Fed and consumers upbeat despite; GDP fall, Flu/bank fears
China, central banks buying gold ... INFLATION INOCULATION
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By David Bradshaw ~updated hourly~ email ~ links ~ wisdom
Editor, Real Money Perspectives ~ weekly email ~ daily email
Apr 30, 2009 ~ features ~ ((podcast)) ~ gold fraud alert!
Thursday gold prices fell over 1% on a firmer dollar as stocks ended a very bullish month. Gold closed in NY down $12.10 to $886.20/oz., silver fell $.43 to $12.37/oz.
Gold prices fell 3.3% in April as U.S. stocks rallied 7%-12% on hopeful signs that the worst of the economic crisis may now be behind us. Silver prices slipped 4.8% this month. Over the last eight years bargain hunters have consistently bought metals on the dips.
"After dropping almost 60% from its March 2008 peak of $21/oz, silver appears to be on the rebound: Silver gained 24% in the first quarter of 2009. "Silver is the best 'good-time' metal out there, because it's used in so many high-tech, high-end products. By late 2009 into first quarter 2010, I'm looking for silver to go beyond the $21 level, said David Morgan editor of "The Morgan Report," reports HAInvestor.
* "Chrysler will proceed with Chapter 11 bankruptcy protection to complete its restructuring after attempts to reach concessions with lenders faltered, an administration official said Thursday. The U.S. Treasury had been in tense negotiations with hedge funds to wash out its remaining debt and facilitate an alliance with Fiat SpA, a step considered essential to Chrysler's survival," reports CNBC.
* "Stocks retreated from a morning surge and closed roughly flat Thursday as the third largest U.S. auto maker moved into bankruptcy, with energy and financial companies pacing the move lower. New economic data offered mixed signals on the prospects for an economic recovery. The Labor Department said initial claims for state jobless benefits sank 14,000 to 631,000 in the week ended April 25. Consumer spending dropped in March as income fell and saving jumped," reports WSJ.
* "The economy shrank at a worse-than-expected 6.1% pace in the first three montshs of this year as sharp cutbacks by businesses and the biggest drop in U.S. exports in 40 years overwhelmed a rebound in consumer spending. The report dashed hopes that the recession's grip on the country loosened in the first quarter," reports AP.
* "At least six of the 19 largest U.S. banks require additional capital, according to preliminary results of government stress tests. Most of the capital is likely to come from converting preferred shares to common equity," reports Bloomberg.
* "With TARP money running out, the Treasury is trying to finesse the release of the stress test results, so as to give banks the best possible chance of attracting additional private capital. Treasury Secretary Timothy Geithner has begun suggesting U.S. banks begin converting federal bailout loans into common equity, but taxpayers would receive less protection in bankruptcy than if their loans were converted to preferred shares. The IMF concluded that if banks were to take all losses faced from toxic assets, the write-offs would wipe out altogether the common equity of banks in the United States, the EU and Japan," reports WND.
* Europe's age crisis begins to bite: A new report by the European Commission said this financial crisis could turn into a "permanent shock to growth" from which Europe never fully recovers unless it moves fast to bring its public debts under control. The main danger is a "Lost Decade" akin to Japan's deflation slump," reports Telegraph.
Apr 29th News & Views ~ Stocks cheer Obamanomics, Day 100
* "Stocks closed higher Wednesday as investors shrugged off gloomy first-quarter GDP and focused on the bottoming of inventories. Banks rallied and Qwest earnings buoyed techs. The rebound comes after stocks had two down days to start the week, amid worries that swine flu could hinder the global economic recovery and that banks may need to raise more capital," reports CNBC.
* Obama reaches a mixed milestone: "Lingering challenges lay behind productive first 100 days, analysts say. While some positive signs on the U.S. economy have emerged, worries haven't dissipated. The U.S. unemployment rate was 8.5% in March, a month in which companies took the highest number of mass layoff actions on record. The DJIA is still off close to 40% in the past 12 months. Most economists don't expect the unemployment rate to peak until sometime in 2010. Home prices are still declining, albeit at a slower rate," reports MW.
* "The World Health Organization said on Wednesday it was moving closer to declaring a pandemic alert phase 5 for swine flu, the second highest level, if it were confirmed that infected people in at least two countries were spreading the disease to other people in a sustained way. Meanwhile, President Barack Obama said Wednesday that wider school closings in the U.S. may be necessary in an escalating global health emergency," reports CNBC.
* "U.S. consumers are considerably less gloomy about the economy, as a key gauge of consumer confidence remains relatively weak despite a large increase in April, a private research group said Tuesday. The consumer confidence index jumped to a reading of 39.2 in April from 26.9 in March. The 12.3-point month-to-month gain was the fourth-largest ever in the 32-year history of the survey," reports MW.
* Gold/Debt chart illustrates: "Each of the two previous highs in gold prices were associated with highs in inflationary U.S. monetary growth of twelve months before. Were no other factors operating on gold, this chart suggests a low by September 2009. It also suggests a new high by this time next year. Gold may be moving through the last great buying opportunity this summer," reports FinSense.
* "The confirmation of the Chinese move to place the gold in its official reserves indicates the extent to which gold is being rehabilitated as a monetary reserve asset, not only by the Chinese monetary authorities but by Central Bankers around the world and suggests that monetary authorities are looking at gold as a monetary asset with greater interest than at any time since the 1960s," reports IBtimes.
Apr 28th News & Views ~ Bank, flu fears bug investors
* "Stocks opened lower Tuesday then closed flat after a report showed consumer confidence soared last month. Fears that swine flu may put another burden on the already tapped economy rippled through the market. 'The confidence index suggests that consumers believe the economy is nearing a bottom...' Banks took a hit amid fears that Citigroup and Bank of America may need more capital," reports CNBC.
* "Regulators told Bank of America Corp. and Citigroup Inc. that the banks may need to raise more capital based on early results of the government's so-called stress tests. Executives at both banks are objecting to the preliminary findings, which emerged from the government's scrutiny of 19 large financial institutions," reports WSJ.
* 1 billion a day for stimulus: "The federal government has made available more than $75 billion for stimulus projects in the 10 weeks since President Obama signed the $787 billion recovery package into law. So far, $14.5 billion has been spent, nearly all of it to help states cope with rising Medicaid costs," reports CNN.
* "$10.5 Trillion out of the entire $14 Trillion U.S. economy is backstopped by the United States itself. Assuming the trading wheels come off and assets are priced without governmental guarantees, it could get ugly. 70% lower ugly," reports ZeroHedge.
* "The spread of a possible flu pandemic could see an increase in already heightened levels of government intervention in economies and financial markets as a result of the global financial crisis. It might serve to give governments an easy justification to impose protectionist measures that could further stifle slumping trade flows," reports Reuters.
Apr 27th News & Views ~ Markets hit by flu fears
* "Global health authorities ramped up their responses since over 100 people in Mexico have died as a result of a new and severe form of swine flue. In addition to the human suffering, such an outbreak will have serious economic effects as a result of quarantines, isolation and health protectionism," reports MW.
* "General Motors announced plans to cut 23,000 U.S. jobs by 2011, drop its storied Pontiac brand and slash 40% of its dealer network in its latest bid to stay out of bankruptcy," reports CNN.
* "Cash will be the worst performing asset class over the next 10 years, believes Don Williams, portfolio manager at Platypus Asset Management," reports CNBC.
* "Zimbabwe'a rate of inflation touched a sixteen-digit number in 2009 before the currency became worthless, despite introduction of bigger notes, including a ten trillion dollar bill. Zimbabwe will now be using foreign currencies for its transactions, including the U.S. dollar and South African rand, among others, until the new government re- builds the economy," reports RTTNews.
* "Dubai's gold imports in the first quarter of 2009 grew to 140 tons, a 15% increase over Q1 2008. "A look at the gold sector in general suggests that there are sufficient reasons to remain bullish about Dubai's ability to ride out the storm and further enhance its position as the city of gold," said Harendra Kailath, director of gold at the Dubai Multi Commodities Center," reports Reuters.
* "China called for reform of the global currency system, dominated by the dollar, which it said is the root cause of the global financial crisis. A "flawed international monetary system is the institutional root cause of the crisis and a major defect in the current international economic governance structure," Chinese Vice Finance Minister Li Yong told the spring IMF/World Bank Development Committee meeting in Washington," reports AFP.
* "U.S. and Chinese companies will sign more than 30 contracts on Monday worth billions of dollars to American businesses, the U.S. Chamber of Commerce said. Companies attending the signing ceremony include FedEx Corp, Dell Inc, Lenovo, and China Telecom," reports Reuters.
* "The Chinese will successfully serve as the spearhead for dethroning the U.S. Dollar from its primary global reserve currency position. Beijing leaders plan to establish the yuan currency as a global reserve currency. The process will be made more complete after issuance of a large volume of Chinese Govt debt securities," reports GoldSeek.
Apr 24th News & Views ~ metals outshine stocks
* China's building gold reserves - now over 1,000 tons "A Chinese official has confirmed the belief that the country has been quietly building up its gold reserves. It is now the world`s fifth biggest holder of gold with more than 1,000 tons held," reports Mineweb.
* Stress tests called "asinine": "Oppenheimer analyst Chris Kotowski explains why Wells Fargo CEO Dick Kovacevich was right when he called the tests "asinine." A good old fashioned bank examination with a rigorous deconstruction of underwriting processes, testing of assumptions, and examination of the actual quality of actual assets might in fact produce better results than simply processing a bunch of generic inputs in a macro blender called the “stress test," reports BusInsider.
* "Stocks recovered Friday after a drop triggered by the Fed's release of details on bank "stress tests." The Fed said most banks are currently well capitalized but need to hold a "substantial" amount above regulatory requirements in case the recession worsens," reports CNBC.
* "U.S. banks that get preliminary results today of government stress tests may struggle to raise money after bad assets at the biggest lenders almost tripled on average in the past year," reports Bloomberg.
* "Gold has been one of the few assets that has genuinely provided investors with diversification throughout the financial crisis. For the first quarter of 2009, the gold price ended at $916.50/oz. representing an increase of 4% against a 12% decline in U.S. stock prices during the period," The World Gold Council reports to Mineweb.
* "U.S. 'stress tests' of the 19 largest U.S. banks enters a critical final phase on Friday, when regulators begin discussing their findings with the banks and outline publicly the criterion they followed," reports Reuters.
* "If the government releases the true results of the "stress tests" it could cause a run on the banks. This would further cripple the government's ability to borrow the massive amounts of money needed to finance Obama's agenda, while crushing confidence in the dollar," writes Swiss America CEO Craig R. Smith.
* "The pace of sales of existing homes in the United States fell 3% in March to an annual rate of 4.57 million units, much lower-than-expected, the National Association of Realtors said on Thursday," reports Reuters.
* "A quick pop at the stock market open fizzled Thursday as economic data cast a shadow over the market, then ended with a final hour financials rally. "I think there's nervousness back in the market," Art Cashin, director of floor operations at UBS, told CNBC. "The next several days will tell us whether it's going to be a significant pullback or just a cleanup of the overbought condition," reports CNBC.
* "The Treasury Department is preparing a Chapter 11 bankruptcy filing for Chrysler that could come as soon as next week, people with direct knowledge of the action said Thursday. If no agreement is reached between the government and Chrysler’s lenders, a nasty legal fight could emerge in bankruptcy," reports NYTimes.
Apr 22th News & Views ~ Wall St. rollercoaster
* "Physical demand for gold remains a historically high level from India and China, and SPDR, while it shed some 20 tons, supported by long-term investors," said Shuji Sugata, a manager at Mitsubishi Corp Futures & Securities," to Reuters.
* Stocks opened lower Wednesday then bounced higher on upbeat housing data, but ended the day down on bank worries. Investors looked for further guidance from Treasury Secretary Geithner. "Encouraging words from Geithner gave investors a green light to buy up stocks after a big drop Monday. Geithner said "the vast majority" of banks have more capital than they need," reports AP.
* U.S. home prices rose in February for the second straight month, but are still down 6.5% in the past year, according to the Federal Housing Finance Agency index released Wednesday.
* Freddie Mac CFO: Major government banker pays ultimate price: "David Kellermann, the acting chief financial officer of mortgage giant Freddie Mac, was found dead at his home Wednesday morning in what police said was an apparent suicide. Kellermann's death is the latest blow to Freddie Mac, a government controlled company that owns or guarantees about 13 million home loans," reports FoxNews.
* Tipping Point for U.S. Treasuries? "At what point will the U.S. government run out of debt capacity? What are the factors that tell us when this is likely to occur? What is the chain reaction that follows? Understanding the economic, political and other forces impacting the foreign Treasury buyers decision (in particular the Chinese) to continue to hold and buy Treasuries seems to be the most critical part of determining where the tipping point may occur," reports SeekingAlpha
* "General Motors Corp. will close most of its U.S. factories for up to nine weeks this summer because of slumping sales and growing inventories of unsold vehicles. GM is living on $13.4 billion in government loans and faces a June 1 deadline to restructure or seek bankruptcy protection. reports Reuters.
* "The aggressive monetary policy of central banks around the world is playing havoc with the structure of the bullion market, creating a chronic shortage of gold that may soon push the metal to fresh records above $1,500 an ounce," reports Telegraph.
* "Taxpayers are increasingly exposed to losses and the government is more vulnerable to fraud under Obama administration initiatives that have created a federal bank bailout program of "unprecedented scope," a government report finds," reports AP.
* (Un)Intended Consequences: Uncertainty, Inflation & Inflexibility: "Incentives are sorely needed that reward responsible, efficient businesses, not policies that restrict them. In our opinion, present policies are inefficient and likely to foster a deterioration of “good” business models, a situation that may, in itself, precipitate further government spending to get the private sector functioning properly again. These unintended consequences create a heightened level of uncertainty in the marketplace that does not foster investment," reports Merk.
* "Stocks tumbled Monday as Bank of America earnings and stress-test buzz dragged down financials. The DJIA dropped more than 289 points, or 3.6%, while the Nasdaq lost nearly 4%. The negative start to the week comes on the back of a six-week winning streak, which has led many investors to hope for an end to the worst of the stock-market slump," reports CNBC.
* "Government tests on the financial health of the nation's major banks are causing significant stress on Wall Street and in Washington, where bankers and officials fear that the release of highly anticipated information may do more harm than good. The Obama administration is finding itself in a potentially no-win situation as it prepares to release details Friday," reports LAtimes.
* U.S. may convert banks’ bailouts to equity share: "White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock," reports NYTimes.
* Fed Shrouding $2 Trillion in Bank Loans in ‘Secrecy’: "U.S. taxpayers need to know the risks behind the Federal Reserve’s $2 trillion in lending to financial institutions because the public is now an “involuntary investor” in the nation’s banks. Government loans, spending or guarantees to rescue the U.S. financial system total more than $12.8 trillion since the international credit crisis began in August 2007, according to data compiled by Bloomberg as of March 31. The total includes about $2 trillion on the Fed’s balance sheet, reports Bloomberg.
* "The Federal Reserve said results of the bank "stress tests" would be made public on May 4. The tests are designed to see how the nation's 19 largest banks would fare should the U.S. recession prove unexpectedly severe. Regulators will try to prove the rigor of the tests by releasing a document on April 24 that will explain the underlying assumptions," reports Reuters.
* "These phony 'stress tests' might be laughable if only the truth behind them wasn’t so terrifying: Our own government is clearly cooking the books — using false criteria to deceive you; hoping you’ll trust banks that are clearly hanging by a thread," reports Dr. Martin Weiss of Money&Markets.
* Stress tests deepen headache for Obama: "Most Americans – Democrats included – detest bailing out Wall Street. Whose side is Mr Obama on, they wonder: the banks’ or the public’s? In a private meeting Mr Obama recently warned senior bankers that he was the only thing standing between them and the “pitchforks”. As time goes on, he may be forced by politics, as much as economics, to conclude that nationalisation is the least of all evils," reports FT.
* "The International Monetary Fund has warned of "worrisome parallels" between the current global crisis and the Great Depression, despite the unprecedented steps already taken by central banks and governments worldwide. This recession is likely to be "unusually long and severe, and the recovery sluggish," said the Fund," reports Telegraph.
Apr 17th News & Views ~ Wall St. rally, week 6
* "Stocks closed higher despite some selling in the final half hour of trading, giving the market its sixth straight weekly gain and its longest weekly winning streak since 2007. A late sell-off pared major indexes' gains to just a few points," reports CNBC.
* "Bullion could easily reach $1,000 an ounce because central-bank spending is fueling speculation that inflation will accelerate," London-based GFMS said in a report. "You can't just increase supply of money like that and not expect there to be some consequences in terms of its value against a yardstick such as gold, the supply of which is increasing by about 1% a year," reports Telegraph.
* "Since bottoming in December 2008, platinum and silver have once again out performed gold. Platinum has increased by 54%, silver by 36% and gold by 15%. During this same time frame the Dow has increased by 1.3%. Not only will investors protect their wealth with precious metals but being diversified in all three metals will continue to generate superior performance in the future," reports BullBuzz.
* Don't 'Invest' in Gold - Save It: "Gold is money, not an investment. How can gold achieve double-digit rates of appreciation this decade against the world’s major currencies but still buy an unchanged amount of crude oil since 1950? The answer: gold is not really appreciating. Instead, the US dollar and eight other currencies are depreciating. Back in 1802 Henry Thornton wrote, "We assume that the currency in all our hands is fixed, and that the price of bullion moves; whereas in truth, it is the currency of each nation that moves, and it is bullion which is the more fixed," reports JamesTurk.
* "Housing construction plunged to the second lowest level on record in March, providing a sobering sign that the worst housing slump in decades has not yet ended. The Commerce Department said Thursday construction of new homes and apartments dropped 10.8% last month to a seasonally adjusted annual rate of 510,000 units," reports AP.
* "General Growth Properties Inc. filed the biggest real estate bankruptcy in U.S. history after amassing $27 billion in debt during an acquisition spree that turned it into the second-largest shopping mall owner," reports Bloomberg.
* Is China trying to buy out the Americas? "While the US is floundering economically, China is moving muscling its way in to America via South America. China is pushing toward a new Reserve Currency, moving the world away from a dollar-centric economy. Even if China does not dump the dollar, in favor of some sort of new IMF currency, we’re still in deep trouble but in a different way than in 1929 when the Fed CONTRACTED the money supply, resulting in deflation. This recipe for inflation does not make the dollar look like a very good investment to China," says Swiss America CEO Craig R. Smith.
* "China has been negotiating deals to double a development fund in Venezuela to $12 billion, lend Ecuador at least $1 billion to build a hydroelectric plant, provide Argentina with access to more than $10 billion in Chinese currency and lend Brazil’s national oil company $10 billion. The deals largely focus on China locking in natural resources like oil for years to come. "This is how the balance of power shifts quietly during times of crisis,", reports NYTimes.
* 'Copper Standard' for the world's currency system?: "China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources," said Nobu Su, head of Taiwan's TMT group, which ships commodities to China reports Telegraph.
* "Western analysts fail to recognize that the Chinese banking system is now the strongest in the world. Beijing now has almost $2 trillion in cash on hand and hardly any foreign debt. There is no doubt in my mind that China is going to turn back to the upside, before the U.S," reports Money&Markets.
Apr 15th News & Views ~ Real grassroots change ahead
* Tax Day Becomes Protest Day: "What's most striking about the tea-party movement is that most of the organizers haven't ever organized, or even participated, in a protest rally before. General disgust over higher taxes and out-of-control government spending has drawn a lot of people off the sidelines and into the political arena, and they are already planning for political action after today," reports WSJ.
*CNBC's Rick Santelli Reacts to Tea Parties: "I think from a grassroots standpoint, it's about as American as it gets – for people to roll their strollers and make their signs and go voice their opinion about the direction of the country? Good, bad or indifferent – that’s a great thing," said Santelli reports Bus&Media.
* In George Orwell's book "1984" the slogan of the dictatorship was "Big Brother Is Watching You." In Obama's America, Janet Napolitano is in charge of homeland security, so the slogan could well be changed to "Big Sister Is Watching You." This isn't change we can believe in. This is Janet Reno on steroids. The iron heel is starting to come down," writes Michael Savage at WND.
* "As the weak economy puts job security and income on a slippery slope, many are wary of the U.S. tax man, tax consultants say. "Folks are not paying their taxes because they are spending it on necessary living expenses," said Kristin Lavieri, an accountant with Weinstein & Anastasio, PC in Hamden, Connecticut. The IRS vowed to show its gentler side this year," reports Reuters.
* "Critics of President Barack Obama's handling of the economy are planning nationwide "tea parties" Wednesday -- and not for the sake of polite conversation. Coast-to-coast demonstrations against Obama's big-spending economic stimulus package are promised for the day that is also the deadline for filing federal income tax returns," reports AFP. (Note: Google map lists over 500 Tea Party locations reports WND.)
* Federal agency warns of radicals on right: "Homeland Security Office of Intelligence and Analysis defines right wing extremism in the United States as including not just racist or hate groups, but also groups that reject federal authority in favor of state or local authority. It may include groups and individuals that are dedicated to a single-issue, such as opposition to abortion or immigration," reports WT.
* Gold demand set to rise and shine: "Gold remains the safest way to secure savings. Even amid the equity market crash, gold has given more than 28% returns in the recent period, which makes it the best investment option," according to World Gold Council vice-president K. Shivaram," reports Hindu.
Apr 14th News & Views ~ Will your house withstand gov money flood?
* U.S. stocks closed lower Tuesday as retail sales dropped 1.1% in March, after two months' of gains and wholesale inflation fell in March after two second consecutive months of gains. The producer price index fell 1.2%, driven by 5.5% decline in energy prices.
* President Barack Obama outlined his strategy to rebuild the U.S. economic future upon "a solid foundation of rock, not sand." His fivefold plan includes 1) new rules for Wall St., 2) new education for better jobs, 3) new investments in "clean energy," 4) new investment in health care, and 5) new budget deficit reduction strategies.
* Flood of US Debt Threatens To 'Crowd Out' Other Borrowers: "The prescription of massive debt, of money printing, of releveraging the economy, is exactly what engendered the depression of 2008, and all of the remedies are the same virus that killed us," says Michael Pento, chief economists at Delta Global Advisors in Huntington Beach, Calif," reports CNBC.
* Fed’s Flood May Leave Democracy Needing Bailout: "The wise men of Washington keep finding more core beliefs that we have to give up. First it was free markets. Now it’s democracy. Many economists believe that helping financial institutions turn their less liquid assets into hard cash is a key step toward returning them to good footing. But Congress is unwilling to appropriate enough money, so Treasury and the Fed have cooked up a work-around: the Fed buys the assets instead. Since the Fed exists outside of the normal budget process, no permission from elected officials is required," reports Bloomberg.
* After dipping last week gold prices rose near $900/oz. on Monday. Bargain-hunting investors bought the dips after possible IMF gold sales prompted speculators to sell gold last week, pushing prices to a 2009 low. Gold should be held as "wealth insurance" which is valuable at any price.
* Fed Historian sees 1970s-Style Inflation: "Fed Chairman Ben Bernanke is siding with John Maynard Keynes against Milton Friedman by flooding the financial system with money. If history is any guide, says Fed historian and professor of political economy at Carnegie Mellon University Allan Meltzer, the effort will end in tears. Inflation "will get higher than it was in the 1970s," says Meltzer. "We’ve got at least nine innings of reflation ahead of us, ultimately ending with probably double-digit inflation," said John Brynjolfsson, CIO at hedge fund Armored Wolf," reports Bloomberg.
* "U.S. stocks closed mixed on Monday amid fears General Motors Corp. may be forced to file for bankruptcy and nervousness ahead of bank earnings. "Should earnings reports out of the financial sector prove to be less encouraging than many think, as I believe they will, much of the current rally will have to be given back," said Dan Greenhaus, a strategist at Miller Tabak & Co. in New York," reports MW.
* China Slows Purchases of U.S. Bonds: "Reversing its role as the world’s fastest-growing buyer of U.S. Treasuries and other foreign bonds, the Chinese government actually sold bonds heavily in January and February before resuming purchases in March," reports NYTimes.
* "Official gold coin minting hit a two-decade high, climbing by over 40% on the back of stellar demand in North America and Europe in 2008. Last year saw wide fluctuations in investment activity accompanied by an eventual divergence between ‘paper’ products and gold’s physical investment markets," reports CommOnline.
* The Great Deception: "The bulls are deceived into believing we’re in a new bull market. They’ll be disappointed when this rally falls apart. They’ll give up on stocks and sell the market down to the 5,000 level…or below. We’re a long way from the final stage of the bull market in gold. Investors sell it when they think things are getting better. But when things get better, gold will soar. Because then the monetary inflation the feds have put into the system will turn into consumer price inflation. We could see rates of consumer inflation substantially higher than we saw in the ‘70s. And we could see gold prices over $2,000…maybe over $3,000 per ounce," reports Daily Reckoning.
* "Commodity prices, after slumping the most in at least a half century, have probably reached the bottom and should rebound over the next several years as demand outpaces supply, Credit Suisse said to Bloomberg.
* Gold investment to prevail as financial crisis turns to inflationary fears: "Fiscal deficits are the looming threat. Gold fits the bill perfectly for cash-rich investors looking for a secure inflation hedge and last year's investment flows into gold could be dwarfed by this year's," reports Mineweb.
* "Gold seems to be caught in a tug-of-war between investors whose risk appetite has grown and those who still see it as a safe haven from gloomy conditions. JPMorgan issued a report with raised gold price forecasts for 2009 and 2010, citing prospects for inflation and weakness in the dollar as supportive factors," reports Reuters.
* Is silver the new gold? "For many years consumers and investors have favored gold, but persistently high prices mean the time has come for silver to reassert its credentials as a jewelery material and a store of value. Signs that the economic downturn may at last be reaching a floor is also expected to help silver to pick up the momentum it needs to outperform gold," reports Telegraph.
* "Stocks rose sharply Thursday after an upbeat forecast from Wells Fargo, capping their fifth straight up week. The DJIA gained 246.27, or 3.1%, to close at 8,083.38, /b>"I tend to think we might have a little bit of a false spring here. I'm going to remain a little bit skeptical on this particular leg of the move," said Art Cashin to CNBC.
* Shock warning on US municipal bonds: "Moody's said that it was assigning a negative outlook to the entire $2.6 trillion US municipal bond sector – operated by local town, city and state governments – because of the combined collapse in the financial and housing markets," reports Telegraph.
* "Stocks turned higher on Wednesday, interrupting a two-day losing spell, amid a merger in the struggling housing sector and news the Treasury Department has decided to extend bailout funds to struggling life insurers," reports WSJ.
* Financial Crisis 'Far From Over: Govt. May Spend More than $4 Trillion but Economy Faces 'Prolonged Weakness,' Oversight Panel Reports: "Though some economic measures are improving, the financial crisis is far from over and appears to be taking root in the larger economy. This, despite the government's commitment to spend trillions of taxpayer dollars on a massive bailout of the financial system," reports ABCNews.
April 7th Market News & Views -- Wall Street lowers expectations
* "U.S. stock indexes slid 2-3% on Tuesday as investors showed trepidation ahead of Alcoa's kickoff of the first-quarter earnings season after the bell. The trepidation was well founded: Alcoa posted a first-quarter operating loss of 59 cents a share, wider than the average analyst estimate because of what it called a "historic drop" in aluminum prices and industrial demand," reports MW.
* "Stocks fell Monday amid doubts over the health of the banking industry and the apparent collapse of a major deal in the technology sector. Remarks from Mike Mayo, an analyst at Calyon Securities, in a research note initiated coverage on U.S. banks with an underweight sector rating "given the ongoing consequences of increased risk taking by banks," reports CNBC.
* "The nation’s largest banks may be transitioning from a financial crisis marked by writedowns of capital to an economic crisis featuring large loan losses, Mayo wrote. The U.S. government cannot provide much relief because its actions will lead to either banks having to raise new capital or toxic assets remaining on banks’ balance sheets." reports Bloomberg.
* Obama Wants to Control the Banks: "If GM CEO Rick Wagoner can be fired and compact cars can be mandated, why can't a bank with a vault full of TARP money be told where to lend? And since politics drives this administration, why can't special loans and terms be offered to favored constituents, favored industries, or even favored regions? Our prosperity has never been based on the political allocation of credit -- until now," reports WSJ.
* "The U.S. economy is in for "a lasting slowdown" and won't recover this year, while "the banking system as a whole is basically insolvent," billionaire investor George Soros told Reuters. In the long run, having an international accounting unit other than the dollar may be to our advantage," Soros said reports CNBC.
* From Bubble to Depression?? What sparks bubbles? Why does one large asset bubble -- like our dot-com bubble -- do no damage to the financial system while another one leads to its collapse? Key characteristics of housing markets -- momentum trading, liquidity, price-tier movements, and high-margin purchases -- combine to provide a fairly complete, simple description of the housing bubble collapse, and how it engulfed the financial system and then the wider economy.It appears that we're witnessing the second great consumer debt crash, the end of a massive consumption binge. a financial crisis that originates in consumer debt, especially consumer debt concentrated at the low end of the wealth and income distribution, can be transmitted quickly and forcefully into the financial system," reports WSJ.
* The Bubble Bursts: "In May 2004, the Case-Shiller 20-city composite index had increased 15.4% during the previous 12 months. Yet the housing portion of the CPI for those same 12 months rose only 2.4%. With home price increases out of the CPI and the price-to-rent ratio rapidly increasing, an important component of inflation remained outside the index. In 2004 alone, the price-rent ratio increased 12.3%. Inflation for that year was underestimated by 2.9 percentage points," according to "From Bubble to Depression" by STEVEN GJERSTAD and VERNON L. SMITH.
* The G20 moves the world a step closer to a global currency: "SDRs are Special Drawing Rights, a synthetic paper currency issued by the International Monetary Fund that has lain dormant for half a century. There is now a world currency in waiting. In effect, the G20 leaders have activated the IMF's power to create money and begin global "quantitative easing". In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body," reports Ambrose at Telegraph
* "The Federal Reserve said Monday it has expanded credit lines by $180 billion with the central banks of Japan, Switzerland, the United Kingdom and European Union that will provide foreign currency to U.S. banks - if needed. Under currency swap arrangements the Fed provides dollars in exchange for reserves of the other nations' currencies," reports AP.
* "A New World Order is emerging" from this global economic crisis, according to British Prime Minister Gordon Brown, speaking on behalf of the G20 Summit. Short-term speculators sold-off precious metals, offering longer-term investors a buying opportunity.
* "Stock investors closed out the week on a positive note, a day after critical changes to accounting rules known as mark-to-market lifted the entire market. Government data showed the economy shed 663,000 jobs in March and the unemployment rate climbed to 8.5%," reports CNBC.
* "Senators handed Barack Obama a legislative victory late Thursday, passing a $3.53 trillion budget resolution for fiscal 2010 that Democrats say preserves the president's agenda for energy, education and health care reform. Senators approved the measure by a vote of 55-43. The House approved a $3.55 trillion budget resolution of its own on Thursday," reports MW.
April 3rd Market News & Views -- G-20 Reality Check
* G-20 Reality Check: "The leaders arrived in London with the media billing it as virtually the Committee to Save the World. Led by the Obama Presidency, we are living through a period of inflated roles for government in the lives of nations. At least some awareness that the U.S.-led strategy of printing many trillions in dollars to pay for global stimulus carries the threat of significant future inflation," reports WSJ.
* "Leaders at the G-20 summit have agreed to give $1 trillion to the International Monetary Fund and the World Bank to help struggling nations around the world. The 20 countries at the summit will enact common policies to crack down on tax havens, regulate hedge funds, and rebuild trust in the financial system to "prevent a crisis such as this from happening again," reports AP.
* "British Prime Minister Gordon Brown today claimed that the end of the global recession was now achievable as he unveiled an agreement from the G20 summit that will pump an additional $1 trillion into the world economy. "This is the day that the world came together to fight back against the global recession, not with words but with a plan for global recovery and reform and with a clear timetable," said Brown at a news conference Guardian.
* "Britain also wants an agreement from the Group of 20 nations to improve the way the International Monetary Fund uses its cash, including freeing up money for lending by selling gold reserves. The Obama administration soon will push Congress for legislation that allows the IMF to 'mobilize' its stockpile of gold to boost its funds, Treasury Secretary Timothy Geithner said March 11," reports Bloomberg.
* Dow retakes 8,000: "Stocks took flight Thursday, with investor spirits lifted on changes in accounting rules for distressed assets, enthusiasm out of the G20 meeting and momentum in the financial sector. Investors were largely unbothered on initial jobless claims numbers that hit a 26-year high as headlines broke on the Financial Accounting Standards Board's changes to mark-to-market accounting," reports CNBC.
* "As world leaders convene in London to address the global economic crisis, an increasingly confident Tim Geithner predicted the "strongest coordinated global response" in generations would help revive the world's fractured economy. Geithner skirted criticism that the Treasury Department still has no mechanism for tracking how banks have spent billions of dollars in TARP money," reports CBSNews.
* "There's a time to be in stocks and there's a time to be in gold. This is a time to be in gold. We're only really at the beginnings of this massive collapse of the debt structure. Much as the central banks are trying to feed money into the system, the collapse basically takes money out faster than they can put it in. In this kind of environment, the only thing that has ever made sense is gold, because people will be so scared of anything else," says Ian Gordon, a Vancouver-based investment adviser and market historian to Globe&Mail.
* "The gold market has entered a once-in-a-lifetime period of OPPORTUNITY! Gold is now embarking on what may be a 20 year advance which will likely carry it to as yet unforeseen levels. The debasement of currencies (fiat money) by central governments, the accumulation of physical gold and silver by 'smart money', and the fact that Gold is time-tested as a long-standing store of value will be just some of the many forces driving this market. Will $1,500 be the top or are we headed in the direction of $3,000 or higher?" Find out from Mark Leibovit at VrGold.
* "Investor appetite for other assets such as equities and industrial commodities rose sharply on hopes the G20 leaders' summit would result in concerted efforts to stimulate the global economy. World leaders will impose new financial rules and triple the war chest of the International Monetary Fund to fight the worst economic crisis since the 1930s, sources at the G20 summit said to Reuters.
* "The U.S. so far has committed nearly $2.98 trillion toward stabilizing financial companies and rescuing domestic auto makers. Meanwhile, only $109.5 billion remains in a $700 billion program that was launched as a way to remove toxic assets from bank balance sheets, according to "TARP cop" Neil Barofsky, the special inspector general overseeing government bailouts," reports WSJ.
* 20 Summit: Are Great Expectations Justified?: On April 2 in London, the leaders of the Group of 20 industrial nations will meet to decide what to do about the financial crisis. The world’s financial bureaucrats remain convinced they are in control of the situation. Never mind the fact that as they lowered interest rates and 'injected liquidity' over and over in the past eighteen months, stocks kept falling, credit markets remained frozen and global economies stalled as deflation spread. The root of today’s systemic dilemma is not mechanical, as the monetary engineers believe, but psychological. Bernanke thinks he can pull switches to prevent deflation. But you can’t pull switches on a crowd. It pulls switches on you," reports ElliotWave.
* Capitalism at the Brink ahead of New Regulations: "Big government is now here to stay as post-1981 Reaganomics is finally quashed and traded instead for more government intervention. Let’s hope this week’s meeting in London doesn’t result in any damaging government intervention and, instead, focuses on how to improve the banking system and the shattered exchange rate mechanism," reports RosemanBlog.
* Netanyahu: Israel may attack Iran soon: Israeli Prime Minister Benjamin Netanyahu said that "the Obama presidency has two great missions: fixing the economy, and preventing Iran from gaining nuclear weapons. "If the US fails to quickly achieve the latter, Israel would be 'forced' to attack Iran's nuclear facilities itself, Netanyahu told the Atlantic magazine, shortly before his inauguration on Tuesday," reports PressTV.
* "In an environment where the reserve currency of the world could become shunned, gold could do extraordinarily well," said John Reade, UBS metals strategist to Bloomberg. Gold is heading for a second straight quarterly gain, on speculation that a weaker dollar will boost the metal’s appeal as an alternative asset.
* "Gold will trade as high as $1,080 through the first half of 2009." Will gold lose safe-haven investors to U.S. Treasurys? Not if they're sharp-eyed. "T-bills are really deferred dollars and it's impossible to know what those dollars will be worth in 20 years. You know what commodities are worth now, and you'll know what they're worth then," said BlackRock managing director Evy Hambro reports CNBC.
* "Stocks reversed course Wednesday and posted gains as investors hitched their hope to modestly good news out of the housing market. Stocks slipped at the open on the likelihood of General Motors going bankrupt and data showing another big decline in jobs fed the bears on the eve of what could be a contentious meeting of world leaders," reports MW.
* Gold ended the month down 2%, but remains up over 4% year to date in 2009. Silver slipped 1% in March, but is up 12% ytd. Despite extreme volatility precious metals remain the world's ultimate store of value. A strong bear market rally pushed stock prices up from decade lows in March on mixed economic news, sweeping government bailouts and fiscal rule "changes".
* "U.S. stocks pared their gains Tuesday as a rally in the financial and technology sectors petered out. The Dow ended up 8% for the month, but off by 12% in the first three months of the year, bringing the benchmark's losing skid to six quarters - its longest string of quarterly declines since the six quarters ending June 30, 1970," reports MW.
* "Gold is a resilient commodity and we are saw that on Monday. Oil prices were down over 7% on the day, while gold prices fell only 0.7%. The news creates some risk that the recession could be worse than expected," said Aaron Fennell, commodity broker at MF Global to CEPNews.
* "Russia would favor the inclusion of gold bullion in the basket-weighting of a new world currency based on Special Drawing Rights issued by the International Monetary Fund. Chinese and Russian leaders both plan to open debate on an SDR-based reserve currency as an alternative to the US dollar at the G20 summit in London this week," reports Telegraph.
* "China's recent call to replace the US dollar with a new global currency is gaining traction within the international community. A reserve currency system based on an IMF unit instead of the US dollar could be phased in within a year, said Joseph Stiglitz, a Columbia University economics professor who heads a United Nations expert panel," reports ChinaDaily.
* "Another tumultuous quarter for investors draws to a close. Top financial news includes; record decreases are reported in U.S. home values, consumer confidence moved up from record low and job worries persist," reports MW.
* "World stock markets slid Monday amid renewed fears about the fate of the U.S. auto industry and the global banking sector as well as mounting pessimism surrounding this week's G-20 meeting of leaders. TARP still has $135 billion left in it, said Tim Geithner but a second batch of money might be needed, despite public frustration with the already allocated money," reports AP.
* "President Obama asserted unprecedented government control over the auto industry Monday, rejecting turnaround plans from General Motors and Chrysler and raising the prospect of controlled bankruptcy for either ailing auto giant. Eager to reassure consumers, Obama also announced the federal government would immediately begin backing the warranties that new car buyers receive," reports CNBC.
* "U.S. stocks closed sharply lower Monday after the White House said bankruptcy was a possibility for General Motors Corp. and Chrysler. The DJIA closed down 3.25% at 7,522. Shares of GM, a Dow component, slumped 25% to $2.70 a share," reports MW.
* The national debt is now above $11 trillion, pushing "YOUR Family Share" to nearly $100,000, and rising daily. Historically government bills, notes and bonds have been considered a "safe" because they have a guaranteed rate of return, based on faith in future US tax revenues, but as new trillions are being added weekly many experts believe a day of reckoning is fast approaching.
* "Against the metric of gold, it is highly possible those economies in a permanent downward spiral - Europe, Japan and large parts of the US - simply do not have the fundamental strength to pull off the debt-fueled rallies being considered now. America can no more pull off a $3 trillion deficit than the old Soviet Union could pull off the stunt of keeping the ruble on parity with the US dollar," reports AisaTimes.
* "Time is of the essence as we move into the next trading phase for gold and silver. From 2001 to 2008 phase one showed us remarkable returns. The next phase should show us wider trading ranges in precious metals and much higher prices," reports Roger Wiegand, Editor of Trader Tracks Newsletter at GoldBlog.