks, hoping to profit as the economy recovered. This time, even as corporate earnings have improved, Americans have become more guarded with their investments.

“At this stage in the economic cycle, $10 to $20 billion would normally be flowing into domestic equity funds” rather than the billions that are flowing out, said Brian K. Reid, chief economist of the investment institute. He added, “This is very unusual.” Read more here-http://www.nytimes.com/2010/08/22/business/22invest.html?_r=3&hp=&pagewanted=print

FIRM FACES CHARGES OVER OIL TRADING

-Firm Faces Civil Charges for Oil Trading Mayhem. A big high-frequency trading firm faces possible civil charges by regulators after its computer ran amok and sparked a frenzied $1 surge in oil prices in February, according to documents obtained by Reuters and sources familiar with the continuing investigation.

Infinium Capital Management confirmed only that it is the company at the center of a six-month probe by CME Group Inc. into why its brand new trading program malfunctioned and racked up a million-dollar loss in about a second, just before markets closed on February 3.

The glitch explains for the first time the lightning-quick oil-trading surge of that day and it may have been a catalyst for the abrupt and largely unexplained $5 slide amid record volumes the following two days. The firm’s buying frenzy also reveals how faulty computer codes, known as algorithms, can spark sharp volatility and send electronic markets spinning all in the blink of an eye.

Futures exchange operator CME Group is looking into the incident, which occurred at the New York Mercantile Exchange and highlights some of the same electronic-trading concerns raised by May’s “flash crash” in the U.S. stock market. Read more here-http://www.gata.org/node/8957 and http://www.reuters.com/article/idUSTRE67O2QQ20100825

REAL ESTATE

-U.S. Existing Home Sales Plunge by Record. Sales of existing houses plunged by a record 27 percent in July as the effects of a government tax credit waned, showing a lack of jobs threatens to undermine the U.S. economic recovery. Read more here-http://www.bloomberg.com/news/2010-08-24/sales-of-u-s-existing-homes-drop-more-than-estimated-to-3-83-million-rate.html

-Sales of U.S. New Homes Dropped to Record Low in July. Sales of U.S. new homes unexpectedly dropped in July to the lowest level on record, signalling that even with cheaper prices and reduced borrowing costs the housing market is retreating. Read more here-http://www.bloomberg.com/news/2010-08-25/sales-of-u-s-new-homes-unexpectedly-fell-to-record-low-in-july.html

-One in 10 mortgage holders faces foreclosure. Government aid efforts having little impact stemming housing crisis. One in 10 American households with a mortgage was at risk of foreclosure this summer as the government’s efforts to help have had little impact stemming the housing crisis.

About 9.9 percent of homeowners had missed at least one mortgage payment as of June 30, the Mortgage Bankers Association said Thursday. Read more here-http://www.msnbc.msn.com/id/38864587/ns/business-real_estate/ and http://www.bloomberg.com/news/2010-08-26/mortgage-payments-one-month-overdue-increase-as-u-s-economic-growth-slows.html

-Foreclosure Study Shows Dramatic Value Drop. Nationwide, more than a half million homes fell into foreclosure in the first half of 2010. More than 900,000 were repossessed in 2009. Now a new study, conducted by MIT and Harvard researchers, reveals the drop in value to a foreclosed property is even more staggering than many would believe.

“Foreclosed homes sell for less, not just a little bit less, but much less than comparable homes sold in the same area at the same time but voluntarily outside the foreclosure process,” explains Harvard Professor of Economics John Campbell. “In fact, the discount on average is about 27% which is really a very large number.”

And a foreclosure is bad news for the neighbourhood. The study-which examined 1.8 million home sales in Massachusetts from 1987 to 2009 reveals nearby homes within 250 feet of a foreclosure lose 1% of value. One reason the condition of a foreclosed house often deteriorates and falls into disrepair. Read more here-http://liveshots.blogs.foxnews.com/2010/08/23/foreclosure-study-shows-dramatic-value-drop/?test=latestnews

-Nearly 50 percent leave Obama mortgage-aid program. Nearly half of the 1.3 million homeowners who enrolled in the Obama administration’s flagship mortgage-relief program have fallen out. The program is intended to help those at risk of foreclosure by lowering their monthly mortgage payments.

Friday’s report from the Treasury Department suggests the $75 billion government effort is failing to slow the tide of foreclosures in the United States, economists say. More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to foreclosure listing service RealtyTrac Inc. Economists expect the number of foreclosures to grow well into next year.

“The government program as currently structured is petering out. It is taking in fewer homeowners, more are dropping out and fewer people are ending up in permanent modifications,” said Mark Zandi, chief economist at Moody’s Analytics. Read more here-http://news.yahoo.com/s/ap/20100821/ap_on_bi_ge/us_mortgage_aid

-Commercial Property Owners Choose to Default. Like homeowners walking away from mortgaged houses that plummeted in value, some of the largest commercial-property owners are defaulting on debts and surrendering buildings worth less than their loans. Read more here-http://online.wsj.com/article/SB10001424052748703447004575449803607666216.html

-15 Signs The U.S. Housing Market Is Headed For Complete And Total Collapse. Read more here-http://www.businessinsider.com/15-signs-that-the-us-housing-market-is-headed-for-complete-and-total-collapse-2010-8

-Lack of Jobs, Foreclosures May Keep Housing in U.S. Depressed. Read more here-http://www.bloomberg.com/news/2010-08-25/foreclosures-lack-of-jobs-will-probably-keep-home-sales-in-u-s-depressed.html

-Gross Says Mortgage Yields Would Soar Without Government Aid. Read more here-http://www.bloomberg.com/news/2010-08-24/pimco-s-gross-says-mortgage-yields-would-soar-without-u-s-government-aid.html

GEOPOLITICAL NEWS

-Iran has material for 1-2 atom bombs: ex-IAEA aide. Iran has stockpiled enough low-enriched uranium for 1-2 nuclear arms but it would not make sense for it to cross the bomb-making threshold with only this amount, a former top U.N. nuclear official was quoted as saying. Read more here-http://www.reuters.com/article/idUSTRE67P20L20100826

-Iran Joins Nuclear Power Club as Russia Starts Reactor Under UN’s Watch. Iran, under United Nations sanctions for its nuclear program, said it ended a 36-year quest to join the club of atomic-powered nations when Russia’s Rosatom Corp. switched on a reactor along the Persian Gulf coast. Read more here-http://www.bloomberg.com/news/2010-08-20/iran-to-join-nuclear-power-club-as-russia-starts-reactor-under-un-s-watch.html

-Russia Opening Iran Nuclear Plant Advances Goal to Play Power-Broker Role. Read more here-http://www.bloomberg.com/news/2010-08-21/russia-opening-iran-nuclear-plant-advances-goal-to-play-power-broker-role.html

-U.S. Assures Israel That Iran Threat Is Not Imminent. The Obama administration, citing evidence of continued troubles inside Iran’s nuclear program, has persuaded Israel that it would take roughly a year and perhaps longer for Iran to complete what one senior official called a “dash” for a nuclear weapon, according to American officials.

Administration officials said they believe the assessment has dimmed the prospect that Israel would pre-emptively strike against the country’s nuclear facilities within the next year, as Israeli officials have suggested in thinly veiled threats. Read more here-http://www.nytimes.com/2010/08/20/world/middleeast/20policy.html?_r=2&hp

-Iran unveils long-range bombing drone. Read more here-http://www.cnn.com/2010/WORLD/meast/08/22/iran.drone.unveiled/index.html?hpt=T2 and http://news.yahoo.com/s/nm/20100822/ts_nm/us_iran_military_drone

-CIA sees increased threat from al-Qaeda in Yemen. For the first time since the Sept. 11, 2001, attacks, CIA analysts see one of al-Qaeda’s offshoots rather than the core group now based in Pakistan as the most urgent threat to U.S. security, officials said.

The sober new assessment of al-Qaeda’s affiliate in Yemen has helped prompt senior Obama administration officials to call for an escalation of U.S. operations there including a proposal to add armed CIA drones to a clandestine campaign of U.S. military strikes, the officials said.

“We are looking to draw on all of the capabilities at our disposal,” said a senior Obama administration official, who described plans for “a ramp-up over a period of months.” The officials, who spoke on the condition of anonymity to discuss intelligence matters, stressed that that analysts continue to see al-Qaeda and its allies in the tribal areas of Pakistan as supremely dangerous adversaries.

The officials insisted there would be no letup in their pursuit of Osama bin Laden and other senior figures thought to be hiding in Pakistan. Read more here-http://www.washingtonpost.com/wp-dyn/content/article/2010/08/24/AR2010082406553_pf.html and http://online.wsj.com/article/SB10001424052748704125604575450162714867720.html?mod=WSJ_hpp_MIDDLETopStories

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

The Goldbugg Report – August 31st, 2010
Posted by Worldwide Precious Metals on Tuesday, August 31, 2010

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